Pets at Home Group Plc

Good morning everybody and welcome. I'm Peter Pritchard. I'm the group CEO of Pepsahome and with me today is Mike Iddin and it gives us great pleasure to take you through today our full year 19 prelims. So in the next hour or so I'll cover up the group strategic update and Mike will cover off the review of FY19 and at the end of course we have time for your questions. Last year we launched our new strategy to become the best pet care business in the world and one year on I'm really pleased to say we've made really good progress. We've delivered everything we said we'd do and in line with the guidance that we gave back in November. Bringing our retail and vet business together to create a pet care solution for our customers is working. Our FY19 results are ahead of our expectations. Retail has returned to profit growth a year ahead of expectations, and our vet recalibration is on track, and our core business is performing well. The pet market remains attractive. It's in structural growth, and we're taking share across all categories, both online and offline. Our performance is driven by strong customer metrics. We have more VIP members, we have more customer shopping services, we have more people visiting our website, and better website conversion. So I'm really pleased with the progress that we're making. Our strategy to focus on pet care we believe is a compelling plan. So let me remind you of what that plan looks like. It's built on four pillars. Our first pillar is about bringing the pet experience to life. What really makes Petahome unique are not the components of the business, but the way in which we bring it together to make pet care easy, accessible, convenient and fun for pet owners. No one else can do this. We believe it's our secret sauce. That's why we're right-sizing our retail business and renewing our stores to ensure that our proposition is easily accessible to customers. That's why we put pets at the centre of what we do. It's where the brand really comes to life. That's why we use digital to join up the experience for customers and make it really easy. We're always ensuring we're competitive on price and we're growing private label to grow loyalty, uniqueness and a course margin. We're creating the best pet care experience and we think that's going to be very hard for others to match. Our second pillar is 50% of our sales coming from pet services. Services really allow us to access the entire £6 billion spend that customers spend each year in pet care. That's why we put more services into our business, leveraging our national physical scale. Today, we're in reach of 95% of the UK population within a 20-minute drive time of our estate. We're also re-engineering how we service those needs to make them more convenient and easy, and that's why subscriptions are so important to us. We have a great first opinion vet business, but we recognise we grew it too fast. So we're focused on those actions to get it back on track and release free cash flow growth. And finally, our specialist referral hospitals are attractive and resilient, so growing capacity and the footprint make sense. We have an unparalleled view of the pet care customer in the UK. Building our capabilities and unlocking that potential is the third pillar of our strategy. Using our data and VIP to better serve our customers. The actions and the capability we are building are starting to produce benefits and we're excited by the potential. And later on, I'm going to show you a few examples of how that potential is being released. But quite simply, data in isolation doesn't create value. Turning the data into actionable insight does. And we're using that insight to drive more retail customers into services. Better personalising our customer communications to drive more sales. Giving our store colleagues access to information as they need it when a customer's stood in front of them to help them work out the next best solution for that customer. And unlocking insight to make faster decisions. And moving forwards from looking behind to actually predicting what's about to happen and making better business decisions. Of course, as we become data and digitally savvy, I passionately believe the role of our people plays a more important role. When you speak to our customers, it's very simple. They come to stores and practices to interact with people, not machines. That's why the fourth pillar of our strategy is setting our people free to serve. People truly are the most precious asset in our business. And that's why I want to set them free from non-value-adding activity to spend more quality time with my customers. Quite simply, when they do, they create value. That's why we're focused on building systems, processes and automation to set our people free to serve. Our people are really valuable. We want them to do the things that machines can't do. Against our new strategy, we've created a set of strategic KPIs which track the progress of our delivery. These four measures align to each strategic pillar and will give us consistent KPIs to track delivery. And as you can see, we're making good progress. So in bringing the pet experience to life, our customer transactions are growing 5.3% over 59 million transactions. If you look at 50% of our services coming from pet services, our sales come from pet services, today we stand at 34%. That's 175 basis points year on year. And as we better serve customers using our VIP and data, we can see 591 million pounds worth of our sales are now associated to our VIP members. That's up 17.7% year on year. As we liberate our colleagues to better serve our customers, you can see that our sales are up 3.9% to 174,000 pounds per colleague. So let's turn our attention to our retail business. Our retail business is performing really strongly. It's returned to profit a year ahead, and we've now had nine quarters of like-for-like growth. We think that's an exceptional performance from our retail business. All parts of the business are performing strongly. If I look at my pure bricks business, that's growing at 2%. If I look at my pure econ business, it's growing at 27%. And if I look at my e-com business combined with store generator sales for e-com, such as ordering store and subscriptions, that's growing at an impressive 43% like for like. We're consistently running ahead of the market and we're taking share across all categories. I'm particularly proud of our two-year like-for-like. If you look at our final quarter in Q4, that 6.5% like-for-like goes up against a 6.1% of the prior year, which is giving us a two-year like-for-like in excess of 12%. I think by anybody's measure, that's a pretty strong performance. Of course, success in retail has many factors. Over the next few slides, I'll share with you the building blocks of that success, first turning our attention to price. Pricing in isolation hasn't driven our sales. We had become uncompetitive against a new breed of very aggressive price competitor, and they were mainly online. Our focus was on neutralising that competition, and that's been our goal. We always want to make sure that price is never a reason why you should not shop at Pets at Home. Over the last two years, we've worked really hard and really smart and we now think we've got ourselves to a compelling place. And quite simply, this is how we think about it. If I look at every single item that I sell, which is directly comparable to my most aggressive online competitor, I weight that volume back to our volume. We're within 5% of that most aggressive competitor. The toughest measure I could possibly use. But customers don't buy thousands of items in a basket. They buy items. So we then look at it through a customer lens and look at those items which are most important to them. The ones they spend most money on. The ones they buy most often. Such as things like big bags of advanced nutrition food. And on those items, our price gap is now zero or we are slightly cheaper. And on those same items, if you shop into our easy repeat service, means they arrive when you want them to, it's dead easy, we're cheaper. We're 2% cheaper than our most aggressive online competitor. We think that position has been a really hard one. It's taken us two years to get to this position. But our pricing journey, of course, as a retailer is never over. We always have to remain competitive for our customers and that's exactly what we will be doing. If you look at our key customer metrics, we're in a good place. We are recruiting more customers into our VIP loyalty club, up 12%. 20% more customers are coming to our website. 22% of our VIP customers are now buying product and services. And we're selling more private label cat and dog food than ever before, up 1.2 percentage points. We think that's really encouraging and reflective of the actions that we've taken over the last two years. Our focus is also on making sure that our digital experience is as good as our physical experience and we are demonstrating again good progress. Digital is important to us because it allows us to join up the pet care experience for customers, making it easy, making it convenient and most importantly making it accessible when the customer wants to access it. Last year we both overhauled and added to our digital experience. In the last year, we have redesigned every single digital channel with our customers. We've made it so much easier, faster and intuitive. We've significantly reduced the amount of clicks from shopping to checking out. Our new account feature puts the customer directly in charge of their journey. If they want to reorder something they've bought before, it's really quick. If you want to manage your subscriptions, it's really easy. If you want to update your pet profile, it's really simple. And they're all really important because they form the basis of a future highly personalised journey in our digital channels. You can now book your grooming for your dog online. Customers love this. No more ringing the salon. Colleagues love it too. They can focus on grooming and not answering the phone. We've also relaunched our VIP app. Your vouchers, they're now on your phone. Your card, they're now on your phone. And you can shop straight from the app, of course, to our website. Finally, you can now collect your parcels from our standalone vet practices. And that's something we'll continue to run out to more practices this year. We've also been really busy redesigning our store experience as well, and we call it the Petcare Centre. Two stores, Stockport and Chesterfield, have been refreshed in this new format. Now in the future, we recognise that stores are places that you both have to go to, but more importantly, they have to be places that you want to go to. In our new pet care centre, we just do exactly that. We're maximising our services footprint, the things today that you can't do digitally, like see the vet or like get a groom. But also we're maximising the reasons to go. We know the number one reason why people come to pets at home are because of the pets in our stores. And that's why in our new format, you have the ability to get up close and personal with our pets in our brand new interactive pet village. Customers have told us washing your dog at home is a bit of a nightmare. It destroys that 20 grand bathroom you just bought. Don't always want to groom it. So actually our new self-wash has been really well received by our customers. You can now adopt a cat from the store from our RSPCA Cat Adoption Lounge, the first of its kind in the country. Or you can attend a dog training class, a kid's pet workshop, a dog's birthday party, or indeed a child's birthday party in our new event zone. Don't smile, they're sold out. I can go on about it, but instead of thoughts, it's probably important that you can actually see it for yourself. So let's have a look at our new pet care experience. I've probably seen more pet stores around the world than you've had hot dinners. And I genuinely believe that this is one of the best pet care formats I've seen anywhere in the world. Winning new customers is the lifeblood of our pet care business. Quite simply, because our pet population changes frequently. A typical dog will live between 10 and 14 years. With a static dog population, that means every year there are hundreds of thousands of puppies being born. That's why our puppy club is so important. You want to get the customer at a very early stage. And our information shows us that actually the sooner a customer engages with us, the longer their lifetime value is to us, or the bigger their lifetime value is to us. And that's why our puppy club is focused on giving customers a very compelling reason to access all parts of our pet care experience right at the very beginning. We get them straight into VIP, which helps us control and manage our journey through their time with their puppy. It's been vitally important to our growth. The results are really compelling. Since launch, we now have 230,000 puppy owners join our club. That's roughly one in five puppies in the country have signed up to the club. They spend 17% more than puppy owners who are not in the club, and they're becoming our most valuable services customer. Of course, having done that for puppy, it makes perfect sense to do that for kitten. And since it's launched in September, we've already signed up 40,000 kittens into the club. Our focus on pet care means we access a customer's total spend on pet care. By focusing on doing so, we just access higher spend. Quite simply, the more services and channels a customer access with us, the more they spend with us. On that chart, the pink lozenges show the growth in customer numbers year on year, right through different parts of our business. So not only are we growing our customer numbers in store, We're doing a good job at leveraging the volume of customers in retail and moving them into our services business. I'm really pleased also with the work that we're moving in Ecom Anomaly Channel. That 65% growth is really strong, especially as you compare it up to a similarly strong number of last year. So let's turn our attention to our first opinion vet business. As we've previously discussed, our biggest opportunity is driving practice maturity. We don't acquire mature practices and consolidate them. We open every single practice from scratch. Only 18% of our practices are over 10 years of age. That's why practice maturity represents our biggest value creation opportunity, representing an opportunity to treble free cash flow from our vet business. Our focus is on releasing that free cash flow. But we recognised last year that following the rapid growth of our business in 2014 to 2018, a small number of practices could not be successful. And some of them needed a change in order to release their potential. In November last year, following a very thorough review, we announced plans to recalibrate our first opinion joint venture business. Everything we said we'd do is being done and exactly in line with the guidance that we set out in November 2018. Before I take you through this, one of the things I was delighted we were able to do is bring back Jane Balmain. Jane Balmain was the founder of our vet group and we encouraged Jane to come out of retirement on a temporary basis to support us. I'm delighted to say she is now the permanent COO of the vet business and we're delighted she's back permanently. Jane and the team are recalibrating our vet business focused on three actions. Firstly, we had to address practices that needed a significant intervention and we've made huge progress. We've already bought out 48 practices and we've closed 19 and we expect a further 5 to 10 buyouts and a further 10 to 15 closures in the coming months. Secondly, we identify that adjustments to some practices would accelerate their ability to become debt-free, and that's through making temporary adjustments to their fee agreements. So in doing so, that reduces the time for a JV to become debt-free, and it maximises free cash flow generation for pets. And finally, although practice openings are now a much smaller part of our future plans, we would change the fee model for new practices, resulting in lower fees in the early years and increasing the fees as a practice matures, making e-grooming simpler with fewer fee variables and also making sure that the practice is set off with more headroom on their borrowings. All three actions are progressing exactly as we planned and we are ruthlessly focused on executing them really well. Once we're complete, we will have a portfolio cleansed of issues, aligned to our ambitions of free cash flow growth. So let's turn our attention briefly to our specialist hospitals. The hospitals represent a unique and attractive opportunity in veterinary care. Today we have four hospitals across the country and we plan to continue to invest. At Dick White Referrals, we are executing a three-year plan to dramatically increase the capacity. On that photograph on the right-hand side, the red building at the back represents the extension, which increases the space by 250% or 20 consult rooms. We're doing that because Dick White is at capacity and we can see the demand for more capacity in that location. It will also cement its position as one of the leading vet hospitals in Europe. What's also important, as a centre of excellence, it's a really powerful tool in attracting and recruiting and retaining the very valuable and very scarce talent in the very senior vet professional population. Now, as we previously shared, we are building a strong subscription business. It's a key point of difference, and it's enormously value-creating for us. We're focused on making pet care really easy, simple, and convenient. And that's why customers like subscriptions. It does exactly that. but we really like them too. We like them because they maximise spend by providing repeatable, predictable revenue. We've already built a suite of great product and service solutions right across our business. And today, our performance in such a short space of time, I think is impressive. Today, we have 700,000 customers on some form of subscription plan with our business. And we're focused on growing the absolute numbers as well as growing the number of product and service solutions that we offer. Earlier, I said I'd share with you how we're building capability and value through our data. And I'm going to show you one very simple example. And this is how we build the range for our stores. So previously, it was a pretty manual process. We had a limited data set, and it's how we used that data to translate into what range was right for a store location. Today, we're now uniting a very complex set of data variables. Customer, store, product, comparatives, a lot more variables. And applying an artificial intelligence tool, we're able to analyze those results in a level that we haven't been able to do before. And more importantly, predict what we think the answer will be. The task I previously described took about a week for a store. Today, we can do 450 stores in 20 minutes. It's quite a powerful tool. So we've been implementing the results of that in a trial, and that requires us to relay stores. So in our first trial of six stores, we saw the sales in those stores versus control increased by 2%, and margin grew ahead of that. So very encouraging. So what we're now doing is stress testing that trial and putting it into more stores. But we're excited by it because once complete, we believe we've got the opportunity to build a phased rollout into subsequent years. Now, developing this step change in data insight requires investment in people and capability. And I'm delighted that we've been able to attract some very senior talent, which I think reinforces the excitement we find from our talent in the opportunity that sits inside pets at home. So I was delighted to have appointed Rob Kent as our Chief Data Officer last year, and he joined us from 10 years at Royal Mail, where he transformed their use of data. He's currently building a team of in-house experts, and that reduces our reliance on third parties, but more importantly, means we take control of data in-house. We're investing in systems to support the team in maximising their efforts, but most importantly, to help grow our business faster. And we're making good progress. So this year, we will land new, highly tailored marketing to drive more customers from retail into vets and services. We're increasing the quality of customer insights to drive more and better targeted communication. Again, that drives sales. And longer term, we'll be employing more artificial intelligence tools and building an unparalleled view of the pet care customer in the UK. And finally, all of this allows our colleagues to be set free to serve. We've been absolutely obsessed this year about freeing our colleagues up from tasks that does not create value. Employing technologies, changing systems, processes, or in some cases, just not doing things. And that drive for greater efficiency and focus on the customer is really paying dividends. As I said before, it's resulted in sales per colleague increasing by 3.9%. And we know that's a great start. The job's not done. We've got a lot more work to do. And we're going to continue to build on the success of that work. So to show you how our progress is translating into improved performance, I'm delighted to hand over to Mike, who will take you through our FY19 results. Thank you.

Good morning. As you just heard from Peter, we've made really good progress over the last year. We delivered profit ahead of expectations. Our retail business has returned to profit growth faster than we expected. And in the VET group, we're taking the right actions to drive future cash growth. That means the shape of our profit guidance for the year ahead remains unchanged, but it's from a much stronger base. So let me now give you some more details about these headlines, starting first with our key financial results. where strong revenue growth has helped us return the business to profit growth faster than planned. Total group revenue growth was 6.9%, and within that, our like-for-like sales growth was 5.7%. And that strong revenue growth helped drive the group underlying profit before tax to £89.7 million, and that's a growth year-on-year of 6.1%. The results today do include total non-underlying charges of £40.1 million and these mainly relate to the actions we're taking now in our first opinion vet business that we announced last year at our November interims and I'll give you more detail about these later. we had solid underlying free cash flow performance in the year, with cash flow growth of 14% to £63.6 million. And that's enabled us to maintain our full-year dividend at 7.5 pence a share. So let's take a closer look at what contributed to this financial result, starting first with our sales performance. We've seen strong customer revenue growth across both our retail and the VET group, helping grow group revenues in total to £961 million. We've strong like-for-like sales growth of 5.7%, and that 5.7% was even stronger than the 5.5% like-for-like sales we had in FY18. In retail, we've now benefited from nine successive quarters of like-for-like growth, as we've progressively improved both our pricing and our offer. And this growth has come from Omnichannel, it's come from our groom rooms, and it's come from our stores, which is a like-for-like growth of 2%. Competitive pricing is a key component of this growth alongside our continuing range development and product innovation. For example, advanced nutrition sales in the year grew by 10% and we've continued to see very strong growth of over 70% in monthly flea and worm subscriptions. In the vet group, revenues grew by 13.1% to over £106m. We're operating in a market underpinned by structural growth. And that's benefited both our first opinion practices and our specialist division, helping drive total like-for-like growth of 11.2%. The fee income from our joint venture VET practices grew by 5.2% to £52.6 million. And that £52.6 million excludes the £4.1 million of fee income from the practices we are buying out that we announced back in last November. So on a like-like basis, our joint venture fee income actually increased by 12.2% in the year. The revenue from company managed practices has increased to over £8 million. We now have 50 managed practices, including the practices we're buying out as part of the vet group recalibration. Back in November, we set out a plan to buy out up to 55 vet practices, and we're making good progress. The buyout programme is largely complete. Up until last Friday, we bought out a total of 48 practices and closed 19 of these. And as we buy out those practices, we will fully consolidate the revenues and operational costs from the date of acquisition. And finally, the specialist division revenues grew by nearly 10% to £37 million. And that's backed by the investments we're making to drive both capacity and capability in the division. Let's take a closer look at how these actions have flowed through into our gross margin, which reflects both our planned price investment and the actions we're taking to improve the VET group. Total gross margin in the year was 50.7%, and that's 102 basis points lower year on year. It's tracking in line with both our retail investment plans and our targets for the VET group. Within retail, our cumulative price investment has reduced our prices to within only 5% of our key competitors. In this year, the investment had an impact on group gross margin of 88 basis points, and that equates to £8.5 million in lower prices year on year. We also had a small impact of 21 basis points due to the mix effect from the strong growth we saw in omnichannel sales. These sales are cash accretive, but at a lower percentage gross margin due to the higher mix of food sales. Within the VET group, gross margin improved year-on-year to 48%. The underlying business performance drove 28 basis points, with strong revenue growth helping to leverage what is otherwise a fixed cost base. And finally, as I mentioned earlier, we have de-recognised the full-year fee income of £4.1 million from the joint venture practices we're buying out. Year on year, this reduced our gross margin by 21 basis points. Looking ahead, as we plan our gross margin, the major investment phase of our price reset in retail is largely complete. Our future price reductions will be self-funded through a combination of operational leverage, the growth of our own label, and better ranging, as Peter's just been explaining. To help support the investments we've been making in gross margin, we have continued to be very focused on managing operating costs. And here we've driven operational efficiencies at the same time as investing in our strategic growth areas. Total operating costs in the year grew by 4.6% to £357 million. That's a slower rate of growth in our sales growth of 6.9% and that's helped reduce our costs as a percent of sales by 90 basis points and mitigate some of the impacts of the investments we've been making in gross margin. We've continued to make good progress with a very comprehensive programme of operational efficiency. The programme addresses the whole of the cost base, from store payroll costs and rents, through to distribution and our support centre costs. And that's helped reduce the cost growth in the core areas of the business to only 0.6%. And that's enabled us to invest in our growth areas. And that includes 5.3 million into our omnichannel business, where our very strong sales growth, 43%, increased the fulfilment costs. And we've also invested behind our marketing and strengthening our support office team. And in the VEC group, we've invested 4.1 million to build capacity and people capability, both in our specialist division and in our first opinion shared service centre. In the year ahead, we will be adopting the new IFRS 16 lease accounting standard. And although the standard fundamentally changes the accounting treatment of our leases and rents, it makes no change whatsoever into our cash flows or how we intend to plan and manage the business. Our focus on managing rent costs will remain as strong as ever. Over the next five years, we have over 210 lease events. That's either a break or a lease renewal, and that gives us a lot of operational flexibility. So far, we've been able to reduce rents by up to 30% on the most recent lease renewals. As we enter the new financial year, we are already implementing the next phase of the actions to further reduce our operating costs. So turning now to profit. We've returned the business to underlying profit growth. Profit at the EBITDA level grew by 5.5% to £130 million. Our depreciation expense increased by 6.8% to £36.8 million, but that reflects our planned shift of capital investment to support the digital and data agenda that Peter just outlined, and those tend to be faster depreciating assets. Therefore, our EBIT profit measure grew by 5% to £93.2 million. Operating margin was 9.7%, and here we saw the 90 basis points improvement in our costs as a percentage of sales, helping offset the 102 basis points reduction in gross margin percent. As a result, underlying PBIC grew by 6.1% to £89.7 million, and that strong profit growth helped improve EPS to 14.1 pence, and we plan to maintain our four-year dividend at 7.5 pence a share. Non-underlying items are £40.1 million and in the main that's driven from the costs relating to the buyout of 55 first opinion practices we announced last November. So far we've spent £40.4 million and we expect to complete the full buyout programme within the overall total cost of £49 million we announced last year. That means we're expecting a further £8.5 million of non-underlying costs in FY20. Turning now to our CapEx spend in the year, our capital expenditure is now fully aligned to our strategic goals. Total capital spend in the year was £34.5 million. That compares to £40.7 million in FY18. Looking ahead, we are still planning to spend up to £40 million of capital a year, and that investment is going to be focused on four key areas. First, investing behind our strategy to make our stores complete pet care centres, offering our customers product, advice and services. Our first two in Stockport and Chesterfield are great examples of what we believe we can achieve. Second, investing behind our data and digital agenda. This year we relaunched our website across all platforms. That helped improve its look and feel, it increased the transactional speeds and it made shopping easier for our customers. Thirdly, we'll spend capital to improve the efficiency of our business, for example in distribution. In the year, we invested over £3 million in our seven distribution centres in Northamptonshire. That helped automate our online picking and reduced our cost to serve. Finally, We'll spend capital on building both capability and capacity in the VET group. For example, we're looking to expand our specialist referral centres, both through extensions to our existing centres, such as the investment that Peter just outlined in Dick White Referrals, but also through adding new centres that further increase our national coverage. Our overall cash return on invested capital remains strong at nearly 19%. and will continue to take a disciplined returns approach to all of our capital investment. That approach to capital investment, together with our solid operational performance, means that we continue to be strongly cash generative. And this has enabled us to maintain our dividend payment, as well as taking the right actions in the VET group. Our operating cash flow was £126.5m, After adjusting for non-operating cash items, including the lower capex, underlying free cash flow improved to 63.6 million. That gives us a strong conversion of nearly 49% on the underlying EBITDA. Non-underlying cash outflow of 8.9 million, you can see on the slide, in the main relates to our joint venture buyout programme and was used to repay bank debt and partner loans. we estimate that the full cash costs of the buyout programme will be within the £27 million we announced last November. Therefore, there's a further £19 million expected in FY20. After all the cash flows, including the buyout programme, retained cash was a positive £14.7 million. That helped reduce our net debt from £135 to £120 million and leverage from 1.1 to 0.9 times. Looking ahead into this year, we do need to comply with the new rules for the faster payment of corporation tax. This means we're going to make an additional one-time only tax payment of around £11 million. That equates to a full payment of our corporation tax in FY20, which previously we would have paid part of in FY21. The impact of this change in the payment of corporation tax means our group underlying free cash flow for the year ahead will be lower. Working capital is a really important component of that overall cash flow and our working capital remains strong and our operating loan balance has decreased. We continue to have a strong trade working capital cycle. The increase you see on the slide in our inventory of 7.3 million includes 4 million for the stock build we announced in January to protect the business from the potentially disruptive impacts of Brexit. Strong payables and receivables helped offset that stock build, giving an overall improvement of just over £12 million in our trade working capital. That helped fund an increase of £9.6 million in the operating loans to our ongoing joint venture practices, leaving a total group cash working capital improvement of £2.5 million. The bottom of the slide includes a table showing the movement on the operating loan balance and the split of the provision between the practices in our buyout programme and the underlying element for our ongoing practices. In total, we've got a provision of £14.3 million against an overall gross operating loan balance of £42.2 million. And that provision of £14.3 splits £7.2, which is a full provision held against the remaining operating loan balances for the practices we've still got to buy back, and £7.1 held against the operating loans for the ongoing practices. And as I mentioned earlier, we estimate that we'll complete the full buyout programme of 55 practices within the total P&L impact of £49 million and cash costs of £27 million that we announced at our interim results last November. So, in summary, we've delivered a strong set of financial results. As shown by our key financial measures, we've benefited from strong like-for-like sales growth across both VET group and retail... The underlying gross margin is in line with where we planned it to be. We've got underlying profit growth in both our VET group and retail. And the retail business has returned to profit growth faster than planned, helped by that very strong sales growth and a sharp focus on controlling our costs. Finally, we're generating strong underlying free cash flow and conversion in both VET group and retail. So in conclusion, we're coming to the new financial year with real momentum in the retail business, which in the year ahead will translate into profit growth in retail. And we're making meaningful progress to reset our VET group on a stronger foundation for future cash growth. The buyout programme is on track and we will be adjusting the fee arrangements for some practices to reduce the need for operating loans going forward. The progress we've made, which is in line with the plan we set out, means that the shape of our profit guidance for the year ahead remains unchanged, but builds from a much stronger base driven from last year's outperformance. Thanks for listening. I'll now hand back to Peter to wrap up and then we'll go into Q&A.

Thanks Mike. So you can see for yourself we're making good progress against our plans. We're delivering exactly what we set out to do. I think we're also demonstrating how a specialist like ourselves can continue to thrive and grow in a very changing consumer environment. We're a key player in the pet market and that market has continued to forecast to grow. And that I think provides a very exciting opportunity for us within that marketplace. We're leveraging our unique assets and creating compelling and unique proposition for customers as being a pet care business which is delivering for customers. We remain really confident about the year ahead and we enter the year with good momentum. As we were previously guided, this year we will complete the recalibration of our vet business alongside a retail business which is now back on track. We expect the business to return to profit and cash growth in FY21. So that's all from Mike and I now. We'd like to open the floor for questions. If you do have a question, it would be really helpful if you could raise your hand so we can get a microphone to you. Thank you.

I've got the mic. It's Jeff Ruddle, Morgan Stanley. Can I just ask two questions, please? The first of which is roughly how many vet practices are likely to get new fee arrangements? And then the second one is you talk about being within 5% on the sort of directly comparable SKUs. How many SKUs are you talking about there?

Sure. But shall I do the last one first? So if you look at directly comparable items, you're talking just under 1,000 items which would be directly comparable to whichever retail we're looking at, both online and offline. They would be made up predominantly of branded SKUs or items which actually are indistinguishable because it just is what it is.

And you have, from memory, was it 7,000 or 8,000 SKUs in the store today?

We have. In a typical store, we'd have about 6,500 to 7,000 SKUs. In our total assortment, we have just over 11,500 SKUs.

And so, I'm assuming these SKUs are more sort of prominent than average. So, I mean, what proportion of your sales do they account for?

Well, we haven't revealed that, but actually the way I think about it, because they're branded, these are big volume SKUs. And actually when we talk about the basket, because we weight it to volume, it gives you probably the most appropriate measure of the relative value that people will pay. So a big selling item disproportionately weights within the basket. So it gives us quite a tough measure in terms of when we talk about our price difference.

So it's considerably higher than just dividing 1,000 by 6,500.

I think the second or first part of the question, Geoff, was how many vet practices are going to get fee adjustment. And I think the best way to think about that is it isn't going to be one-size-fits-all sort of a cookie-cutter approach and everybody gets a fee adjustment. The team that worked this up have focused really on those practices and looking at it very specifically and a precise amount into each practice. And the aim of this is to get them to be break-even quicker than they'd otherwise be and get them to be cash-generative quicker than it otherwise would be. And all the costs of doing that are built into the guidance we're giving in the year ahead. So we're not actually going to say how many practices, it's going to be the number it needs to be to get to the right outcome. But it's very precise. It's not a number that everyone gets the same reduction. It's a targeted, very specific, practice by practice fee adjustment that each of those practices gets them back to break even quicker than if we just left them on their own.

And how do practices that don't get that fee adjustment react to effectively a competitor getting a competitive advantage?

Well, I mean, that's clearly something we've got to think really carefully about because at the moment, obviously, they're all paying the same fees. And potentially, we've got to think that through really carefully. But I do think in our joint venture partners, the ones which have come through realise they built their practices at a period when cost inflation was a lot lower. And actually, I think on balance, the efforts we're taking with our less mature practices, which are the ones we're talking about, I think are actually being pretty well received. I think everybody understands it and the reasons behind it. And I think on balance, the partnership is positive about that. Thank you.

Good morning, Tisha from Goldman Sachs. Three questions. First on accessories, is there any internal initiatives you can take to accelerate the attachment of accessories in online because that has been lagging for quite a while? Second question is on cost savings. How should we think about the cost savings for this year and the next year? Is it 40 to 50 basis points, incremental tailwind on the group? And finally, if you can comment on if the availability in the UK has improved or improving any signs of there. Thanks.

Well, let me talk about accessories first. Accessories traditionally is actually hard to sell online that is in a store. So there's obvious things you can do to improve it. So actually improving photography, improving product information and all those things you would naturally do. But I think we have to accept there is a natural bias that actually customers want to go and see, touch and feel. So often if I might need a new dog lead, I might not know exactly what I want and I go and have a look. So actually that's why stores, I think, play a really important role. And for a lot of the accessories that we sell, they require a degree of intervention. So one of the most popular services, for example, we provide in store is we fit harnesses for dogs because getting it right is really important. And actually buying online, the fit might not be right and therefore you end up like in fashion, you're sending things back. So accessories, I think, naturally has a slightly lesser bias online than it would in store. Do you want to deal with the second question and then come back to the third?

I think the second question was around cost and how we should think about it in the year ahead. So clearly we're looking to two things actually in our cost base. Effectively make the core part of the business as efficient as we possibly can. And part of the costs will enable to grow the part of the business we want to invest in. So, for example, our digital data agenda. A year just gone, we grew total costs by about 4.6%, and clearly one of our goals will be to grow our costs significantly lower than our sales growth. Particularly in retail, we're hoping to get that operational leverage of strong like-for-like and take costs out of running the business. But clearly we've got to do it in a very balanced way. We certainly don't want to do anything that impacts customer service. And a lot of the work we're focusing on is making the business much simpler to run. And things like the efficiency improvements, for example, in that distribution DC in Northampton, where it does make our cost of save cheaper. So I'm not going to give you a percentage growth. We're going to plan on our cost increases. But it will be significantly lower than the sales growth we're planning for.

Your third question is around vets and availability. Without question, it is challenging. Our overall number of vacancies are actually marginally coming down, which is good news. And we continue to work hard on recruitment. So we've gone quite broad. So we have an international recruitment programme. We're investing heavily in our graduate programme. But these are all slow, long-burn things. And I don't think anybody's going to be able to make any dramatic changes Ultimately, vets will choose employees that are good employees. And the one thing, therefore, we focus in on is actually being a really good employer. And we have a strong employer brand. We won the best company to work for in the UK as voted for by the Sunday Times, as voted for by our people. So increasingly, we focus on those things as well to make sure it's not just about recruitment. It is as important about really good retention. And we focus on both.

Hi, it's Simon Bowler from Numis. Three from myself, please. First of all, just a little update in terms of anything you've seen or not seen in terms of competitor reaction versus the pricing work you've been doing. Secondly, you spoke a bit around the opportunity around specialist referral centres. I'm just wondering if you can expand, maybe give some kind of sense on what that could look like, how many centres you could have over the medium term, etc.? ? And then finally, I appreciate it's going to be early days on this one, but from some of those vet practices that you've brought back, what have you learned when you've gone into the details and the weeds of those businesses? Are there opportunities for you to trade them better than they were being done under previous ownership?

Okay, shall I do the first one on competitive reaction? Very interesting, actually. We haven't seen a big reaction from competitors, but I think in part because actually we've been narrowing the gap. So therefore we've been taking our prices down to come closer to where their position was. And that's actually, I think, more challenging for them. So in answer to your question, no, we haven't seen a wholesale reaction from our competitor. But we're paranoid enough to think that actually we watch like a hawk and watch all competitors and if it changes, it changes. Do you want to talk about specialists?

Yeah, let me cover the specialist one off. So in the UK as a whole, there are actually only 26 multidisciplinary specialist referral centres. We own four. We've got one in the east, which is Dick White. We've got one in the south, which is Anderson Moore. We've got one in the northwest. We've got two in the northwest. And we know that's a really fast-growing market. It's actually growing faster than the first opinion market. And it's obviously very high-end with good, high average transaction values. And therefore, it's quite a profitable area for us to invest in. The ones we've invested in so far have been successful. And clearly, when we acquired those, we did it successfully. Before, the multiples got crazy. We do think the best way of expanding is probably through Greenfield. We do look at opportunities to acquire, but the multiples make that very difficult. But increasing national coverage, given where we've got the current ones, will be a very sensible thing for us to do. So in the year ahead, in that £40 million of capital, we've set money aside to do that. Actually, we've also provided for an element of pre-opening costs in our P&L to deal with the opening of a new centre. We've been working very hard on it and we'll announce it as soon as we are able to talk about it more specifically.

In the vet business, there's only three things that really matter. Your revenue from customers, the margin, and your cost base. Vet practices are high cost base environments because of employment costs. And the biggest learning you get as you go through the practice is about actually looking at those three buckets and maximising each of them. So on sales, all the work we're doing to drive more retail customers into services is exactly the right thing to do. And one of the initiatives we talked about last year was using our retail stores to drive recommendations. We're driving about 1,500 recommendations per week from stores into our vet practices, which is brilliant. And that's a really strong indicator of future health. The second thing, and this is really working with Jane and our team on the ground, and we've invested in more people on the ground. So we have a lower ratio now between what we call our area relationship managers and vet practices. We've taken that from about 25 down to 14 to 15. So we've got more people covering the ground, therefore closer relationships with our partners. And they're working with those partners to actually take all the best practice around margin, all the best practices around cost control to drive those other two levers. And they're very much in the control of our partners. So through really good information provision, good cost comparisons, but also actually having people on the ground, having those conversations, helping the vets, reminding ourselves that vets are great clinicians, really helping them on their commercials, you can move the dial on all three. And the answer is actually you've got to move the dial on all three. And that's exactly where our focus is.

Hi, it's Andrew Porteous, HSBC. A few from me, if I could do. You alluded to some further price investment, obviously self-funded price investment. Could you just talk me through the thinking there? I mean, do you see opportunities or potential rewards in further narrowing the gap or improving your relative price position? Or is it more about a bit of caution in case there is a competitor reaction? I also had a question about the store estate as well. You talked about right-sizing the store estate. I mean, obviously, maybe the temptation to reduce it a little bit over time, but equally, if you're getting 30% rate reductions, that sort of changes the economics there as well. So can you talk about how you're thinking about that and what the store estate looks like over the sort of medium-long term as well?

Shall I talk about the price investment bit? Well clearly I'm not going to sit here and announce a price investment programme and that would not be a sensible thing for us to do. I think I would take out of this is a degree of paranoia. We will watch our competitors like a hawk. So any price work in part will be planned and any price work will then be reactive. I think for us is we've taken enormous comfort from the work that we've done that shows the expandability within PET. And we've learned an awful lot. So we'll continue to learn and continue to use that insight to make smart decisions that grow our top line. And we'll continue to do that.

Is it worth talking about the sales day? Yeah, I'll talk about the... So we've got 452 stores. And you're right to point out, obviously, the rents are getting lower. And we're very focused on getting the rents lower. But clearly, we're making them more efficient to run as well in terms of payroll. And they're also quite important in playing a key role in driving that omnichannel sales growth. So about 65% of all our transactions involve the store, either as part of a colleague in store giving advice to a customer and raising an order in store, or collecting an order they've ordered at home for delivery, picking up in the store. So the stores are playing a really important role, and clearly we see the future of the store estate as pet care centres, and not just about product, but services, advice, and retail. We do stress test those store financial performances all the time. We have about five loss-making stores which we're dealing with, relatively few. And we stress test it by testing those assumptions on rents, payroll, sales growths. If a store's profitable and its outlook's looking really positive, why would you want to close it? But we do look forward across to the lease renewals, and clearly we're synchronising the work we're doing on optimisation of the store estate with when a lease renewal's coming up. And often there may be a better relocation opportunity in that particular town, or it may be we've got two or three stores in one location where actually two stores will do. So over time, I would see our 452 stores coming down, not suddenly or dramatically, but maybe we'll end up with 410, 420. But it's not going to be a big store closure programme.

Thank you.

Matt Garland, Citi. One quick question. I was wondering how you're thinking about the development of your private label SKUs. Obviously, you're aiming towards 50%. I just wanted to understand how you're thinking about how it will progress and what categories it will go into. And then I was also wondering around the data optimization and things, what the kind of timeline or thinking that you have around the longer term areas that you've talked about and how that will develop?

Sure. Well, on private label, we've already and always have had a very strong private label share of our business. So, you know, we're just around the 40% mark. And for us, there is undoubtedly the opportunity to create more private labels and will continue to do. We actually see one of the biggest opportunities is leveraging the capability we've built. So Wainwrights, which is our leading dog food brand, actually is our bestseller. So increasingly, we're looking at all our customer journeys, all our communications. So, for example, on the puppy club, we're making sure we're maximising our private label presence. There's a very fine balance for us in all of this, which is our starting point will always be what is the right product for the pet owner and the pet. So we'll never get to a situation saying the answer is always private label, because if it's not, we won't do that. That's the wrong thing to do for customers. But we see a great opportunity just leveraging the assets we've got. And we've never really invested in them that hard. They've grown over time. And we think with a coercive push, we will get some good growth on the back of that. And we're pleased by the progress we're seeing in that case. On data. From what you see today, what you're seeing is a big investment and it's actually moving our capability further. We've already got some good data capabilities. So our VIP club is grounded in data. I think for us, with Robert and the team that we're investing in, that's about really changing our outlook from being... Backward focusing and telling us what happened to try to move to a situation where we can start to predict what happens. And I think that's a fundamental shift. And that's where we need new capabilities. So for us, the things I described today, like the store ranging, that's life. We've got a roadmap of things that are going to land quite quickly in this year and you'll see benefit. But some of those other bits actually require a degree of time and investment. making sure we've got the right infrastructure for our data and making sure the cleanliness of that data coming in is the right way. And that's a bit of enablement of what we're doing now. So I think you'll increasingly see from us increasing levels of sophistication, increasing levels of personalisation and then along the way I think you'll see some step change moments where we fundamentally change what we do and our roadmap is made up of both. This now I think for us is an ongoing journey and I think is a new currency of how you run a customer-facing business.

Thanks very much. Tony Charette from Whitman Howard. Just one question really. Apropos the video you showed about the pet care centre, it focused on the features obviously. Is there any work in there on sort of the composition of the sort of food and accessories ranges and if there's more focus or more range or more concentration or whatever?

What's really interesting about that store, that store contains, that was Stockport, contains 1,100 SKUs less than the previous store. That is one of the stores that we've put through our optimization machine and what we've been able to, and I guess it will prove it, is that we think we can take the same sales from physically less SKUs because now we have the ability to access a customer to 11,000 SKUs and they can have it tomorrow. And what it's allowed us to do is, I think, as you shop the store, firstly, it's created space to invest in more theatre, more new services, which is really important. It's created much more clarity for the customer. Because I think as a retailer, one of our jobs is to make sure we have not just... You can stock thousands of skewers. That's lazy retailing. Really good retailing is about having edited ranges. And we've been very clear about when a range should be physically versus when a range should be digitally edited. So, I think what's really exciting about Stockport, I think, is where the data has come to life and the potential that helps us unlock it in other stores. The feedback from customers, and this is always a really interesting bit, did you get it right? The initial feedback from stores is they think there's more in the store. than there is. And I think that's because often, it's a classic phrase, less is more. You can see things. And if my only proxy of success, because we're sort of six weeks in, the numbers will take time, overall satisfaction from customers through our survey work In those two stores, both these stores were very much averaging. They've gone to the very top of our satisfaction levels from customers. That, for me, is the most exciting thing. Because if you get overall satisfaction right, in my experience, sales have a habit of following. And we're watching that like a hawk.

And sorry, just an obvious follow-up, what's come out? Is it just what's come out of the ranges? Is it just the stuff at the edge, which wasn't sending very much anyway?

Yeah, it's very much about where we've got, not choice, but we've got duplication. So we have 600 choices of collars and leads. That means you've got about seven variations of red. We probably don't need seven variations of red. Maybe two will do. So I think what we've seen here is we've been very focused on, and again, our data helps us understand what do customers really want? How does it impact the basket? And it helps us understand that some items which are very low volume are disproportionately important to customers. So we've been very focused on taking away duplication, not taking away choice.

And sorry to keep boring for the world, Eleven, but is the range reduction principally in accessories rather than food?

No, it's pretty much across the board, actually. Okay, thanks. Great. Thank you very much for your time.

Thank you.

Appreciate it.