Vet Group. business summary

Transcription

1 Vet Group business summary

2 Pets at Home Group overview Standalone vet practices Veterinary Specialist Referral Centres Specialist Referral Centres Pets at Home Group Plc is the UK s leading pet care business; our commitment is to make sure pets and their owners get the very best advice, products and care. In-store vet practices Grooming salons Pet products are available online or from close to 450 Pets at Home superstores, many of which also have vet practices and grooming salons. Pets at Home operates a UK leading small animal veterinary business, with over 460 First Opinion practices located both in our stores and in standalone locations, as well as four Specialist Referral vet hospitals. For more information visit: investors.petsathome.com VIP club: the UK s largest pet loyalty scheme, with pet and purchase data for around 4m customers Retail products in-store or online Vet Group Business Summary 1

3 Business segments Retail Stores / Omnichannel / Grooming services Vet Group First Opinion practices and Specialist Referral centres 804.9m Revenue m 94.1m Underlying EBITDA Revenue m Underlying EBITDA Note: Financials refer to the Financial Year (FY) 2018 ended 29 March Group revenue was 898.9m and Group underlying EBITDA was 123.3m, which includes 5.8m of central costs. 1. Non-underlying items in Retail include 2.7m associated with the closure of Barkers. 2. Non-underlying items in the Vet Group include 1.6m accounting charge for the acquisition of minority stakes owned by vet partners in specialist referral centres, and 0.6m of other expenses. Vet Group Business Summary 2

4 The Pets at Home Vet Group We have the largest branded veterinary business in the UK. This includes over 460 First Opinion practices, operating mainly under the Vets4Pets brand, located in our stores and in standalone locations. These practices deal with all general aspects of small animal veterinary work. We also own four Specialist Referral Centres, which are pet hospitals that handle the most complex veterinary cases. First Opinion practices All aspects of general small animal veterinary work: preventative care, emergency care, sick pet treatment Specialist Referral Centres Internal medicine / Oncology / Orthopaedic surgery / Soft tissue surgery / Neurology and neurosurgery / Diagnostic imaging fee income 41.0m 2 Referral Centre revenue and other veterinary income Specialist Referral Centres 309 in-store 152 standalone Note: practice numbers refer to those at the end of the Financial Year Fee income refers to the fees charged by Pets at Home to First Opinion Joint Venture practices operating within the Group. 2. Other veterinary income includes, but is not restricted to, the consolidated revenues from a small number of wholly owned First Opinion practices within the Group. These practices act mainly as trial businesses for potential Joint Venture Partners. Vet Group Business Summary 3

5 First Opinion Joint Venture business model We operate a franchise-like partnership, where practices are partly owned and managed by Joint Venture Partners (JVPs), who are mostly veterinary practitioners. The JVPs run the practice, employ other veterinarians and make all the clinical decisions. Pets at Home arranges financing for the setup and ongoing operations of the practice, and provides business support services such as accounting, marketing, IT and procurement. This structure allows JVPs to do what they do best providing the best standards of clinical care. All our practices are opened as brand new premises, with ownership shared between the JVP and Pets at Home. To finance the setup of the practice and the early years cashflow requirements, we arrange a loan from a third party commercial bank, alongside small loans direct from Pets at Home and the JVP. Pets at Home may also directly provide additional funding to the practice through its lifetime if required, in the form of operating loans. JVP Salary c 40-50,000 Dividend c 70-80,000 Practice revenue c 1m+ Fee income c 180,000+ Financing, repaid as the Clinical expertise Business support services practice matures The JVP manages the day to day operations and is entitled to the profit in the business after all loans have been repaid. Partners are also entitled to the capital value of the business if they wish to sell the practice. Pets at Home receives fee income, which is c17-18% of the practice s revenue, in return for which we provide business support services through our colleagues at the Support Office. c 30,000 JVP loan c ,000 loan Commercial bank c 30-60,000 corporate loan Up to c ,000 additional operating loans if required Note: Representative of an average, mature, debt free Joint Venture practice when all funding loans are repaid. Vet Group Business Summary 4

6 Specialist Referral Shared Venture business model Specialist Referral centres are considerably larger than First Opinion practices. They are multi disciplinary units that handle complex veterinary medicine. Recognising the strength of our Joint Venture model in First Opinion, we developed a shared ownership model in Specialist Referrals, which not only allows the vets or Directors to retain a significant interest in the business, it also supports future growth and clinical development. up to 25% equity owned by key clinicians or Directors Accounting treatment of veterinary Specialist Referral centres Three of our four centres are structured as a Shared Venture ownership model, where Pets at Home maintains a minimum 75% controlling share, with the remaining shares owned by multiple clinician Shared Venture Partners (SVPs). As such, the practice income statements, balance sheets and cashflows are fully consolidated. Specialist Referral Centres Pets at Home has an option to buy the SVP s shares in the future, with the value of these shares related to profit performance targets. The accounting treatment of such an option is therefore structured as a forward contract. Within the income statement, the discounted future value of the SVP s shares is recognised as an expense over the period to which the option can be exercised, and recognised as an non-underlying expense. 75%+ equity owned by Pets at Home Vet Group Business Summary 5

7 Our shared ownership models create loyalty and incentivise future growth First Opinion practices Specialist Referral Centres Typical number of Joint Venture Partners (JVPs) / practice One JVP share of practice dividend when loans repaid 100% Typical number of Shared Venture Partners (SVPs) / practice Multiple SVP share of practice dividend 5-25% Equity / capital value entitlement JVP has 100% Typical timeframe JVP chooses to sell the practice 10 years + Equity / capital value entitlement SVP clinicians have up to 25% Typical timeframe SVP chooses to sell their share Minimum 4 years Day to day management and influence Managed by the JVP. Pets at Home provides business services Day to day management and influence SVP & Referral Centre colleagues run the day to day operations and are managed by the Pets at Home Vet Group Vet Group Business Summary 6

8 Appendix: Additional information on the First Opinion Joint Venture vet business Vet Group Business Summary 7

9 Vet Group Business Summary 8 Avg Revenue Avg PBT Avg fee income to PAH <1 year 1-2 years 3-4 years 5-6 years 7-9 years 10+ years Our vet practices are all startup businesses, where it takes a number of years to steadily build a client list and reach breakeven profitability. Practices will typically begin to generate a pre-tax profit at around 4-5 years old. The speed at which the practice matures and reaches profitability influences the rate at which the JV Partner can repay the initial funding loans and subsequently begin to receive dividends. Pets at Home receives fee income as a proportion of the practice s revenue, which is up to 60,000 per annum in the first two years of opening, and can reach c 180,000 per annum from a mature practice. 1,000 1,200 Revenue and PBT profiles of JV practices There is a long term maturity profile in our vet practices

10 Our mature practices outperform the wider market, with strong returns for our vet partners We have 87 mature, debt free practices Generating combined practice turnover of 89m and combined PBT of 12m Our mature JV practices Vs. corporate competitors Average practice turnover c 1,000k c k Average practice PBT c k c k JVP base salary + bonus c 40-50k c 60-90k (Clinical Director) c 40-60k (mid career vets) Dividend payments to JVP (practice may have >1 JVP receiving dividends c 70-80k N/A Capital value to JVP at exit c 500k- 1,000k+ N/A Note: Mature debt-free practices defined as those that have paid down initial bank loan, personal and Pets at Home funding (incl. any operating loan) Sources: PAHVG Financials; PAH estimates based on publicly available filings of four other large UK corporate vet groups (IVC, CVS, VetPartners and Medivet) Vet Group Business Summary 9

11 We have a young vet practice estate, where over half of practices have been opened in the past four years Age of vet practice estate 10 years + 16% 5-9 years 28% 0-4 years 56% Vet Group Business Summary 10

12 Registered Office Pets at Home Group Plc Epsom Avenue Stanley Green Trading Estate Handforth Cheshire SK9 3RN United Kingdom Investor Relations Enquiries Amie Gramlick Director of Investor Relations t: +44 (0) investors.petsathome.com