Pets at Home : FY21 Prelim Results

FOR IMMEDIATE RELEASE, 27 MAY 2021

Pets at Home Group Plc: FY21 Preliminary Results

for the 52 week period to 25 March 2021

A step change in our journey to become the best pet care business in the world

• Total Group revenue growth of 7.9% to £1,142.8m; Retail revenue reached £1.0bn for the first time with growth of 8.7% during the year, despite Covid-related restrictions.
• • Group like-for-like# (LFL) revenue growth of 8.7%, or 17.0% on a 2-year basis; H2 LFL# revenue growth of 12.4%
  • Retail LFL# revenue growth of 8.8%, or 17.3% on a 2-year basis; H2 LFL# revenue growth of 11.9%
  • Omnichannel revenue# growth of 71.7%, or 119.0% on a 2-year basis, with previous investment in distribution capacity and fulfilment capability supporting participation of Retail revenue of 15.8% in the year up from 10.0% in the prior year
  • Vet Group revenue and LFL# revenue growth of 1.6% and 7.9% respectively, with LFL revenue growth of 13.2% on a 2-year basis. LFL customer sales#1 growth across all First Opinion practices of 9.5%, and LFL Joint Venture fee income up 6.3%; LFL customer sales# growth across all First Opinion practices was 19.1% in H2, with H2 LFL Joint Venture fee income +17.6%
• Group underlying PBT# of £87.5m, ahead of guidance. Represents a decline of 6.4% YoY and is post an adverse Covid-related impact on profit of approximately £30m and the repayment of £28.9m of business rates relief. Growth in H2 Group underlying PBT# of 22.0% after adjusting for timing of business rates payment. Group statutory PBT of £116.4m including £30.2m relating to profit on the disposal of our Specialist Group
• Group underlying free cash flow# of £67.4m, reflecting strong cash generation across our First Opinion veterinary practices and a material increase in practice profitability
• Net cash (pre-IFRS16) of £1.4m (net cash/EBITDA of 0.0x) and total liquidity2, comprising cash balances and undrawn portion of £248m RCF, of £248.8m
• Final dividend per share of 5.5p, an increase of 10% YoY, reflecting our strong cash generation and robust balance sheet, giving a total dividend of 8.0p for the year, up 7% YoY
• Strong underlying growth in our second half
• • H2 Retail LFL# revenue growth of 11.9% reflecting broad-based growth across categories and channels including 4.9% store LFL# growth, notwithstanding a second national lockdown in England
  • H2 LFL customer sales# growth of 19.1% across all First Opinion practices reflecting over 9,000 new client registrations per week and driving continued improvement in profitability
• Leveraging data insights to drive customer lifetime value and increase the proportion of annuity-like income:
• • The number of VIPs increased 9% YoY to 6.2m, with those shopping across more than one channel up 10% YoY and representing 26% of VIPs.
  • The number of Puppy and Kitten Club members grew 60.9% YoY with sign-ups in H2 double that of the prior year; Puppy and Kitten Club members typically spend 34% per annum more than non-members across the Group
  • The number of subscription customers across the Group grew 21% YoY to over 1.0m, generating over £90m in annualised recurring customer sales
• Estimated 8% increase in UK pet ownership over the past year has raised the outlook for growth across our addressable market and, in conjunction with our expectations of continuing to win market share, provides a supportive backdrop to the £600m customer revenue opportunity we see across our business over the medium

term.

1. Customer sales include gross customer sales made by Joint Venture vet practices, and differs to the fee income recognised within Vet Group revenue.
2. Comprising £1.4m net cash and £247.4m undrawn facility, being RCF of £248m less £0.6m carved out as a deferment account guarantee.

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 85.

All FY21 APMs include the impact of IFRS16 unless explicitly stated.

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Current trading and outlook

The start of our current financial year has seen a continuation of the strong momentum across our retail and veterinary operations.

While the emergence of new variants of the virus and the potential for higher transmission levels as the UK continues to unlock mean the external environment remains uncertain in the near term, our pet care model remains robust, and the changes we have made to our business enable us to continue providing pet care to our customers with minimal disruption.

At this early stage of the new financial year and considering both the ongoing momentum across our business and the continuing impact of the pandemic on operating costs, we anticipate that Group underlying pre-tax profit for the 53 weeks to 31 March 2022 will be in the range of £120m to £130m.

Our next scheduled update will be our Q1 FY22 update on 29 July 2021.

Peter Pritchard, Group Chief Executive Officer:

We ended this unprecedented year a far stronger pet care business. Despite challenges to how we were able to do business, we grew our market share across all channels and our underlying growth trajectory accelerated. Our loyalty clubs saw record periods of new customer registration, strong growth in subscription customers increased the visibility and quality of our sales profile, whilst new clients across our veterinary estate helped increase practice profitability and cash flow. We achieved all of this while remaining mindful at all times of doing the right thing for all our stakeholders.

Covid-19 has structurally changed the dynamics of the pet care market. We estimate that the rising level of pet ownership, combined with structural demand drivers such as premiumisation and humanisation, has increased the outlook for growth across our addressable market, and in conjunction with our expectations of continuing to take market share, provides a tailwind to the £600m customer revenue opportunity we see across our business over the medium term.

We will, as the UK's leading omnichannel pet care provider, capitalise on this opportunity through continued investment in our infrastructure, further digitising our business and leveraging our extensive and unique dataset to provide insight throughout the customer lifetime to support investment decision-making that will drive quality and profitable growth.

I am incredibly grateful for the tireless efforts of all our colleagues and Partners across the Group in the most challenging of environments and am very proud of their collective achievements this year. I look to the future with much confidence.

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulations (Regulation (EU) No.596/2014). For the purposes of MAR and Article 2 of Commission Implementing Regulation (EU) 2016/1055, this announcement is being made on behalf of the Company by Roger Tejwani, Director of Investor Relations & External Communication.

Results webcast

An audio webcast and presentation of these results will be available on our website (https://investors.petsathome.com/investors/) from 07.00am on 27 May. Management will host a Q&A conference call for analysts and investors at 09.00am. To join the call in listen-only mode, please click on the following link (https://brrmedia.news/PETS_FY21). Those wishing to participate in the Q&A session should email [e-mail] call details.

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 85.

All FY21 APMs include the impact of IFRS16 unless explicitly stated.

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Investor Relations Enquiries

Pets at Home Group Plc:

Roger Tejwani, Director of Investor Relations & External Communication [phone]

Chris Ridgway, Head of Investor Relations [phone]

Media Enquiries

Pets at Home Group Plc:

Natalie Cullington, Head of Media & Corporate Affairs [phone]

Maitland:

Clinton Manning

[phone]

Joanna Davidson [phone]

About Pets at Home

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. Pet products are available online or from our 452 stores, many of which also have vet practices and grooming salons. Pets at Home also operates a UK leading small animal veterinary business, with 441 First Opinion practices located both in our stores and in standalone locations. For more information visit: http://investors.petsathome.com/

Disclaimer

This trading statement does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Pets at Home Group Plc shares or other securities nor should it form the basis of or be relied on in connection with any contract or commitment whatsoever. It does not constitute a recommendation regarding any securities. Past performance, including the price at which the Company's securities have been bought or sold in the past, is no guide to future performance and persons needing advice should consult an independent financial adviser. Certain statements in this trading statement constitute forward-looking statements. Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Company's future plans and expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this statement. As a result you are cautioned not to place reliance on such forward-looking statements. Nothing in this statement should be construed as a profit forecast.

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 85.

All FY21 APMs include the impact of IFRS16 unless explicitly stated.

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Chief Executive Officer's Review

An extraordinary year in review

The start of our financial year coincided almost exactly with implementation of the UK's first national lockdown, marking what would become the most extraordinary period across my thirty-five years in industry.

Our immediate priorities were to ensure the safety and wellbeing of all our colleagues, Partners, customers, and pets, and we rapidly adapted our retail and veterinary operations to be able to continue providing essential pet care to our customers in a safe and appropriate manner.

Recognising that Covid-19 would be a catalyst for change around customer purchasing behaviour and pet ownership, we accelerated investment into our loyalty clubs and subscription platforms, and introduced new ways to engage, serve and fulfil our customers' needs across all channels, making pet care as convenient, engaging and flexible as possible.

These measures, together with the inherent strength of our pet care platform and the underlying pet care market, underpinned the strong and sustained momentum witnessed in both our retail and veterinary operations across the last three quarters of the year, notwithstanding national or regional pandemic-related restrictions throughout much of the period.

Despite the wide-ranging impact of the pandemic, we ended the year a far stronger pet care business. We continued to grow our market share across all channels and our underlying growth trajectory accelerated. Our VIP and Puppy and Kitten clubs saw record periods of new customer growth, many of whom are already shopping across multiple channels of our pet care ecosystem, strong growth in subscription customers increased the visibility and quality of our sales profile, and new client registrations across our veterinary estate have improved practice profitability and cash flow.

We continued to shape our business to align with our strategic focuses, disposing of our Specialist Group for up to £100m in cash and deferred consideration and broadening our digital pet care capabilities through the acquisition of The Vet Connection, a long-established veterinary telehealth provider.

We also ensured that our preparations to mitigate any potential impact on the business relating to the UK's exit from the European Union were in place well ahead of the transition deadline.

We achieved all of this while remaining mindful at all times of our ongoing obligations as a responsible corporate citizen, increasing our support to nominated charities, continuing to pay our suppliers and landlords, voluntarily repaying £28.9m of business rates relief, and implementing several measures for our colleagues to support their emotional and financial wellbeing. We also took the decision across our Group- owned businesses not to participate in any of the government's support schemes.

Key Performance Indicators

				YoY
Financial KPIs1		FY21	FY20	change
Customer sales#, 2 (£m)		1,437.1	1,334.7	7.7%
Group underlying PBT# (£m)		87.5	93.5	(6.4)%
Group underlying free cashflow# (£m)		67.4	89.6	(24.8)%
				YoY
Strategic KPIs	Measure	FY21	FY20	change
Bring the pet experience to life	No. of customer transactions3 (m)	60.0	63.1	(4.9)%
50% of sales from pet care services	Customer sales#, 2 from services	32.8%	34.1%	(129)bps
Use our data to better serve customers	VIP customer sales#, 2, 4 (£m)	887.1	817.2	8.6%
Set our people free to serve	Customer sales#, 2 per colleague (£k)	196.7	187.0	5.2%

1. Financial KPIs shown above represent those used by the business to monitor performance. Management recognise that as Alternative Performance Measures they differ to statutory metrics, but believe they represent the most appropriate KPIs.
2. Customer sales include gross customer sales made by Joint Venture vet practices of £358.1m (FY20: £329.7m) (unaudited figures), and therefore differs to the fee income recognised within Vet Group revenue
3. Includes customer transactions in-store, online, in First Opinion vet practices, cases treated in our Specialist Group plus pets groomed in Groom Room salons
4. VIP customer sales are shown on a rolling 12-month basis and include gross spend at First Opinion vet practices

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 85.

All FY21 APMs include the impact of IFRS16 unless explicitly stated.

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Despite such progress, we are still in the early stages of our journey to become the best pet care business in the world, and there remains plenty to strive for and achieve as we continue our transformational journey.

Covid-19 has structurally altered the dynamics of the pet care market. We estimate the overall number of pets in the UK has increased by approximately 8% over the past year which, together with demand drivers such as premiumisation and humanisation, has increased the outlook for growth across our addressable market and, in conjunction with our expectations of continuing to take market share, provides a tailwind to the £600m customer revenue opportunity we see across our business over the medium term.

We will, as the UK's leading omnichannel pet care provider, capitalise on this opportunity by continuing to invest in our infrastructure to provide best-in-class customer service and convenience and leveraging our extensive and unique dataset to increase customer lifetime value, enhancing the quality and visibility of our growth and profitability.

In addition, over the next 18 months, we will invest over £20m in further digitising our business through "Polestar", our transformational initiative to create a seamless pet care experience for our customers using a differentiated digital interface which will, we believe, be the first of its kind in the UK pet care market and offer us significant competitive advantage.

None of this would be possible without the ongoing support of our hardworking, passionate and skilled colleagues and Partners across the Group, who have demonstrated remarkable resilience by working tirelessly in adverse circumstances over the past year. I am incredibly grateful for their commitment and equally proud of their successes and look forward to achieving much more together.

I. The outlook for growth has strengthened across the UK pet care market

We operate in a large, growing and robust market, which had an estimated value pre-Covid of approximately £6.1bn across our segments.

Prior to the onset of the pandemic, the pet population of dogs and cats in the UK had been in steady state, with pet humanisation, premiumisation and healthcare and nutritional advancement being the predominant drivers of average annual UK market growth of approximately 3.5%.

Covid-19 has structurally altered the dynamics of the UK pet care market, with changes to the way we work and spend our leisure time removing an historical barrier to pet ownership and strengthening the emotional bond with pets as they play a more significant role in our daily lives. Anecdotal evidence over the past year, across animal welfare charities, pet marketplaces and pet registration forums, points to a significant increase in pet ownership, a good proxy for elevated levels of future market growth.

Across our internal pet care indicators - growth in membership of our VIP and Puppy and Kitten Clubs, new client registrations across our First Opinion veterinary practices and growth in puppy and kitten merchandise categories - we estimate that the overall number of pets in the UK has grown by 8% over the past year, which, combined with prevailing structural tailwinds, has increased the future annual underlying growth rate of our addressable market by approximately 100bps.

1. We are growing our share of pet care and see a £600m customer revenue opportunity

Our share of the pet care market pre-pandemic had grown to approximately 20% across our segments, with our strategy to reposition the business from a pet shop to an omnichannel pet care provider underpinning a shift in revenue mix towards high growth veterinary services, online and subscriptions, and delivering consistent market share gains since 2016.

We continued to increase our share across all channels of this growing market over the past year, with LFL revenue growth across our retail, omnichannel and veterinary operations ahead of their respective segments. Market supplier data implies an estimated 200bps increase, in-store and online, in our share of trade of key branded dog and cat food categories during calendar year 2020, with sequential growth over the last three quarters and, combining our internal data with a range of third-party UK market reports, we estimate that our share of the pet care market across our segments increased to approximately 23%.

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 85.

All FY21 APMs include the impact of IFRS16 unless explicitly stated.

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