Pets at Home Group Plc

Good morning everybody. Thank you so much for coming this morning and spending the time with us. Today actually marks my one year anniversary as CEO and it has been the most enjoyable, rewarding, challenging, demanding and incredible year of my life. And I've been out and about a lot in the stores and in the vets and really felt that special culture in that is pets at home. It's absolutely fantastic. So we're announcing today, and you'll have seen this morning from our R&S, record results, record revenue growth, record profit, slightly ahead of consensus, record free cash flow of almost 100 million, and importantly, record consumer growth as well. Our growth has come from volume as well as value. We've also made really strong strategic, operational, and delivery progress in the business this year. We've opened our new DC, and Lisa will talk to you more about that. We've launched our new app on our new digital platform and made real progress there. And we've launched our new branding under our new PETS brand, bringing the business together. And it's that combination of record results and real strategic and operational progress in the business that gives us the confidence to step forward with our updated strategy, our medium-term growth strategy, to build the world's best pet care platform. So today you're also going to see and hear from the team, the team that is a new team and the team that I believe has all the talents, all the skills and all the capabilities we need to deliver our medium term strategy. So I'm going to talk about the vision for the future of the pet care, outline that, and you're then going to hear from Catherine. Catherine has joined the business in recent months in the newly created role of Chief Consumer Officer. And Catherine brings decades of talent in bringing together consumer-facing businesses. And she's going to talk to you about the consumer experience, the integrated consumer experience that we're building at PETS. Then William's going to come and talk to you. William's been at PETS a few years now, building this digital and data platform. We're already a way through. And he's going to talk about where we are and the exciting stuff that's yet to come as we build that out. Then Louise, many of you will know her. Louise has been at PEPs 18 years, over 18 years, initially in legal. She led us through the IPO as general counsel. She then spent a time as our chief people officer, really sustaining our special culture. And she's recently moved across to run the vets division. And she's going to talk about how our differentiated sector-leading vets are a really core element of our growth strategy. Thank you. And then Lisa's going to come to the stage. Lisa has been at Petz a long time, but has really deep and broad experience across the UK retail sector through economic cycles. And she's going to talk about how our scale and our category authority in retail translates into growth. And lastly, Mike, who you all know, I'm sure, and who's been my incredible partner this last year and an incredible steward of the business for the last seven, is going to come and talk about that financial framework, that strong financial framework and the rewards that we're going to generate for all of our stakeholders and, importantly, for our shareholders over the medium term. So, our vision for the future of pet care. Well, it starts with a unique position in what is a structurally growing market. The structural trends have been in evidence for a number of years and they'll continue around premiumization and humanization, but they're joined by a new trend of penetration. Premiumisation, people buying higher-end products and services for their pets, and Lisa will talk to you about how we're going to lean into that, particularly in food and accessories in the future. Humanisation, natural foods, complex healthcare, and Louise will talk to you about how advanced practitioners in our vets business are leaning into that trend. Penetration, though, is new. Of course we had a COVID boom. What we haven't seen is a COVID bust. We're seeing that the rates of new pet ownership are sustained. They have come off a little bit since the very height of COVID, but they're massively elevated since pre-COVID. And that is driven by real trends in in lifestyle, in hybrid working. People have got the confidence to get a dog because they know that they're going to be at home at lunchtime to let it out. And we're definitely seeing that come through Gen Z, as my kids would call it, with people getting pets younger, potentially as they're postponing different life stages like marriage or getting a house, they're investing in their pets younger. So that penetration, that third trend, is here to stay. And we are the only provider that really competes and has strong positions across the whole market. We have commanding positions in premium food and accessories, those high margin, high growth categories. But we're present across the whole market with plenty of headroom for broad-based growth. And we're the clear market leader with a track record of over performance of taking share. We grow share in this growing market. Our track record since 2017 when we were at 18% and now at 24% has been to take 600 basis points of share. And that overperformance will continue. It also translates into sector leading results. The financials that we're announcing today, 1.4 billion revenue, a record, 136.4 million of profit, ahead of consensus slightly, and 98.2 million of free cash flow is the record. But that's not just been built on one year of pricing. It's been built on a really strong competitive position, and we've seen a growing consumer base as well as growing revenues, probably quite uniquely, actually, in the sector. Our VIPs now stand at 7.7 million. We've grown our subscriptions to 1.6, and we've seen really strong growth in nutrition subscriptions, which we've started to build out now in our stores, and our vet clients continue to grow 15,000 to 20,000 pet sign-ups every single week. We've continued to invest in customer growth. We've balanced that with revenue growth and with profit growth. And we've continued to invest in our brilliantly well-located national pet care centres and our vets. And in all of that as well, we have continued to invest in our 16,000 colleagues. They really are at the heart of our business. We've put through wage increases this year that make sure we continue to stay at real living wage for the vast majority of our colleagues. That's really important. The training, the expertise, the talent, the care, the passion of our colleagues is at the heart of our business. It's a strategic competitive advantage and we've continued to invest in it and will continue to do so. So we have a really clear strategy in the medium term, one that will unify the business and drive us forward. It starts with our purpose to create a better world for pets and the people that love them. That flows into our vision to build the world's best pet care platform, which will be integrated, omnichannel and consumer centric. And it's all underpinned by our values for pets, people and planet. I'm going to unpack that for you. to create a better world for pets and the people that love them. This really is a passion that flows right through the business, whether it's a vet performing emergency life-saving surgery, a groomer giving a gentle first bath to a puppy who might be quite scared their first time in the groom room, one of our retail colleagues delivering a workshop to some Boy Scouts and letting them handle guinea pigs for the first time, or someone in a support office designing some environmentally friendly packaging. That idea that we are creating every day a better world for pets and the people that love them is a passion point through the business, and it underpins what people do every day, day in, day out. And our customers feel it, they know it, and it's what keeps them coming back. It also leads to our bold, clear and compelling vision to build the world's best pet care platform. This platform is going to deliver everything a consumer needs to take care of their beloved pet when they want it, how they want it, where they want it. And there's three really core elements that differentiate our platform and set it apart as the world's best. Firstly, it's gonna be integrated. It's gonna bring together a blend of products and services and advice that nobody else can do, whether that be performing orthopedic surgery, amending a nutrition subscription getting a new toy for your pet everything that you want to do you can do with pets at home nutrition accessories preventative care curative care grooming well-being a very strong and emerging category and in time more adjacencies it's all there for us to pull into our platform and we're the only people that can do this Omnichannel. Omnichannel has been a critical component of our growth over the past five to ten years and will continue to be so even more going forward. We will seamlessly connect our channels. Of course, our physical real estate is critical and Lisa will talk more about that. our pet care centers, our practices, so much of pet care is face-to-face still. But around that, we will wrap virtual consultations, digital advice and support, e-commerce, our stores acting as mini distribution hubs so we can get product to customers cheaper, faster, better than pure play competitors. And in time, things like e-pharmacy and telemedicine Making sure that wherever the customer wants to access their pet care, it's all underpinned by the same platform and it has that easy and enjoyable, seamless nature. Consumer centric. This is really my heartland in building consumer centric businesses. And Catherine, who's going to talk to you again, deep deep experience in this but making things seamless and frictionless making them easy is a way to engage consumers more in the ecosystem so that they spend more with us and they stay longer and importantly making it enjoyable we shouldn't forget that pet care is a joy and bringing that to life not only physically but digitally is a real critical advantage for us and targeted and personalized knowing what the right thing is to do to talk to a customer about in any interaction we have with them, all underpinned by our incredible data capability, which Catherine and William will talk to. So an integrated, omnichannel, consumer-centric platform is going to be the world's best and that nobody else can bring together. And of course, what's good for customers is always good for stakeholders and shareholders and for the business. And there are three key ways, actually, in which building our platform drives through to differentiated economics. The first is that by being integrated, by delivering product services and advice on a single platform, we deliver significant economies of scope. We can do businesses better and cheaper because we do more than one. Let me just give you an example of that. Say our green rooms. So our green rooms are often located on a mezzanine in store, very cheap to build. Don't pay a penny more in rent, right? It's all in the same estate. We get our customers largely through our puppy and kitten club. We've acquired them already. No incremental cost of acquisition. Our colleagues in those green rooms often are drawn from our pet care centres. No incremental cost of recruitment. And vets on site also turn out to be a real benefit because consumers are much more comfortable leaving their pet in a groom room knowing that if anything did happen, there's a vet on site which no one else can match. And then lastly, when the fair groom's done, the consumer will often buy a little treat for their pet on the way out, driving our retail business. So you can see why we can offer that business better, cheaper than anyone else can do it. And that is true, of course, of our vet business, of our retail business, of e-commerce. By having them all together, we drive significant economies of scope. And the real rocket booster for that is our data and digital platform. And William is going to describe how we can build capability once, on the same platform and deploy it many times. The same capability that allows you to do a telemedicine consult with a vet, allows you to do a post-surgical checkup with a nurse, it allows you to do a product demonstration or a nutritional consult with a retail colleague. We build once, we deploy many times for a certain fixed cost. So that's how our economies of scope work. Being omnichannel also gives us significant economies of scale. And Lisa will talk especially about the DC and how our estate acts as mini DCs, giving us real advantage there. But it also, by having many different skills and talents within one pet sector, within one platform, we're able to give the right task to the right colleague at the right cost. So for example, it doesn't make any sense for a vet to be doing a nutrition consult, but consumers will often ask their vet, which food should I be feeding my dog? Well, they can easily just refer that to one of our retail colleagues who's very well trained, will provide that service better and at lower cost, freeing up the vet to do more curative and surgical procedures. And those kind of productivities are right across our ecosystem, given the wealth of talent that we employ. And lastly, consumer-centric, a really unrivaled experience. This will fuel consumer and revenue growth, particularly through share of wallet. And Catherine's going to talk about how we unlock some of that. But in my experience, by making things easy and seamless, you can drive cross-sell, you can drive up-sell, you can drive subscriptions and lifetime value. And this is where our data comes in. really, really comes to the fore. We're just in the foothills now, really, of how we're using our data. Huge opportunity ahead. Also, in terms of things like national branding, I'm sure you've all seen our advert that's on telly, one ad of the week, but it's a great ad. But it also, it talks about grooming, it talks about our vets, it talks about retail. it talks about product, it talks about services, all in one 30-second spot. So we get significant marketing efficiency and effectiveness from having a single brand. And when you plug our data into that and you put it into digital marketing, that boosts itself again. So across the board, this integrated, omnichannel, consumer-centric platform will drive really differentiated economics for our business. And all of this is underpinned by our values. Our values around pet, to improve the life of every pet in the UK, being the leading advocate for pet welfare. We already have the highest standards of welfare and clinical standards for pets in our care. We flow those into our product design to make sure everything that we design and sell is safe, and good for pets. And we use our voice and expertise to advocate for pets where they can't advocate for themselves. We've also historically always been the largest grant giver to charities in the UK. Our foundation has donated over 50 million pounds in the last decade, 5.8 million pounds this year. And I'm particularly proud of the fact that as the cost of living crisis emerged, we rolled out food banks to nearly every one of our stores in partnership with the Blue Cross and fed over a million dogs and cats a meal this year that help them stay in their loving homes. People, to be the best employer and developer of talent by creating rewardable, sustainable careers in pet care that are open to everyone. Louise is going to talk about our clinical talent strategy, a really core part of our vet growth strategy, and Lisa will talk about our investment in our people. Inclusion, for me personally, is a really important thing, and we're going to make sure that our colleagues represent fully our diverse communities. We're doing brilliantly in some areas. In other areas, we've got some way to go. It's a passion point for me. And lastly, plan it to make pet care environmentally sustainable. We're doing really well on scope one and two on our emissions. We've put solar panels on the roof of our distribution centre so that we're energy self-sufficient. We're converting our fleet to biofuel. But if we really want to get to carbon net zero by 2040, the thing we need to look at is pet food. and the carbon emissions of pet food. And to that end, we've already made some progress. We launched an insect-based protein and a vegan dog food under the Wainwrights brand this year, actually selling pretty well. And we've recently made a sort of scout investment in a company called Good Dog Food, which is looking at cultivated meat. It's not an easy problem to solve. We're going to have to make a number of interventions and bets, but we're committed to be the leader in this space. So how does our strategy drive through to our financial model? Well, we expect the market to continue to grow at 4% driven by those trends of premiumization, humanization, and penetration. We will grow 300 basis points consistently ahead of that market. We're going to outperform the market by 300 basis points based on the investments we're making and the strategy we've laid out to build the world's best pet care platform. As that tumbles through the P&L, EBIT profit will grow ahead of sales as we make efficiencies, effectiveness and productivity gains in our operation. And as we get through the peak of our investment, we will trend to 70% free cash flow conversion of that PBIT. And that generates significant rewards for shareholders. We've today announced a record dividend. And on top of the £50 million share buyback we did last year, we're announcing today a further £50 million share buyback for the coming year. Before I leave you, I wanted to show you a video that we use internally. And it's about our brand world, how it all comes together. And you can see the future of the platform in this video and how it's going to deliver a one-stop shop, easy, simply, and enjoyably for consumers.

As you can see, we've got a beautiful, refreshed brand. But a brand is so much more than a look and feel. It's about ensuring that we know our role so that we show up consistently in whatever channel a consumer wants to operate with and engage with us in. and that we make it easy, convenient and enjoyable. The great news is we've got strong foundations. With over 30 years' experience in the pet care sector, we know our role in taking care of pets and the people that love them. We have scale, breadth and credibility in every area in which we operate, and pet consumers trust us to carry out that role. but our largest opportunity is share of wallet. And today, although we've brought our products and services together, they still operate with some friction. We're removing that friction to make sure that it's convenient, easy and enjoyable for consumers to engage with us and for us to engage with them. So let me unpack it in our presentation. If we start with our role, as I said, 30 years of expertise. We understand pets. We know the connection between you and your pet, and it shows. Lisa will share with you that of our colleagues, 80% of them own a pet. And that comes through when we interact and engage. So our role is that we provide the best products, services and advice to guide pet owners throughout their pet care journey. And we're uniquely placed to do so, from welcoming them in our puppy and kitten club to ensuring they get nutritional advice on their specific pet and giving them access to the best veterinary care throughout the life of their pet. is all delivered through our skilled and passionate colleagues and partners, which Lisa and Louise will talk about later. But now on to why we're so trusted. And this is a stat. This is part of the reason why I joined PETS, to have 70% of pet owners saying they trust us to carry out our role. It's seven times that of our nearest competitor. We're by far the leaders in this sector. And it was hard-earned. It was that 30 years of experience. It was delivered by our skilled and passionate colleagues and pet partners. Last year alone, we took 73 million transactions through our pet care centre. Our veterinary partners did over 5 million appointments, and we groomed a million dogs. We've got scale, we've got breadth, and we've got credibility in every area in which we operate. But how do we keep staying ahead? by keeping ensuring we understand pet owners better than anyone else. That 30 years' experience is coupled with the largest proprietary data set in the industry. Over 10 years, we've gathered data on over 8 million active consumers. We don't just know what pets our consumers have. We know their diet preferences and we also know their health outcomes. And we're using this data to help us deliver the strategic choices we need to do as a business so we consistently stay ahead by meeting consumers' needs. Lisa talked about our data capability. Another reason why I joined. They've built it. We have that data capability and now we're at the foothills of using it. And we've got confidence to use it in anger because we've used it this year and we've already seen returns. So we're at the foothills. We've used it in our CRM program. And just by showing our consumers when we write to them that we know their pair, we've delivered 170% increase in sales. They've run at us. We've also been able to nudge year one consumer annual customer value by 20%. Again, by ensuring we offer the right products and services at the right time. And on our journey to increase share of wallet, we've taken our touch points per consumer from 2.6 to 3.6%. But it's not just about money today. The brilliant thing about the pet care sector is a dog is for life, right? So once you start feeding it, once you start ensuring that it's got the preventative health care and sometimes the curative needs, you have to keep going. So when we look at acquisition cohorts of previous years, you can see that their spend is highly predictable. And it's sticky. It's sticky because we do the right things and consumers, therefore, stay with us and it provides lifetime value. This is really key because it gives us confidence that when we invest to acquire, we know we're going to return the values over time. Now, as Lisa said, we have benefited from an increased penetration. There's been a boom. But not only that, we've also got much better because of our data capability of capturing a greater share of the puppy and kitten market. Over recent years, we've taken 35 to 40% share of puppies, That's much higher than historic and much higher than our market share. And what that has led to is 42% of our VIP customers have a pet that's less than four years old. So that's going to deliver value for over a decade to come. Now onto our biggest opportunity, and that's about growing share of wallet. Our average pet consumer spends 160 pounds a year with us. But our most loyal customers spend many more multiples. They're much more likely to engage in one more product or service, take advanced nutrition, get their dog groomed, be part of a vet client. And you can see our most engaged consumers spend up to 950. But our plans don't mean that we need to get every consumer to 950. If we just took the annual customer value up by 10 pounds, that would deliver 77 million of incremental revenue. If we just pause for a moment on 10 pounds, a dog toy, six to eight quid. We could buy a top-up, a small bag of Wainwright's food on Click and Collect, 10 pounds. Preventative flea and worm, £4 a month. These are all things that you need to do as a pet owner. Indeed, 75% of spend in the pet care sector is not discretionary. You have to do it in order to ensure your pet has a happy and healthy life. So consumers are spending this, they're just not always spending it with us. And the reason why is because we've got a collection of products and services. They're on different platforms. There's different logins. So we haven't made it easy or convenient for consumers to interact with us and for us to interact with them. A little known fact, our puppy and kitten club, only 10% of them were a vet client. But when I went and spoke to our pet care centers, our most engaged, where our colleagues and vets are working in partnership for the better health of the pet, 30 to 40% of puppy and kittens are a vet partner. That's because they're helping the consumer go through that friction. So imagine when we remove it. So in summary, share of wallet is our largest opportunity, but we're really well placed to go after it. We've got the data capability. We've got the expertise. We just need to make it convenient and easy for consumers to engage with us and for us to engage with them. And if we do that, they were going to reward us with a greater spend of money that they're already spending. So I'm going to pass on now to William.

Hi, morning. So I'm William. I'm the tech, digital, and data guy. So I'll be introducing you to the digital section. Today I want to share with you how digital is a core element of how we're going to create our truly integrated omnichannel pet care experience. It's across everything that we do. in our pet care centers, in our vet practices, and for our consumers. And what we're doing is we're using our digital platform to join up the experience for consumers. Colleagues in store are already connected to the same platform that we're building the consumer app and website on. And in this way, gives us the ability to join up the digital and the physical experience for our customers. And we've started the project to replace our VET practice management system with a modern cloud-based system that will drive efficiencies in our practices, but will also sit on that same digital platform. It allows us then to join up the VET services for customers as well. So by building our digital platform in this way, we're able to create a unique pet care experience. And that's something that our competitors can't do. And the good news is we're a good way on our journey already. So if we take a look at this roadmap, we're looking at what we've already delivered here. So as Catherine mentioned earlier, we've built our data platform. We've built our data team. We've got our data scientists. We've got our engineers. We've got in our data platform all of the loyalty, digital commerce, clinical data from 8 million customers, 10 million pets. And we've created our customer DNA. We know so much about our customers and their pets. We've used it to build a best-in-class customer lifetime value framework. Using this, our data scientists have built AI models which create enhanced personalization. And this is driving the increased customer frequency and incremental revenue that you saw in Catherine's slides. We also have sophisticated geospatial analytics. We use our own data along with things like demographics, travel time, housing stock, right across the UK to identify white spaces in the UK that would be appropriate to open a new pet care center, a new vet practice. And having identified where those locations are, we use our models to then define how much should be given to the vet and how much to retail. And then within retail, actually what products we need to stock to best serve the customers in that locality, in that area. We've modeled our product price elasticity and our cross elasticity of demand. We use this to inform our commercial teams so that they understand the profitability of any price investments that they want to make. So I've given you a few examples there to kind of bring to life how data is woven throughout of our business. And all the future investments that I'll talk about on the next slide, they contain data and AI as core of how we're building them. But we've also deployed our colleague devices across all of the stores, the devices that are connected on our pet care platform. And we're using that, our dev team are rolling out new apps all of the time. We use that to roll out new services for our business. For example, the ability to sell food subscriptions in store. And we've deployed the first version of our consumer app, which joined together loyalty and shopping in one convenient app. We've seen it's going really well. We've seen 20,000 customers sign up per week for the app, and our like-for-like sales growth is really strong. And finally, and I suppose the largest amount of work was to build our modern cloud-based end-to-end solution that underpins everything, underpins all of the things that we're building. But, of course, we're not done yet. There's much, much more for us to do. So looking forward on our roadmap, the next thing that our customers are going to see is the new customer website and app. That will be this financial year. That will be built on a digital platform. It'll offer better UX and UI, so a better design. It'll have better commercial capability with promotions, the ability to bundle offers, and an improved checkout experience. It'll also have improved subscriptions capability. So the new website and app will drive incremental revenue and subscription growth. Also this financial year, we'll pilot our new modern cloud-based practice management system in our vets. And as well as linking to that digital platform that I talked about earlier, so that we can join up the experience for customers, it offers new capabilities in its own right. For example, live access to patient records, which allows us to provide new services or digital consultations in a much broader way than is possible today. The new PMS will drive efficiency in the vet practices. It will free up clinical expertise. That's our vets and our nurses. And it will do that by automating and reducing administrative tasks that will allow our vets to treat more pets. Also, critically, it will be scalable, which we'll need as we grow our vet business. Now, as we continue to build on these systems, customers will start to see more features arriving on these platforms, like a single booking engine, one easy way to book services such as the vets or the groom room, a customer's dashboard, which will bring together clinical data about your pet, your subscriptions, your reminders, your personalized messages. And then next we'll be introducing one way to manage, one way to subscribe, one way to interact and shop across our integrated physical and digital platforms across the vets, the pets and grooming. Once the pilot vet practices are completed, we can then start the full rollout of our PMS across all of our vet practices. And we'll start to see those benefits go across our business. And as the rollout of the PMS continues, we'll be able to switch on the full, seamless, personalised pet care experience, physically and digitally, all powered by data and AI. So in conclusion, digital and data are a core part of our plan. We're convinced is a key enabler for growth. There's a lot that we've already done very successfully, and we know that there's much, much more to come. We have a clear plan and we look forward to updating you on the progress as we create our truly joined up pet care experience across our digital and physical assets. So I'd like to introduce Louise Stonia, who's our Chief Operating Officer for Vets.

So welcome to our vet business. Our vet business is in a really great place. We have a strong track record of profitable growth that has benefited both us and our partners. It is now one of the largest, most productive businesses in the UK vet industry. But that growth story is not yet over. Today, I'm going to share with you how there's plenty more growth to come with maturity supporting growth over and above our medium term ambitions. And then multiple levers we have to help our vets grow through advanced capabilities, through extensions, and also through productivity. So our vets business is unique in an industry that has really been characterized by consolidation over the past decade or more. And at the heart of our joint venture model is clinical freedom, which allows our clinicians to fulfill their clinical ambitions. This is combined with a unique opportunity for those clinicians to own their own practice and so share in the value that they create as they grow their businesses. But combined with exclusive access to and support from our pet care platform. So we are convinced that if we can unlock our clinical talent to provide the best care for pets, we will build the strongest, most sustainable business in the industry. So that is why clinical freedom is at the heart of everything we do. Our vets are highly skilled. We have a significant number of certificate holders, and our general practitioners also carry out a range of complex clinical cases. So in fact, 68% of our revenues last year came from more complex curative procedures. So on a weekly basis, it's quite often to find our vets carrying out a range of surgical procedures from ophthalmic, orthopedic, laser, cardiology, to name just a few. But this means we can limit the amount of work that we refer externally. We've got five practices that have got 24-hour hospital status, and I'll talk later how we're going to invest more behind this capability, how we're going to extend our general practices, as well as putting in more advanced services and hospitals. So our vets business is in a very strong position underpinned by a track record of growth that has benefited both us and our partners. So our partners last year were able to take 33 million in dividends. This was up from just 7 million in 2019. So our model drives sector leading returns because our vets are more productive due to that owner mindset. And that's why we're confident about that next phase of growth. So the strength of our model is seen in our results with that owner mindset really driving superior practice economics supported by our value-added services. So as you can see on that chart on the left, our comparable debt-free practices are more productive than our corporate equivalents. And remember, this includes many standalone practices too. Our debt-free practices generate, on average, higher revenues, more EBITDA practice, and as I said, our partners benefit from taking dividends and the potential value on exit, and that's something that is not available to employed clinical directors in corporates. So last year, 14 of our joint venture companies carried out either partial or full sales, realizing the value that they had created, bringing in 45 new partners. So 37 of these were completely new for a partnership. They were external, but also eight of these were from our internal talent pipeline. So that success of our strategy over recent years has actually seen the economics of the entire practice estate improve significantly, with the average practice now generating revenues of 1.1 million. And over the past four years, average EBITDA has seen a 58% compounded annual growth. So this does really give us confidence as we look forward to that next phase of growth. And that growth means that we are now a leading player in the industry, and our vet business is a material contributor to the group. Our vet business generates close to 500 million of consumer revenue, making it a top three player. It represents 29% of our group consumer revenues, 37% of PBT and 46% of group free cash flow. And with stronger growth expected in the vet business going forward, this will only increase. So where do all of our practices sit on that maturity curve? So all of our practices are moving along that maturity curve and this alone will deliver significant growth. Now you've heard us talk about maturity for some years now and we're making really good progress here as the earlier slides show. So around 60% of our joint venture estate is now debt free. This is compared to just 25% in 2019. But that story is not over. Our mature practices have continued to see really strong growth. And so our view on what that potential is has moved forward with that. So our mature practices, which just to remind you, are those practices which are debt-free and generally over 10 years old, now average 1.4 million of revenue of practice. By moving all of our practices to this point would support a 25% growth in consumer revenues. But 1.4 million is just an average, with many mature practices generating revenue, which is significantly higher than this. So I'll just share with you the examples of Barnsley and Stockport. So both of these practices are more than 20 years old. Last year, Barnsley generated revenues of 6.6 million, and Stockport generated revenues of 4.3 million. And there are many other growth levers and not just maturity that will support growth. So as our practices become debt free, as they approach that point of maturity, we need to think more about how we can support our partners to really reach their full clinical and growth potential. So we have given this considerable thought and have identified a number of growth levers for the business beyond maturity itself. We can invest behind partners, helping them to grow, but also benefiting ourselves in the process. We can invest behind extensions to release that spare space and talent capacity. We can invest behind advanced capabilities and 24-hour hospitals to really limit the amount of work that we have to refer externally. And we're working with our partners to unlock further productivity within their business. We will also look to ramp up our rollout, targeting 5 to 15 openings per year. And we think this is achievable when we look at our pipeline of JV talent and the available talent in the industry. So we're opening our first this financial year next week, 2nd of June in Spalding, which is brilliant. We have significant headroom here, even with our own pet care centre estate, with 136 centres not currently having a vet. But the important thing to remember here is that all of these areas of investment are proven and low risk. We have a model that works for us and for our partners. We've already extended many practices within our estate. We've invested behind advanced capabilities like the CT scanner you can see on the top left of the slide, as well as standalone advanced service practices like Colchester that you can see on the bottom left of the slide. And we've also rolled out many productivity initiatives across our group managed estate. These multiple levers support future growth in the medium term. So with these multiple levers, which I've just highlighted and can be seen in this chart, we see tremendous growth potential within our vets birth business. So in the year just gone, we delivered close to 500 million in consumer revenues. And together with all of those levers we have at our disposal, we see that potential for consumer revenues to achieve compounded annual growth rate of 9%. Around half of this will come from maturity, and then the other half will come from those growth levers that I mentioned earlier. And this growth, highly defensible, highly profitable, mutually beneficial. We are also the only vet business that has exclusive access to a complete pet care platform that brings unique advantages to our joint venture partners. No other veterinary business in the industry has this advantage. Our joint venture partners benefit from the support we offer them, enabling them to focus on providing the best care for pets. We take the hassle out of being a business owner, handling a range of business services, including supplier negotiations, giving access to the best terms, helping with their accounts, securing the best talent. And we can support financially when appropriate, helping them to invest behind the right growth opportunities. Now, you will have all heard about the talent challenges in the vet industry, and we are not immune, but we are well placed. Why? Because we have everything that vets value highly. Our group offers vets clinical freedom, ownership opportunities, a large support network, and a diverse clinical caseload. So this results in our vets having access to the best talent within our practices. Now, talent will continue to be a challenge, but one we are well prepared for and confident that it won't impact our growth. Our partners also benefit from being integrated into our platform too. So most obviously they benefit from those client referrals that Catherine talked about, our store footfall and that brand halo. And there is still a significant opportunity to increase that vet penetration within our existing VIPs as you saw earlier. We invest behind national brand campaigns and this is going to step up going forward. And then looking forward, our partners will increasingly benefit from the platform investments that William also presented. So including that new practice management system over the coming years that will enable them to release valuable hours away from admin tasks into higher value vet care. as well also the integration of the VET connection into our operating model. And that's going to enable more seamless interaction with consumers across our platform, enabling our VET clients to engage with us however they wish. So whether in person, remotely, or whether they want to do so in a hybrid way. So in conclusion, our vet business is in a great place. It has performed admirably over recent years, benefiting both us and our partners. It is now one of the largest, most productive businesses in the UK vet industry. And there is plenty more growth to come. Maturity will support growth over and above our medium-term ambitions. In addition, we have multiple levers to help our vets grow through advanced services, extensions, and productivity. With this, we see the opportunity for a 9% compounded annual growth rate in our consumer revenue. And as we grow, our vets grow, and we both benefit building a sustainable, leading vet care business. Thank you. I'm going to hand to Lisa, our CRO of Retail.

A unique retail proposition. That's what we have. And we have that due to the combination of four winning ingredients, which I'm going to take you through today. The first of those are our amazing pet care centres that really are the link to our omnichannel business. The second are amazing colleagues, highly trained expert colleagues in their field that help us day in, day out. And then you have the unrivaled product portfolio that we have. And all topped up with the depot, the brand new depot, which I'll delve into. But this combination gives us a clear competitive advantage, one that is hard to replicate. To the heart of our retail business are our stores, 457 stores. And they're spread across the United Kingdom, which gets closer to more pet care owners than anyone else. The estate is profitable, it's in growth, and it's flexible, thanks to the five-year lease that we have on average in our stores. And stores play an absolutely critical role in our omnichannel business. They're where we can bring it all together. For instance, if you look at an online order, actually 40% of our online orders are actually collected in store. And if you take a subscription, 75% are actually done in store. So that combination of online and offline really comes to life in our store. That's where the magic happens. It's quite unique because where else could you go where you get a groomer, you get a vet, you get a colleague who's trained incredibly highly, and you get the breadth of offer. It really is unique. And because of the critical role stores play, we will continue to invest. So in the medium term, we're going to open 40 new stores. As Lou said, between 5 to 15 vet practices. And in this year alone, we'll do 20 extensions, vet extensions, and we'll do 30 space swaps. And when we say space swap, we'll go into the store and we will reapportion the space and the range so it's more tailored to the local catchment. So a real big win on that. And at the heart of our stores and of our retail business is food. And I truly believe if you win on food, you win across our business. And I think this chart illustrates it perfectly. So a highly engaged food shopper will spend or will actually come into our stores four times more often. So stores and online will see them four times more often than a lower engaged food shopper. Which is great, but the real beauty is that food shopper will spend 60% more across their entire business. So they will probably be a vet client, they'll certainly be a grooming client, and they will spend more on accessories. So capturing that customer really, really will generate that cash. Now, the good news is we know how to do food. We've had lots of years of expertise and practice at this. We innovate and we create new markets and we develop and grow existing markets. And if you take outside of grocery, which is low value and low margin and an area that the supermarkets dominate in, you exclude that in premium food, we have a 46% market share. That is a market leader without any question. And that is the area that we'd all want to be in because it's high value and it's high profit. Really, really incredibly important area to us, advanced nutrition. Now, food is changing. I think Lisa spoke about it. Humanization, pre-humanization is really coming to the fore. And with that, new markets are being developed. And our job is to stay ahead of that curve and make sure we have our fair share of that market and really, really grow. One particular interest at the moment is frozen and fresh. So customers are really flocking into this market with the humanization piece. So over the next months, you'll see us develop new ranges. open up new space with new kit and really, really create this market and we will own this market. And at the center of the food strategy is a compelling own label portfolio. So we have own brand presence in all areas of food, whether it be grocery, bridging, and advanced nutrition. That's how we define the market. But we're particularly proud of our participation and penetration in advanced nutrition at 32%. And that's not by chance. We've worked really hard to create amazing brands and train our amazing people that can help customers trade through the food hierarchy. But if you take Advanced Nutrition, there are two brands that stand out. They're Wainwrights and AVA. Unique brands to us. Customers can't get them anywhere else. And the beauty of that is you lock them into that. And in terms of customers buying into it, our share of wallet will increase and the customer lifetime value will go up. But everyone kind of wins an own brand because the pet wins, the customer wins, and we win. The pet, because every single one of our own brands is benchmarked to the equivalent branded alternative. In terms of the customer, we're 25% cheaper on our own brand, no question. And the third is us, so obviously you've got higher profit margins and the uniqueness, so you do get that stickiness and that share of wallet. because own brand is so important it was it was really really good news this week where we um we announced our long-term partnership deal with kranzwick which you'll be aware of so that really opens up masses of opportunity they're a highly regarded highly invested manufacturer in the uk but with that it we can both grow their values and their plans and sustainability are probably the best in the pet care industry And they will bring innovation. So I'm really really confident now looking at our pipeline of innovation We want to do our own brand that we've got the right partner in place from a look for a long time. So really good And their food is is the anchor so we drive food as the anchor in the place to win then I define accessories as the differentiator Really bringing in a unique part pets at home. So we have a 10,000 SKUs, half of them being own brand and a 50% market share. So big, big stuff here. The uniqueness of own brand, particularly in accessories, is we design, we literally draw every character, every product in-house. We then develop it and we source it with our dedicated Asia sourcing office in Hong Kong with about 50 colleagues in there. And the beauty is when we launch something, so we've just launched Puppy, we did Christmas, we definitely see customers buy into it. There's a need and there's a want there. And the fact that these products are unique to us is incredibly important. Staying ahead of the curve, probably a year ahead of the competition, is critically important as well. So in terms of accessories, absolute focus going forwards and personally really encouraged in terms of the recent performance with accessories. And I couldn't talk about retail without talking about people, which I think is the secret ingredient and the magic ingredient for Pets at Home. It's the heart of our business. And if you go into our stores, it's where we as a brand come alive. The passion the colleagues bring, the knowledge, it's something I've personally never realized or seen in retail like I do in Pets at Home. whether you go in and it's first puppy shop, it's an A&M consultation, or it's a groom. They're incredibly highly trained and knowledgeable. We have 10,000. 85% will probably be pet owners, which brings a real special bond between them and us. It definitely helps our attraction, and it without question helps our retention. We see less churn compared to the industry as retail as a whole. A lot of them see it as a vacation. Now, because we value this incredibly highly, our wage rises are the best in the industry, some of the best in the industry, above national living wage. But then you add on the benefits as earners you learn, and we are above the real living wage. So that's something to be really proud of. As well as that, every single colleague will get free shares. the fourth ingredient now, our DC. As you can, well, you all know, an area of risk and stress for any retailer, but I'm really proud to say it's here. It's on stream, it's working, and it is delivering as we speak to 280 stores growing every week. It is a 670 square foot facility, and the beauty of it, we have space to grow. Should we, when we want to get into new markets, whether that be frozen fresh, whether it be e-pharmacy, or a category we haven't even dreamt about yet, we have that facility to grow. Basically, we've consolidated three legacy warehouses into one. Efficiencies will be had. Material reductions in online fulfillment costs. And operational efficiencies, whether that be property overhead, stock holding, warehouse management. So we will see those. We as a team spent a disproportionate amount of time de-risking this. But I'm really pleased we did because, you know, nothing's gone wrong. And you see so many retailers where this goes badly wrong. But the capital's been spent. The DC is delivering. There will be benefits in the future, and we'll be at this single DC by spring 2024. So there you have it, a unique retail proposition because of the four winning ingredients. We have a clear competitive advantage, and trying to replicate that is going to be hard work. So our physical estate, unrivaled in reach and scale. We will continue to invest behind it. We operate in an industry that is grown by premiumization, humanization. What industry would you not want to be in? That is the industry you want to be in. We will continue to innovate, be the market leader, lead trends in that market, whether it be food or accessories, all enabled by our critical role our colleagues play and the expertise they have and highly trained colleagues that come in every day. And the DC is here. It's on time, it's on budget, and the benefits will flow into next year. Thank you. I'm now going to pass over to Mike, our CFO.

So you've now heard a lot from the team about the plans to continue to grow the business. So I'm now going to give you the detail around our financial framework and our medium term plans for revenues, for profits, for cash and for investment. And the starting point of that really strong financial framework are the results we're announcing today for last year. And it was a year of record profits, and that was driven by high-quality, sustainable growth. Consumer revenue went up to 1.8 billion. That's 6.5% growth. But on a 52-week basis, that was 8.5% growth. Like for Like that underpinned that was 7.9%. And splitting it out between retail and vet, retail Like for Like growth was 7.5%, vet group Like for Like growth 13.4%. So both making really meaningful contributions. And across the year, we saw a sequential improvement in Like for Likes, with quarter four in particular being a really strong quarter for us. All of that helped drive underlying profit of $136.4 million. That was up year-on-year by 5%, on a 52-on-52 basis, up by 8% and ahead of the guidance we gave back in January, driven by that uptick we saw in light-flight growth in quarter four. Statutory profit was down year on year at 122, so that's down 18%. Two drivers of that. One was in FY22. We had the one-off benefit of selling our specialist division, making a profit of 19. And of course, in the results for last year, we've got the non-underlying costs of opening the new DC that Lisa talked about. All of that showed up in record cash flow of 98.2 million, particularly impressive because last year was our peak investment year, and obviously we also returned 50 million pounds by way of share buyback to customers, as well as a record dividend. So on top of those record profits, The cash result we see there, that was supported by really good trade working capital performance. Food in particular, a big driver of that. And we've continued to see the operating loans in the VET group continue to be paid down. So I think we've got about six and a half million pounds back in the year gone. So all of that helped us end the year with net cash close to 55 million. And that now gives us the confidence to announce a further share buyback in the year ahead of another 50 million pounds. We've got a real focus on disciplined capital investment. Will that help get our CROIC measure to 22.7%? A couple of points to think about there is that a lot of the investment we put into digital platform, that's already been expensed. The capital to build out of that DC has already been invested. So the benefits flowing from that investment yet to come through in that CROIC measure. All that growth and that strong sustainable performance, clear evidence the strategy is working, gives us the confidence to announce an increase in the dividend of 8.5% to just under 13 pence. And we're really pleased with those results. It's great news. They're not a one-off. We've now got a really good track record over quite a few years now of delivering good results. But, of course, we're not immune to some of the external cost pressures. And as we look forward into FY24, we are expecting that profit growth in FY24 to be held back by external headwinds. On an underlying basis, we're expecting the profit to grow by 10%. And we are going to get a benefit from the reduction in global freight rates, But we have two impacts that we're calling out here. One is foreign exchange impact hits us year on year. 134, we bought our dollars at in FY23, 121 in the year ahead. And of course, we've got really, what is the effect? A doubling in one year of national living wage increases. So the additional national living wage is also gonna hold back our profit growth. Now we could have chosen, of course, to deal with those, to cut back on our investments, to delay our brand launch. But our thinking on this is to have a better business in three years' time than to drive the short-term profit next year. Apart from those two really well-publicized impacts, everything else around cost pressure, inflation, it's all being mitigated by our self-help plans. And we're planning for revenue growth in the year ahead for around 7%. In addition to all of that, we will complete the transition to our new DC that Lisa talked about. And we're planning for further 50 million pounds of non-underlying costs that relate to that transition. But looking beyond next year and into the medium term, we do expect the platform strategy to drive differentiated economics and very attractive returns. Our vision is to build the world's best pet care platform. It'll be integrated, it'll be omnichannel, and it'll be customer-centric. Integrated means we can deliver economies of scope, and a great example is the share of wallet that Catherine took us through. Today, we know our average VIP customer spends £160 a year. Our most engaged customers spend £950 a year, so just improving their spend by £10 is another £80 million of revenues. We are a genuine omnichannel business and the strengths of that unique combination stores that practices and online capabilities has been validated by the results we've seen over the last few years. Being a true omnichannel business drives economies of scale and better productivity. For example, in our commercial buying, as well as better productivity in distribution. We can use, for example, our national network of 457 pet care centers as mini-fulfillment hubs. That will help us drive online orders and signing up subscriptions. And as we shared earlier, about 40% of our online orders are now collected by customers from our stores. Finally, being consumer-centric will allow us to better use our data to create value for our customers. And we now have 10 years of data on 8 million pets. This makes us more effective and more efficient in our marketing, better redemption rates, better retention. It also helps optimize operations. For example, we're going to use our data to help tailor the best product ranges for each store catchment. All this activity will help drive consumer lifetime value and increase our share of wallet. And that will drive both consumer and revenue growth. We have a clear, unifying plan. And before I tell you about it, I'm going to have a glass of water. Thanks. Yeah, so we have a clear unifying plan. and a well-invested strategy that's going to continue to drive strong revenue growth. Today, we've got $1.8 billion in consumer revenues, and that's a 24% market share. And you can see on the chart, that's improved by $800 billion over the last six years and added 600 basis points of market share. We know that market is underpinned by the structural growth factors that Lisa explained, humanization, penetration of new pets and premiumization. And in the medium term, we do see the market growing at about 4% a year. Our plan is to outpace this market growth and grow by 7% compound average growth rate in the medium term, a healthy delta to that market growth of 4%. Back in November 21, you may remember, we announced a medium term consumer revenue target of 2.3 billion. Since then, we made great progress against that, and the investments we're now making, particularly in the DC and the digital platform, will enable us to grow far beyond the 2.3 billion. We've got clear, proven building blocks of growth. The VET embedded maturity that Louise explained, and for which, by the way, the OPEX and CAPEX is largely already invested, together with those VET growth drivers of new practices, extensions, and advanced capabilities, that will help power forward our VET services revenues. Being truly omnichannel will help us continue to drive retail growth that's both in store and online. And our 7.7 million members of our VIP loyalty club gives us a great runway to grow subscriptions beyond the 1.6 million we have today. Our pet care centre investment strategy is well proven. We're going to refit more than 200 stores in the medium term, and we're going to open around 40 new pet care centers that Lisa talked about. That'll include realizing what we see is a really big opportunity within the M25, but potentially roll that out beyond that to other metropolitan areas. These building blocks are built on the foundation of the capability that William took us through, the digital platform, and of course the opening of our new distribution center. So taking all that together, it does give us the confidence to plan for 7% annual revenue growth, and that's built on that assumption of 4% market growth. 300 basis points of market outperformance over the medium term. And the quality and the sustainability of that revenue growth will translate to both profit and cash. And we're planning for profits to grow ahead of sales, and that will be driven by productivity gains, by efficiency, and by operating leverage. Stepping off point for that growth is 136.4 million we delivered in FY23. And we have real momentum in the business. We're confident in those blocks of growth, the biggest of which is the 7% annual revenue growth. But productivity gains will also come and support that, and they'll come from several sources. The new distribution center, that will be more automated, and it will replace three legacy DCs. All store colleagues now have the benefit of the one device that William explained. That supports better communication in stores, simplifies tasks, and we've got this ongoing program of further simplification and removing tasks, both in operations, across stores, distribution, and in the support office. We'll also achieve efficiency benefits. That's through better procurement as we grow our volumes, but also we'll continue our programme of rent reductions that are seen as achieved reductions of 20 to 25% over the last few years. We'll also have a focus on energy reduction. We've got a plan to put solar panels on top of the distribution centre. That'll actually make that facility energy self-sufficient. Operational leverage will come through, both from the scale and scope benefits we've been outlining today. We're also planning, for example, VET revenues to grow in what is a relatively fixed cost base, and that will drive continued expansion of our VET margins. Likewise, store occupancy costs and the semi-variable nature of our store payroll means that we get a really healthy profit conversion as we grow our store sales. Taking all that together, that does give us the confidence to plan for profit growth of a 10% CAGR over the medium term, and that's, of course, based on our revenue growth of seven, all underpinned by the investments we're making both in our digital platform and our distribution centre. We have a very credible plan, but most importantly, that growth plan is fully funded by targeted and disciplined investment organisations. We plan to invest around £400 million in the medium term. That includes both OPEX and CAPEX. And some of the OPEX, of course, or all of the OPEX, is expensed in the year it's incurred. Broadly, that investment is split 40% into our pet care centres, planning for those 40 new centres and around 40 to 50 refits a year. Those refits, of course, improve our stores, help us roll out services, and optimize our space. Putting 40% into IT, that includes the digital platform that William talked about. And the next 18 months will see us make great progress completing the build of the digital platform. And the best way to think about investment levels beyond that is they'll be largely success-based. The final tranche of our investment, 15% will go into veterinary services. That will include funding some of the extensions to our existing practices, as well as the practice management system. Got to remember, of course, that the VET model requires most of that investment to come directly from our joint venture partners. The bar chart on the right shows the shape of that investment, both looking back and looking forwards. Last year was the peak at 105 million, as we largely completed the DC and invested in building the digital platform. And we're going to plan for about 90 million pounds in the year ahead. That includes 60 million pounds of CapEx. And in future years, we expect CapEx to taper down to about 50 million pounds a year. Number one priority is to invest to grow the business. And this forms the foundational part of our balanced capital allocation, which we've closely aligned to our strategic priorities. We understand how important this is for our investors, and we've been consistent and clear in our capital allocation priorities. First of all, invest in the business. Secondly, commit to the ordinary dividend. That's about 50% of earnings. Thirdly, disciplined M&A. For example, the acquisition of the VET connection back in 2021. And then any surplus cash returned to shareholders. We have returned over 250 million over the last five years. You can see that on the chart on the right. And looking back, we were one of the few companies that actually paid its dividends all the way through COVID. We've announced a record dividend for last year, and we're planning a further buyback of 50 million pounds in the year ahead. Our thinking on these returns is framed by really wanting to maintain a prudent balance sheet and not constraining the investments we want to make to grow the business and generate high-quality, strong returns. So, in summary... Our financial framework will reward shareholders with compounding growth and strong cash flow. We have a credible, fully funded plan built around solid building blocks, many of which are proven and low risk. The market is underpinned by structural growth and is robust and resilient. Today, the business is in excellent shape. We've got a strong track record of delivery and real momentum in the business. And of course, we have a unifying strategy that will grow even further. So this helps drive our medium-term financial framework, and that's built around the four pillars you can see on this chart. First, to grow sales ahead of the market, about 7% a year in the medium term, based on the market growing at 4%. Grow our profit ahead of sales, that's a 10% CAGR a year, based on sales growing at seven. And then drive strong, improving cash flow to around 70% of profits. And importantly, it's to reward our shareholders. Progressive dividend of 50% of earnings and a further buyback we're announcing today of 50 million. We've got a great opportunity ahead of us and a strategy that will create significant value both for our customers and for our shareholders. Thank you for listening. I'll now hand over to Lisa, who will lead us through our Q&A.

Good. So I think you can see we've had a terrific year, record results, made real strategic progress in the business, and we have an incredibly exciting plan for the future to build the world's best pet care platform. And actually, I'd like to invite my colleagues now back to the stage where we will take Q&A. This rather UN-type table. There's some roving mics coming round. Hi, morning all.

Jonathan Pritchard at Palehunter. Two, if I may. Firstly, within the 7% sales category going forward, what's your assumption for inflation within that? So could you split volume and inflation out in that 7%? And then interesting sort of P&L slide on vets. The EBITDA on vets significantly higher than the competition, I think 30 versus 20 by my rough maths. Obviously, I understand operational gearing with the higher sales that you generate, but is there any other bits and bobs in there that you could talk us through in terms of why your vets run a higher EBITDA margin than the competition?

Mike, do you want to take the one on 7% and how much is inflation versus volume?

Yeah, so I think that 7% is a planning assumption around revenue growth looking ahead over the medium term. Sort of expect that to be pretty revert back to how it has been historically. So 4% volume, 3% inflation would be a good shape to think about in terms of how to plan that out.

Louise, do you want to talk about why our vets are so productive?

Yeah, absolutely. So in terms of that EBITDA, it's absolutely down to that owner mindset. So it drives that real focus on that cost line. We know that they are more productive, and we hear that from our suppliers in terms of the amount that they generate day in, day out so that owner mindset really does focus because it's their business at the end of the day and they are focused in terms of maturing their practice, getting to that point of debt free, getting to that point of being able to take dividends but also being able to maximise their growth opportunities as well over and above maturity because they also want to fulfil their clinical ambitions too.

Hi, it's Simon Bowler from Numis. There's a really interesting slide on the number 24, I think it was, sorry, William, with all the plans of the various things to get to the fully integrated piece. I think it's quite clear some of the things are planned to launch within this year. How far away do you think the final video, I know it's going to be iterative, but the practice management system, some of the bigger deliverables, what should we be thinking about from a time perspective?

Yes, so thank you. So the roadmap that I put there was sort of a two-year time span. And the way to think of it really is that we've built the core platforms. So we've built the digital platform and the data platforms. And those things that we talked about that are coming in the future, they're building upon those platforms. So the new customer app, the new website, and then as we start to join up the pet care experience for customers too. And it is iterative. So as soon as we've got some capability, some new functionality ready for a customer that we think is going to drive value for them and for our business, we'll deploy that there and then.

And then just a second one, if I may, just on the vet side of the business and some talk around their kind of extensions and moving towards advanced practices. Can you just share some, how do those discussions or negotiations, if that's what they are, with the vet partners go? What's their willing to do this? How do you identify which sites that's relevant for?

Yeah, well, we've definitely got high demand. Louise, do you want to talk about how we've managed that?

Yeah, no, absolutely. So I think in terms of just the funding side, because that's obviously a conversation and Mike talked about it, the majority of those will be funded by the vets themselves. A big piece here is their clinical ambition. But as they get to that point of debt-free, as they want to grow their practice, as they can use their own balance sheet actually more effectively to go beyond maturity, but also to fulfil that clinical ambition, there's other things that they want to do. They get a huge amount of actually doing different things. So they will be funding. And just to give the example of Northampton, it was a hospital that we built last year It's two partners. One's a vet partner, one's actually a nurse partner. So it's not always just vets that are the partners. They built a brand new 8,000 square foot hospital that they relocated into. It was over a million pounds, the cost, and they funded that by just saving two years of dividends. But that has enabled them to release both talent and space and capacity. So we're seeing that quite a number of these practices have talent capacity. So by being able to move into these bigger spaces they can release that and actually do different things and it helps to retain their colleagues as well. But there might be circumstances where we want to fund. So an example would be where that practice is going to put in say a graduate or a nurse academy And so they're not going to help to grow that pipeline of talent for their own practice. They're going to do that also for a hub around them as well. And so in that circumstance, we may also want to help fund as well.

And one of the benefits of being part of the platform, of course, is that we will go into the whole pet care centre and we'll tailor our programmes where we know a vet... is keen to do an extension. We'll refurb, we'll change the ranges, we'll customise, we might put in a groomer, and we'll do that all at the same time. So we've got a pretty clear programme of development well invested over the next five years, which we will prioritise those vet extensions, but think about it in the round. Yeah. Do you want a microphone here? Oh, someone over there. Sorry. Hi.

Morning, all. Thanks very much. It's Mike Benedict from Berenberg. I have three, if I can squeeze them in, please. So firstly, on the 4% market growth, obviously, premiumization, humanization have been trends for some time. Do you see any sort of ceiling for those trends? How long do you think they can continue to underpin market growth? Second question is just on where you see white space for the additional pet care centers in the country. And thirdly, on the FY24 guidance, really helpful color, interested in the 7% revenue growth and that sort of translating into 10% profit growth. Are there any moving parts in that profit growth? Some might expect that to be a bit higher. Is there a step up in marketing or otherwise?

Okay. So no, we definitely don't think 4% has a ceiling. The trends that we're seeing in terms of premiumization and humanization, if anything, they're accelerating. And I think our capabilities, as Lisa outlined, in advanced nutrition, in accessories, we're seeing real innovation come in and we're seeing customers respond to that. So 4% And that third trend that we talked about today of penetration is showing no signs of abating of either. So I think we're very confident in that 4% market growth in the medium term. In terms of how that translates into white space, I think Lisa outlined some of the products and services innovation. But we definitely see a real opportunity in urban areas. We're very under-penetrated, particularly within the M25. And we've opened three or four stores there recently, Putney, Clapham, Ealing, trading above our expectations. And we think there's capacity for a lot more of those, as well as market towns, which would be slightly smaller than we would normally have gone to in the past. But our data capability is telling us that there's real opportunity there. And I think Catherine can talk about some of the demographic trends that we're seeing and the customer persona trends, which also support that growth and that white space.

Yeah, absolutely. And I think just to sort of add to that, so we talk about that urban area where we're under-penetrated, but we also talk about the penetration and the increase. That increase has mainly come in urban areas. That's where we're really seeing that humanization and pre-humanization take off. We have six personas which we look at on a regular basis as to where we're going to invest, where we're going to nurture, where we're going to grow or where we're going to maintain. Isabella and Coco is one of those ones that we're going to grow. Coco is a fur baby. She is very much loved by Isabella who's single. She lives in a flat in an urban area and she really loves to treat Coco and she likes to treat Coco to the best of things. And that's why you saw in that video that she loves fashion. And on her first birthday, we reward her with that fashion gift. So it's very much making sure that we follow those personas and in our offerings and what we do. But in terms of where the ceiling is, I think that's how fast we can innovate. And we see that when we bring freshness in, I always tease Lisa Mayo, but last weekend, she launched an amazing puppy and kitten range to which my kids convinced me to spend an absolute fortune on. at the weekend because it almost looked like that sort of Mama's and Papa's range. It was so appealing. So I think if we bring that innovation and freshness and we ensure we tailor it to the right personas at the right time in the right stores because we've got all the data capability to know how to do our ranges and merchandisings to be specific, then the world is our oyster.

Mike, do you want to pick up on how the 7% tumbles through to 10%?

Yeah, the chart I showed there was trying to just show the benefit of productivity coming through efficiency and operational leverage. I think it's important to see those as three drivers of that 7% to 10%. Productivity, lots of things we're doing to drive that. The new DC will be a step on, certainly in how efficiently we can fulfill orders, online orders, for example, heavily automated. And of course, it replaces three existing DCs, so they get operational benefits there as well. I mean, productivity in our stores, the one device that William explained, that enables better communication between store colleagues, enables things like more accurate gap scanning, less time spent on task, more time spent serving customers. So we get productivity there. Efficiency, we should get good efficiencies through our rent program. We've got a really good history of doing that over several years. But also through procurement, you know, as we build out our volumes, we'll be buying better and capturing the value that creates. And then operational leverage. You know, we demonstrated that we get good leverage when we grow VET revenues. Don't forget, they grow on a relatively fixed cost base. So we'll see VET expansion of VET margins. We saw that in the year just gone. Seen that for several years. And, of course, operational leverage, certainly when we grow store sales. You think about the store P&L. Payroll is pretty semi-variable. That's £140 million of costs. We've got the rent bill. Our rent bill is about £80 million. That is a fixed cost, and it's coming down. So we'll continue to see operational leverage in our stores. So the way from the 7 to the 10 is through the productivity gains. A lot of the capital is already invested, the efficiencies. proven record of doing that, and of course capturing the operational leverage as those sales drop down through the P&L.

Thanks very much. Andy Wade.

Oh, sorry.

Got Mike's problem. Andy Wade from Jefferies. A couple of questions from me. First one, business looks like it's in great health and your sort of position vis-a-vis the online guys as well is strong and opportunities take share there. Against that backdrop, though, I'm sort of looking at the last five or six years. and you've outperformed the market by 600 basis points, but you're talking about 300 basis points looking ahead. Why do you think your rate of share gain is going to be slower than it has been historically? That's the first one.

So yeah, 600 basis points is what we've done. But that's really a tale of two halves. Our historic growth ahead of the market was really about 100 to 150. And then we had a huge boom through COVID. 300 basis points looking forward, I'm very confident we can deliver based on the investments that we've talked about today. But it won't be a ceiling for us. If we can grow faster than that, we will do. But I think as a financial planning stance, 300 basis points is the right place to be. Very credible and very achievable.

stolen the words of my next question but I was saying that is that 7% more like a floor or a ceiling then but I guess that doesn't really need answering given what you've just said. I'll move on to a different one on that basis. In terms of adjacencies and adjacent categories, didn't get a lot on that today and just wondering sort of where your thinking is on adjacent categories. There seems like loads the business can go after. Any more colour on that?

Absolutely loads the business can go after. But one thing that I think we need to be really clear on is that we need to deliver. We've got huge amounts that we can go after in the core and we need to be very disciplined in how we execute. I think we've proven that this year in terms of what we've done and delivered. What we've outlined today is an incredible growth strategy and we'll get after it. I think, you know, we don't want to become distracted by lots of adjacencies. We're in all the big ones and we've got really good positions in all the big ones. But once we've built out our growth platform, once we've built out our growth platform, you know, insurance, green cremation, trading and behaviour, the list is really endless and all of that can be put into our consumer flywheel at the right point. But for now, we stay disciplined and focused on the enormous amount we've got ahead of us.

Great. OK. And one last one on the VET side of things. Looking at the pie chart, yeah, pie chart of where the spend, capex spend is going to go. It's a relatively small amount because, obviously, as you said, the JV partner's put in it. put in a big chunk, but are there opportunities for you to put to work more capital in the vet business? I know one of the things you've talked about is potentially taking greater ownership stakes and so on. What opportunities could there be on that front?

We're pretty focused on our JV model. Actually, we think it's absolutely the right model. We do have some group managed practice, but we will look to reduce that number over time. It's not something we'd look to increase because we do see such differentiated returns through the productivity, through that owner-operator mindset. So I think we're actually clearer than ever. that the jv model is the best one that it is differentiated and so we will always have a small number of group managed practices unfortunately vets pass away or get terminally ill or for other reasons we need to keep a little bit of a buffer but it's not our preferred model in any way shape or form jv practices where it's at very clear thank you very much yep

Hi, it's Mandarada from RBC. I just have two questions, if I may. The first one's on consumer trends. I think you've talked in the past on recently new customers coming in more at the grocery level. Is that still the case? If so, how quickly can you scale them up the ranges? And then secondly, on the data side of things, what sort of things are you doing on customer churn and reducing that, and how has that gone so far? Great.

Lisa, do you want to take the first one of those on customers coming in at grocery? Absolutely.

So we're seeing share gain in all categories, which is really encouraging. And we're a broad church. So we have definitely, definitely through COVID and beyond, stolen from supermarkets and therefore and successfully traded those customers up because that's the growth piece. So, customers coming in on that area, we then trade them into Bridging, into StepUp, which is a key brand, own brand for us, and then we see them transfer upwards. So, very encouraging.

Williams?

Yeah, the second part of your question was what we use, what we're doing with data in order to manage customer churn. And so we have got very sophisticated models around customer churn and quite recently our effort has been around CRM and moving our customers So we use these models to identify customers that are likely to churn and we have various techniques that we used in order to activate them and get them moving again. I don't know if you want to bring that to life with some examples.

Look, definitely. This is my flywheel after 18 years of working for Sky. So I know how to manage subscriptions and go after it. We are at the foothills. We've got the right data capability and we've already proven in the last year that we can reduce churn. But actually it's about reactivating because obviously a pet life is not as long as a consumer life. But what we're actually finding is a lot of consumers, once you introduce a pet into your family, it's very hard to stop. You actually end up getting multiple pets. And a lot of our reactivation program is welcoming those families back in, but also ensuring that they now know that they have access to all our products and services. So it's definitely an opportunity where we're going to get stronger and stronger.

Tony Charette from Pamier Gordon. Three questions, if I may. First of all, one for Mike. I just wondered, and it may be in the release if it is, I apologise, within the retail gross margin, can you tell us what the movement was within each category, the food and accessories category? don't have to have it to exact basis point but you know something general um second question i wondered if you could um talk about the um sort of way people transition out of kitten and puppy club into vip um because i've never really understood that um so maybe you give a bit of and education and tell us whether there's an opportunity there, whether you sort of lose kitten and puppy club people when you ask them for the big money. And lastly, it's interesting, Catherine's comments about urban underrepresentation, stuff like that. It just made me think, how does your customer profile match the average UK pet owning profile? And I presume that if we looked back 10 years, you've probably gone up the rank in a bit. And just thinking about some of your strategies, it looks like you are... actively targeting higher spending customers. Is that fair or is it the case that you're just being equally fair to the ones who don't have much money?

Okay, so Mike, do you want to take the retail gross margin by category, and then Catherine, you can take puppy, kitten, and broad customer church?

Sure. So I think when you dig into the R&S, Tony, some of this is in there. So we've always sort of been pretty open about certainly retail gross margins. So our retail gross margin in the year is down. It's down about 180 basis points. If you split that out... The great majority of that, 140-odd basis points, is down to product mix, with us growing food much faster than growing accessories. So full year, our life-like growth in food is about 14%. Within discretionary accessories, apart from that pickup we saw in Q3, it got better in Q4 but was still pretty soft. Commodity accessories, which is that third category, things like cat litter, bedding for small animals, that grew about 8% or 9%. Now you think about the margin mix of those things. Food is about a 45% margin for us, and discretionary accessories is sort of 60, 65% margin. So all of that, you know, faster growing food, lower growing accessories led to that mix. By and large, margins by category are pretty much maintained. The one to think through is the discretionary, where clearly we had freight rates heightened during the year, which will now drop away as we go into FY24. But of course, a lot of that FX hit I talked about does attach itself to accessories. And the choice of where we pass that through to customers, we've chosen not to. We've got focused on volume and being very price competitive. So in the year ahead, that FX will weigh on our margins on accessories, albeit they'll get better. These are the discretionary accessories typically we bring in from the Far East, but they'll get slightly better because of better freight rates, but they won't play a net nil draw. They'll slightly be down.

And I think affordability is one element of accessories, but actually innovation is another one. And Lisa, do you want to talk about some of what we've got coming with doggy parting and various other things this year? Yeah.

I'm really encouraged because I can see the pipeline for 52 weeks. And we just, to Catherine's point, we launched Puppy and Kitten two weeks ago. And I've been astounded with the response from customers and colleagues. And there's two reasons there. One, it's amazing if you get a chance to go and see it. It is Mums and Puppies. But during COVID, because of... our focus is on driving the business, running the business. We had to take our foot off the gas on innovation because it was about delivering the core basics. So what you're seeing now, I think Christmas was the start of it, but you're seeing really, really strong ranges flowing through, particularly in brand. What I'm also seeing, we've started travelling again. So because of the lead time it takes, the buyers have started travelling again. So we've got some unique, amazing stuff coming out of the States that were first to market and got exclusivity on for six months. So that will start hitting our stores now, in fact, actually. And I'm really encouraged by that. So we'll see it.

Catherine, do you want to talk about puppy and kitten? Yeah, sure.

I'll start with the puppy and kitten question. So puppy and kitten is the start of the VIP program. And we take the birth of that puppy or kitten so that we know that we can tailor our messaging as that puppy turns into a junior, as the junior translates into a senior. But you're absolutely right. As we look at our personas, I think, again, we've got work to do to improve our offering on junior and senior, and that is all opportunity to go after. We focus as a business rightfully on puppy and kitten because if you get them in that first stage, you've got that long customer value to gather. So they are an important sector, but we do need to continue to evolve as that puppy and kitten ages. So it's part of the VIP programme. And we do talk to you through our CRM program, but one of the things I spoke to, that's a foothill of using your data. If we know that, we should be able to talk to you wherever you want to talk to us, never mind just the VIP. And that is the devices that we give our colleagues in store or the data that we give to our vets. We recognize what your life stage is at and what the needs are of your specific pet. Getting to your point on are we targeting that higher end, I think that was my ill-placed joke on how much I spent on puppy and kitten, no. We have four clear clusters across the market. So we have premium urban, we have premium countryside, we have core value, and we have city living. And we're applying that clustering across our pet care centres using our data capabilities to know the demographics around our stores. as well as what the local competition is. And we all see us using that data to get better and better to ensure that our offering is tailored to those needs of those consumers. And fundamentally, since joining this business, what I've been met with is a core value to ensure that pets are looked after well, whatever your budget. And what we just need to do is ensuring we've got that range from good, better to best, so that best could potentially be for that Parisian-looking poodle that I know that Lisa saw at Goodworth at the weekend. But it doesn't actually, if you don't want to spend into that value, there is something that is really good for you as well.

Presumably, you've got a higher market share in better and best, quite a lot higher. Yeah.

Lisa, do you want to talk about good, better, best and market shares across food and accessories? Yeah.

We operate across all three, as you'd expect, and our competition is so broad, so it's important we tailor that. I think particularly on accessories, it's better. I think that mid-tier, we do incredibly well. I think our opportunity in terms of range development, which you're working on and you'll see very soon, is that premium end. As we go into more urban areas, that's where we can be fantastic, particularly online, so you haven't got the stock holding in store. But in food, yeah, it's definitely that mid to top tier. But our range of OPP or entry price point is very credible, very, very credible. But I think to my point in Broadchurch, we have to, you know, if a customer only has five pounds in their pocket, then I want to be able to serve that customer only has five pounds.

Hi, I'm from Deutsche Bank. Thank you for taking my questions. I just had two. One, in terms of the estate, and specifically for vets, so 75% of VIP customers are near to a retail location. Is there any, I guess, impediment to shifting people towards vets because they're maybe 40 or 50% away, more than 50 minutes away? Or is there any other, I guess, structural impediments to shifting people into services that we should sort of be thinking about over the medium term? And then in terms of the medium-term guidance, is the expectation that it will be more broad-based across all of the categories, or are there particular metrics you'd like to highlight around subscriptions being a bigger contribution or private label being a bigger contribution, just to understand how that's developing to that point? Thank you.

Do you want to take one on vet location and drive times?

Yeah, so we know that there's always been that opportunity to open more vets because there is a smaller catchment. When we look across our estate, as I said, there's about 136 actually stores that haven't yet got a vet. So that's kind of the first place in terms of removing some of those friction points. But we also see a broader opportunity. So I think we talked about five to 15 openings a year.

Yeah, and that's not a ceiling, right? If we can find more vet talent to open vet practices, then we will. Consumers really look at locality and the reputation of the vet. Pricing is not a big driver in vets. So, you know, 5 to 15 is our target, but we will go faster if we can. And if we can find the vet talent, that's the really important thing. In terms of our guidance and where it comes from, you heard Catherine talk about average consumer value, and that really is very broad-based, and we've got growth in every single one of our categories. Subscriptions will be a big bit of it, actually. We're very encouraged by our nutrition subscriptions, which we've just launched in SOAR. They're 50% up year on year. And again, we're still really in the foothills of that. So I think there's possibility and consumer attractiveness across every single one of our segments and the growth will be very broad based.

Just going back, Matt, to that question you asked on is there a structural impediment to growth? The ultimate size of our first opinion practices, the size of the estate, isn't restricted to the number of stores we've got. I mean, that's a really important point. So Louise is absolutely spot on. We've got 136 stores still without a vet, so that's 136 locations. But of course, we've got a really successful standalone vet business, nearly 140 practices. So when we think about the opportunity and drive time differences, 15 minutes to a store, typically, in terms of planning stores, five minutes to a vet. The size of our store estate, a really important point, does not constrain our ambition in terms of opening numbers of vet practices.

And just to add on that drive time, as we layer in more advanced services, we actually see that drive time being longer because the complexity of the procedures, they tend to be booked in advance, and actually some of those drive times can stretch up to an hour. So actually creating more of those hubs enables us to keep that work within that platform as well.

Thank you. Any last questions? Oh, there's one. That's probably the last one we can take, actually.

Paul Rossington at HSBC. Can you just remind us what the new DC revenue capacity is when it's up and running fully automated? That's question number one. Can you just remind us where retail margins are versus pre-pandemic and where you think the upside is on that line in the P&L as well, please? And lastly, is there anything new in the regulatory environment in vets that we need to be aware of? I know there was an investigation into previous consolidations in that space. Just wondering if there's anything new there to think about. Thank you.

So do you want to take the one on DC capacity? Well, we don't talk about it in terms of revenue capacity, actually. We think about it in terms of volumes and what we've got is enough to sustain us for the next 10 years, 10 years of e-commerce growth, 10 years of store growth. And actually, there's space in that DC to do even more. Yeah.

It's an amazing position to be in, actually. So we will not run out of space, and we will absolutely be able to fill this plan and beyond in the space we have. And when I talked about the green fields around the site, I actually don't think we'll be breaking the ground for a long, long time. The kit we've put in, particularly on multi-channel fulfillment, will see us through to at least 10 years, I would say. So I'm pretty confident in terms of there is no barrier to what we will be able to achieve with it.

The automation in there is modular and expandable. So as we grow, we can grow the automation.

Mike, do you want to talk to retail margins?

Yeah, and just to add to that, Will, just to add to that point in online, I mean, broadly, it's set up ultimately to do triple the volumes we do today, triple the online volume. Yeah, so our gross margins in retail compared to pre-COVID, probably down about 300 basis points. All of that pretty much follows the same pattern we saw last year, which 180 basis points down was the mix. Very fast growing food relative to accessories. I've seen that now for two or three years. I think part of that is because we welcomed a lot of new customers. The business, don't forget, is a third bigger than it was pre-COVID. A third bigger. And food's been a big driver of that growth. And that's not a bad thing, of course, because I think it starts. I think Lisa talked about that. Food is the reason why people choose us. It's a big engine of growth. And of course, then we get those customers shopping into accessories, using services. So you think about gross margins going forward. we're planning for gross margins pretty much to be flat. Our profit growth is not dependent on us cranking up a big gross margin percent improvement. Clearly, if we get a revival in accessories, that's going to help. But actually, the benefits we get through getting our value, we create the supply chain back through volume growth. And we are one of the few volume growth businesses at the moment. You know, with that, that we you know, we're going to invest that back either into pricing or into service. So we're not relying on that to drive the the differential I talked about earlier, 10% profit on 7% 7% sales.

Louise, do you want to talk about the regulation in VETS and how actually that plays for advantage? Yeah, absolutely. So in terms of that CMA decision, I think what it's done is given us clarity on how they're going to treat consolidation. So although it doesn't stop acquisition, I think it's pretty clear they're going to be taking a closer look at acquisition. We don't acquire. We open in greenfield sites. We've got a strong track record of opening. So if anything, we are seeing it as a potential competitive advantage if it's going to constrain the growth of those competitors. And also, we do feel that it's going to herald a period in the profession where our ownership model is going to become even more attractive.

Great. Thank you so much for coming today.