Pets at Home Group Plc

Welcome to the PettoHome interim results presentation. I'm Peter Pritchard, the Group CEO, and with me is Mike Hedin, our Group CFO. We're really pleased to have delivered a solid set of results for the first half of our financial year 2020. Despite our operation being temporarily impacted during the early stages of the first national lockdown, the strength of our subsequent recovery reflects the agile response across the business to adapt and to meet the need to pet owners. We've adapted operationally to live alongside COVID and although we're currently in a second lockdown, our operations have been largely unaffected. It has reaffirmed to me that our strategy to be the best pet care business in the world and how we deliver it is a winning formula for customers and our shareholders alike. Pets at Home is the only true omni-channel pet care business in the UK. We've demonstrated the benefits of combining a broad range of pet products and services delivered in a way that customers want. We've leveraged our physical and digital assets to develop new, safe and convenient ways to serve our customers. For example, contactless delivery and one-hour click and collect. Our retail business has shown two-year lifeline growth of 14.8% and omnichannel growth of 118%. In First Opinion Vets, I'm particularly pleased by the strength of recovery post the peak impact of the regulatory restrictions in the first national lockdown. And our First Opinion practices are growing faster than ever. The changes we've made over the last 18 months have strengthened the business for partners and for the group. In fact, we've halved the number of loss-making practices year on year. The pet care market is robust and resilient. We believe the pandemic has created more new pet owners. I'm sure you've seen for yourself the number of new puppies and number of new kitten owners amongst your own friends. Lifestyles have changed, which means people have more time to spend at home with their pets. Our puppy and kitten programme is key in introducing new pet owners to all parts of our pet business. Year on year, we've welcomed 25% more puppy and kitten owners to our club. It's been the fastest growing period we've seen since its inception. We now have over 6 million members of our VIP scheme and we're pleased to see 20% more customers year on year shopping across more than one channel. Our subscription business is meaningful with £80 million of annualised customer revenues and has significant opportunities for further growth. Subscriptions allow customers to provide better care for their pets, such as preventive healthcare plans in our vets or food or flea plans that not only ensure you never run out, but also save you money. We now have over 970,000 subscription customers and we see a significant addressable market opportunity and we're implementing plans to take a sizeable share. Subscriptions create visible, repeatable revenues from customers and they are a great and convenient platform of which to build a sustained share of the pet wallet. We have an exciting roadmap ahead, and we believe it's really compelling by combining our products and services for customers in ways that our competitors cannot easily replicate. We are now operationalizing and seeing the benefits from our investment in data. We've previously stated a clear ambition to place data at the heart of our business, recognizing we have a valuable PEP dataset, which could be leveraged to create substantial insight and value. We've built a strong internal team of 45 data scientists, artificial intelligence experts, analytical experts under the leadership of Robert Kent, our Chief Data Officer. We're now finalising the transition of data from external providers and moving it onto our own systems and our own teams. And we've already seen a step change in reporting, analysis, and insight. And our September customer mailer, the first one using our own segmentation and AI, has resulted in the best level of redemptions in the eight-year history of the customer mailing. But we are only at the beginning of this journey, and we remain excited about the future potential. I will now hand you over to Mike Iden to share with you how all the hard work has been reflected into solid financials.

Thanks, Peter. The start of our financial year coincided with the start of lockdown across the UK, and this has shaped both our sales and profit results in the first half, which has very much been a half of two quarters. We came into the year with significant momentum but the initial impact of the COVID pandemic led to a decline in revenues in the first eight weeks of the year. And that was driven by the reversal of the customer stockpiling we saw at the end of last year. Restrictions in our grooming business, pausing the sale of pets, and complying with the RCVS regulations in our vet group. We then saw a very strong recovery as we exited from the first quarter, and this delivered a strong set of results for quarter two. Sales growth bounced back stronger than pre-Covid levels, with quarter two like-for-like revenue growth of 12.7%. The business as a whole returned to profit growth, with growth of over 43% in the second quarter. And this drove a strong cash result, with over £60 million of cash generated across the first half. That enabled us to finish the half with a stronger balance sheet. With £300 million of liquidity, a net debt reduced to just over £50 million. But as I said at the beginning, it was certainly a half of two quarters, and I'll now give you some more detail behind these headline results. Group revenue across the whole of the first half grew by just over 5%, to nearly £575 million. And within that, like-for-like sales growth for the group was 5.3%. As I said, we delivered like-for-like sales of 12.7% in the second quarter, but that compares to a negative 0.7% in quarter one as the COVID restrictions eased and we successfully adapted our operations as we went into the second quarter. The growth was broad-based and sustained and confirms the relevance of our pet care strategy, the flexibility of our retail operations and the robustness of our first opinion business. Within retail, like-for-like sales grew by 5.8% and Q2 saw like-for-like growth of 12.5%. This was our 15th successive quarter of like-for-like growth in retail, with omni-channel revenue growth of 59% and store like-for-like growth of nearly 8%. In the VET group, we saw like-for-like growth of 1.2% for the first half, and that was despite the restrictions placed on the business in the first quarter, as we complied with the RCVS guidelines. But once those restrictions were lifted, we saw the second quarter like-for-like for customer sales growth be 14.2% across our first opinion practices. Overall, across the first half, group profit declined by 5.1% to £39.6 million, and that was driven from a combination of the reversal of the stockpiling we saw at the end of last year, the revenue restrictions across our grooming, pet and vet operations, and both one-off and ongoing operational COVID-related costs. And these impacts were only partly mitigated by business rates relief. Since the start of the pandemic, we've been determined to do the right thing by all stakeholders. We've safeguarded our colleagues, we've paid our rents and we have maintained our dividend. And we continue to pay the wages for colleagues and operations we closed, including across our growing business. And although we qualified for it, we did not claim any government furlough support for these colleagues. And as well as spending money on protecting colleagues and customers and adapting the stores, we also paid a one-off bonus of £1.9 million to our frontline colleagues, created a £1 million hardship fund and donated over £1 million to charities, as well as giving a 10% discount to our National Health Service customers. All of this together meant that we spent around £8 million of one-off type costs. These actions reduced our profits in the first quarter, but the very strong sales recovery we saw in quarter two translated to the strong profit growth of over 43% in that quarter. Group underlying free cash flow across the first half was £60.5 million, and this included a strong cash performance from our first opinion practices, and we're now seeing the benefits of the successful implementation of our recalibration actions. Our balance sheet has strengthened further, and we have strong liquidity. Net debt reduced to just over £50 million, and that's the lowest ever. And that helped reduce our post IFRS 16 leverage to 2.3 times. And liquidity is now close to £300 million, including the additional backstop revolving credit facility of £100 million we put in post last year. The confidence we have in the business from the strength of revenue and cash growth and our strong liquidity enables us to maintain our interim dividend year on year. Our full year profit outlook has improved and we are now projecting our full year profit to be in line with last year's result of £93.5 million. And you have to remember that that result was boosted by the strong sales from customer stockpiling in the weeks leading into the current financial year. So as we head into the second half of the year, it's clear that our strategy is delivering with sustained momentum in revenue growth, a strong balance sheet, and a plan to continue to invest behind our pet care strategy, leaving us well positioned for long-term sustainable growth. I'll now hand back to Peter.

Whilst the first half of this year has been the most challenging many of us have ever experienced, our results demonstrate the strength of Pets at Home. We're optimistic about the future. We're demonstrating we're not just a pet retailer, but a strong and growing provider of pet care solutions. We're building a set of skills and capabilities that enable us to build a strong, resilient and growing pet care platform. The pet care market is robust and changes in lifestyle resulting from the pandemic give cause for optimism about the growth opportunities that lie ahead. We recognise those opportunities and we're building a business to create value from them. Our physical estate of pet care centres combined with our digital capabilities allow our customers to engage in pet care in ways that suit their needs and their lifestyles. It gives us access to complete pet care of the estimated £6.5 billion spend in the pet care market. We will continue to give customers more ways to shop and access the services they need and most importantly, we'll increasingly join them together in ways that makes it easy, convenient and simple for our customers. Finally, I'd like to pay tribute to my amazing colleagues who've shown integrity, strength, kindness and true leadership through these really challenging times. We are more committed than ever to building the best pet care business in the world. One that puts the customer at the heart and one that delivers strong returns for our shareholders. Thank you for listening, stay safe and take care.

Ladies and gentlemen, if you would like to ask a question at this time, please press star 1 on your telephone keypad. Please ensure that your mute function on your telephone is switched off to allow your signal to reach our equipment. We will pause for just a moment to allow everyone to signal. Thank you. And we take our first question from Jonathan Prickard with Pillehand.

Morning all, Prickard here. Refits, could you talk us through them a little bit in terms of the paybacks and momentum, obviously a disrupted first half and possibly a bit tricky to get a read, but where we are in terms of payback and just the speed with which you can do that. And then secondly on bets, you talk about a simpler structure in terms of the fee payments, etc., Are they all still literally on different contracts, or is there a sort of plain vanilla template that they're on now? Is that what you mean by that? And great swathes of them are on very similar contracts. Is that how it's played out now?

Well, look, I'll hand over to Mike first to talk about refits, and then I'll talk about their contracts. So refits, good morning, Jonathan.

Yeah, refits, we talk about these, about store regeneration program. We've done in total 19 refits. 15 are actually existing stores where we repitted and four were relocations or new stores. A lot of what we're trying to achieve there is make the experience in store different for customers, more focus on services, and an approach where we're acquiring, a place where we can acquire new customers and give customers advice. And clearly that's the direction of travel of the business, integrated services, retail, all joined together. Obviously, the last six months has been disrupted in many respects, and clearly that experiential side of the business has been more difficult to deliver. Notwithstanding that, we absolutely are pleased with the progress on those refits. Our most recent one was Milton Keynes that opened up just before the start of lockdown back in March. We've learned a great deal. And what we would be planning to do was put that program back into place starting the beginning of next year. Currently, it's on hold because of the disruption it would cause and the safety issues of doing a regeneration program. But the results are very promising. And we put that program back into play at the start of next financial year.

I'll pick up the question around the VET contracts. There's always been a number of differences between the VET contracts because we've been doing this for 19 years, so they've always evolved. They're not wildly different, but there are some subtle differences. And that's why the remediation program we started 18 months ago was really focusing on the practice that we felt had strong potential, but was suffering in the early days as they'd increased their cost base through things like increasing employment costs. And obviously that's why we've been employing remediation. I think the key thing we take is those actions have actually worked really well. We're seeing actually stronger cash flow coming from the vets and actually those actions have got the desired result that we want. So we'll always have that complexity of slightly different contracts. It's not massively complex for us to manage. We've made it a lot simpler, but we will always have that variation as we move forward.

Okay. Thank you very much, Claire.

Thank you. And we take our next question from Greg Lawless with Shore Capital. Please go ahead.

Morning, guys. Just a couple from me, if I may. How do you plan the business for Q4, given the comps you're going to cycle? And then just wondered, given all the media headlines around Felix Stone sourcing, kind of thinking about your accessories business, just wondered if you wanted to make any comments about delays with Chinese imports currently. Thank you.

Mike, do you want to talk about the shape, and then I'll talk about Felix?

Yeah, Jonathan, you're right to point out that we've got to trade over a big comp in quarter four. It was nearly 16% like-for-like last year, and certainly we've got a big boost on sales that flowed through into last year's profit results. I guess we just set the business up to take the sales, really. So we set the business up as we're going to quarter three to respond to whatever customer demand is out there. And as we go into quarter three, we are heading with good momentum, double digit, like for like. We have to track across quarter four, and we'll just continue that approach. We'll set the business up to take whatever sales are out there from customers. But clearly, tracking a comp of nearly 16%, you know, from a planning assumption, you know, is clearly considerably lower than that as we go into quarter four.

I'll pick up the point about Felix there in the sourcing. So I guess in some respects, that's not much of a surprise, is it? I think a combination of Brexit and many organizations building their stocks, Combined with, there's an enormous volume of PPE that the government are importing coming in through the ports, and that's provided a real challenge to those ports. We've had a couple of goes this year already, you know, dress rehearsals at building stops for Brexit, and that's exactly what we've been doing this year. So we opened a third temporary DC, and we've been building stock of accessories throughout the whole of this year, primarily because we always anticipated there could be disruption of ports, which is what we're starting to see play out now. So I think in the short term, no major concerns for us because we've built our stocks, all our Christmas stocks in the country and selling through and we've got good stocks going into next year. I expect the ports will actually resolve their way through. I think the challenge is ahead and the big unknowns for everybody because we still don't know the finances yet will be any potential impact as a consequence of whatever deal the country agrees from a Brexit point of view. And we know that freight is running tight. And that's always a challenge for everything coming into the country. But we have forward contracts. We feel confident around our position. And we'll be watching and monitoring it very carefully.

Thanks. Thank you. And we take our next question from Andrew Porteous with HSBC.

Yeah. Hi, Tim. Congrats on a good set of results. A couple from me. First of all, on the data. Um, you, you give us a bit of an insight into that, but it's, it's all right to say it's still early days there. Um, it still feels like you've not made the, you know, not had a huge amount of time to actually sort of see any sales benefit from, from the, that, uh, that investment yet. And then secondly, on, on the vet side of the business, I mean, clearly all the KPIs are going in the right direction. It sounds like you've got fewer loss making surgeries now than you have immature surgeries. So how long is it until we start to think about growth in that business in the future?

Yeah, sure. Well, I'll answer the question on base and I'll hand over to Mike for that. We set our ambitions on base for 18 months ago. The first thing we did was enable the team. So we built a 45-strong team under the leadership of Robert Kent, our chief data officer. We built our team of data scientists, analysts, and CRM experts. So that was the first bit. That was quite a big job. We've then been transitioning all that data in from third parties, which is now largely complete. And through this year, we've been building a whole series of benefits inside the organization, primarily first on reporting and insight, which I have to say helped us navigate the whole COVID situation fantastically well, because we could see real-time what customers are doing and anticipating their needs and changing our operation to adapt to that. First real big piece of work that we've landed with the September mailer. Don't underestimate that. That was just under 3 million people who received a mailer. It's a really big driver of our sales activity. And just give you a sense of historically that was built off eight or nine key factors that we would use to segment customers. The one that we did in September was built at 320. So the level of personalization was at a completely different level. And therefore, the level of relevance that landing in our customers we could see from Redemptions is really good. There's a whole series of things in play now. Things like we've got predictive churn model. There's a long list of things. The thing I'd really see from this, Andrew, is we're building a platform and a capability that powers the business. And it's powering it in many ways. And I'm just still remaining incredibly excited. I'm delighted to see the first operational piece of this land, and we can start to evidence it. But for us, this is switching on a capability for the whole of the organization to use. And as we move forward, we will continue to demonstrate that through subscriptions as we better target, through all the things that are core to our business, puppy and kitten, et cetera, because it allows us to personalize the journey. So it's the start, first evidence, really pleased, but so much more left to go for.

Andrew, thanks for that question on the VET. You're right to point out that we've made good progress there. Some of the measures we track are the health of the business. I mean, the most important one is revenue growth at practice level. In quarter two, that was over 14% revenue growth. And that has enabled, alongside good management of the costs, to see a big increase in the number of profitable practices, which we'd expect to see as we drive the growth of the majority. And that's reflected back into cash performance. We've got significantly fewer debt, we've got more debt-free practices, and we've got less on the operating loans. Operating loans have gone down headline by eight million pounds since the end of the financial year. And then looking at some of the lead measures looking forward, new client registrations remain really strong, 10,000 new clients a week, and numbers of visits remain really, really strong. So we've got lots of measures that indicate strong health and performance. Still a relatively young business. We've still got 40% of practices, sorry, 30% of practices less than four years old. So, you know, we've always talked about the driving maturity is one of the best ways to create value. Last year, we did 20 million in free cash flow out of our first opinion business. We've always said on maturity, it should deliver circa 60 million of free cash flow ongoing. And that is the track we're on at the moment. So, you know, we're really pleased with the performance. And this is going to continue to be a big focus for us is driving out that revenue growth. as those practices mature.

Thanks very much, guys.

Thank you. And we take our next question from Geoff Roddle with Morgan Stanley.

Yeah, good morning, guys. Can I just ask a bit more about the Puppy and Kitten Club? Could you tell me how many people are signed up to each of those clubs now? And if you could just remind us when they launched, because I know they haven't been around for that long. I'm just trying to understand The growth you're getting from that, how much of that is just the maturing of those schemes as opposed to increasing numbers of puppies and kittens in the UK? Thank you.

I'll pick up that question. We haven't revealed the number of members of the puppy and kitten club, but what I can tell you is that the number of members in the first six months of this year has grown 25% versus last year. The program has been around in various forms for just under three years. What we've seen as we've launched that program, we're able to see puppies and kittens that were VIP members previously. We can see that through their age profile, and we're able to compare and contrast that to those who actually have physically joined the club. And what we can see is that those customers, when they join the club, we see a 20% spend premium. And based on the level of data we've got now, which is two and a half years worth of data, we can see that that spend premium maintains. Probably the more important thing for us in this is the way the club is structured is it provides incentives for people to try as many parts of our group as possible. So discounts off our health plan, free grooming, into advanced nutrition, food, et cetera. So what we're seeing is our spend room in part is getting more people into more parts of the organization. And what we can start to see because the maturity curve for retail and vet is slightly different, we can see that those people who joined our vet business are becoming our more valuable customers. And we'd accept that to be the case as they mature their way through.

And outside of puppy and kitten club, have you got evidence to suggest that the puppy population is growing? I mean, for example, are you seeing a much higher levels of puppy food sales relative to adult food sales growth at the moment?

Yes, we are. Yeah, I mean, it's really hard because there are no real national statistics in this area, so we have to look at a series of proxies. So Puppy and Kitten Club, obviously, we've seen that step up, although we also have been advertising that as well, so awareness has also improved. What we can see is that new client registrations in vets are also up, and they represent roughly one in 10 visits to our vet clinics are new client registrations, which is a really good proxy. Then as we look our way through there, we can see movements in puppy food, Kitten food and proxies things like cages the things that you buy only the very specific lifestyles of a pet I've also increased significantly We've also seen from other other organizations So kennel club search metrics that there's been a lot of interest as people have been researching very much You can't just go and buy a puppy or a kitten generally you don't find a breed and it's quite a long lead-in and So that's been something which we've seen present now for the last six months. And I have to say today is still pretty present as people are still researching and thinking about or in that consideration stage for becoming a new pet owner. The interesting thing, by the way, whenever we talk about this, we always talk about this as if these are brand new customers. What we've also seen happen is many of our existing customers have become multi-pet households. So we've seen as many kittens and puppies join existing pet households as we have seen new pet owners come in to our business.

And so to cut to the chase, do you have a view as to how much the population of cats and dogs has increased over the last, well, since the pandemic began really, I guess?

We're building a view, but I can't yet give you a qualified view because it's still quite early because that trend hasn't stopped yet. There is a definite shift and I actually think it's a bit more like a baby boom. So there is a definite lift. And I expect that baby boom to work its way through into future years as those puppies and kittens mature into adulthood. It's still a trend. It hasn't stopped yet. So I think it's still far too early for us to qualify, but it is a material number from what I can see.

Okay. Thank you very much.

Thank you. And we take our next question from Tony Shard with Patmore Gordon. Thank you.

Morning, gents. Just a sort of slightly longer term question, I guess. You seem now to be in the execution phase of a number of strategies that have been put in place over the last two to three years. And you reset the VETS business, you sort of largely sort of retooled the retail business. I was just wondering, in terms of your strategic thinking, asking what's next is obviously a bit of a general question. But I wonder, in your planning process, is there a part of your process that looks outside the existing envelope? And what sort of things are you considering at the moment, sort of longer term, for example, you know, have you got any views on developing outside the UK or, or something like that? Can you just give sort of some very vague, waffly question? If you give me a very precise answer, that'd be fantastic.

Look, I think the first thing you actually write when an execution phase and obviously, data for us is actually an underpin. Because as we drive an even better digital experience, You want to do that from a data platform which allows you to personalize that experience. So I would say our number one priority by a country mile is building a tech-head digital ecosystem. And don't interpret that as actually, often when people talk about digital, they actually talk about e-commerce. We're not talking about that. We're talking about making sure the front end, that customers interact with our business digitally, is all joined up so you can do anything that you want, however you want to do it. And that is a big job. And actually, that's going to be the next two years worth of enablement to really continue to bring that together. That's probably the most important thing that we'll do. From that, driving repeatable revenue from customers is also a very clear priority. We obviously talked today to subscriptions, and that's now £80 million worth of customer revenues. That's the bit that excites me the most because we genuinely have only just begun and we see a future and we're building an in-house team of people as we speak now whose entire job it would be to knit together products and services in ways that work for customers. And I think that gives us a unique advantage that people like Amazon and Zooplus can only ever dream of because we're using all the skills and capabilities. I think the third thing is we will want to broaden our pet care services that we offer customers. It's a stated intention to get our services to 50%. And we're really focused on those services that are direct to customers. So you saw us build out, for example, our digital dog walking business and digital boarding services. We're really interested in areas like telemedicine, because that's another digital way to connect with customers. And we're interested in looking at either partnerships relationships, or indeed, if we find a skill or a capability of things better inside the organization, they're areas that really attract us. But let me be really clear. We're focused on the UK. The pet care market is worth six and a half billion. We've got about a billion pounds worth of revenue. And our biggest opportunity is building our scale of business with existing customers. And that's what we are most focusing on doing. And we think there's a very exciting roadmap ahead there to win our fair share with our existing customers.

Okay, thanks.

Thank you. And we take our next question from Simon Bowler with Moones. Please go ahead.

Yeah, morning all. I was just wondering on similar lines to an extent, I guess, where your heads are in terms of the possibility of returning the vet business into a kind of a more of a rollout mode and what timeframe could that be over? What kind of quantum could that look like? and perhaps kind of touch on the supply of real estate and potential partners, VET partners that being. And then also, obviously quite a strong kind of pay down of operating loans in that first half period. Do you think our business now is into the mode of kind of continued net pay down of that remaining balance?

Look, I'll address the first point, Simon, about our VET business. Our clear priority was to make sure the VET business we had, which was a great business, we returned it back to its core and under the leadership of James Balmain, I'm so pleased with the performance out of our vet business in terms of we obviously disposed of some practices and we've really focused on making all the partners that we have successful. That was always our priority. And we sacrificed new vet practices as a consequence. We consciously did that. But we are at a point now where actually we are receiving a third degree of interest from vets. We want to open practices. And we've got what we think is a sensible rollout program ahead. So in the next year, we'll probably see another five to ten new practices. Actually, our ambition is to start at close to 15 to 20. But we're very clear that that will be driven by two things. We're driven by the location opportunity, of which we've got a long list of opportunities, but more importantly, by finding the right partner. But within that, one of the things which we are very focused in on is with maturing that business, particularly these are local businesses in local towns, we're really thinking about how you take the town. So when you've got an established practice that's doing very well, typically what happens is they start to broaden the number of services that they offer their customers. And particularly they often start to recruit more vets with additional capabilities. And it's a bit of a hybrid between first opinion and specialists. And we've got significant interest working with our existing partners to open second or even third practices in a town where you create more of a hub-and-spoke model. And that's an area that we're actively focusing on and we see as a future opportunity for growth of our vet practices. So, Mike, do you want to talk about operating loans?

Yeah.

So, hi, Simon. Yeah. So, I think what we're seeing coming through now in the cash performance of the vet group and the first three practices is the benefits of of the restructuring we did 18 months ago that completed last year. So driving the revenue growth of the practices, managing the costs and the fee reset, that combination has resulted in a much stronger cash performance. So operating loans always were planned to come down. It's come down a lot faster than we'd expected. That 8 million was more than we planned. It's fair to say that half of that drop was because we also organized bank loan repayment holidays for the partners. We used the benefit of our scale to support those practices. So it would have been 4 million pounds, had a 4 million boost because of the bank repayment holidays. But overall, we'd expect the direction of travel of operating loans now to be down, coming down reasonably quickly. And certainly our plan is for them all to be sort of repaid off over the next four or five years. Okay, thanks.

That's really great. Can I just ask kind of one quick one on the retail business? There's quite kind of a notable step up in the accessories part of your business that's been running more kind of mid-single digit and accelerated kind of plus 10% in the first half. And how much of that could we think about as being kind of related to new set of costs as opposed to, I guess, a step change in kind of your underlying demand, market share, etc.? ?

Whenever we talk accessories, you immediately think of toys and beds, and they're all relevant. But in our definition, we also have a series of consumable items, so things like cat litter, wood shavings, so the consumable things that you need for your pet. And what we're seeing is we've actually seen a step up in both. So without question, when you see new pet owners, they often will over-participate in the accessory categories as they set themselves up for the one-off things that they need for their pet. But what we've also been very pleased with is the performance of those consumable categories. So particularly areas like cat litter, and we've seen a significant increase in the number of cat owners we've had in the business. Cat owners tend to typically shop more in supermarkets than do in pet specialty. But we've actually seen much more new cat owners in our business than ever before. And that's come through in areas like cat litter, which have been incredibly strong and they're consumable. So they're ongoing purchases. So we remain reasonably optimistic about that. Actually, it's great that when we see people that show up permanently, we're also accepting that new pet ownership drives some one-off spends within the accessory categories. I think the real test will be as we go into next year, seeing the strength of the performance within food as that baby boomer bit works its way through and the strength into the consumable part of accessories.

Okay, thanks. Thank you. And ladies and gentlemen, as a reminder, please press star one to ask a question. Thank you. And we take our next question from Xavier Lexman with Bank of America.

Good morning, gentlemen. Thank you for taking my question. Just back to Tony's question, actually. Can you just elaborate a bit more on the VIP and PEPI and KITAN program and what does it mean for future growth, actually? I'd like just to understand how much growth you should expect from more loyal customers spending more across store, online, services, and getting new customers in the future. So how do you see that?

Okay. Thanks, Javier. You're absolutely right. The VIP program is phenomenally important to us and acquisition of new pet owners is an always-on strategy. Sadly, the lifespans of pets are significantly shorter than humans. So actually, you've always got new puppy owners, new kitten owners, and therefore, you have an always-on program. And this year, we've really stepped up our new customer acquisition through things like TV advertising of puppy and kittens. been incredibly successful and you're going to see a lot more of that and that then becomes a feeder for our overall vip program so as we sit here today we have six million members of our vip program these are active users so people have shopped with us in the last 90 days and that's gone up 15 it becomes the best proxy for our future indication of our business because these are active customers who we have the ability to talk to to market and to introduce new products and services And I think this is the core thing, I guess, is in a world of COVID, there's been some businesses that have done very well because of others' demise, because they haven't been allowed to open. But pet retail and vets have been essential, and we're on a level playing field with everybody else. The fundamental shift that we have seen is because of people's lifestyle changes, more people now have the ability to accommodate a pet and have chosen to do so. So we do see sort of this baby boom effect that working his way through. It's still relatively early days. We're only sort of five, six months into seeing that, but that trend hasn't changed yet. It's been a continuation. So I think it pointed to a larger pet market, that question, and one that not just in the UK, but worldwide is in growth. It's been driving growth for a number of years. This isn't a one-year phenomenon, although it accelerated this year. It's been driven off a few fundamentals. So, premiumization of categories, so more people buying better quality foods, etc., humanization as people are more bothered about pets and that often a proxy is things like veterinary treatments where people are much more active in taking their pet to the vet much more likely something goes wrong to seek care so i think all those trends coming to covid were there were present you've seen that in our own numbers we've seen an acceleration driven by new pet owners i think that's going to lead you to the pet market is looking pretty good it's looking very healthy all the dynamics Clearly, there's a lot of road bumps ahead. Is there a recession and economic impact? Well, obviously, there are things that affect everybody. But I guess what we're seeing historically is that the pet market is relatively resilient as well because it's still a relatively small part of people's overall spend. We know from research that customers are less likely to put back on a pet than they are a car, a sofa, a holiday being discretionary purchased. And a lot of the category is driven by repeatable items like food and consumables. And even in accessories, price points are relatively low. So therefore, it's very easy to access and not necessarily have to cut back. So I think the dynamic's pretty solid.

Okay, thank you.

Thank you. And as a final reminder, ladies and gentlemen, please press star one to ask a question. And it seems we have no further questions at this time, or we have one from Andrew Portier with HSBC. It's a follow-up question. Please go ahead, sir.

Hi, guys. I'll have a follow-up if there's no more on the call. Can you just talk a little bit about the click and collect rollout that you've pushed through the business? It feels like that's gone very quickly from sort of trial to full rollout. Can you talk us through the process and sort of what sort of impacts that will have on your online business going forward?

Yes, you're right. We always have plans to roll out Click and Collect this year anyway. And actually, that's required quite a lot of system development to be announced, the onboarding of our order management system, which is online. We went from 40 stores trial. And actually, as we're doing the 40 stores trial, the second lockdown was announced. Obviously, we were relatively unaffected by that. So we literally ran 40 entire business literally overnight. And I've got to say, we're thrilled with the response. We've integrated it into the customer's online journey. We've made it really easy. 6,000 items are available in our stores. And I think it just tells you everything that customers just want to make sure that their stock's there. And we've seen a really strong uptake in that. Now, we're literally three weeks into this, but the early results are incredibly positive. Both from customers pre-planning their journey for ease, and we've combined that in about 140 stores where you can also have it delivered to the boot of your car for those who have got, who need to remain isolated can continue to do so. And what we're seeing is it's actually given us some more capacity back into the DCs in our online picking area because some of that volume is naturally translated to being picked and replenished from store, which is exactly what we expected. So 30, 40% ish we think of orders have gone in that direction. And that obviously makes for a very efficient and very cost-effective order for us as well. I think the more important thing that leads to Andrew is we know that customers want loads of ways of shopping. Online, deliver to home, online, deliver to store, click and collect, go to the shop. Our job is to offer loads of solutions to customers and therefore we think it becomes the most compelling versus our pure players who in the main can only offer you one solution. And we know that works really well for customers, so we're delighted. And it's the start of more things that we want to be able to do in offering more choices.

Thanks a lot. Thank you. And we have also a follow-up from Simon Bowler with Moonis. Please go ahead, sir.

Hi. Yeah, just one quick one. I guess if anything like this kind of level of demand persists, then it's going to leave you kind of exiting this period, going into a bigger market in a healthy position. How do you think about that from a kind of a marketing and a customer acquisition piece? Are there opportunities or needs to kind of invest more into leading into this opportunity at this point in time? Or do you feel you've got that balanced about right?

Yeah, well, we've been doing a series of trial time and over the summer to accelerate marketing and understand the most effective channels to be able to do that. And we've been really pleased actually with the results. So as I said before, you're going to see Puffy and Kitten increasingly just become an always-on campaign in multiple channels. And the good thing about that is actually the return on that investment has actually been really good. So we feel very confident in doing so. I think as ever with marketing, it's very easy to spend a lot of money on the basis of a promise tomorrow. So we always take a very sensible approach in terms of looking at the cost of acquisition, the lifetime value of customers, but also the value that you're going to see within the first year, which is probably more bankable. And so will we increase our marketing? Well, we have done, and we actually will continue to do so because we think the dynamic of new pet owners is one that we're going to see for a couple of months at least to come. And we would be absolutely mad if we didn't want to welcome as many of those customers to our business because it's our best opportunity for our future value. But we'll do that in a really sensible way. We won't just throw money at it because we don't think that does make sense. But we'll do it in a way that actually provides good, sustainable future revenues.

Great. Thanks.

Thank you. And with this, I would like to turn the call back over to you, gentlemen, for any additional closing remarks.

Great. Thank you very much for your time. I'm conscious I know that you've got other calls to go and join today. So I really appreciate the questions. Really high quality. Have a great day and please do take care. And thank you, Leanne, for hosting the call.