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.

Good morning, everyone, and thank you for joining the call. I hope you're keeping safe and well. I'm Peter Pritchard, I'm the Group CEO, and with me today is Mike Iddin, our Group CFO. We're pleased to share with you our interim results for our financial year 2022. The strong performance across our veterinary and recalibration during the last year has accelerated throughout the past six months, and today our business has never been stronger. This is reflected in the results we're reporting today, and I'm pleased to say that our performance continues to be strong across the group, demonstrating the ongoing success of our pet care strategy. There are four key messages to take away from today. The first and most importantly, we now see a pathway to 2.3 billion of customer revenues over the medium term, a substantial increase versus our previous assessments. Sustained and continued growth in new PET over the past 18 months, beyond our previous expectations, is increasing the size of our addressable market and has led to material step-up in the growth opportunity ahead. We believe that we are not yet past peak PET. This is reflected in the elevated levels of customer registrations across our loyalty clubs, subscriptions, and new plant registrations in our vet practices. Sign-ups to our bespoke puppy and kitten club have more than doubled year on year. These customers are incredibly valuable to us. Not only do they spend more with us, they also stay with us for longer. We continue to register nearly 10,000 new clients across our vet practices every week, supported by our in-store referrals and our puppy and kitten program. And the number of subscription plans across the group has grown 45% year on year to over 1.4 million plans And these are currently generating £110 million in annualized recurring revenue, now representing 9% of total group revenue. Second, we are continuing to see strong growth across all key categories and channels. Our lifeline group revenue increased by 22.2% year-on-year and 28.6% on a two-year basis. All parts of the group are growing. In retail, our white-fly grew by 21.9% year-on-year, or 28.9% on a two-year basis. And in our vet group, our white-fly grew by 26.2% year-on-year, that's a 23.8% increase on a two-year basis. In retail, our seller growth is broad-based, with omnichannel revenue growth of 21.5%, and white-fly growth across stores of 21.1%. Strong sales growth translated into strong profit growth, with profit before tax growing by over 77% to $70.2 million. And today, we're also announcing a 72% increase in our interim dividend to 4.3 pence. Third, we're demonstrating the advantages of being a full-service only child pet care business. And through its broad offering of pet products and service across all our channels, Pets at Home is well-placed to capitalize on the full growth potential of the market. We're leveraging our growth in in-house data capability, integrating analytics into our extensive pet data set to drive on parallel insights that are increasing our share of wallet. This is now supporting our day-to-day decision-making because we're using intelligent data to support our decision-making across our longer-term strategic investments, which will drive sustainable, high-quality growth across our business. By combining the best of our unique pet care centres, supported by a best-in-class digital platform, we're giving customers a market-leading pet care proposition. We aim to out-convenience our pure play competitors, building on a base of one-hour click-and-collect and contactless delivery, sorry, contactless collection and home delivery services, which are all performing well. We're now using our pet care centres as mini distribution hubs, improving capacity and reducing costs. Now, the proximity of these centers to the vast majority of the petting population has enabled us to pilot the same-day delivery service, including a two-hour home delivery service with plans to run nationwide in the second half of the financial year. We're driving practice maturity in our unique vet remodel, where strong sales growth has underpinned a significant uplift in practice profitability and cash flow. Vet operating models across the industry haven't evolved for decades. And we've always been a disruptive player within this industry. We recently launched our new operating model, Pathfinder, into two new pet care centres. Pathfinder is designed to optimise clinical resource and improve client engagement and practice economics. Early results are very positive. We're now fine-tuning and we plan to roll out to that pace. Fourth, we continue to execute on our strategic investments our pet care platform. We're now in the build mode of Polestar, our £20 million investment, which is digitising the pet care experience, making it even easier for our customers. The initial phases will land in early 2022. We'll continue to roll out our next generation of pet care centres through our store transformation project, with five new centres launched so far this year, including Warden Ballam, as we continue to build our presence within Greater London. Last week, we opened a brand new pet care centre in Brighton, which includes a significant number of environmental initiatives, which we plan to incorporate into our pet care centres as part of our Pets, People and Planet initiative. And we continue with the development of our planned used storage and distribution facility in Stafford, which we broke ground on earlier this year and it remains on target to go live in 2023. So in conclusion, our performance in the first half further demonstrates the strength of our unique pet care strategy and the robustness of the UK pet care market. We stand here today a far stronger pet care business and we look to the future with a well-invested plan with much excitement and confidence. We focus on running a successful business, but we also focus on running a good business too. We continue to do the right thing by all our stakeholders as we progress our journey to become the best pet care business in the world. And finally, I'd like to express my sincere thanks to all our colleagues and partners across the group for their tireless work and dedication. The last six months have been challenging as the country emerges from lockdown, and the strong results we're reporting today would not be impossible without them. So I'll stop there. I'm sure there's going to be plenty of questions, and Mike and I are here to answer them. So I'll now hand back to our call operator, Tracy.

Thank you, sir. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will now take our first question from Owen Shirley from Bernberg. Please go ahead.

Good morning, guys. Thank you for taking the questions. The first was just a straightforward one on your latest thoughts on what you think the pet population is. is growing at now, and perhaps any thoughts on the outlook for that? Secondly, could you talk a bit about the learnings from the deliver in store or deliver from store trial that you've carried out? Specifically, you know, have you been charging for it? What's the elasticity? Like, if you're the same day delivery, if you've been doing that, yeah, is it helping conversion rates? And how much money? How much cost is it saving on distribution? And then the third question was, if we assume that freight costs normalize back down at some point, when that happens, should we expect that to reverse into a gross margin tailwind, or could it get reinvested in price, for example? Thanks.

Great. Thanks, Aaron. Okay, look, I'll do the first question on pet population and our learnings from delivering from store, and then I'll hand over to Mike to talk about freight. Well, I think the first thing is we haven't yet seen a slowdown in new pet registrations. And we do an exercise once a year where we actually correlate all the market information to try and estimate the size of the pet population. So we haven't done that yet, but I'll talk to you about what we're seeing. So as we said, we are seeing puppy and kitten club registrations year on year up. by over 100%. And typically that means we're registering between 25,000 and 30,000 new Puppy and Kitten members into that program every single week. And within our vet business, we are seeing up to 10,000 new client registrations per week, which typically about 70% of those tend to be brand new pets. So you can see, actually, they're very similar numbers, the ones I talked about when we updated the market six months ago. And that might be surprising to some, but I guess when you realize that most people are typically planning 8 to 12 months ahead to acquire a new pet because they're waiting for a breeder, they're on a waiting list, there is still a shortage of pets, that I guess is not surprising that that's the case. And of course, as you hear from us all the time, actually our market is really driven by one thing only, which is the number of pets in the country. And obviously that continues to grow. That provides a really positive outlook for the future. When we think about the different store, this for us is, we think this is a game changer for lots of different reasons. So what it allows us to do is it allows us to use as many stores as we wish to become picking centers for customer orders. And there's a whole series of benefits why that would be the case. The starting point is a typical store has over 6,000 SKUs in a store. So a lot of, and clearly has all our best sellers, and they're typically within a 15-minute drive time of their pet population. And if you look across the country, that means we're in the sort of 95% of the UK population is within access to a pet home store. So that gives us proximity to where pet homes are. And the benefits are actually on multi-levels. As you mentioned, Owen, one of them is actually cost. So if you've got an order where a customer is in your locality, to pick, pack, and dispatch from your nearby store, and therefore cutting out some legs on your current network, there's an advantage in your freight costs. So there's one of the reasons why you do it. The second is as you're growing your business, and obviously your central picking centers have a capacity level, it allows you to overspill that capacity into your store network and spread it, which is really good. The third is if you've got stores in your network that actually are larger stores and are taking average revenue, you can actually drive the densities of those stores significantly harder because you put more product through them. Fixed costs are the same, so you leverage your store estate in a different way. And the fourth and probably the most exciting is because you're close to customers, you can increase the number of service propositions that you have. So as we mentioned, in 35 stores last week, we launched a pilot to same-day delivery. But actually, that's a two-hour delivery window. And because those customers who live within a two-and-a-half-mile radius of those stores, it gives us a different option for those customers to say, look, we'll get you that stock within two hours. And ironically, the very first order we had, by the way, which was in our Charlton store, from receiving the order to delivery, was 20 minutes, which is incredible, isn't it? But you're absolutely right. What this does for us is actually increases our reach because When a customer shops online with us, and if they were a store-based customer, their spend isn't in chips, their spend is in doubles. So by offering more convenience options, actually what we do is we come back to our primary goal of we drive share of wallet with customers. By using the whole network, we can route our orders to be the most commercial and economic we can in line with our customer promise. And by opening up more choices for customers, we believe we'll drive even more revenue. They're all the benefits of what we're seeing. In terms of the premiums and stuff, still quite early days. But again, back to the point, we just see more share of wallets. And I think the one thing most people forget about our business is typically we get about 37% share of wallets of our customers. Now, three years ago, that was 33%. So it's grown considerably over that three-year period. But the headroom ahead of us is greater than what we've already banked. So the opportunity for us to grow our existing business with existing customers is really, really attractive to get the new pet owners. And I think that puts us in a really strong and compelling position. So Mike, do you want to pick up the freight costs?

Yeah, Owen, you asked a question about freight costs. So overall, our group gross margin expanded actually in the half by over 100 basis points. That's in line with what we expected, driven by the growth in our pet group. But you're right to point out, weighing on our margin in our retail business, where the well-publicized increase is in freight rates. So for us, in the first half, they were around £6 million. So in terms of gross margin, that had an impact of about 90 basis points on our gross margin. We're planning for pretty much the same level in the second half, actually, and that's all in our guidance for the full year. But as we look into next year, you know, we don't see any sign, actually, of those freight rates actually improving. So maybe they'll be here for a little while to come. You asked the question, though, if they did reverse, would we see an improvement in gross margin? And would we then invest that in better pricing? I wouldn't make the connection between our pricing decisions and the requirement for freight rates to reverse. You know, we will remain... competitive on prices, regardless of what freight rates do. You know, we're not going to give any oxygen to any of our competitors by being out of line on pricing. If the freight rates do go back to normalizing and, you know, we would expect our gross margin to improve in our retail business, but don't make the connection between that being us putting our prices lower, being dependent upon freight rates getting lower. We look at those two things completely separately.

Very clear. Thank you very much.

We will now take our next question from Manjari Dhar from RBC. Please go ahead.

Firstly on staff training for sort of the store pick model and the go to store video functionality. What proportion of staff are trained for these? And then secondly, on cross-selling, I appreciate that I think in the release it said that 27% of VIPs shop on more than one channel, but do you have any indication of how that varies by maybe the level of cross-sell online and in-store for the retail business, the vet business and the green range? Thank you.

Great. Manjari, thanks very much. I'll take the first question on calling training. We have a very unique approach to how we reward our people, and that's the more that you know, the more expertise you have, the more that we pay you. And that's why 63% of our colleagues actually earn real living wage, not national living wage, real living wage, because as you complete your training, we pay you more money because you're actually really valuable to us. And this is a really interesting point. We actually don't sell anything. We actually don't think selling everything providing really good advice drives sales. So we ensure that our colleagues are on the shop floor. We don't allow colleagues effectively to interact with customers unless they are to what we call our step one standard of colleague knowledge, which means they can have a really sensible conversation with a customer about most pet subjects. And then our step two, you then specialize in areas like nutrition or reptiles. So what we're able to do through our go-in-store technology is we're able to connect a customer query directly to one of our experts in-store. And the beauty about having so many people who are trained to such a high standard, we can route those calls really effectively through to those people. And in our early learning, actually what we're seeing is we're seeing a basket premium on the back of it. The most popular path of going in-store, by the way, has been new pet owners, puppy and kitten owners, who are seeking advice. And what we can see there is as we can then measure their transactions, we're seeing those customers actually offer a spend premium to us. So when we think about cross-selling, you're absolutely right. When we think about it, we talk about plus one. And really plus one for us is a store customer who engages in at least one of the services, whether that be a subscription, grooming, vets. And that's got 27% participation of our VIP members engaged in at least one of the services. That's grown by 19% year on year. And I think that's just really reflective of our approach, which is, understand a pet customer's needs, help solve their problems, and direct them in the right place to solve them, and actually you will drive those pieces. But combining it with really good insight, and this is where data really comes into its own, our ability to segment customers, predict their needs, and then introduce them to other services is really helping us drive very, very effective CRM campaigns and personalization. So we don't reveal the detail below those plus ones. Of course, all of our services are value-enhancing, which, of course, grows share of water and grows gross margin with our customers. And that model is something that will continue. I think when we get to Polestar next year, that's when it gets really exciting because the ability to really start to uber-personalize a customer's experience on a digital platform gives us another route through to make sure that when I'm on my app, we're putting recommendations in front of you that we know are absolutely appropriate for you, your pets, the way you like to receive and engage. And actually, you know, that's one of the benefits I think as we move into next year that is still yet to come.

We will now take our next question from Simon Bowler from Numis. Please go ahead.

Hi. Morning all. three questions, if I may. First one is on marketing costs and a bit of the kind of marketing investment into gross margin as well. To your mind, is that now a cost line that's going to be structurally higher, given that you understand much more about the opportunity and the returns on marketing spend, or is it unusually high at the moment, just given there's fundamentally a lot more new potential customers out there, given what's happening in the kind of puppy and kitten populations? Well, Okay, fine, fine, fine. And then the second one was on one of your slides, it's quite interesting. I think it's a new piece of disclosure. It's slide 23, where I think you've used some of your data to kind of look at the components of pet care spend over the lifetime of a pet. And I was just wondering, I imagine you've deliberately not given it a very lot by pet, but if there's any indication you can give around All sort of absolute numbers might go alongside that chart, I guess, particularly as you move through kind of the early years of a pet's life cycle. So that's slide 23. And then the final question was just, you've obviously upped your customer sales opportunity today to that kind of plus 900 on the base, but your kind of medium-term guidance for the VET free cash flow opportunity is unchanged at 60 million. And so just looking to understand why that would be the case. Are those two numbers kind of coincident, given they're both referred to as medium-term, or is there something we're missing there? Yeah.

Okay. Well, let me take the first question on cost. And Mike and I will double-handle the questions around pet spend and VAT-free cash flow. You're absolutely right. I think when you look at gross margin in retail, Mike touched on freight costs, but one of the other components in there is the discount cost associated to Puppey and Kitten, where we offer customers 10% off their first shot. And we treat that as a discount, and the marketing cost actually goes into gross margin. And for us, that's just a really sensible approach because it drives significant value creation with our customers because we see that those customers spend a 30% spend premium And we have seen elevated marketing costs this year for exactly, as we've just been talking on this call, which is there are more new pets in this market. And for us, that makes perfect sense, isn't it, to be elevating your marketing costs as long as you can continue to drive a sensible return on that investment. So actually, we're very pleased with the returns that we're seeing on that investment. So for us, that is now a continuation. And you're going to see further bursts of us doing our campaign in the second half of the year. So I think the question on marketing costs, for us, it always comes back down to actually, do they deliver? And the way that we look at all our campaigns, we make sure that as we are investing, that we're getting a sensible cost of acquisition for a customer and a sensible level of return. And we continue to modify. So a difficult one to answer in this pure sense, but actually, we will continue to elevate marketing costs as long as they deliver. And as long as they continue to return, if they don't, then we'll adjust them. Am I doing people the point around free cash flow of debts?

Yeah, but just to build out on that point of marketing costs, Simon, so you're pointing out, I think, the gross margin chart where we've shown 29 basis points of investment in gross margin for investing in new customer acquisition. You know, that perhaps relates to discounts we offer new customers. So, for example, Puppy and Kitten Clubs 29 basis points is about 2 million pounds year on year. So you put that into context with probably double the size of the club, you can start to see how efficient actually that marketing actually is. And to Peter's point, clearly, you know, that's proven a very, very good mechanic to recruit a lot of new customers. On the free cash flow for the vets, yes, you're quite right. We've always returned to the fact that on maturity, That is, when all our practices have gone up the maturity curve, the free cash flow they'll generate will be £6 million. You know, and we'll still hold to that. I mean, just to context, that last year our practices did £38 million. And, well, you know, this year we've gone even quicker, actually, on maturity. As you've seen, actually, with the numbers we've put in there for – profitable practices. You know, we only have, I think, 40 loss-making practices now. When you think a practice is planned to be loss-making in its first four years, and we have about 80 practices that are less than four years old, actually, I think it proves we're ahead of the maturity curve. So that's 60 million. is obviously in sight. And in the context of the growth opportunity, there is growth of that free cash flow beyond maturity because the practices continue to grow even when they are 10 years and older. I guess the key point, though, on releasing that cash flow is that the investment to deliver it, either in capital or OPEX, is largely already invested. So just driving our practices at that maturity curve will deliver that free cash flow. But clearly, beyond the 60s, there's still a significant opportunity as those practices continue to grow.

Simon, I'll pick up the question you had about slide 23. For those of you having a chance to look at it, this is a new chart. You're right, this is a new piece of disclosure which shows the share of a customer wallet between retail and veterinary services over the lifespan of a pet. And that's based on 4.1 million records that we've used. Basically, so what happens is over time, the amount of spend a customer has on veterinary actually grows. And that's not a surprise. We've always often talked about the smile of pet ownership, you know, big spend on retail at the start and end-of-life care. You tend to see more spend into vets. Actually, that really starts to sort of bring that thing to life. We haven't had any more disclosure around us, Simon, except to say this is one of the real benefits we now have of really bringing in our data in-house, is that we're getting quite sophisticated now in looking at how we look at our customer base. So whilst that represents all pets, I have to share with you something we've recently done looking at dogs. So we've used our entire history within our veterinary business to look at the lifespan factually, by breed within vets. And actually, there were some industry numbers that had been previously published. And actually, we now know those industry numbers are actually pretty much rubbish, actually, because we've been able to build that based upon every single breed by dog. And it gives us a lifespan by dog. By the way, if you want a long-living dog, get a Jack Russell. If you don't, get a Great Dane. But what that allows us to do, quite effectively, is then build a lifetime value by breed. And that's really important, because actually as we start to think about our business, and we know from our VIP database the mix of breeds that we have, it starts to allow us to And it's allowing us to think about the journey of that particular breed, about the things that are going to happen at certain points in their lives, and it allows us to do very targeted, very focused CRM. So the data itself is incredibly powerful. How you use it becomes even more powerful. And therefore, I think it just reinforces our confidence that we have about this growth of this market over time, because we're able to see the mix of dogs that we've got, the breeds of dogs, and have a pretty good indication of how that's going to play into their lifetime value and then our business. So... Absolutely right. New disclosure, no more information on top of that. But I think as we move forward, I think you'll start to see how we use this to better drive the insights and activities in the business.

Okay, great. And one very quick follow-up just on the kind of that 900 million target piece. I think when it had been 600 million, you spoke to a third of that coming from VET. I know there's some bridges within the slides here, but Is that, in broad terms, still the right way to be thinking about the uplift as two-thirds retail, one-third VET to get to that 900, or is it slightly shifted? Absolutely.

That's exactly the way to think about it. A third VET to two-thirds retail.

Great.

Thank you.

Thanks, Simon.

As another reminder, to ask a telephone question, please signal by pressing star 1. We will now take our next question from Matthew Gerland from Deutsche Bank. Please go ahead.

Hi, guys. Thank you for taking my questions. First question, in terms of obviously the second half of the year, from a sales perspective, your implied sales number off of the customer opportunity for FY22 seems to imply quite a large slowdown. Can you give any color, I guess, around trends that you're seeing in 3Q? Is there any concern, I guess, from an availability perspective, or is it just some, I guess, headwinds in terms of demand? And then in terms of my second question, can you give a bit further breakdown on What logistics, Covid, and other additional one-off costs are you building into the £135 million FY22 guidance? Should we think of the additional cost as being somewhere between £20 million and £25 million? Finally, in terms of the JVP partners, I can see that there is some reduction in the number of JVPs And some of those have shifted into company managed. I guess, is there anything that we should think about in terms of this shift, given the very strong performance in vet practices for the half? And how do you think about that in terms of, I guess, this year's space growth and then space growth going forward? Has that changed the number of practices you're expecting to open? Or how should we kind of think about that?

Let me take the question around how we think about sales in the second half and I'll talk to JVP and then Mike if you want to talk about the cost. I guess one of the realities of life is the last 18 months worth of likes for likes have been very bumpy and bouncy, haven't they, as we've had different factors playing out. So when we think about the second half of the year, I think the starting point is to remind ourselves that the comps we'll be up against will be stronger comps than they were in the first half of the year. And therefore, the read-through to the two-year like-for-like is probably the most helpful in terms of overall guidance. And certainly the way that we're thinking about is whilst you'll see lighter one-year like-for-like for the second half of the year, actually when you look at the two years, you'll see a real strength in terms of where that is. And it just allows you to read through. And we'll certainly be helping people read through that when we do future announcements so you can actually see how all of them has played through. So for us, that real strength is in the growth of the overall population that we see. So back to the same things we talked about, 13% more new VIPs, growth in Puppy and King Club. They will still result through in stronger future growth, but the individual lifelines will be a bit bouncy as we annualize. I think the second point is on JVPs. In part, we've seen a reduction in JVP partners as we've now concluded what we call Project Light, which is where we address the challenge that we had in our vet business. And we naturally always expect to see some practices come in and out of company ownership, but they tend to come into company ownership for a relatively small period of time until we then put them back out as JVPs. So actually, I wouldn't read anything into that at all, apart from that's just the natural ebb and flow that we see. If anything, as we move forward, we now have greater confidence to be talking about restarting and reopening our VET pipeline in terms of new practices. And we've already opened three new practices in the last three months, being Hanford, Guildford and Brighton. And what's very interesting is we always measure the amount of potential JVPs coming towards us for our future pipeline. And actually this year, that pipeline has continued to strengthen. And in part, we put that down to the success that we're seeing in our business. Success does breed success. But also, our competitors will really only offer you the same choice, which is being an employee vet in a corporatized model. And of course, the real attraction for most JVPs is to having total freedom of clinical independence, as well as being able to be better rewarded for their hard work. And that's driving more vets come to us than ever before. You'll see in our future guidance, we're now talking about reopening that space, and our plan for most of those is to open them as JVP practices. But where required and where necessary, we will open company-owned, but we often see them as short-term measures before we put them back into JVP hands. So, Mike, if I hand you over to talk about availability and logistics costs.

Yeah, of course. And just to context Peter's point on sales, Matt, first half last year, our comp was just over 5%. Second half last year, our comp was over 12. So a real step up in the terms of the comparable number that we're going to lap in the second half. So yes, headline like-for-like will be lower in the second half. But, you know, can't emphasize enough the point around looking at two-year like-for-likes as a better indication of the progress we're making. So your question on cost. Yeah, you're about right, actually, with those numbers. So freight, full year, around about 12 million year-on-year increase, so which would take in half of it in the numbers we're talking to this morning. In terms of COVID costs, we actually at the start of the year planned around 9 million for our COVID costs. That's the number we talked externally about. Actually, COVID costs are proving to be better than that. So, you know, compared to that nine, we're probably planning full year on around five. So we've probably seen a saving in the first half of about two compared to where we were planning COVID costs. And we expect that it was no changes in the external environments around COVID to be about the same. Yeah, so five thought COVID costs, one off year on year. 12 for freight, so in total there are £17 million of costs.

Great. Thank you for taking my questions. Thanks, Matt.

As another reminder, to ask a telephone question, please signal by pressing star 1. We'll pause for just a moment to allow Evan an opportunity to signal for questions. We will now take a follow-up question from Simon Bowler from Numis. Please go ahead.

Hi, thank you. It's just a quick one, a follow-up on that kind of fray headwind, which is, as you say, a reasonably big number and not something at this stage you're expecting to change. I understand that your kind of retail pricing is set very separately to that, but presumably if that was to become a more permanent fixture... or at least part of that has become a more permanent fixture. Is that something that you'd expect to ultimately be able to pass on in pricing, or do you think they are best considered as entirely separate?

Inevitably, Simon, if we're suffering those freight costs and they're part of the industry and how we're managing them, you know, there will be price increases for those products that are brought over from overseas because, you know, that's just then sustained increase in the cost of acquisition of those products. But it wouldn't be at the expense of being uncompetitive in the marketplace. But clearly, those rate rates were publicized. It's not just us who are feeling the impact of those. And if they were here to stay, we'd have to think very carefully about the pricing and the sourcing, actually. of the products that we're bringing in from overseas. Yeah.

I think it's hard to start, actually. We don't just look at product costs based on that. We actually look at all the costs that are in our business. So when we think about goods not for resale, we think about rent. And actually, whilst we've got some inflation in freight lines, we actually have material reductions in others. So you always try and balance those off. And our price position has been really hard one of the last few years. And I think we do have a real opportunity around driving operational leverage around our business. And for us, it's about getting that balance right. I think that's what Mike really alludes to, is we're getting this balance for customers, balance for shareholders, balance for us, and navigating our way through, thinking through the medium term of how we continue to grow our share of all of the customers. I think just for anybody else's benefit, and 80% of this is actually domestically sourced, So our exposure ultimately to freight is not quite the same sort of level as others. And we're not a very seasonal business. So we pretty much bring the same amount of containers into our business every month. And therefore, we're not at the same level of exposure as other businesses may well be.

Great. I think that links into my kind of second or second half of the first question, which is the, I know you don't give this, but Would it therefore be fair to assume that that kind of freightage cost and the impact on your product gross margin is almost entirely around the accessories part of your business and food gross margins have been much more stable given the relative sourcing for those two categories?

In import accessories, food is pretty much all near sourced.

Great. Thank you.

There are apparently no further questions, so I would like to turn the conference back to Mr Pritchard for any additional or closing remarks.

Great, thank you, Tracey. Thank you for your question and your participation. As always, Greg, it was a great question, so I appreciate that. Let me be the very first to wish you and, of course, your pets a very Merry Christmas, and we'll speak to you, hopefully, in the coming weeks round about on Roadshow. Have a good day, everybody. Thank you.