Preliminary Results FY17 25 th May 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 3
A solid year, delivering profits in line with expectations FY17 Group revenue growth 7.2% and LFL 1.5% Total income growth from JV practices 24.6% Repositioning of prices delivering encouraging results with progress in Q4 Merchandise LFL to 0.5% 1 Strong results from omnichannel investment with online revenue growth of 53%; launched colleague assisted Order in-store and a subscription platform Pre-exceptional EBITDA growth of 4.7% FCF of 64.6m and total dividend 7.5 pence per share 1 Compares trading in the 11 weeks from 6th January 2017, with the 11 weeks from 6th January 2016 4
Financials Mike Iddon, Group CFO Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 5 5
We have continued to show strong Services growth reinforced by positive Merchandise momentum as we ended the year m FY16 FY17 Change Group Total 777.8 834.2 7.2% Like-for-like 1.5% Food 382.5 395.1 3.3% Merchandise Accessories 314.0 321.6 2.4% Total 696.5 716.7 2.9% Like-for-like 0.8% Total income from JV vet practices 37.8 47.1 24.6% Services Other 1 43.5 70.4 61.7% Total 81.3 117.5 44.5% Like-for-like 7.9% 1. Includes revenue from wholly owned Group Venture vet practices & other veterinary income, including specialist referrals, grooming salons, live pet sales & insurance commission Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 6
Our gross margin progression in Merchandise is offset by the mix impact of fast growing Services Group gross margin bridge 37bps Merchandise 72bps Services 54.5% 54.5% []% 54.2% FY16 FY17 Merchandise Food including Advanced Nutrition Services First opinion vets Lower pet sales FY16 FY17 Selected pricing actions FY16 FY17 Specialist referrals 57.0% 57.6% FX Mix shift from Omnichannel food sales 33.0% 33.3% New grooming salons Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 7
We have achieved consistent operational leverage, whilst facing significant cost headwinds Group EBITDA margin bridge 21 bps 3 bps 13 bps 19 bps 16.0% 16.1% 27 bps FY16 Operational Leverage Colleague Investment Referral Centres National Living Wage FX 15.6% 14.8% FY17 124.7m 130.5m 4.7% Refers to pre-exceptional EBITDA margin & excludes 1.0m of exceptional cost in FY17 related to the disposal of Farm Away Limited Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 8
and delivered strong cost control whilst investing in profitable growth Group Pre-Exceptional Operating Cost Bridge Excluding D&A, m Operational Efficiency Investing in Growth 7.3% growth 8.9 m 1.7% growth 7.0 m 3.3 m 1.0 m -1.2 m 3.0 m 14.8% FY16 299.3m Support Office Distribution Core Stores Omni-channel Vet Group New Stores 304.4m FY17 321.3m Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 9
We have delivered profit in line with expectations m FY16 FY17 Change Pre-exceptional EBITDA 124.7 1 130.5 3 4.7% Margin (%) 16.0% 15.6% (38 bps) Depreciation & amortisation (24.5) (29.6) 21.1% Net interest (4.8) 2 (4.5) (6.6)% Pre-exceptional PBT 95.3 96.4 1.1% Effective tax rate 21% 21% Pre-exceptional basic EPS (pence) 15.1 15.3 1.0% DPS (pence) 7.5 7.5 0.0% Exceptional items (5.1) (1.0) Statutory PBT 90.2 95.4 5.8% 1 Excludes 0.8m of M&A related exceptional expenses 2 Pre exceptional interest charge excludes 4.3m, associated with amortisation of fees from previous financing facility 3 Excludes 1.0m of exceptional costs associated with the disposal of Farm Away Limited Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 10
and are investing capital to both grow the business and deliver operational savings m FY16 FY17 New stores 11.5 6.4 Lower rollout Refurbishment and retrofit of services into store estate 12.9 16.8 Business Systems and Omnichannel 10.0 7.2 Other Vet Group including Specialist Referrals 4.5 5.8 30 groomers and 21 vets retrofitted Now out of major investment phase Distribution 1.7 1.3 Energy savings programme - 5.8 Exceptional project Further 3m in FY18 Other 0.9 1.2 Total 41.5 44.5 Returns on capital FY16 FY17 CROIC 22.1% 1 20.6% 1 Refers to 53 week audited period Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 11
We are efficient in our management of trading working capital, whilst providing support to underpin vet practice growth m FY16 movement FY17 movement Inventories (3.6) (5.0) Trade payables, other payables and provisions 9.3 11.5 Trade and other receivables 5.8 (1.6) Trading working capital 11.5 8.2 Operating loans to JV vet practices (6.5) (10.5) Working capital 5.0 (2.3) Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 12
and we will continue to have good cash generation m FY16 FY17 Change EBITDA 124.7 130.5 4.7% Non-Cash Share Based Payment Charges 3.0 2.5 Cash EBITDA 127.7 133.0 4.2% Working capital 1 5.0-2.3 Operating cashflow 132.7 130.7-1.5% Tax -14.8-19.3 30.2% Interest cost -5.3-4.2-21.1% Capex -34.8-42.6 22.5% Free cashflow 77.8 64.6-17.0% Conversion 62.4% 49.5% Leverage (ND:EBITDA) 1.3x 2 1.2x 1 Includes provisions movement 2 53 week audited financial period Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 13
Our priorities for cash and shareholder returns remain unchanged Organic investment Ongoing programme currently focused on rollout & seamless strategies Progressive dividend Ordinary dividend policy around 50% of earnings Invest for growth Disciplined bolt-ons or investment in-line with strategy & returns criteria 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 Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 14
In summary, we have made progress across our key financial measures Revenue & Like-For-Like Growth Pre-exceptional EBITDA & Margin 2.2% 1.5% 16.0% 15.6% 834.2m 130.5m 777.8m 124.7m FY16 FY17 FY16 FY17 EPS & Dividend Payout Ratio FCF & Conversion 7.5p 7.5p 15.1p Dividend maintained 15.3p 62% 77.8m 49% 64.6m FY16 FY17 Unless otherwise stated, the comparative period FY16 commentary refers to the unaudited 52 week period to 24 th March 2016, to better reflect the underlying performance of the business 15 FY16 FY17
FY18 guidance Rollout of 10 superstores, 40-50 vet practices and 40-50 grooming salons Group gross margin down 100-200 bps Which includes price investment and year-on-year FX impact Operational cost growth (excluding depreciation and amortisation) of 4.5-5.5%, Which includes cost from the step up in National Living Wage and Apprenticeship Levy, new store openings and operational cost savings Depreciation and amortisation 34 35m, weighted more to the H1 Net interest 4-5m Effective tax rate 20% Capital investment c 40-42m includes the remainder of the one-off energy savings project at 3m Working capital outflow of around 5m to support vet practice growth Ordinary dividend payment maintained at least at the prior year level 16
Strategic & Market Update Ian Kellett, Group CEO 17
Pet market growth has accelerated, driven by faster pace in veterinary, insurance and accessories Market 6.8bn 0.32bn 2012-14 CAGR 2014-16 CAGR Total Market 4.5% 4% Specialist veterinary referrals 11% 10% 1.9bn First Opinion veterinary 4% 5% 0.23bn Grooming 7% 7% 1.1bn Insurance 7.5% 10% 0.36bn Health & Hygiene 1% 2.5% 0.48bn 0.33bn 0.47bn Other accessories Advanced Nutrition Treats 1% 14% 8% 1.5% 9% 5% 1.7bn Other food 1% 0% 2016 Online participation 9% 11% Source: OC&C Strategy Consultants, refers to calendar years 18
Our overall share of the pet products market is 20% We have taken share across all strategic segments Market Advanced Nutrition +2% share Accessories +2% share First Opinion Veterinary +3% share 20% 19% 29% 29% 11% 13% 18% 15% 4% 4% 10% 8% 77% 66% 23% 23% 51% 53% 34% 36% 14% 22% 2014 2016 2014 2016 9% 12% 2014 2016 Pets at Home Online specialists Pet specialists Others (includes vets) Pets at Home Pet specialists Other Grocers & discounters Online specialists Pets at Home Independents Corporates Source: OC&C Strategy Consultants, refers to calendar years 19
Our Integrated Store: a unique combination of product, services and expertise under one roof LFL driver 20
Our long term strategy remains unchanged Focus in the year ahead on delivering value Drivers of Core Growth Key Growth Drivers Price, innovation, services & advice Vet Group LFL Omnichannel VIP club Space Optimised Store & Services Roll Out Vet practice maturity Margin Private label mix 21
Giving better value to customers through simpler and lower prices in private label Advanced Nutrition LFL driver 22
Indexed volumes of AN Switch & Save products nemo2014\presentations\analyst Presentation Jan14\201401 Nemo Analyst Presentation Master-22nd Jan FINAL.pptx Switch & Save AN private label price changes have delivered strong volume uplifts and customer switching LFL driver Volumes tracking at c50% uplift since price changes launched 220 200 Over 30% of sales from customers new to our private labels 180 160 140 120 AN private label customers are our most loyal, highest spending 100 Start Q4 FY17 18 May Q1 FY18 Private label AN volume (tonnes) 23
We have made feeding a better diet more accessible than ever by narrowing the pricing gaps c4% meat* c20% meat* c30% meat* c40% meat* 45p per feed 47p per feed 64p per feed 70p per feed Branded grocery food Private label bridging food Private label natural Advanced Nutrition Private label science Advanced Nutrition Price per feed based on medium size dog 10-20kg * Refers to fresh meat and meat meal 24
Branded food price repositioning has already started Initial focus is with Hills dog Advanced Nutrition Average 30% price reductions on big bags Best price in online market when on promotion 25
Giving better value to customers through simpler and lower prices in pet essentials LFL driver Volume uplifts of c20% In small animal lines, > 30% of purchases from lapsed customers In cat & dog lines, > 50% of purchases from lapsed customers 26
Initial results from overall price repositioning are encouraging with positive momentum in Merchandise trading LFL driver Merchandise LFL Switch & Save launched start Q4 FY17 Pet essentials pricing changes start Q1 FY18 1.0% Branded food pricing changes mid Q1 FY18 0.5% Q3 FY17 Q4 FY17 Since launch of price repositioning to date * -0.5% * Refers to the 16 week period from 27/1/17 18/5/17 compared with 29/1/16 19/5/16 27
Omnichannel investment delivering even more for customers and generating strong growth for us LFL driver Online revenue grew 53% y/y and growing market share Click & Collect c50% of all online sales Order in-store already 1% of our store sales Subscription participation 16% of licensed medicine sales and 26% of subscription customers new to licensed medicine products 28
Our JV vet practices are on track & providing strong growth in income to PAH, with mature practices delivering 8% LFLs LFL driver Margin driver PAH current JV income: 47.1m 1m First opinion vet practices generating > [x]m In customer revenue Age of practices Potential income if all current practices were 10+ years: > 80m 270k c150 practices 50k 530k c100 practices 95k 700k c60 practices 125k 770k c50 practices 145k 0-2 Years 3-4 Years 5-6 Years 7-10 Years 10+ Years c60 practices 185k Annual Practice practice customer customer revenue revenue Total Fee income income to to PAH PAH 29
A significant engine of profit growth comes from the rollout and maturation of Integrated Store Units Margin driver Average EBITDA* for a mature Integrated Store with all services is c 0.5m Compared with 0.3m for a store with no services 340 360 360 360 236 250 60 15 FY17 FY20 FY25 FY30 Number of Mature Integrated Store Units Total number of Integrated Store Units * Includes central cost allocation 30
Accelerating growth in our veterinary business remains a priority LFL driver Margin driver High level of rollout Increase customer marketing Bolt-on M&A More extended hours More space extensions 31
Focused on delivering our plan More specialist, most loved, simpler and better value Positive underpin of resilient & growing market Uniquely positioned as the only omnichannel, product & services pet specialist Pricing initiatives already delivering results, focus on accelerating veterinary growth and investing in omnichannel Repositioning the Merchandise business in the year ahead to deliver profitable growth benefits in future years. Vet business will provide significant profit growth as it matures Confident we are following the right strategy for success Cashflows remain good, priority to invest for growth 32
Appendix 33
Financial definitions Like-for-like Like-for-Like sales growth comprises total sales/fee revenue in a financial period compared to revenue achieved in a prior period, for stores, online operations, grooming salons, vet practices and referral centres that have been trading for 52 weeks. Free cashflow Free Cashflow is defined as 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 Represents cash returns divided by the average of gross capital (GCI) invested for the last twelve months. Cash returns represent preexceptional 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 being property rentals multiplied by a factor of 8x. A multiple of 8 is the industry standard methodology. 34
Accounting treatment of veterinary specialist referral centres Specialist referral centre ownership is structured to incentivise growth Accounting treatment required Ownership of three referral centres 75% share owned by Pets at Home Remaining shares owned by selected clinician Shared Venture Partners (SVPs) PAH has option to buy SVP s shares (from 3 yrs + after acquisition) Accounting requirement is the option is treated as a forward contract Balance sheet & cashflow Full consolidation Income statement Discounted future value of SVP s shares recognised as expense over period to exercise on a risk adjusted basis Non-underlying charge may be up to 2m in FY18 35