Apiam Animal Health (ASX:AHX): Interview with founder Dr. Chris Richards

Apiam Animal Health (ASX:AHX)

We spoke with Apiam Animal Health‘s founder and Managing Director, Dr. Chris Richards, about the rapid growth in his company as new practices are acquired.

We also talked about his ambition to become the employer of choice for veterinarians as they enter the work force.

 

Read our most recent article on AHX here

 

Transcription

 

Stuart: Hello and welcome to “Stocks Down Under.” My name is Stuart Roberts, and I’m one of the co-founders of our publication. And with me on the 22nd of September 2021 is Dr. Chris Richards joining me from Bendigo in Central Victoria. He’s the managing director and founder of Apiam Animal Health. Chris, good morning to you.

Dr. Richards: Good morning, Stuart. How are you?

Stuart: I’m feeling lousy because I’m locked down, but I’d really prefer to be Dr. Chris Richards because everything’s going in a good way rather than a bad way for you in terms of where you’ve been able to take Apiam over the last 18 months. Just before we started recording, you were telling me that COVID has actually been perversely good for you. The line you used was, “We deal with viral pandemics every day of the week.”

Dr. Richards: Yeah. Well, I mean, one thing about our business is certainly businesses had to adapt very quickly. In the veterinary game, particularly in production animals, you know, viruses are common and they do spread through animal populations and from farms to farms. So, you know, we already had very good protocols and practices in place to manage the spread of viruses and just infectious diseases as a whole. So, you know, when it did happen, the company was certainly prepared and had the knowledge to be able to adapt very quickly to the changing situation.

Stuart: On top of which, and I was somewhat surprised by this, although it makes sense, you’re telling me that there’s been a marked increase in pet ownership around Australia since the pandemic began.

Dr. Richards: Yeah. Since the pandemic began, there’s been reported around 20%, 25% increase in pet ownership. So, you know, we’ve really seen a change in how the pet has been, I suppose, adopted by families as really, you know, being a part of a family member that’s got them through some of the mental health challenges and other challenges during the pandemic. They’ve really become a greater part of the family.

Stuart: Yes. And on top of which you’ve been on a tear in terms of acquiring individual practices, mostly in regional Australia, to integrate into Apiam Animal Health. I read, for instance, just recently you bought the Harbor City Veterinary Practice. And I got excited and I thought, “Hey, Chris has come to Sydney.” And then I realized Harbor City referred to Gladstone up in Central Queensland. So talk to us about what’s motivated your practice expansion and where do you hope to take that?

Dr. Richards: Yeah. I mean, our business is rural and regional clinics, that’s where…you know, that’s where our deep skills are and our experience. Our management team, our leadership team have all had extensive experience in the rural and regional space, and many of them have been rural veterinarians. So that’s really where, you know, where we find our core business and where there’s really opportunities to expand. If we look at our business, there are some changes occurring in the market. We’re seeing a change in people moving from the capital cities out into the regional areas, and that’s creating opportunities for us for new clinics, but also to expand our services in those regions where we already are. When it comes to, you know, to acquisitions, we’re seeing some, you know, exceptional opportunities to be the veterinary provider in those new growth areas and the skills that we have across a large number of species of animals, and the expertise that we have within the business enables us to, you know, respond to these opportunities very quickly.

Stuart: Right.

Dr. Richards: So it’s not just out in, you know, rural and regional, you know, in the bush as such. You know, we’re seeing some growth in the peri-urban places where, you know, these towns that are sort of within 150, 200 kilometers of the capital cities, where, in addition to those people having dogs and cats, some of them moving onto hobby farms, and they’ll have horses and cows and sheep and a few chickens as well.

Stuart: So, yeah, basically all the demographics are working in your favor. Now, a lot of people viewing this video will assume they understand, you know, how the veterinary industry works. Because we’ve all had to go to the vet for this problem or that problem over the years. Your aim is to be Australia’s leading provider of veterinary services. So top of mind is to go visit the local Apiam practice when you need help, either for production animals or companion animals. Talk to us about how that got started and how you’ve shaped the DNA that will make Apiam a market leader.

Dr. Richards: Yeah. So, I mean our business started… When it listed in 2015, it was a result of 12 of the largest rural veterinary clinics in Australia coming together. And the reason for that is that, you know, we could see that there were certainly some challenges in the rural and regional areas around how we develop the next generation of rural vets, and we also saw the opportunities that if you got some of the leading vets in the country to collaborate and work together to increase the skill sets across the group, then we would have a pretty exceptional business. And so that’s what we’ve been working on over the last four or five years, putting all the backend systems in place, developing new service programs, and upskilling our teams.

So, you know, what this has resulted in is we’re increasing our footprint. We’ve got quite a considerable footprint across the regional areas that is rapidly growing. I think that the difference between us and what might happen in a city clinic is that we operate our clinics on a regional basis. And we might have 6 to 12 clinics within a region, and those staff, those key staff, experienced vets, people who have areas of expertise will use those services across multiple clinics. So we’re really operating those clinics on a regional basis and capitalizing on those skill sets that we have in that region to deliver the highest level of care that we can to those animals. And if you look at what the shift has probably been in the last five or six years, you know, five or six years ago, if there was some really high-level surgery or, you know, specialist requirements needed, those animals would go into the capital cities where we’re building those capabilities out in the regional areas now.

Stuart: Okay. So if I went outside in the Central West of New South Wales to a place like Orange, would I find today that the average age of the vet serving my needs is lower than it was when you got started?

Dr. Richards: No, I think the age, there’s certainly in aging…continuing to be an aging demographic in the regional areas, but that’s where, you know, Apiam is really, you know, showing its ability to attract and develop younger vets in these regional areas. And certainly, you know, there’s new requirements or expectations that vets have now than what they might have had 20 or 30 years ago where we’ve certainly seen a change in, you know, in the split on gender…on a gender basis. You know, we’ve now got… Apiam’s got 70% of our veterinary workforce are female, and the roles and the skills that vets are providing in those rural and regional areas is a lot different to what it was 20 or 30 years ago. So, you know, we’re seeing vets doing a lot more stuff around preventative healthcare programs, training staff on farms to do a lot of the work that, you know, low work that vets used to do, as well as vets taking an active role in data analysis and implementing some of the new technologies that are available to livestock production.

Stuart: And what’s exciting to me is all these initiatives, which you’ve built from the ground up, are now starting to translate into some decent numbers. Talk to us about the most recent result for the year to June 2021.

Dr. Richards: Yeah. So the most recent result was a record year for us. We posted revenue, which I think was about $126 million. That was a 6.6% growth on the previous year. What’s really significant in those numbers is that if you look at the 2 major parts of our business, you know, the traditional clinics, the large clinics that sit out in the regional areas that do, you know, dairy and beef work as well as companion animals, they grew on a 12.5% like for like basis. So overall, we had just over 20% growth in that segment. What’s really pleasing in our results is that 6.5% revenue growth is falling down to a 24% growth now net profit after tax. So we’re really starting to get the, you know, the leverage from the investments that we’ve made, and the efficiencies that we’ve put into the business over the last two or three years.

Stuart: And what I’ve noticed is like all good expansion stories based on services. As you acquire practices, you’re keeping the professionals in the business and incentivizing them with a share of the action going forward. So you’re not just acquiring a practice and then those vets go off and start up in business against you.

Dr. Richards: Now, when we acquire practices, in nearly every case, those existing vendors take, you know, between 10% and 30% of the consideration as Apiam script. And that’s under escrow for up to two years. We also see those senior…you know, senior vets commit to two, five-year commitments to Apiam. So, you know, we don’t have too many cases where people are exiting for the sake of getting out, but they’ll be the odd person retiring. But most of them are looking to actually join a company where we can take the pressure off the backend part of running their business and they can really focus on developing their vet services, and yeah, as well as, you know, developing their people. So, yeah, that’s really what we’re really seeing in the business.

Stuart: Now, you are obviously pretty confident, you are a recent on-market buyer of stock, and you tell me that’s not the first time in recent days that you’ve been buying it. So you are really backing yourself to be a lot bigger than you are now?

Dr. Richards: Yeah, certainly. Yeah, look, I have taken the opportunity to increase my holding, and certainly, the company offers a dividend reinvestment plan. And I’ve taken that up at every opportunity since the day we’ve listed. So, you know, I see some, you know, exciting opportunities for the company ahead as our employees do. And one thing I didn’t mention is that our actual employees retain about 50% of the shares in the company. So, you know, there’s a lot of buy-in within the company in relation to, you know, the financial performance of the company.

Stuart: No, that’s great. That’s probably at the highest levels of employee ownership, I’ve heard, of a mid-sized public company like you. Now, I like to joke, when you’re on the streets of Bendigo, people are coming up to you saying, “Are you that billionaire who started Flight Centre?” The joke being, obviously, Graham Turner was a veterinarian before he got into the travel business. But maybe Australia’s first billionaire veterinarian, I’m talking to right now.

Dr. Richards: I’m not too sure about that, but, yeah, certainly we’ve got… You know, we’re focused on growing the business. We think we’ve got some exceptional opportunities coming on. We’ve got a very strong pipeline of very good clinics that we believe that we can really add value to and grow them over the next few years.

Stuart: Sure. And if we are having this conversation five years from now, what do you hope you’ll have achieved with Apiam?

Dr. Richards: I think Apiam will be, you know, well-renowned for a few things. One is we’ll be the veterinary provider, you know, to rural and regional Australia that provides exceptional level of care to animals, knowledge, and also is very aware of those issues that our production animal clients or challenges that we expect them to have in the future. So these things around, you know, the social responsibilities around sustainable livestock production systems and being aligned to consumer expectations. We see vets having an important role in that process. We’ve got a number of initiatives around antimicrobial stewardships and programs and…

Stuart: They’re very important.

Dr. Richards: …things like that. So that’s sort of where we see. I think the other thing that we would hope is that if you are a young vet coming out of vet school, you just want, you know, to get into Apiam. You see Apiam as somewhere where you can develop your future, where you’re looked after, where they actually care, you know, our strategies around our mental health strategy and programs, and other ways that, when a vet comes in, they know that they can have a long, fulfilling career with Apaim Animal Health.

Stuart: Chris Richards, thanks for joining us at “Stocks Down Under” this morning.

Dr. Richards: All right. Thanks, Stuart.