Apiam’s two brand new clinics in regional Victoria are already delivering on early growth expectations.

The strength of Apiam’s (ASX:AHX) regional expansion strategy for its vet clinics and animal health practices hasn’t been lost on investors, with shares in the company up by around 50% this year.

M&A has played a key role in that growth, with the acquisition and integration of a number of successful clinics across the eastern states.

But just as importantly, Apiam has capitalised on a unique opportunity to build all-new (‘greenfield’) clinics where demand is surging in regional growth corridors.

On that front, Apiam CEO Dr Chris Richards caught up with Stockhead recently to discuss the long-term value-add of greenfield clinics as part of the company’s growth strategy.


Strategic investment

To meet demand, Apiam has moved fast with the construction of two greenfield clinics in Victoria at Torquay North and Shepparton. Both clinics are now operational with a third one under construction in Geelong.

“We’re seeing strong early growth  and both of those clinics have performed extremely well since they opened,” Richards said.

As a measure of their operational strength, Richards flagged the uptake of Apiam’s Best Mates service – a subscription-based pet care program.

“Across the whole company, Best Mates accounts for around 7.5% of our animal numbers, but in greenfield clinics we’re seeing it at 25-30%” he said.

“It means there’s a large proportion of customers coming in with new puppies and kittens and that’s the period when they’re subscribing to our program, so it’s creating a major new channel of long-term subscription revenue.”

In addition, the company has leveraged the benefits of modern design techniques to create state-of-the-art vet services.

“It makes things more efficient in terms of work-flow and it’s a more comfortable environment for the animal as well,” Richards said.

For example, the greenfield clinics include new design features such as separate dental rooms.

“Dental treatments for dogs is a massive growth area, so those specially equipped rooms are always highly occupied and that’s where we’ve been able to customise our clinics to suit the current market,” he said.

Breaking down the numbers

At the revenue level, Apiam expects to generate around $0.75m per new clinic in the first year of operation, increasing to $1.5m in year two.

“By the end of the second year is when we get to mature earnings for that clinic. From there, these clinics will generate an EBIT return of around 25% while revenue continues to grow,” Richards said.

Over the longer term (five year), Apiam expects to generate a return on invested capital of at least 30% for each greenfield clinic.

So it marks an exciting phase of growth with the capacity for a material upward re-rating of Apiam’s earnings profile.

At the same time, Richards said the company will absorb an early drag on EBIT during the setup and construction phase.

“This year in FY21 we’ve opened two new clinics in January and February and as at June 30, across both those clinics we expect it will impact EBIT by around $400,000. So it’s something we want investors to be aware of in terms of the year-on-year comparison,” Richards said.

In that context, Richards said the company is looking forward to further discussions with its investors when it presents full-year results, to highlight the long-term earnings opportunity.

“The exciting thing for us is how well these clinics are performing,” he said.

“You’ve got a first-year drag at the EBIT level, but these clinics have a major long-term return and we’re building them in targeted-to-growth areas where a lot of housing development is occurring.”

Ultimately, Apiam’s greenfield clinics form an exciting component of the company’s broader regional strategy – a footprint that’s been established over multiple years in a market where in most areas it doesn’t have a direct corporate competitor.

“At the end of the day, we know these regional areas, and because we operate a number of clinics within regions we’re got a unique competitive advantage to attract the right staff and support those clinics for further growth,” he said.

This article was developed in collaboration with Apiam, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.