Pets at Home Group Plc

Good morning, I hope you are all safe and well, and welcome to Peta Home's FY22 interim results presentation. I'm Peter Pritchard, Group CEO, and with me today is Mike Iddin, our Group CFO. The strong performance across our retail and veterinary operations during the last year has accelerated throughout the past six months, and today our business has never been stronger. Executing our strategy of providing all of our customers' pet care needs continues to deliver. Through making pet care convenient, affordable, supportive and rewarding across all channels, we continue to see strong growth in new customers, higher levels of engagement and spend, and good growth in our customers' share of wallet. Stronger than anticipated growth in new pets over the past 18 months has really turbocharged what was already a robust market And as the UK's leading pet care business, we are well-placed to capitalise on this opportunity. Our omni-channel model enables us to access all components of spend across product, grooming and veterinary services over a pet's lifetime. We've seen significant increases in new customers across our loyalty clubs and our subscription platforms. We now have over 6.8 million active VIP members, 1.4 million pet care plan subscriptions and sign-ups across our puppy and kitten club have more than doubled. year on year. We continue to see strong growth across our stores, groom rooms and omnichannel operations and our veterinary business continues to go from strength to strength. With approximately 10,000 new client registrations per week and close to 90% of our practices now making a profit. We are building capacity and capabilities at pace across our pet care ecosystem. By harnessing our unparalleled data insights to drive customer acquisition, retention and lifetime value. By digitising the business, building a unique pet care platform and driving our efficiencies across our operations. And through investing in our infrastructure, leveraging our physical and digital assets to provide an enhanced customer experience. Our unique ability to combine products, services and advice across multiple channels into ultra-personalised, convenient solutions for pet owners is a winning formula over the long term. As we look forward, we're really excited about the opportunity for pets at home. Sustained and continuing growth in new pets over the past 18 months, beyond our previous expectations, is increasing the size of our addressable market and has led to a material step up in the growth opportunity ahead. As such, we now have a plan that will drive approximately 2.3 billion of customer revenue across our business over the medium term. That's significantly ahead of our previous assessment. We'll achieve this by continuing to leverage our four unique strengths, focused on four key areas. First, we're investing in our infrastructure to provide a best-in-class customer experience, transforming our stores into pet care centres and developing our new future-focused distribution centre. Second, we continue to harness our data insights across the group, thereby deepening and personalising our relationships and growing our share of all with customers. Third, we are continuing to digitise our business and executing on our 20 million transformational initiative to create a digitally led pet care experience. Finally, we're accelerating the maturity profile of our veterinary business. and optimising clinical resource, client engagement and practice economics through an innovative new operating model called Pathfinder. By focusing on these four key areas, we will leverage the competitive advantages of our omnichannel model, helping us to deliver long-term quality and sustainable growth. Our track record shows great progress, growing our share of a growing market, and today's results are further evidence of the achievements that we're making as we continue to become the best pet care business in the world. Now, speaking of results, I'll now hand you over to Mike, who will run you through the financial headlines. Thanks, Peter.

We are delighted with our first half results. We came into the current year with sustained momentum. We reported over 30% Group Like for Like in quarter one, and since then, strong revenue growth has continued, and that's driven a very strong set of first half results. Our Group Like for Like sales grew over 22%. Profit before tax grew by over 77% to £70.2 million and cash flow grew by over 51% to nearly £92 million. The pet care market is in strong structural growth and that growth has accelerated over the last 18 months and the long-term prospects for the business are very favourable. We're also making excellent progress in implementing our pet care strategy. We've acquired a lot of new customers and we continue to invest to build out our pet care ecosystem and service proposition. The strong momentum we are seeing together with strong growth in the underlying market, together with the progress we are making implementing our strategy, gives us the confidence to increase the size of the customer revenue opportunity across our business to 2.3 billion over the medium term. Turning now to give you some more detail behind these very strong headline results. We saw strong revenue growth across all parts and all categories of pet care. Group like-for-like revenue growth across H1 was 22.2%, with two-year like-for-like of 28.6%. And that's in line with the 29.4% two-year like-for-like we saw in the first quarter. Within retail, that growth was broad-based across food, accessories, and grooming, and that helped drive a retail like-for-like sales growth of close to 22%. Online sales also stepped up. They grew by 21.5%, and that's over 100% on a two-year basis, with our stores playing an even bigger role through both click and collect and deliver from store services. This performance was underpinned by the growth we've seen in new customers with active VIPs increasing by 13% to 6.8 million and the number of our puppy and kitten club members increasing year on year by over 100% as more people bought a pet for the first time. Likewise in the VET group, our like-for-like revenues grew by 26.2% across all our practices, with our like-for-like joint venture income growing by over 29%. New client registrations averaged over 10,000 a week, and that's a clear indication of both the market growth and the strength of our joint venture model. Strong veterinary revenues drove a very robust underlying profit and cash performance. Nearly 90% of our practices are now making a profit. That's ahead of our plan and we still have a significant benefit of growth and maturity still to come. We've also seen pet care plan subscriptions grow by 45%. We now have over 1.4 million plans, generating over 110 million pounds in annualized recurring customer sales. Group gross margin was also strong, increasing by 101 bps year on year to close to 49%. The VET group gross margin expanded as expected and the retail margin was impacted by well-publicised increases in freight costs as well as our planned investment we've made to acquire new puppy and kitten customers. Let's take a closer look at the cost base. Our underlying operating costs grew by 11.2%. That's about half the rate of our group like-for-like sales growth. We remain very disciplined on costs, investing to grow the business by building capability and capacity, but also continuing to drive operational efficiency. Our programme of rent reductions continues, and we continue to reduce our procurement costs right across the business. strong sales growth, gross margin expansion, and the focus on costs translated into strong profit growth, with profit before tax growing by over 77% to £70.2 million. Turning now to capital expenditure and our investment plans. we've continued to invest to support our pet care strategy. In the first half, we invested nearly 33 million pounds as part of our full year plan to invest close to 70 million. And this investment is across three key areas. Building our new distribution centre at Stafford, which is well underway. Investing £20 million into the digitisation of the business through Project Polestar. Regenerating our pet care centres as well as opening new ones such as Hanforth and building more store presence within the M25, for example our new Balham pet care centre. Looking now at cash flow, the business continues to be very cash generative, with free cash flow increasing by over 50% to £91.6 million. Our first half cash result was primarily driven by the strong operating performance of the business, and we also had a timing benefit in working capital, and we expect that to reverse in H2. We've continued to see very healthy revenue performance in our VET group, leading to the ongoing repayment of operating loans. We had a further £4.4 million repaid in the first half. In conclusion, we've made really strong progress. Our key financial measures of sales, profit and cash flow have really stepped on. We have a very solid balance sheet, including cash of over £64 million, and our unique business model has attracted a significant number of new customers and that bodes really well for the future of the business. All of this gives us the confidence to increase our interim dividend by over 70% from 2.5p to 4.3p. The prospects for the business are excellent and in the first half we saw customer revenues growing faster than planned underpinning the increase in full-year profit guidance we gave earlier this month. In the year to March 2021 we estimated that the UK pet population had grown by around 8%. It's now clear that strong growth in pet population is continuing into the current year and this will support future annual market growth at least at the top end of our previous estimate of between 4% and 5%. This gives us the confidence, together with the growth we've already seen in the first half, to increase the size of the customer revenue opportunity across our business to £2.3 billion over the medium term. And that compares to the £1.4 billion we achieved last year. Thank you for listening. I'll now hand back to Peter.

Thanks, Mike. I'm incredibly proud of our business, proud of the collective efforts of all of our colleagues and partners across the group. We stand here today a far stronger pet care business and we look to the future with much excitement and confidence. Our business is so unique and we have a leading position in a robust market which is now growing even faster due to stronger levels of new pet ownership in addition to the structural demand drivers of humanisation and premiumisation. We are more committed than ever to building the best pet care business in the world and we know the best of pets is yet to come. Thanks for watching, stay safe, and take care.