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.