Interim Results FY18 28 th November 2017
Forward looking statements Forward-Looking Statements INCLUDED IN THIS PRESENTATION ARE FORWARD-LOOKING MANAGEMENT COMMENTS AND OTHER STATEMENTS THAT REFLECT MANAGEMENT S CURRENT OUTLOOK FOR FUTURE PERIODS These expectations are based on currently available competitive, financial, and economic data along with our current operating plans and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forwardlooking statements. The forward-looking statements in this presentation should be read in conjunction with the risks and uncertainties discussed in the Pets At Home Annual Report and Accounts. 2
Highlights Ian Kellett, Group CEO 3
Improved trading momentum: pricing and other initiatives are delivering results and the Vet Group remains in strong growth Positive momentum in Merchandise with H1 like-for-like growth of 3.1% (Q1:1.5%, Q2:5.1%) Strong omnichannel revenue growth of 81% driven by new initiatives Veterinary business continuing to take market share Income from First Opinion Joint Venture practices up 16.1% to 28.0m Double digit revenue growth in Specialist Referral centres FCF of 23.2m and ordinary dividend 2.5 pence per share 4
Financials Mike Iddon, Group CFO 5
We have benefitted from positive momentum in Merchandise, reinforced by continued high growth in Services m H1 FY17 H1 FY18 Change Group Total 441.3 468.0 6.0% Like-for-like 2.5% 3.9% Food 209.5 220.0 5.0% Merchandise Accessories 169.9 176.8 4.0% Total 379.5 396.7 4.6% Like-for-like 1.9% 3.1% Income from JV vet practices 24.1 28.0 16.1% Services Other 1 37.8 43.3 14.7% Total 61.9 71.3 15.3% Like-for-like 8.7% 9.5% 1. Includes revenue from wholly owned Group Venture vet practices & other veterinary income, including specialist referrals, grooming salons, live pet sales & insurance commission 6
Our reduction in gross margin is due to planned price investment in Merchandise, offset by significant expansion in Services Group gross margin bridge (198) bps 53.9% (229) bps 31 bps 51.9% H1 FY17 H1 FY18 Merchandise H1 FY17 H1 FY18 Growing Advanced Nutrition and private label Pricing actions Services H1 FY17 H1 FY18 First Opinion vets Specialist Referral vets Pet routines 57.5% 54.9% FX Omnichannel sales with 32.0% 35.8% Newer grooming salons higher food mix 7
We have achieved an EBITDA margin of 13.3%, with operational leverage and cost savings helping to offset price investment Group EBITDA margin bridge 14.8% Of which: FX (74 bps) (198bps) (25 bps) 30 bps 45 bps 13.3% 65.2m 1 Group Gross Margin Movement Growth in Omnichannel Sales Operational Leverage Operational Cost Savings 62.2m 2 (4.6%) 1. Exceptional items in H1 FY17 refer to 1.0m of exceptional costs related to the disposal of Farm Away Limited, the Group s equestrian retailing business 2. Exceptional items in H1 FY18 refer to 1.0m non cash accounting treatment of minority stakes owned by vet partners in the specialist referral centres 8
We have focussed on operational efficiency in the business, which has enabled investment in future growth Group Pre-Exceptional Operating Cost Bridge Excluding D&A, m Operational Efficiency Investing in Growth 4.7% growth m 0.2% growth 0.2m 0.5m ( 0.3m) 1.6m m 2.1m m 4.0m H1 FY17 m m Support Office 1 Distribution Core Stores 2 Omnichannel Vet Group New Stores 3 H1 FY18 172.9m 173.3m 181.0m 1. Support office includes support centre and marketing 2. Core stores include all stores open as at 31 March 2016 3. New stores includes all stores opened since 1 April 2016 9
Our profit reflects the price investment in Retail and is in line with expectations m H1 FY17 H1 FY18 Change Pre-exceptional EBITDA 65.2 1 62.2 2 (4.6%) Margin 14.8% 13.3% (148) bps Depreciation & amortisation (15.4) (18.0) 16.8% Net interest (2.7) (2.4) (12.9%) Pre-exceptional PBT 47.0 41.7 (11.2%) Effective tax rate 21% 20% NM Pre-exceptional basic EPS (pence) 7.4 6.7 (10.0%) DPS (pence) 2.5 2.5 NM Exceptional items (1.0) (1.0) NM Statutory PBT 46.0 40.8 (11.3%) 1. Exceptional items in H1 FY17 refer to 1.0m of exceptional costs related to the disposal of Farm Away Limited, the Group s equestrian retailing business 2. Exceptional items in H1 FY18 refer to 1.0m accounting charge for the acquisition of minority stakes owned by vet partners in the specialist referral centres 10
Our capital investment is focused on strategic growth areas, including Services rollout and Omnichannel development m H1 FY17 H1 FY18 New stores 3.3 5.0 Refurbishment and retrofit of services into store estate 7.5 7.5 Business Systems and Omnichannel 2.8 4.8 Other Vet Group including Specialist Referrals 1.9 2.5 Timing of capital investment earlier this year 7 Services retrofits and 5 store refurbs Systems upgrades and website enhancements Distribution 0.6 0.7 Energy savings programme 3.6 2.2 Other 1.2 1.3 Specialist referral capacity expansion Exceptional project which totalled 8m and is now complete Total 20.9 24.0 Returns on capital H1 FY17 H1 FY18 CROIC 1 21.3% 19.4% 1. Definition contained within the appendix 11
We remain efficient in our management of trading working capital, whilst providing support to underpin vet practice growth m H1 FY17 movement H1 FY18 movement Inventories (7.7) (6.8) Trade payables, other payables and provisions 13.0 10.6 Trade and other receivables 3.2 4.5 Trading working capital 8.4 8.4 Operating loans to Joint Venture vet practices (5.8) (8.1) Group cash working capital movement 2.6 0.3 12
The movement in free cashflow is due to our planned investment in both the retail business and in working capital m H1 FY17 H1 FY18 Change EBITDA 65.2 62.2 (4.6%) Non-Cash Share Based Payment Charges 1.7 2.3 37.2% Cash EBITDA 66.9 64.5 (3.6%) Working capital 1 2.6 0.3 NM Operating cashflow 69.5 64.8 (6.8%) Tax (8.6) (9.7) 13.0% Interest cost (2.5) (2.2) (8.4%) Capex (24.0) (25.8) 6.7% Purchase of own shares to satisfy colleague options - (4.0) NM Free cashflow 34.4 23.2 (32.7%) Conversion 51.4% 35.9% NM 1. Includes provisions movement Leverage (ND:EBITDA) 1.3x 1.2x NM 13
In summary: we are delivering our key financial metrics in line with our expectations for this financial year Revenue & Like-For-Like Growth Pre-exceptional EBITDA & Margin 2.5% 3.9% 14.8% 13.3% 468.0m 65.2m 62.2m 441.3m H1 FY17 H1 FY18 H1 FY17 H1 FY18 Basic pre-exceptional EPS & Dividend Per Share Free cashflow & Conversion 2.5p 2.5p 7.4p Interim Dividend maintained 6.7p 51% 34.4m 36% 23.2m H1 FY17 H1 FY18 H1 FY17 H1 FY18 14
Looking ahead: our three year transition to deliver future profit growth is on track FY18 Reposition the Merchandise business FY19 Transition to Group profit growth FY20 onwards Services maturity benefits evident On track to deliver profits in line with market expectations Updates to financial guidance Price investment plans accelerated Group gross margin guidance dilution 200-250 bps Operating cost growth 6-6.5% (excluding D&A) as we see higher overall sales growth and invest in omnichannel Through the majority of price repositioning Annualisation of FY18 investment Further investment in selected areas Targeting Merchandise LFL above market levels and taking share Vet Group delivering ongoing high profit growth Continued operational cost savings action Continued above market growth in Merchandise Group operating margin expansion evident and supported by Vet Group maturation Group profit growth at high single digit levels 15
Strategic update Ian Kellett, Group CEO 16
Merchandise trading momentum is the result of multiple initiatives; omnichannel developments, accessories innovation and pricing Customer are seeking value, choice, innovation and convenience 5.1% 1.5% 0.5% Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18-0.5% Note: Q3 FY17 and Q4 FY17 both adjusted to reflect equal numbers of trading days compared with the prior year period 17
Pricing initiatives are driving strong Advanced Nutrition volume growth and private labels are increasing their participation Advanced Nutrition revenues Private label volume 1 participation within Advanced Nutrition Volumes 1 +8.9% Participation +6.4 ppts Revenue +4.6% Total AN Revenue 94.6m Total AN Revenue 99.0m H1 FY17 H1 FY18 H1 FY17 H1 FY18 1. Definition of volume is tonnes 18
Around 30% of customers who have purchased our lower priced dog Advanced Nutrition are considered incremental Classification of VIP customers who have purchased lower priced Advanced Nutrition lines Existing customers where New customer Purchasing habits are unchanged Switching AN brands Trading up to larger bag sizes 30% Customer who has not shopped with PAH for >12 months Existing shopper new to AN (i.e. previously purchased economy food or did not buy food at PAH) 70% 19
Pricing action has been focused on private labels and key dog food brands. We now have plans to accelerate our investment Accelerating FY19 investment plans into FY18 20
Omnichannel revenue growth of 81% has been driven by new initiatives: Order in-store and subscription for flea products 81% 24m 13m 60% of omnichannel revenues involve either a colleague assisted sale or are collected in-store H1 FY17 H1 FY18 21
We have recently simplified and improved the online checkout experience with a focus on mobile devices first 22
Range change and innovation in accessories has also been a key driver of Merchandise trading 23
Innovation is not restricted to accessories we continue to grow the Advanced Nutrition market by introducing new segments Baked recipes have a protected nutritional content and greater flavour Private label: Our Wainwright s range has been expanded with a baked range to promote healthy skin and coats Branded: Nineteen 87 is a premium dog food baked with natural and ingredients with British provenance from St Asaph's, Wales 24
Our campaign to improve awareness around the ingredients in dog foods is improving our reputation as a trusted advisor 25
Our new VIP Puppy Club is designed to maximise the benefits of our integrated product and services offer, creating long term loyalty 10% off your first puppy shop Free bag of food with a nutrition consultation First month free on subscription to flea prevention products Free puppy groom Free nurse check at our vet practices 26
We have scale in our grooming business with over 300 salons, where we are focused on driving utilisation & operational efficiency Drive revenue per hour spent grooming Increase colleague utilisation (currently 50-60%) Integrate store and grooming operations Maximise colleague time spent grooming Manage colleague salon hours 27
A national brand in our First Opinion veterinary business allows us to leverage marketing campaigns to best effect 28
The profit potential in our Vet Group is significant and will be delivered through maturation and further rollout EBITDA 1 to Pets at Home from the Vet Group >3x Today c5x Today Today c2x Today FY17a Current Vet Group (438 FY17a Current Vet Group practices, 4 referral centres) 438 practices, 4 referral centres MATURE Current Vet Group Mature Current Vet Group (438 practices, 4 referral 2 centres) 438 practices, 4 referral centres MATURE Full UK rollout Vet Mature 700 rollout Vet Group Group (700 practices, 4 referral,3 centres) 700 practices, 4 referral centres MATURE Full UK rollout Vet Mature 1000 rollout Vet Group Group (1000 practices, 4 3 referral centres) 1000 practices, 4 referral centres 1. Mature fee income forecasts for first opinion practices are based upon those for FY17 cohorts aged 10+years with c1% inflation per annum. EBITDA does not include any central cost allocation for the Executive Management team or Pets at Home Group Head Office support. Referral centre revenue and EBITDA is assumed to remain flat from FY17 actuals 2. EBITDA to PAH assumes no additional colleagues required at Vet Group Support Office to support the existing practice base. Colleague costs are inflated at c5% per annum 3. EBITDA to PAH assumes additional colleagues are required at Vet Group Support Office to support new practice openings. New and existing colleague costs are inflated at c5% per annum 29
Our Vet Graduate programme is vital to growing our own talent Two year Vet Graduate Development programme Permanent full time role in a JV practice Paid leave to complete CPD Mentorship from the Joint Venture Partner and Support Office colleagues Potential to consider JV Partnership at the end of the programme 70 graduates have joined the scheme in 2017 30
Why we are better together: our unique business model with integrated products and services drives higher customer spend VIP members purchasing both product and a service (vet or grooming) Participation of customer numbers Participation of customer spend 14% 32% VIPs purchasing product and a service VIPs purchasing product only 31
Evolving our strategy to adapt to customers needs will deliver market share gains in a competitive environment FY18 profit outlook in line with expectations investing significantly to improve our competitive position Accelerating the repositioning of our Merchandise business Focused on delivering the profit potential of our veterinary business Focus on taking market share and leveraging the unique attributes of Pets at Home Ability to become our customers lifetime pet partner, more than just a pet shop Integrated omnichannel capabilities Private labels Services; veterinary, grooming, nutrition Expertise and advice from colleagues and veterinary professionals 32
Appendix 33
Financial definitions Like-for-Like sales growth comprises total revenue in a financial period compared to revenue achieved in a prior period, for stores, online operations, grooming salons, vet practices & referral centres that have been trading for 52 weeks or more. EBITDA being Earnings before interest, tax, depreciation & amortization before the effect of exceptional items in the period. Free Cash flow being net cash from operating activities, after tax, less net cash used in investing activities (excluding acquisitions), less interest paid & debt issue costs, and is stated before cash flows for exceptional costs. CROIC being Cash Return on Invested Capital, represents cash returns divided by the average of gross capital invested (GCI) for the last twelve months. Cash returns represent pre-exceptional operating profit before property rentals and share based payments subject to tax then adjusted for depreciation and amortisation. GCI represents Gross Property, Plant and Equipment plus Software and other intangibles excluding the goodwill created on the acquisition of the group by KKR ( 906,445,000) plus net working capital, plus capitalised rent multiplied by a factor of 8x. 34
FY18 guidance Rollout of around 10 superstores, 40-50 vet practices and 20-30 grooming salons Group gross margin down 200-250 bps Operational cost growth (excluding depreciation and amortisation) of 6-6.5% Depreciation and amortisation 34 35m Net interest 4-5m Effective tax rate 20% Capital investment c 40-42m Working capital outflow of around 5m to support vet practice growth Ordinary dividend payment maintained at least at the prior year level 35
Our priorities for use of cash remain focused on growth opportunities Organic investment Ongoing programme currently focused on rollout & omnichannel strategies Progressive dividend Ordinary dividend policy around 50% of earnings Invest for growth Disciplined bolt-ons or investment in-line with strategy, aim to deliver returns ahead of our WACC 1 Further shareholder returns Surplus FCF returned Strong balance sheet Leverage policy up to 1.5x ND:EBITDA, extending up to c1.75x for appropriate acquisitions 1. Weighted Average Cost of Capital 36