Pets at Home : Full Year Results

May 22, 2019 at 02:19 am EDT

FOR IMMEDIATE RELEASE, 22 MAY 2019

Pets at Home Group Plc: Preliminary Results FY19
for the 52 week period to 28 March 2019

Performance ahead of expectations. New pet care strategy delivering strong results.

· FY19 performance ahead of expectations: Retail returned to profit growth faster than anticipated

· Pet market growth remains solid and we are taking share in all key areas, both online and offline

· Retail business performing strongly, with like-for-like^# (LFL) growth of 5.1%

o Prices are within 5% of our most competitive online peer on all comparable items¹

o Omnichannel revenues^# up 43.0% to £73.5m

· Vet Group underlying business performing well and the recalibration to buy out and run, or close, a small number of Joint Venture (JV) practices remains on track

o JV customer sales growth of 13.3%, with mature practices growing ahead of the market

o 48 Joint Venture practice buy outs completed, of which 19 have closed¹

· Customer KPIs: revenues from VIP loyalty members have increased 17.7%, website traffic and conversion are up, growth in the number of subscription plan customers to over 700,000

· We are confident about the year ahead, entering FY20 with good momentum and on a higher revenue and profit base than previously anticipated

£m	FY18	FY19	YoY change	LFL growth^#
Group revenue²	898.9	961.0	6.9%	5.7%³
Retail revenue	804.8	854.6	6.2%	5.1%
Vet Group revenue²	94.1	106.4	13.1%	11.2%³
Group underlying gross margin⁴	51.7%	50.7%	(102) bps
Group underlying profit before tax^4,5,#	84.5	89.7	6.1%
Group underlying free cashflow^#	55.8	63.6	14.0%

Group non-underlying charges^4,5,6	(4.9)	(40.1)	NM
Group non-underlying cash costs⁷	-	(8.9)	NM
Group statutory profit before tax	79.6	49.6	(37.7)%

Dividend (p)	7.5	7.5	-

1. Correct as of 17/05/19

2. The fee income for practices which we have already bought out, or intend to buy out in the future, has not been recognised within FY19 revenue (FY19: £4.1m), but was recognised within FY18 revenue (FY18: £3.8m).

3. The fee income for practices which we have already bought out, or intend to buy out in the future, has not been recognised in either FY19 or FY18 LFL revenue

4. FY19 non-underlying charges include £40.4m relating to a provision made against the balance of funding provided by Pets at Home, recognition of guaranteed third party liabilities plus those where the likelihood of having to settle is probable, the cost of additional operating cash outflows forecast to be incurred by the Group through to buy out and all associated closure costs, for JV practices we have already bought out, or intend to buy out in the future (FY18: £nil)

5. FY19 non-underlying charges also include £0.4m relating to an accounting charge for the potential future acquisition of minority stakes owned by vet partners in the Specialist Referral centres, which have been charged against operating costs (FY18: £1.6m), plus a release of £0.7m relating to provisions previously recognised associated with the closure of Barkers

6. FY18 non-underlying costs also included £2.7m associated with the closure of Barkers and £0.6m of M&A related expenses for transactions that were not completed

7. FY19 cash costs include £8.8m relating to practices that we have already bought out, plus £0.1m in relation to payments made to certain Shared Venture Partners in our Specialist Referral centres to acquire remaining minority stakes

NM Not meaningful

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 37

Comment from Peter Pritchard, Group Chief Executive Officer

'We are trading strongly and taking share across the pet market. Customers are loving our lower prices, the convenience of subscription packages, high quality veterinary care and pet healthplans.

We launched our pet care strategy last year and we're already making good progress, bringing our Retail and Vet businesses closer together. Our commitment is to make sure pets and their owners get the very best advice, care and products, and we're able to join this up for customers in a way that competitors just can't.

I'm pleased with our progress and the results we have delivered, but there remains plenty to do. I'm confident we will successfully reposition our Vet Group so that, with the strong performance in Retail, we will be well placed to deliver our strategy.'

Outlook

We are confident about the year ahead. We expect to see revenue growth ahead of both the retail and vet markets, as we continue to improve our customer offer and take share. Having achieved a competitive pricing position, we expect the profit growth in our Retail business to continue. In the Vet Group, our programme to buy out and run, or close, a small number of practices remains on track. We are also adjusting Joint Venture fee arrangements for some practices, as planned, and the financial impact of these fee changes will still lead to a slight decline in Group underlying profit before tax, year on year (excluding the IFRS16 impacts detailed on page 11). This profile remains in line with previous guidance, although the absolute profit outcome in FY20 will be higher than previously expected, due to the outperformance in FY19.

It has been necessary to update our underlying free cashflow outlook to reflect a change in timing to Corporation Tax payments. This results in a one-off additional outflow of up to £11m in FY20.

New openings will include up to five new stores, grooming salons and vet practices. We expect to close a small number of additional JV practices as part of the Vet Group recalibration, in line with previous guidance.

Our focus remains on returning the business to profit growth and we expect to generate underlying profit and free cashflow growth from FY21, following the completion of the Vet Group recalibration.

FY20 Group underlying guidance (excluding IFRS16)
Total revenue growth	Ahead of market
Depreciation & amortisation	£39-41m
Net finance expense	£4-5m
Underlying profit before tax^#	Slight decline y/y
Underlying tax rate	c20%
Capital expenditure	Up to £40m
Underlying free cashflow^#	Decline y/y
Dividend per share	In line with prior year

FY20 non-underlying financial items relating to the Vet Group remain largely as previously guided
Non-underlying income statement charge	Up to £9m: includes First Opinion business recalibration of c£8.5m and accounting charge for Specialist Referrals of c£0.5m
Non-underlying cash costs	Up to £27m: includes First Opinion business recalibration of c£19m, and up to £8m if the options to purchase shareholdings from Partners in our Specialist Referral centres are exercised

Results presentation

A presentation for analysts and investors will be held today at 10:30am at Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT, attendance is by invitation only. An audio webcast and statement of these results will be available athttp://investors.petsathome.com

Investor Relations Enquiries

Pets at Home Group Plc

Amie Gramlick, Director of Investor Relations and Corporate Affairs

Contact: +44 (0)161 486 6688 or irelations@petsathome.co.uk

Media Enquiries
Pets at Home Group Plc

Gill Hammond, Head of Media and Public Affairs

Contact: +44 (0)161 486 6688 or irelations@petsathome.co.uk

Maitland/AMO

Clinton Manning and Joanna Davidson

Contact: +44 (0)20 7379 5151 or PetsAtHome-Maitland@maitland.co.uk

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 470 First Opinion practices located both in our stores and in standalone locations, as well as four Specialist Referral centres. For more information visit:http://investors.petsathome.com

Disclaimer

This statement of preliminary financial results 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 statement of preliminary financial results 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 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.

Chief Executive Officer's Review

Key Performance Indicators

Financial KPIs		FY18	FY19		YoY change
Customer sales^#,* (£m)		1,122.4	1,218.2		8.5%
Group underlying profit before tax^# (£m)		84.5	89.7		6.1%
Group underlying free cashflow^# (£m)		55.8	63.6		14.0%

Strategic KPIs	Measure	FY18		FY19		YoY change
Bring the pet experience to life	No. of customer transactions (m)	56.2		59.2		5.3%
50% of sales from pet care services	Customer sales^# from services	32.2%		34.0%		175 bps
Use our data to better serve customers	VIP customer sales^# (£m)	502.6		591.6		17.7%
Set our people free to serve	Customer sales^# per colleague (£k)	167.5		174.1		3.9%

* Customer sales include gross customer sales made by Joint Venture vet practices of £309.8m (FY18: £273.5m) (unaudited figures), and therefore differs to the fee income recognised within Vet Group revenue

Strategic update: becoming the best pet care business in the world

We are well positioned in the £6.3bn UK pet care market, which continues to show resilience. The market grew by an estimated 4% in calendar year 2018, within which there was growth of c3% in retail and c5% in the veterinary segment. Our winning combination of complete pet care enabled us to grow our market share in all key areas; gaining c0.9% in food and c1.1% in accessories, whilst also increasing our online share of these markets, and within the veterinary segment we increased our share by c1.2%.

Such performance reflects our actions to put the business on a stronger footing and develop a pet care strategy that maximises our unique assets. We have seen growth in retail customer spend and frequency, website traffic and conversion, subscription numbers, vet practice new client registrations and health plan purchases, and the number of customers purchasing both products and services.

Strategic pillar: Bring the pet experience to life

Within Retail we have remained price competitive. We are within 5% of our most competitive online peer on all comparable items, and the same price when comparing the products we believe really matter. For our most loyal customers we are cheaper if they opt into 'Easy Repeat' delivery, our online food subscription platform. The Easy Repeat initiative has not been alone in terms of its success; relaunching our website across all platforms has improved conversion rates and Order-in-Store continues to grow in popularity.

Another milestone was the launch of our new pet care centre format at two existing stores, where we have invested in a truly experiential and digital destination for customers, with an emphasis on putting pet care centre stage. We will monitor the performance of these stores throughout FY20, with a view to refining the design and rolling out to further stores.

We have also celebrated the joy of pet ownership with the launch of our VIP Kitten Club. This follows on from the successful Puppy Club, with over 230,000 puppy members, which provides a programme of advice and offers designed to encourage shopping across product, grooming and vet services.

Strategic pillar: Deliver 50% of sales from pet care services

In FY19, 34% of customer sales came from pet care services¹. We have seen excellent growth in subscriptions and now have more than 700,000 customers on plans across our Group, helped by the launch of the 'Pet Care Plan' initiative, which rewards store colleagues for introducing customers to vet practices. We will look to extend our subscription expertise further with new plans in the year ahead.

The recalibration of our First Opinion vet business is progressing well. At the same time, releasing free cashflow by accelerating maturity in existing practices remains the number one growth opportunity for the Group. Our Joint Venture (JV) model is unique and delivers competitive benefits to both Partners and Pets at Home. However, for a small number of practices, the challenges they are facing have required us to adapt and we are working collaboratively with Joint Venture Partners (JVPs) to agree the best outcomes, which includes ongoing financial support for some practices. We previously announced our intention to buy out up to 55 practices from Joint Venture Partners (JVPs), of which up to 30 may close. By 17 May 2019, a total of 48 JV practice buy outs had been completed, of which 19 have closed, and we remain on track to complete the programme this year. Since announcing our plans, the response from JVPs has been supportive. We have also launched a new JV agreement for future practice openings, which has a simplified fee structure. The new model focuses on helping practices to grow and become debt free as soon as possible, by lowering the fee charged in their early years and subsequently increasing the fee as practices mature. Such changes will benefit new JVPs by improving practice cashflow, whilst also reducing the need for Pets at Home to provide additional funding support.

The underlying performance of our remaining First Opinion practices has remained solid and mature practices once again grew their customer sales ahead of the market, demonstrating the strength of a shared ownership model. In our Specialist Referral centres, trading remains robust. In the coming year, we will invest to begin a significant expansion to double the size of Dick White Referrals. The hospital is currently operating at capacity and the extension will allow us to meet the market demand for specialist vet services in the local area.

Strategic pillar: Use our data to better serve customers

The health of our VIP loyalty club remains strong, with reduced churn and increased customer reactivation, resulting in 4.4m active members. The success of the Puppy Club has led to an increase in VIP puppy owners, who visit more often, have higher spend and are more likely to be a vet client. With the appointment of Robert Kent as Chief Data Officer, we have a structured plan that will improve the frequency, accuracy and personalisation of communications to VIPs, as well as using Artificial Intelligence to optimise decision making across the business. We will increasingly take the management and analytics of our VIP data in-house, building a team of data scientists who will unite the wealth of information that sits across our retail and vet client databases. Over the coming months, we will launch the first of our fully integrated pet care communications to VIPs, with a core aim of increasing the number of customers who use our vets, groomers and other services. This highly personalised marketing will be based upon the type, age and breed of pets, and will adapt as pets move through different phases of their life, for example, from puppy to adult.

We are also using our data to drive range changes. Given the scale of our store estate, ensuring we make the best use of space represents an opportunity for incremental sales. By applying algorithmic software to our existing data, we have been able to optimise ranges in a selection of trial stores such that stock is tailored to local customer preferences. This has led to increased sales and margin, whilst also delivering replenishment efficiency and creating more time for colleagues to spend with customers.

Strategic pillar: Set our people free to serve

By creating efficiencies, we can set our store, grooming and veterinary colleagues free to spend more time with customers. We have successfully reduced non-customer facing tasks through initiatives such as fewer promotional changes, communication headsets and mobile ticket printers. We have created these efficiencies whilst increasing like-for-like sales and without a detrimental impact to customer service, as our overall satisfaction score from customers has improved through the year.

Elsewhere in Retail, we have invested in automation at our Distribution Centre in Northampton, to support the growth and reduce the cost of our omnichannel business. We have already delivered the first phase of new software and automated picking for our flea treatment subscription service, with packing automation for the rest of our fulfilment operation to follow later this year.

Despite the continued shortage of vets in the UK, we have made good progress in reducing vacancy rates, and locum spend as a percentage of practice sales, through improved recruitment. Finally, with Jane Balmain now permanent Chief Operating Officer of the Vet Group, we have in place the right leadership team across the Group to deliver our plans for the years ahead.

Peter Pritchard

Group Chief Executive Officer

22 May 2019

¹including gross customer sales made by Joint Venture vet practices, revenue from our Specialist Referral centres and company managed vet practices, grooming services, subscriptions, pet sales and pet insurance commissions

Chief Financial Officer's Review

The FY19 audited period represents the 52 weeks to 28 March 2019. The audited comparative period represents 52 weeks to 29 March 2018.

The Group's results are shown as two segments that represent the size of the respective businesses and our internal reporting structures; Retail (includes products purchased online and in-store, pet sales, grooming services and insurance products) and Vet Group (includes First Opinion practices and Specialist Referral centres).

	FY18	FY19	YoY change
Group like-for-like revenue growth^#	5.5%	5.7%²
Retail	4.6%	5.1%
Vet Group¹	15.0%	11.2%²

Group revenue (£m)¹	898.9	961.0	6.9%
Retail	804.8	854.6	6.2%
Vet Group¹	94.1	106.4	13.1%

Group underlying gross margin³	51.7%	50.7%	(102) bps
Retail	52.2%	51.0%	(122) bps
Vet Group³	47.1%	48.0%	87 bps

Group underlying EBIT^3,4,# (£m)	88.8	93.2	5.0%
Retail	65.1	67.2	3.2%
Vet Group^3,4	29.6	32.1	8.5%
Central	(5.9)	(6.1)	3.2%

Group underlying EBIT margin^3,4,5,#	9.9%	9.7%	(18) bps
Retail	8.1%	7.9%	(23) bps
Vet Group^3,4	31.4%	30.1%	(129) bps

Group underlying PBT^3,4,# (£m)	84.5	89.7	6.1%
Group non-underlying charges^3,4,5 (£m)	(4.9)	(40.1)	NM
Group statutory PBT (£m)	79.6	49.6	(37.7)%
Underlying basic EPS^3,4,# (p)	13.5	14.1	4.2%
Statutory basic EPS (p)	12.6	6.1	(51.5)%
Dividend (p)	7.5	7.5	-
Group underlying free cashflow^#(£m)	55.8	63.6	14.0%

Number of stores	448	452	4
Number of grooming salons	309	314	5
Number of Joint Venture First Opinion vet practices	444	420	(24)
Number of company managed First Opinion vet practices	17	50	33

1. The fee income for JV practices which we have already bought out, or intend to buy out in the future, has not been recognised within FY19 revenue (FY19: £4.1m), but was recognised within FY18 revenue (FY18: £3.8m).

2. The fee income for JV practices which we have already bought out, or intend to buy out in the future, has not been recognised in either FY19 or FY18 LFL revenue

3. FY19 non-underlying charges include £40.4m relating to a provision made against the balance of funding provided by Pets at Home, recognition of guaranteed third party liabilities plus those where the likelihood of having to settle is probable, the cost of additional operating cash outflows forecast to be incurred by the Group through to buy out and all associated closure costs, for JV practices we have already bought out, or intend to buy out in the future (FY18: £nil)

4. FY19 non-underlying charges also include £0.4m relating to an accounting charge for the potential future acquisition of minority stakes owned by vet partners in the Specialist Referral centres, which have been charged against operating costs (FY18: £1.6m), plus a release of £0.7m relating to provisions previously recognised associated with the closure of Barkers

5. FY18 non-underlying costs included £2.7m associated with the closure of Barkers and £0.6m of M&A related expenses for transactions that were not completed

NM Not meaningful

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 37

Impact of Vet Group recalibration on the financial statements

As part of the recalibration of the First Opinion vet business, a £40.4m non-underlying charge, relating to any practice buy out commenced in FY19, has been recognised against Vet Group, and Group, gross profit. This accounts for the write-off of funding provided by Pets at Home, guaranteed bank and lease obligations, closure costs for those practices that we have bought out and decided to close, and the cost of additional exit and closure costs forecast to be incurred by the Group through to buy out for those not completed by the balance sheet date.

Revenue

Group revenue in FY19 grew 6.9% to £961.0m (FY18: £898.9m) and like-for-like (LFL) revenues grew 5.7%^#.

Retail revenues grew 6.2% to £854.6m (FY18: £804.8m), including omnichannel revenue growth of 43.0% to £73.5m. LFL revenue growth was 5.1%^#. Food revenues grew by 7.9% to £455.4m (FY18: £421.9m), reflecting good performance in dog Advanced Nutrition (AN) and other premium food lines, as well as dog treats. AN revenues overall grew 10.6% to £210.1m (FY18: £189.8m). Accessories revenues grew 3.9% to £357.0m (FY18: £343.5m), where ranges in discretionary categories such as dog collars & leads, dog toys, and travel & training proved particularly popular.

Vet Group revenues grew 13.1% to £106.4m (FY18: £94.1m), with LFL growth of 11.2%^#. Customer sales made by Joint Venture vet practices were up 13.3% to £309.8m^# (FY18: £273.5m) (unaudited figures). This led to our fee income increasing by5.2% to £52.6m (FY18: £50.0m), whilst LFL fee income growth in FY19 was 12.2%^# (FY18: 13.3%). During the first half of FY19, it became apparent that operating loans provided to underperforming practices would not be recoverable. As such, we stopped recognising revenue on services provided to those practices throughout FY19. The impact of this is that fee income of £4.1m relating to practices which we have bought out or intend to buy out in the future has not been recognised, despite fee income from these practices being recognised in the prior year at £3.8m. We are continuing with this approach until such time any buy out takes place, from which point the financial performance of these practices will be consolidated. (Please refer to Note 1 in the financial statements for more detail.) Elsewhere in the Vet Group, we also saw strong growth inrevenues from our Specialist Referral centres, which grew 9.9% to £37.0m (FY18: £33.7m).

Gross margin

Group underlying gross margin declined by 102 bps to 50.7% (FY18: 51.7%), whilst Group statutory gross margin was 46.5% (FY18: 51.7%).

Underlying (and statutory) gross margin within Retail was 51.0%, a reduction of 122 bps over the prior year (FY18: 52.2%), which was in line with our price investment plans. In addition, the fast growth of our omnichannel business, which has a greater mix of food product versus higher margin accessories, also contributed to gross margin dilution.

Underlying gross margin within the Vet Group increased by 87 bps to 48.0% (FY18: 47.1%). This increase was achieved despite the non-recognition of fee income totalling £4.1m as outlined above, and reflects a lower charge of £2.9m made to the underlying provision held against operating loan funding provided to First Opinion JV practices (FY18: £5.0m). This underlying provision relates to practices we intend to retain as Joint Ventures and is based on an assessment of various risk factors impacting the recoverability of such amounts.

Statutory Vet Group gross margin, after all non-underlying charges, was 10.1% (FY18: 47.1%). This reflects a total charge of £40.4m (FY18: £nil) relating to all Pets at Home funding and recognition of bank and lease obligations, made in respect of those practices which we have already bought out, or intend to buy out in the future. Of the total £40.4m charge,£21.2m has been incurred for practices where a buy out has been completed, whilst £19.2m relates to provisions for practices where a buy out had not yet taken place by the March year end. All non-underlying costs relating to the recalibration of the First Opinion vet business during the second half of the year were in line with previously issued guidance.

Operating profit and operating costs

Underlying Group EBIT was £93.2m^#(FY18: £88.8m), with a margin of 9.7%^#(FY18: 9.9%).

Underlying Retail EBIT was £67.2m^#(FY18: £65.1m) with a margin of 7.9%^#(FY18: 8.1%) and operating cost growth, excluding depreciation and amortisation, was 3.5% to £334.3m (FY18: £323.0m). The key driver of operating margin dilution was our planned price investment during the year, whilst we remain rigorous in our approach to cost control. Occupation costs (rent, service charges and other property costs) again declined as a percentage of sales due to our success in driving store rents down during lease renewal negotiations. Colleague costs declined as a percentage of sales, resulting from time saving initiatives. We continue to invest in our omnichannel and systems capabilities, and as such, depreciation and amortisation in Retail increased to £34.3m (FY18: £32.2m).

Underlying Vet Group EBIT was £32.1m^#(FY18: £29.6m) with a margin of 30.1%^# (FY18: 31.4%). Operating costs in the Vet Group, excluding depreciation and amortisation, were £16.5m (FY18: £12.4m), growth of 32.6% on the prior year. This growth was due to overhead costs relating to those practices bought out during the second half of the year being recognised in full, as well as increased colleague and equipment leasing costs in our Specialist Referral centres. Depreciation and amortisation in the Vet Group increased to £2.5m (FY18: £2.3m).

In the Vet Group, non-underlying operating costs totalling £0.4m were recognised in relation to the ownership structures and accounting treatment of the Specialist Referral centres (FY18: £1.6m). Two 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 Shared Venture Partners (SVPs). Pets at Home has an option to buy the SVP 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 growth element of the SVP's shares is recognised as an expense over the period to which the option can be exercised, and recognised as a non-underlying expense.

Central costs, including Group overheads and colleagues, increased slightly to £6.1m (FY18: £5.9m).

Finance expense

Net finance expense for the year was £3.5m, a reduction from the prior year (FY18: £4.3m).

During the year, we successfully completed a Group refinancing, with the new facility providing access to £248m across seven lenders. Based on leverage since this refinancing, this facility has attracted a margin of 1.4% above LIBOR.

Taxation, net income & EPS

Underlying pre tax profit for the year was £89.7m^#(FY18: £84.5m) and statutory pre tax profit, including all non-underlying items, was £49.6m (FY18: £79.6m).

Underlying total tax expense for the period was £19.3m^#, a rate of 21% on underlying pre tax profit.

Underlying net income for the year, after tax, was £70.4m^#(FY18: £67.5m) and underlying basic earnings per share were 14.1 pence^#(FY18: 13.5 pence). Statutory basic earnings per share were 6.1 pence (FY18: 12.6 pence).

Cash working capital

The cash movement in trading working capital for FY19 was an inflow of £12.1m^#. This comprised of a £7.3m increase in inventory, £4m of which was due to a deliberate stockpiling in response to Brexit uncertainty around our financial year end date, offset by a £14.5m increase in payables and a £4.9m decrease in receivables.

We supported some of the First Opinion veterinary practices which will continue to operate as Joint Ventures, with an additional £9.6m of cash operating loan funding in the year. This reduced the overall Group cash working capital inflow to £2.5m.

The gross value of operating loans at the end of the year was £42.2m (FY18: £38.0m). This was slightly lower than expected, due to the speed of action taken to buy out and/or close a number of under-performing practices. A total provision of £14.3m (FY18: £8.3m) is held against the gross value of operating loans, comprised of: i) an underlying provision of £7.1m against a £35.0m gross balance of operating loans for practices which we plan to continue operating as Joint Ventures, and ii) a non-underlying provision of £7.2m against 100% of the balance of operating loans for practices which we intend to buy out in the future.

Operating loans totalling £10.8m which had previously been advanced to practices which had been bought out by the financial year end date have been written off in full, and we expect to write-off a further £7.2m in FY20 through utilisation of the non-underlying provision above.

Capital investment

Capital investment was £34.5m (FY18: £40.7m), where £8.8m (FY18: £12.8m) is represented by the ongoing refurbishment and maintenance of our existing store estate, including investment in our new pet care centre format at two trial stores. New store capital investment totalled £3.7m (FY18: £7.3m) and investment in omnichannel and business systems totalled £10.8m (FY18: £10.0m). Cash capital expenditure was £37.9m (FY18: £41.6m).

Group underlying free cashflow

Group underlying free cashflow (FCF) after interest, tax and before acquisitions increased to £63.6m^#(FY18: £55.8m), representing a cash conversion rate of 49%^#(FY18: 45%). The increase in FCF compared with the prior year is largely driven by a reduced capital expenditure and the purchase of shares required to satisfy colleague stock option schemes, offset by one-off costs incurred with the Group refinancing successfully completed in the year.

Group underlying free cashflow^# (£m)	FY18	FY19
Operating cashflow	126.8	126.5
Tax	(19.1)	(18.6)
Interest	(3.9)	(2.8)
Debt issue costs	-	(2.5)
Net capex	(44.0)	(37.2)
Purchase of own shares to satisfy colleague options	(4.0)	(1.8)
Group underlying free cashflow^#	55.8	63.6

FY19 Group underlying free cashflow^#	Underlying FCF (£m)	FCF conversion
Retail	57.3	56%
Vet Group	19.8	57%
Central¹	(13.5)	NM
Group underlying free cashflow^#	63.6	49%

1. Includes central costs of £6.1m plus interest paid of £3.4m, debt issue costs of £2.5m, purchase of own shares of £1.8m and a credit relating to IFRS2 of £0.4m

The Group's net debt position at the end of the year was £120.5m, which represents a leverage ratio of 0.9x underlying EBITDA^#.

Group net debt (£m)	FY18	FY19
Opening net debt	(153.7)	(135.2)
Underlying free cashflow^#	55.8	63.6
Ordinary dividends paid	(37.3)	(37.2)
Acquisitions²	-	(2.8)
Non-underlying cash outflow³	-	(8.9)
Closing net debt	(135.2)	(120.5)
Leverage (Net debt/ underlying EBITDA^#)	1.1x	0.9x

2. Includes the purchase of two mature, JV practices from Joint Venture Partners for £2.1m, which are now operated as company managed practices, £(0.3)m of net cash acquired by purchasing three other existing JV practices, and deferred consideration of £1.0m relating to one of our Specialist Referral centres

3. Includes £8.8m relating to practices that we have already bought out, plus £0.1m in relation to payments made to certain Shared Venture Partners in our Specialist Referral centres to acquire remaining minority stakes

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 37

Capital allocation

Our capital allocation policy prioritises investing our cash generation in areas that will expand the Group and deliver appropriate returns, including organic investment and the working capital needs of our Vet Group. Our second priority is to maintain an ordinary dividend payment. Finally, dependent upon our acquisition outlook, and should we not foresee any alternative investment uses, it is our intention to return surplus free cashflow to shareholders through a special dividend or share buyback.

Dividend

The Board has recommended a final dividend of 5.0 pence per share, giving a total dividend of 7.5 pence per share in respect of the 2019 financial year, equal with the prior year. The final dividend will be payable on 16 July 2019 to shareholders on the register at the close of trading on 14 June 2019.

Transition to IFRS16

The financial statements for FY19 have been prepared based on application of IAS17, but in FY20 the Group will report its financial statements under the requirements of IFRS16 for the first time. Implementation of IFRS16 has no effect on how the business is run, nor on cash flows generated. It does, however, have an impact on the assets, liabilities and income statement of the Group, as well as the classification of cash flows relating to lease contracts.

IFRS16 seeks to align the presentation of leased assets more closely to owned assets. In doing so, a right-of-use asset and lease liability are brought onto the balance sheet, with the lease liability recognised at the present value of future lease payments. Whilst the right-of-use asset is matched in value to the lease liability at inception, it differs in value through the life of the lease. The total value of the discounted lease liability brought onto the Group's Balance Sheet at the start of FY20 will be £508m, relating primarily to our leased store estate and a small number of company managed vet practices. For FY19, this would have increased our leverage ratio from 0.9x to 3.0x.

IFRS16 permits a choice on the method of implementation and after careful consideration the Group has concluded it will apply the modified retrospective approach. Under this method, all prior year comparative balances are not restated but the cumulative effect of adopting IFRS16 is recognised as an adjustment to the opening balance sheet for FY20. Both the right-of-use asset and lease liability are recognised as the present value of future lease payments as of the date of transition, adjusted for any remaining deferred income relating to landlord incentives and rent free periods, outstanding prepayments or provisions for onerous leases.

The first results that will be published on an IFRS16 basis will be in FY20, where we expect IFRS16 to reduce Group underlying profit before tax by c£6-7m. However, in order to familiarise readers of the accounts with the likely impact of transitioning to IFRS16 on the Group financial statements, we show a pro-forma unaudited reconciliation for FY19.

£m (unaudited)	Pre IFRS16	Exclude rent	Include depreciation	Include interest	Post IFRS16
Revenue	961.0	-	-	-	961.0
Operating lease rentals	(78.6)	78.6	-	-	-
Depreciation & amortisation	(36.8)	-	(69.8)	-	(106.6)
Underlying operating profit	93.2	78.6	(69.8)	-	102.0

Finance income	0.6	-	-	0.1	0.7
Finance expense	(4.1)	-	-	(15.0)	(19.1)
Underlying PBT	89.7	78.6	(69.8)	(14.9)	83.6

£m (unaudited)	Pre IFRS16	Add back rent	Replace with interest & capital repayment	Post IFRS16
Group operating cashflow	-	78.6	-	78.6
Tax and interest	(21.4)	-	(8.6)	(30.0)
Repayment of lease obligations	-	-	(70.0)	(70.0)
Net capex	(37.2)	-	-	(37.2)
Other cashflow items	122.2	-	-	122.2
Group free cashflow	63.6	78.6	(78.6)	63.6

Impact of the UK's exit process from the EU

We continue our work to assess and mitigate the likely impact of the United Kingdom's exit from the European Union (EU). Given the range of possible scenarios it is impossible for us to be specific, however, we are keeping the following areas under review:

1) Consumer demand - although we expect the UK pet care market to remain resilient, we will be vigilant to signs that consumer demand is being adversely affected, so that we may seek to respond appropriately and expediently.2) Although pet products are unlikely to 'spoil' as a result of any border delays, there is a risk that our supply chain becomes disrupted. In such circumstances, we may consider increasing our inventory holding to mitigate the potential impact on our Retail division. 3) We do not currently expect to see a material tariff impact, as the majority of our products are imported from outside the EU.

4) Exchange rates - the exit process may prompt movements in the USD/GBP exchange rate. The Group purchases products from Asia to a value of around US$70m each year. Our policy is to use a mix of foreign exchange forward contracts to hedge our USD requirement to cover the next 18 months. Our hedging requirements for FY20 are in place at an average rate of 1.35 USD:GBP, and we expect no material foreign exchange impact.

5) A significant number of colleagues, particularly within our Vet Group and distribution centres, are non-UK EU nationals. Brexit may result in changes to UK immigration policy which increases the risk around the availability, recruitment and retention of these individuals. We are working closely with professional bodies including the Royal College of Veterinary Surgeons and the British Veterinary Association and support them in their calls on Government to formally recognise the shortages of veterinary surgeons across all disciplines, particularly in light of restrictions on free movement for EU nationals following Brexit.

Mike Iddon

Chief Financial Officer

22 May 2019

Financial Statements

Financial Information

The financial information set out in this preliminary statement of annual results has been extracted from the Group's financial statements, which have been approved by a resolution of the Board of directors of the Company on 21 May 2019 and agreed with the Company's auditor.

The financial information set out in this preliminary statement does not constitute the Company's statutory accounts for the year ended 28 March 2019 as defined in section 434 of the Companies Act 2006 (the 'Act') which have not yet been delivered to the Registrar of Companies.

The Company's auditor has reported on the FY19 financial statements. Its reports were unqualified and did not draw attention to any matters by way of emphasis. The reports also did not contain statements under section 498 of the Act.

Consolidated income statement

	Note	52 week period ended 28 March 2019			52 week period ended 29 March 2018
	Note	Underlying trading £000	Non-underlying items (note 3) £000	Total £000	Underlying trading £000	Non-underlyingitems (note 3) £000	Total £000
Revenue	2	961,039	-	961,039	898,924	-	898,924
Cost of sales		(471,254)	(22,496)	(493,750)	(428,643)	-	(428,643)
Impairment losses on receivables	3,12	(2,896)	(17,858)	(20,754)	(5,673)	-	(5,673)
Gross profit		486,889	(40,354)	446,535	464,608	-	464,608
Selling and distribution expenses		(314,404)	-	(314,404)	(309,482)	-	(309,482)
Administrative expenses	3	(79,282)	290	(78,992)	(66,323)	(4,929)	(71,252)
Operating profit	2,3	93,203	(40,064)	53,139	88,803	(4,929)	83,874
Financial income	6	577	-	577	685	-	685
Financial expense	7	(4,113)	-	(4,113)	(4,963)	-	(4,963)
Net financing expense		(3,536)	-	(3,536)	(4,278)	-	(4,278)
Profit before tax		89,667	(40,064)	49,603	84,525	(4,929)	79,596
Taxation	8	(19,262)	151	(19,111)	(16,983)	201	(16,782)
Profit for the period		70,405	(39,913)	30,492	67,542	(4,728)	62,814

All activities relate to continuing operations.

Basic and diluted earnings per share attributable to equity shareholders of the Company:

	Note	52 week period ended 28 March 2019	52 week period ended 29March 2018
Equity holders of the parent - basic	5	6.1p	12.6p
Equity holders of the parent- diluted	5	6.0p	12.6p

Dividends paid and proposed are disclosed in note 9.

Consolidated statement of comprehensive income

	Note	52 week period ended 28 March 2019 £000	52 week period ended 29March 2018 £000
Profit for the period		30,492	62,814
Other comprehensive income
Items that are or may be recycled subsequently into profit or loss:
Foreign exchange translation differences		(76)	71
Cash flow hedges - reclassified to profit and loss		1,173	(473)
Effective portion of changes in fair value of cash flow hedges		1,034	(1,695)
Other comprehensive income for the period, before income tax		2,131	(2,097)
Income tax on other comprehensive income		(420)	412
Other comprehensive income for the period, net of income tax		1,711	(1,685)
Total comprehensive income for the period		32,203	61,129

Consolidated balance sheet

	Note	At 28 March 2019 £000	At 29 March 2018 £000
Non-current assets
Property, plant and equipment		123,684	129,904
Intangible assets		1,000,726	992,929
Other non-current assets	11	18,653	20,182
		1,143,063	1,143,015
Current assets
Inventories		68,209	60,529
Other financial assets	11	1,610	1,160
Trade and other receivables	12	68,886	74,848
Cash and cash equivalents		60,534	59,824
		199,239	196,361
Total assets		1,342,302	1,339,376
Current liabilities
Trade and other payables		(185,833)	(173,856)
Corporation tax		(10,238)	(8,881)
Provisions	13	(15,353)	(835)
Other financial liabilities	11	(7,333)	(3,392)
		(218,757)	(186,964)
Non-current liabilities
Other interest-bearing loans and borrowings		(178,778)	(194,519)
Other payables		(33,579)	(36,200)
Provisions	13	(1,687)	(2,200)
Other financial liabilities	11	(2,497)	(8,693)
Deferred tax liabilities		(4,028)	(4,448)
		(220,569)	(246,060)
Total liabilities		(439,326)	(433,024)
Net assets		902,976	906,352
Equity attributable to equity holders of the parent
Ordinary share capital		5,000	5,000
Consolidation reserve		(372,026)	(372,026)
Merger reserve		113,321	113,321
Translation reserve		(36)	40
Cash flow hedging reserve		837	(950)
Retained earnings		1,155,880	1,160,967
Total equity		902,976	906,352

On behalf of the Board:

Mike Iddon

Group Chief Financial Officer

Company number: 08885072

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 37

Consolidated statement of changes in equity as at 28 March 2019

	Share capital £000	Consolidation reserve £000	Merger reserve £000	Cash flow hedging reserve £000	Translation reserve £000	Retained earnings £000	Total equity £000
Balance at 29 March 2018	5,000	(372,026)	113,321	(950)	40	1,160,967	906,352
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	30,492	30,492
Other comprehensive income	-	-	-	1,787	(76)	-	1,711
Total comprehensive income for the period	-	-	-	1,787	(76)	30,492	32,203
Transactions with owners, recorded directly in equity
Equity dividends paid	-	-	-	-	-	(37,192)	(37,192)
Share based payment charge	-	-	-	-	-	3,454	3,454
Purchase of own shares	-	-	-	-	-	(1,841)	(1,841)
Total contributions by and distributions to owners	-	-	-	-	-	(35,579)	(35,579)
Balance at 28 March 2019	5,000	(372,026)	113,321	837	(36)	1,155,880	902,976

Consolidated statement of changes in equity as at 29 March 2018

	Share capital £000	Consolidation reserve £000	Merger reserve £000	Cash flow hedging reserve £000	Translation reserve £000	Retained earnings £000	Total equity £000
Balance at 30 March 2017	5,000	(372,026)	113,321	806	(31)	1,135,574	882,644
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	62,814	62,814
Other comprehensive income	-	-	-	(1,756)	71	-	(1,685)
Total comprehensive income for the period	-	-	-	(1,756)	71	62,814	61,129
Transactions with owners, recorded directly in equity
Equity dividends paid	-	-	-	-	-	(37,341)	(37,341)
Share based payment charge	-	-	-	-	-	3,936	3,936
Purchase of own shares	-	-	-	-	-	(4,016)	(4,016)
Total contributions by and distributions to owners	-	-	-	-	-	(37,421)	(37,421)
Balance at 29 March 2018	5,000	(372,026)	113,321	(950)	40	1,160,967	906,352

Consolidated statement of cash flows

	52 week period ended 28 March 2019 £000	52 week period ended 29 March 2018 £000¹
Cash flows from operating activities
Profit for the period	30,492	62,814
Adjustments for:
Depreciation and amortisation	36,816	34,483
Financial income	(577)	(685)
Financial expense	4,113	4,963
Loss on disposal of property, plant and equipment	-	1,628
Share based payment charges	3,454	3,936
Taxation	19,111	16,782
	93,409	123,921
Increase in trade and other receivables	(1,787)	(5,976)
Increase in inventories	(7,326)	(4,109)
Increase in trade and other payables	12,563	9,393
Increase in provisions	1,951	249
Increase in working capital relating to non-underlying items	27,718	3,301
	126,528	126,779
Tax paid	(18,594)	(19,054)
Net cash flow from operating activities	107,934	107,725
Cash flows from investing activities
Proceeds from the sale of property, plant and equipment	630	814
Interest received	577	685
Investment in other financial assets	-	(2,146)
Loans issued	(154)	(872)
Acquisition of subsidiary, net of cash acquired	(4,260)	-
Acquisition of property, plant and equipment and other intangible assets	(37,456)	(41,613)
Net cash used in investing activities	(40,663)	(43,132)
Cash flows from financing activities
Equity dividends paid	(37,192)	(37,341)
Proceeds from new loan	181,000	-
Repayment of borrowings	(195,000)	(15,000)
Repayment of borrowings following acquisition of subsidiaries	(6,370)	-
Debt issue costs	(2,473)	-
Payment of deferred consideration	(1,000)	-
Settlement of 'put and call' liabilities	(134)	-
Purchase of own shares	(1,841)	(4,016)
Finance lease obligations	(170)	(181)
Interest paid	(3,381)	(4,576)
Net cash used in financing activities	(66,561)	(61,114)
Net increase in cash and cash equivalents	710	3,479
Cash and cash equivalents at beginning of period	59,824	56,345
Cash and cash equivalents at end of period	60,534	59,824

¹The comparative cash flow statement has been restated to show non-underlying working capital items separately from underlying working capital items in order to enhance comparability.

Notes

1 Basis of Preparation

Pets at Home Group Plc (the Company) is a company incorporated in the United Kingdom and its registered office is Epsom Avenue, Stanley Green, Handforth, Cheshire, SK9 3RN.

The company is listed on the London Stock Exchange.

The consolidated financial statements for the 52 week period ended 28 March 2019 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRS) and were approved by the Directors of the Company on 21st May 2019 along with this preliminary announcement.

The consolidated financial statements are prepared on the historical costs basis except for derivative financial instruments, share based payments and certain investments measured at their fair value.

The financial information included in this preliminary statement of results does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the 'Act'). The financial information for the 52 week period ended 28 March 2019 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued. Statutory accounts for the 52 week period ended 28 March 2019 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

The auditors have consented to the publication of the Preliminary Announcement as required by Listing Rule 9.7a having completed their procedures under APB bulletin 2008/2.

The directors of Pets at Home Group Plc, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the consolidated financial statements for the 52 week period ended 28 March 2019.

2 Segmental reporting

The Group has moved to two reportable segments, Retail and Vet Group, which are the Group's strategic business units for the 52 week period ending 28 March 2019. In the 52 week period ended 29 March 2018, the Group only reported under one segment, and consequently the information provided in relation to the 52 week period ending 29 March 2018 has been restated to reflect the two reportable segments.

The Group's operating segments are based on the internal management structure and internal management reports, which are reviewed by the Executive Directors on a periodic basis. The Executive Directors are considered to be the Chief Operating Decision Makers. The move to two reportable segments for the 52 week period ending 28 March 2019 reflects the change in management structure of the Group from the start of this period.

The Group is a pet care business with the strategic advantage of being able to provide products, services and advice, addressing all pet owners' needs. Within this strategic umbrella, the Group has two reportable segments, Retail and Vet Group, which are the Group's strategic business units, and a central support function. The strategic business units offer different products and services, are managed separately and require different operational and marketing strategies.

The operations of the Retail reporting segment comprise the retailing of pet products purchased online and in-store, pet sales, grooming services and insurance products. The operations of the Vet Group reporting segment comprise First Opinion practices and Specialist Referral Centres. Central includes group costs and finance expenses. Revenue and costs are allocated to a segment where reasonably possible.

The following summary describes the operations in each of the Group's reportable segments. Performance is measured based on segment operating profit, as included in the management reports that are reviewed by the Executive Directors. These internal reports are prepared in accordance with IFRS accounting policies consistent with these financial statements. All material operations of the reportable segments are carried out in the UK and all revenue is from external customers.

	52 week period ended 28 March 2019
Income statement - underlying trading	Retail £000	Vet Group £000	Central £000	Total £000
Revenue	854,641	106,398	-	961,039
Gross profit	435,829	51,060	-	486,889

Underlying operating profit/(loss)	67,224	32,075	(6,096)	93,203
Non-underlying items	510	(40,574)	-	(40,064)
Segment operating profit/(loss)	67,734	(8,499)	(6,096)	53,139
Net financing income / (expense)	250	297	(4,083)	(3,536)
Profit/(loss) before tax	67,984	(8,202)	(10,179)	49,603

Non-underlying operating expenses in the periods ended 28 March 2019 and 29 March 2018 are explained in note 3.

In accordance with IFRS 15, revenue excludes fee income from Joint Venture veterinary practices in which the Group has either completed, or has offered and holds an intention to buy out the 'A' shares from the Joint Venture Partners in the future, on the basis of increased uncertainty of recoverability.

	52 week period ended 29 March 2018
Income statement - underlying trading (restated)	Retail £000	Vet Group £000	Central £000	Total £000
Revenue	804,849	94,075	-	898,924
Gross profit	420,278	44,330	-	464,608

Underlying operating profit/(loss)	65,137	29,572	(5,906)	88,803
Non-underlying items	(2,685)	(2,244)	-	(4,929)
Segment operating profit/(loss)	62,452	27,328	(5,906)	83,874
Net financing expense	-	-	(4,278)	(4,278)
Profit/(loss) before tax	62,452	27,328	(10,184)	79,596

Non-underlying operating expenses in the periods ended 28 March 2019 and 29 March 2018 are explained in note 3.

	52 week period ended 28 March 2019
Reconciliation of EBITDA before non-underlying items	Retail £000	Vet Group £000	Central £000	Total £000
Underlying operating profit/(loss)	67,224	32,075	(6,096)	93,203
Depreciation expense	26,683	1,811	-	28,494
Amortisation expense	7,629	693	-	8,322
Underlying EBITDA	101,536	34,579	(6,096)	130,019

	52 week period ended 29 March 2018
Reconciliation of EBITDA before non-underlying items (restated)	Retail £000	Vet Group £000	Central £000	Total £000
Underlying operating profit/(loss)	65,137	29,572	(5,906)	88,803
Depreciation expense	26,306	1,974	-	28,280
Amortisation expense	5,845	358	-	6,203
Underlying EBITDA	97,288	31,904	(5,906)	123,286

	52 week period ended 28 March 2019
Segmental revenue analysis by revenue stream	Retail £000	Vet Group £000	Central £000	Total £000
Retail - Food	455,397	-	-	455,397
Retail - Accessories	357,033	-	-	357,033
Retail - Services	42,211	-	-	42,211
Vet - First Opinion fee income	-	52,628	-	52,628
Vet - Company managed practices	-	8,090	-	8,090
Vet - Other income	-	8,650	-	8,650
Vet - Specialist	-	37,030	-	37,030
Total	854,641	106,398	-	961,039 9

	52 week period ended 29 March 2018
Segmental revenue analysis by revenue stream	Retail £000	Vet Group £000	Central £000	Total £000
Retail - Food	421,979	-	-	421,979
Retail - Accessories	343,500	-	-	343,500
Retail - Services	39,370	-	-	39,370
Vet - First Opinion fee income	-	50,045	-	50,045
Vet - Company managed practices	-	3,070	-	3,070
Vet - Other income	-	7,270	-	7,270
Vet - Specialist	-	33,690	-	33,690
Total	804,849	94,075	-	898,924

3 Expenses and auditor's remuneration

Included in operating profit are the following:

	52 week period ended 28 March 2019 £000	52 week period ended 29March 2018 £000
Non-underlying items
Write off and provisions for operating loans, initial set-up loans, and trading balances with Joint Venture veterinary practices	17,858	-
Other costs associated with the purchase of Joint Venture veterinary practices	22,496	-
Increase in fair value of put and call liability	360	1,625
Closure of Barkers stores	(482)	2,685
Aborted property and acquisition costs	(168)	619
Total non-underlying items	40,064	4,929
Underlying operating expenses
Depreciation of tangible fixed assets	28,494	28,280
Amortisation of intangible assets	8,322	6,203
Rentals under operating leases:
Hire of plant and machinery	4,971	4,387
Property	76,975	75,922
Rental income from third party sublets	(950)	(1,041)
Rental income from related parties	(7,876)	(7,138)
Profit on disposal of fixed assets	-	817
Share based payment charges	3,454	3,936

During the period ended 28 March 2019 the Group has completed a review and recalibration exercise of the First Opinion veterinary practices. As part of this review, the Group has either completed, or has offered and holds an intention to buy out the 'A' shares from the Joint Venture Partners in the future, in up to 55 Joint Venture veterinary practices. As at 28 March 2019 the Group has acquired 100% of the 'A' shares of 27 veterinary practices, which were previously accounted for as Joint Venture veterinary practices, six of which were closed before the period end. In addition the Group acquired five further practices which did not form part of this review.

As at 28 March 2019, the Group is in the process of offering to buy out a further 23 practices and has provided in full for the remaining operating loans of £7.169m on these indebted practices. These costs have been charged to non-underlying items in the consolidated income statement.

The non-underlying operating expenses in the period ended 28 March 2019 of £40.064m (period ended 29 March 2018: £4.929m) relate to:

- £17.858m in relation to the write off and provision for operating loans, initial set-up loans, and trading balances (made by the Group) to Joint Venture veterinary practices, which are no longer expected to be recoverable, and therefore which have been provided for under IFRS 9. In total £12.634m of loans and receivables have been written off in the year in relation to Joint Venture veterinary practices that have been acquired by the Group. The balance of £5.224m is held within provisions against receivables. Further details of the movement in the receivable balances has been provided in notes 11 and 12. The impairment losses described above are presented as non-underlying items since they relate to the restructuring project commenced by the Group in the period ended 28 March 2019 to buy out certain under-performing Joint Venture veterinary practices.

- £22.496m in relation to provisions against payments to third parties for bank loans, overdrafts and lease obligations (provided for under IFRS 9) and associated exit and closure costs (provided for under IAS 37) payable in relation toJoint Venture veterinary practices which the Group has acquired or will offer to buy out from Joint Venture Partners in the future. The release of negative goodwill and impairment of goodwill arising on the acquisition of the Joint Venture veterinary practices, as detailed in note 10, has been included within these costs. At 28 March 2019, £8.531m has been incurred, and £5.416m is included within provisions in note 13 under IFRS 9, whilst £8.549m is included within provisions in note 13 under IAS 37.

- £0.360m (period ended 29 March 2018: £1.625m) of non-underlying operating expenses relate to an increase in the financial liability for put and call options over shares held by clinicians in Dick White Referrals Limited and Anderson Moores Veterinary Specialists Limited. The charge represents an increase in the equity 'option' value held by those clinicians based on the Board's best estimate of the future settlement on exercise of the put and call. The charge is classified within operating expenses as a clinician is required to remain an employee of the Group in order to access the full equity value of the option at the time of the exercise.

- Release of £0.482m in relation to a provision which was created in the period ended 29 March 2018 associated with the closure of seven trial Barkers stores. The provision is no longer required as the onerous leases have now been surrendered.

- Release of £0.168m of provisions which were created in the period ended 29 March 2018 associated with aborted property and acquisition costs.

Non-underlying items in operating profit in the period ended 29 March 2018 were £4.929m. Of this, £2.685m relates to the closure of seven trial Barkers stores, including the associated lease commitments and disposal of fixed assets (£1.628m). Non-underlying operating expenses also includes £1.625m in relation to the increase in the fair value of the put and call option over the non-controlling interests in Dick White Referrals Limited, Eye-Vet Limited and Anderson Moores Veterinary Specialists Limited and £0.619m in relation to aborted property and acquisition costs.

Income or costs considered by the Directors to be non-underlying are disclosed separately to facilitate year on year comparison of the underlying trade of the business. The Directors consider that changes to the fair value of the put and call liabilities warrant separate disclosure due to the nature of these arrangements as they do not relate to the underlying trade of the business.

Auditor's remuneration

	52 week period ended 28 March 2019 £000		52 week period ended 29March 2018 £000
Audit of the parent company financial statements		10	10
Amounts receivable by the Company's auditor and its associates in respect of:
Audit of financial statements of subsidiaries pursuant to legislation		392	219
Review of interim financial statements		63	32
All other services		4	10
		469	271

4 Colleague numbers and costs

The average number of persons employed by the Group (including Directors) during the period, analysed by category, was as follows:

	52 week period ended 28 March 2019 Number	52 week period ended 29March 2018 Number
Sales and distribution - FTE	6,400	6,142
Administration - FTE	597	559
	6,997	6,701

Sales and distribution - total	8,447	8,045
Administration - total	614	575
	9,061	8,620

The aggregate payroll costs of these persons were as follows:

	52 week period ended 28 March 2019 £000	52 week period ended 29March 2018 £000
Wages and salaries	187,756	180,952
Social security costs	16,091	15,233
Contributions to defined pension contribution plans	6,202	5,725
	210,049	201,910

Remuneration of Executive Directors and Executive Management Team

	52 week period ended 28 March 2019 £000	52 week period ended 29March 2018 £000
Executive Directors' emoluments including social security costs	1,866	1,135
Non-Executive Directors' emoluments including social security costs	519	495
Executive Directors' amounts receivable under share options	30	31
Executive Directors' pension contributions	86	75
Total Directors' remuneration	2,501	1,736
Executive Management Team emoluments including social security costs	2,660	2,583
Executive Management Team amounts receivable under share options	40	64
Executive Management Team pension contributions	123	167
Total Executive Management Team remuneration	2,823	2,814

In the opinion of the Board, the key management as defined under revised IAS 24 'Related Party Disclosures' are the Executive Directors and the Executive Management Team. Executive Directors' emoluments are also included within the Executive Management Team emoluments disclosed above.

5 Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

	52 week period ended 28 March 2019		52 week period ended 29 March 2018¹
	Underlying trading	After non-underlying items	Underlying trading	After non-underlying items
Profit attributable to equity shareholders of the parent (£000s)	70,405	30,492	67,542	62,814

Basic weighted average number of shares	500,000,000	500,000,000	500,000,000	500,000,000
Dilutive potential ordinary shares	5,138,106	5,138,106	(151,565)	(151,565)
Diluted weighted average number of shares	505,138,106	505,138,106	499,848,435	499,848,435

Basic earnings per share	14.1p	6.1p	13.5p	12.6p
Diluted earnings per share	13.9p	6.0p	13.5p	12.6p

¹The comparative period's dilutive potential ordinary shares have been restated to exclude the number of shares held by the EBT, as disclosed in note 9.

6 Finance income

	52 week period ended 28 March 2019 £000	52 week period ended 29 March 2018 £000
Interest receivable on loans to Joint Venture veterinary practices	501	685
Other interest receivable	76	-
Total finance income	577	685

7 Finance expense

	52 week period ended 28 March 2019 £000	52 week period ended 29 March 2018 £000
Bank loans at effective interest rate	4,083	4,773
Other interest expense	30	190
Total finance expense	4,113	4,963

8 Taxation

Recognised in the income statement

	52 week period ended 28 March 2019 £000	52 week period ended 29 March 2018 £000
Current tax expense
Current period	20,643	17,837
Adjustments in respect of prior periods	(693)	(511)
Current tax expense	19,950	17,326
Deferred tax expense
Origination and reversal of temporary differences	(1,908)	(669)
Impact of difference between deferred and current tax rates	100	(260)
Adjustments in respect of prior periods	969	385
Deferred tax expense	(839)	(544)
Total tax expense	19,111	16,782

The UK corporation tax standard rate for the period was 19% (2018: 19%). The March 2016 budget announced a further reduction in the corporation tax rate to 17% from 1 April 2020. The deferred tax liability has been calculated based on the rate of 18% which is the blended rate at which items are expected to reverse.

Deferred tax recognised in comprehensive income

52 week period ended 28 March 2019

£000

52 week period ended 29 March 2018

£000

Effective portion of changes in fair value of cash flow hedges

420

(412)

Reconciliation of effective tax rate

	52 week period ended 28 March 2019			52 week period ended 29 March 2018
	Underlying trading £000	Non-underlying items £000	Total £000	Underlying trading £000	Non-underlyingitems £000	Total £000
Profit for the period	70,405	(39,913)	30,492	67,542	(4,728)	62,814
Total tax expense	19,262	(151)	19,111	16,983	(201)	16,782
Profit excluding taxation	89,667	(40,064)	49,603	84,525	(4,929)	79,596
Tax using the UK corporation tax rate for the period of 19% (52 week period ended 29 March 2018: 19%)	17,037	(7,612)	9,425	16,060	(937)	15,123
Impact of change in tax rate on deferred tax balances	100	-	100	(260)	-	(260)
Depreciation on expenditure not eligible for tax relief	622	-	622	588	-	588
Expenditure not eligible for tax relief	1,227	7,461	8,688	721	736	1,457
Adjustments in respect of prior periods	276	-	276	(126)	-	(126)
Total tax expense	19,262	(151)	19,111	16,983	(201)	16,782

The UK corporation tax standard rate for the 52 week period ended 28 March 2019 was 19% (52 week period ended 29 March 2018: 19%). The effective tax rate before non-underlying items for the 52 week period ended 28 March 2019 was 21%. The principal reason for the difference in rate relates to the non-deductibility of depreciation charged on certain items of capital expenditure and the share based payment charge which has been treated as a permanent difference.

9 Dividends paid and proposed

	Group and Company
	52 week period ended 28 March 2019 £000	52 week period ended 29 March 2018 £000
Declared and paid during the period
Final dividend of 5.0p per share (2018: 5.0p per share)	24,807	24,912
Interim dividend of 2.5p per share (2018: 2.5p per share)	12,385	12,429
Proposed for approval by shareholders at the AGM
Final dividend of 5.0p per share (2018: 5.0p per share)	24,770	24,836

The trustees of the following holdings of Pets at Home Group Plc shares under the Pets at Home Group Employee Benefit Trusts have waived or otherwise foregone any and all dividends paid in relation to the period ended 28 March 2019 and 29 March 2018 and to be paid at any time in the future (subject to the exceptions in the relevant trust deed) on its respective shares for the time being comprised in the Trust Funds: Computershare Nominees (Channel Islands) Limited (holding at 28 March 2019: 4,596,471 shares, holding at 29 March 2018: 3,271,102 shares).

10 Business combinations

Acquisition of Joint Venture veterinary practices

In the 52 week period ended 28 March 2019, the Group has acquired 100% of the 'A' shares of 32 veterinary practices, which were previously accounted for as Joint Venture veterinary practices. These practices were previously accounted for as Joint Venture veterinary practices as the Group only held 100% of the non-participatory 'B' ordinary shares equating to 50% of the total shares. Acquisition of the 'A' shares has led to the control and consolidation of these practices.

In the 52 week period ended 28 March 2019 £10.7m operating loans, £1.5m initial loans and £0.4m other loans relating to these practices were written off in advance of the acquisitions. In addition £4.9m of bank loans owed by these Joint Venture veterinary practices were repaid by the Group under the terms of the bank guarantee in advance of the acquisitions. Further details of the amounts written off and the utilisation of the provisions are detailed in notes 11, 12 and 13.

The practices have been categorised into the following groups:

- Joint Venture veterinary practices acquired with the exchange of significant cash consideration, with the intention of trading as a going concern.

- Joint Venture veterinary practices acquired without the exchange of significant cash consideration, with the intention of trading as a going concern.

- Joint Venture veterinary practices acquired without the exchange of significant cash consideration, with the intention of being closed.

Joint Venture veterinary practices acquired with the exchange of significant cash consideration, with the intention of trading as a going concern

Subsidiaries acquired

	Principal activity	Date of acquisition	Proportion of voting equity instruments acquired	Total proportion of voting equity instruments owned following the acquisition	Cash consideration transferred £000
Companion Care (Exeter) Limited	Veterinary practice	26 April 2018	50%	100%	1,450
Maidstone Vets4Pets Limited	Veterinary practice	26 April 2018	50%	100%	650
Bicester Vets4Pets Limited	Veterinary practice	21 December 2018	50%	100%	1
Buckingham Vets4Pets Limited	Veterinary practice	21 December 2018	40%	90%	50
Liverpool OS Vets4Pets Limited	Veterinary practice	15 March 2019	50%	100%	212

In the 52 week period ended 29 March 2018, the entities listed above were all accounted for as a Joint Venture veterinary practice where the Group held 100% of the non-participatory 'B' ordinary shares. On 26 April 2018, the Group acquired 100% of the 'A' shares ofCompanion Care (Exeter) Limited and Maidstone Vets4Pets Limited, leading to control and consolidation. On 21 December 2018, the Group acquired 100% of the 'A' shares ofBicester Vets4Pets Limited and 80% of the 'A' shares ofBuckingham Vets4Pets Limited, leading to control and consolidation. On 15 March 2019, the Group acquired 100% of the 'A' shares in Liverpool OS Vets4Pets Limited, leading to control and consolidation.

Assets acquired and liabilities recognised at the date of acquisition

The provisional amounts recognised in respect of identifiable assets and liabilities relating to the acquisitions are as follows. The acquisition disclosures have been combined as each acquisition is considered to be individually immaterial to the Group.

	Book value of assets and liabilities acquired £000		Adjustments on acquisition £000	Fair value of assets and liabilities acquired £000
Current assets
Cash and cash equivalents		406	-	406
Trade and other receivables		189	-	189
Inventories		61	-	61
Non-current assets
Intangible assets		-	713	713
Tangible fixed assets		387	-	387
Current liabilities
Bank loans and overdrafts		(650)	-	(650)
Trade and other payables		(221)	-	(221)
Net assets		172	713	885

Goodwill arising on acquisition

	£000
Consideration	2,362
Less: Fair value of assets acquired	(885)
Carrying value of goodwill	1,477

The adjustment on acquisition relates to the fair value of customer lists acquired with the veterinary practices. Customer lists are valued based on the forecast net present value of the future economic relationship with those customers, adjusted for forecast retention rates.

Goodwill arose on the acquisition of these entities because the cost of the acquisition included a control premium in addition to the consideration paid, which relates to the expected synergies and revenue growth. Those benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

No adjustment has been made to reserves for the 10% minority interest in Buckingham Vets4Pets Limited as it is deemed to be immaterial to the Group.

Joint Venture veterinary practices acquired without the exchange of significant cash consideration, with the intention of trading as a going concern.

In the 52 week period ended 28 March 2019 the Group has acquired the following veterinary practices, which were previously accounted for as Joint Venture veterinary practices, with the intention of trading as company managed practices.

Subsidiaries acquired

	Principal activity	Date of acquisition	Proportion of voting equity instruments acquired	Total proportion of voting equity instruments owned following the acquisition	Cash consideration transferred for shares £000
Blackpool Squires Gate Vets4Pets Limited	Veterinary practice	29 January 2019	50%	100%	-
Evesham Vets4Pets Limited	Veterinary practice	4 February 2019	50%	100%	-
Sheffield Drakehouse Vets4Pets Limited	Veterinary practice	4 February 2019	50%	100%	-
Corby Vets4Pets Limited	Veterinary practice	8 February 2019	50%	100%	-
Dorchester Vets4Pets Limited	Veterinary practice	11 February 2019	50%	100%	-
Borehamwood Vets4Pets Limited	Veterinary practice	20 February 2019	50%	100%	-
Companion Care (Stratford-Upon-Avon) Limited	Veterinary practice	20 February 2019	50%	100%	-
Aberdeen Vets4Pets Limited	Veterinary practice	25 February 2019	50%	100%	-
Aberdeen North Vets4Pets Limited	Veterinary practice	25 February 2019	50%	100%	-
Kilmarnock Vets4Pets Limited	Veterinary practice	28 February 2019	50%	100%	-
Companion Care (Kirkcaldy) Limited	Veterinary practice	5 March 2019	50%	100%	-
Monmouth Vets4Pets Limited	Veterinary practice	15 March 2019	50%	100%	-

Assets acquired and liabilities recognised at the date of acquisition

The provisional amounts recognised in respect of identifiable assets and liabilities relating to the acquisition are as follows. The acquisition disclosures have been combined as each acquisition is considered to be individually immaterial to the Group.

	Book value of assets and liabilities acquired £000		Adjustments on acquisition £000	Fair value of assets and liabilities acquired £000
Current assets
Cash and cash equivalents		122	-	122
Trade and other receivables		303	-	303
Inventories		138	-	138
Non-current assets
Intangible assets		-	180	180
Tangible fixed assets		1,210	-	1,210
Current liabilities
Bank overdrafts		(698)	-	(698)
Trade and other payables		(848)	372	(476)
Net assets		227	552	779

Goodwill arising on acquisition

	£000
Consideration	372
Less: Fair value of assets acquired	(779)
Negative goodwill arising on acquisition	(407)
Release of negative goodwill against non-underlying provisions	407
Carrying value of goodwill	-

The adjustment on acquisition relating to intangible assets relates to the fair value of customer lists acquired with the veterinary practices.Customer lists are valued based on the forecast net present value of the future economic relationship with those customers, adjusted for forecast retention rates.

The consideration shown within the table above, and the adjustment on acquisition to trade and other payables, relates to the cash settlement of 'A' shareholder Joint Venture Partner Loans, which were repaid to the 'A' shareholder at the point of acquisition.

Joint Venture veterinary practices acquired without the exchange of significant cash consideration, with the intention of being closed.

In the 52 week period ended 28 March 2019 the Group has acquired the following veterinary practices, which were previously accounted for as Joint Venture veterinary practices. The Group's intention is to close these practices.

Subsidiaries acquired

	Principal activity	Date of acquisition	Proportion of voting equity instruments acquired	Total proportion of voting equity instruments owned following the acquisition	Cash consideration transferred for shares £000
Craigavon Vets4Pets Limited	Veterinary practice	28 January 2019	50%	100%	-
Wrexham Vets4Pets Limited	Veterinary practice	28 January 2019	50%	100%	-
St Neots Vets4Pets Limited	Veterinary practice	6 February 2019	50%	100%	-
Companion Care (Macclesfield) Limited	Veterinary practice	13 February 2019	50%	100%	-
Companion Care (Speke) Limited	Veterinary practice	18 February 2019	50%	100%	-
Redditch Vets4Pets Limited	Veterinary practice	20 February 2019	50%	100%	-
Belfast Stormont Vets4Pets Limited	Veterinary practice	4 March 2019	50%	100%	-
Bedminster Vets4Pets Limited	Veterinary practice	4 March 2019	50%	100%	-
Alton Vets4Pets Limited	Veterinary practice	5 March 2019	50%	100%	-
Newton Mearns Vets4Pets Limited	Veterinary practice	6 March 2019	50%	100%	-
Bourne Vets4Pets Limited	Veterinary practice	6 March 2019	50%	100%	-
Companion Care (Exeter Marsh) Limited	Veterinary practice	12 March 2019	50%	100%	-
Malvern Vets4 Pets Limited	Veterinary practice	14 March 2019	50%	100%	-
Sudbury Vets4Pets Limited	Veterinary practice	18 March 2019	50%	100%	-
Companion Care (Ballymena) Limited	Veterinary practice	20 March 2019	50%	100%	-

Assets acquired and liabilities recognised at the date of acquisition

	Book value of assets and liabilities acquired £000		Adjustments on acquisition £000	Fair value of assets and liabilities acquired £000
Current assets
Cash and cash equivalents		41	-	41
Trade and other receivables		271	-	271
Inventories		155	-	155
Non-current assets
Tangible fixed assets		2,063	(1,463)	600
Current liabilities
Bank overdrafts		(818)	-	(818)
Trade and other payables		(815)	415	(400)
Net assets/(liabilities)		897	(1,048)	(151)

Goodwill arising on acquisition

	£000
Consideration	415
Less: Fair value of liabilities acquired	151
Goodwill arising on acquisition	566
Impairment of goodwill	(566)
Carrying value of goodwill	-

The tangible assets have been written down to their expected recoverable amount as the Group's intention is to close these practices.

Other acquisitions

On 8 November 2018 the Group acquired the 10% minority interest in Eye-Vet Limited for a consideration of £0.134m leading to 100% of the share capital now being owned.

11 Other financial assets and liabilities

	Group		Company
	At 28 March 2019 £000	At 29 March 2018 £000	At 28 March 2019 £000	At 29 March 2018 £000
Non-current assets
Investments in Joint Venture veterinary practices	405	403	-	-
Loans to Joint Venture veterinary practices - initial set up loans	13,265	14,194	-	-
Loans to Joint Venture veterinary practices - other loans	3,923	4,539	-	-
Other investments	112	112	-	-
Other receivables	948	934	-	-
	18,653	20,182	-	-

Investments in Joint Venture veterinary practices

Investments represent £0.4m (2018: £0.4m) of the 'B' share capital in Joint Venture veterinary practice companies. These investments are held at fair value through other comprehensive income ('FVOCI'). The fair values of investments in unlisted equity securities are considered to be their carrying value as the impact of discounting future cash flows has been assessed as not material and the investment is non-participatory. The share capital of the veterinary practice companies is split equally into 'A' ordinary shares (held by Joint Venture Partners) and 'B' ordinary shares (held by the Group). Any operational decisions require the agreement of the Joint Venture Partner.

Under the terms of the agreements, the Group ('B' shareholder) is not entitled to any profits, losses or dividends, or any surplus on winding up or disposal, although they are entitled to appoint Directors to the Board and carry the same shareholder voting rights as 'A' ordinary shareholders.

The agreements entitle the Group to receive income in relation to support services offered in such areas as clinical development, promotion and methods of operation as well as service activities including accountancy, legal and property.

Loans to Joint Venture veterinary practices - initial set up loans

Loans to Joint Venture veterinary practices of £13.3m (2018: £14.2m) are provided to Joint Venture veterinary practice companies trading under the Companion Care and Vets4Pets brands, in which the Group's share interest is non-participatory. These loans represent a long term investment in the Joint Venture, supporting their initial set up and working capital, and are held at amortised cost.The carrying value is cost as the impact of discounting future cash flows has been assessed as not material. Under the terms of the loans provided to veterinary companies trading under the Companion Care and Vets4Pets brands the loans attract varying interest rates between 2% and 3%. There is no set date for repayment of the loans due to the Group.

The balances above are shown net of provisions of £1.1m (2018: £nil). The provision is in relation to loans with Joint Venture veterinary practices which the Group is in the process of offering to buy out and has therefore provided in full for the remaining loans on these practices. These costs have been charged to non-underlying operating cost of sales. The movement on the loans is detailed below.

	Gross loan value £000	Provision £000	Carrying value of loan £000
As at 29 March 2018	14,194	-	14,194
Net repayment and further advances	1,651	-	1,651
Loans written off (un-provided at 29 March 2018, charged to non-underlying)	(1,500)	-	(1,500)
Provisions made during the period (non- underlying)	-	(1,080)	(1,080)
As at 28 March 2019	14,345	(1,080)	13,265
Closing position (underlying)	13,265	-	13,265
Closing position (non-underlying)	1,080	(1,080)	-

£1.5m of loans (2018: £nil) have been written off in the year in advance of the acquisition of 32 Joint Venture veterinary practices in the period. Further details of these acquisitions are provided in note 10.

Loans to Joint Venture veterinary practices - other loans

Loans to Joint Venture veterinary practices - other loans of £3.9m (2018: £4.5m) represent loan balances to Joint Venture veterinary practices and Shared Venture Partners. These loans are unsecured, typically for five to seven years and attract an interest rate of LIBOR plus 2.8%. The loans are accounted for at amortised cost. The carrying value is considered to be cost as the impact of discounting future cash flows has been assessed as not material. The loans are typically to support capacity expansion. The balances above are shown net of provisions held of £1.1m (2018: £nil). The provision is in relation to loans with Joint Venture veterinary practices which the Group has or will offer to buy out from Joint Venture Partners in the future, and has therefore provided in full for the remaining loans on these practices. The movement on the loans is detailed below.

£0.4m (2018: £nil) of these loans have been written off in the year in advance of the acquisition of 32 Joint Venture veterinary practices in the period. Further details of these acquisitions are provided in note 10.

	Gross loan value £000	Provision £000	Carrying value of loan £000
As at 29 March 2018	4,539	-	4,539
Net repayment and further advances	832	-	832
Loans written off (un-provided at 29 March 2018, charged to non-underlying)	(369)	-	(369)
Provisions made during the period (non- underlying)	-	(1,079)	(1,079)
As at 28 March 2019	5,002	(1,079)	3,923
Closing position (underlying)	3,923	-	3,923
Closing position (non-underlying)	1,079	(1,079)	-

Other investments

Other investments are held at fair value through other comprehensive income ('FVOCI'). The fair values of investments in unlisted equity securities are considered to be their carrying value as the impact of discounting future cash flows has been assessed as not material and the investment is non-participatory.

Other financial assets	Group		Company
Other financial assets	At 28 March 2019 £000	At 29 March 2018 £000	At 28 March 2019 £000	At 29 March 2018 £000
Current assets
Fuel forward contracts	6	78	-	-
Forward exchange contracts	1,604	156	-	-
Interest rate swaps	-	926	-	926
	1,610	1,160	-	926

Other financial liabilities	Group		Company
Other financial liabilities	At 28 March 2019 £000	At 29 March 2018 £000	At 28 March 2019 £000	At 29 March 2018 £000
Current liabilities
Forward exchange contracts	(451)	(2,333)	-	-
Interest rate swaps	(124)	-	(124)	-
Other financial liabilities	(6,638)	(1,000)	-	-
Finance lease liabilities	(120)	(59)	-	-
	(7,333)	(3,392)	(124)	-

	Group		Company
	At 28 March 2019 £000	At 29 March 2018 £000	At 28 March 2019 £000	At 29 March 2018 £000
Non-current liabilities
Other financial liabilities	(2,263)	(8,675)	-	-
Finance lease liabilities	(234)	(18)	-	-
	(2,497)	(8,693)	-	-

The current and non-current 'other financial liabilities' as at 28 March 2019 relate to the fair value of the put and call options over the non-controlling interests in subsidiary undertakings Dick White Referrals Limited and Anderson Moores Veterinary Specialists Limited. The financial liabilities comprise a minimum amount and a growth element based on estimated future earnings.

As at 29 March 2018, the current 'other financial liabilities' related to the contingent consideration in relation to the acquisition of Anderson Moores Veterinary Specialists Limited which was paid in the year. The non-current 'other financial liabilities' related to the fair value of the put and call options over the non-controlling interests in subsidiary undertakings Dick White Referrals Limited, Eye-Vet Limited and Anderson Moores Veterinary Specialists Limited.

During the periodended 28 March 2019, the Group acquired the 10% minority interest in Eye-Vet Limited for consideration of £0.134m leading to 100% of the share capital now being owned. Further details have been provided in note 10.

12 Trade and other receivables

	Group		Company
	At 28 March 2019 £000	At 29 March 2018 £000	At 28 March 2019 £000	At 29 March 2018 £000
Trade receivables	15,831	14,609	-	-
Amounts owed by Joint Venture veterinary practices - funding for new practices*	291	1,595	-	-
Amounts owed by Joint Venture veterinary practices - operating loans*	27,938	29,703	-	-
Other receivables	7,104	7,653	-	-
Amounts owed by Group undertakings	-	-	578,336	576,795
Prepayments	12,309	15,860	-	-
Accrued income	5,413	5,428	-	-
	68,886	74,848	578,336	576,795

All balances are included within current assets.

Trade and other receivables

The impairment of trade and other receivables is assessed in line with IFRS 9. As at 28 March 2019 and 29 March 2018 the impact of expected credit loss on these balances was deemed to be immaterial and as such no provision has been made.

Amounts owed by Joint Venture veterinary practices

Amounts owed by Joint Venture veterinary practices represent funding for new practices, trading balances and operating loans owed by Joint Venture veterinary practices to the Group. Operating loans are provided on a short term monthly cycle to the extent that a practice needs additional funding above their external bank loan. Practices generate cash on a monthly basis which is applied to the repayment of brought forward operating loans. For immature practices, loan balances are likely to increase as further fees and rent are charged by the Group, however as cash is applied against opening loan balances, the Group's expectation is that the brought forward balance will be repaid in cash within 12 months. The loans have been classified as current on this basis and the Group does not consider it necessary to charge interest on these balances. The loans are repayable within 90 days of demand and have no credit limits, however the level of loans are monitored in relation to review of the practice's performance against business plan. Based on the projected cash flow forecast on a practice by practice basis, the funding is expected to be required for a number of years.

The balances above are shown net of provisions held for operating loans of £14.3m (2018: £8.3m).

Group

	(Underlying) £000	(Non-underlying) £000	Total £000
Gross value of operating loans
As at 29 March 2018 ¹	25,402	12,609	38,011
Loans written off (£7.561m un-provided at 29 March 2018, charged to non-underlying)	-	(10,765)	(10,765)
Net repayment and further advances	9,636	5,325	14,961
Gross value of operating loans as at 28 March 2019	35,038	7,169	42,207
Provisions against operating loans
As at 29 March 2018 ¹	4,204	4,104	8,308
Utilisation of provision against loans written off	-	(3,204)	(3,204)
Provisions made during the period	2,896	6,269	9,165
Provision against operating loans as at 28 March 2019	7,100	7,169	14,269
Carrying value of loan at 29 March 2018	21,198	8,505	29,703
% provision as at 29 March 2018	16.5%	32.5%	21.9%
Carrying value of loan at 28 March 2019	27,938	-	27,938
% provision as at 28 March 2019	20.3%	100%	33.8%

¹The opening balance of operating loans and provisions against operating loans has been allocated between practices which form part of the recalibration review of the First Opinion vet business (non-underlying) and practices which do not form part of this review (underlying).

On 30 March 2018 the Group transitioned to IFRS 9 Financial Instruments, which replaced IAS 39. The provisioning methodology for the loans to Joint Venture veterinary practices has been assessed in line with the requirements of IFRS 9. As part of this assessment the opening provision as at 29 March 2018 was recalculated in line with the requirements of IFRS 9 and due to the short term nature of the loans, there were no material differences to the level of the provision and therefore no adjustment to opening reserves was required.

During the period ended 28 March 2019, £10.765m of operating loans, which were deemed to be in default due to the significant underperformance of the practices, were written off to the consolidated income statement. £3.204m of the balance written off was provided for as at 29 March 2018, with the remaining £7.561m charged to non-underlying items in the year; see note 3 for further details.

The Group holds an underlying provision of £7.100m against the remaining operating loans of £35.038m, which do not form part of the proposed 'buy out' group of Joint Venture veterinary practices. This provision is based on management's best estimates of expected credit loss risk associated with the loans. Practices are allocated into risk bands based on a number of factors such as their age, the number of years it is expected to take them to become debt free and any other specific factors which may be relevant to the practice. The percentage provision varies between a level of 10% for operating loans to practices which are less than four years old, and are therefore relatively immature, and up to 35% for the highest risk practices. The underlying provision has increased by £2.896m in the year (£4.204m as at 29 March 2018) as management have updated their expectation of the credit risk associated with the practices to reflect their latest view of performance and the level of risk in the market. The Group is working with a number of Joint Venture Partners, where the Partners choose to follow Pets at Home's recommendations, on remediation plans aimed at improving practice performance.

The following table presents an analysis of the credit quality of debt securities, held at amortised cost, and indicates whether they were credit impaired.

	Not credit impaired	Credit impaired	Not credit impaired	Credit impaired
Credit grade	At 28 March 2019 £000	At 28 March 2019 £000	At 29 March 2018 £000	At 29 March 2018 £000
Very low risk	-	-	-	-
Low risk	4,500	-	11,260	-
Medium risk	30,538	-	26,751	-
High risk	-	7,169	-	-
Gross carrying amount	35,038	7,169	38,011	-
Loss allowance	(7,100)	(7,169)	(8,308)	-
Net carrying amount	27,938	-	29,703	-

Loans within the 'high risk' credit grading above are to significantly underperforming practices and are therefore considered to be credit impaired.

Should each operating loan be moved up a banding in the provision calculation model, this would lead to an increase in the required provision for operating loans of £3.5m (29 March 2018: £3.9m). This sensitivity is considered by management to represent a reasonably possible range of estimation uncertainty, based on the variance in current trading performance within these Joint Venture veterinary practices versus forecasts on which the provisions were based as at 28 March 2019. Loans in the top band of 40% have not been moved up to a 100% banding, as this is not a reasonable estimated change. The factors which give rise to the estimation uncertainty include macro-economic and industry specific factors, including the level of industry growth, as well as gross margin percentages achieved within the industry, which contain a number of factors including the availability of suitably qualified veterinary personnel.

Accrued income

Accrued income relates to income in relation to fees to Joint Venture veterinary practices, revenues generated through Specialist Referral Centres, andoverrider and promotional income from suppliers, which has not yet been invoiced. Accrued income is classified as current as it is expected to be invoiced and received within 12 months of the period end. Supplier income is recognised on an accruals basis, based on the expected entitlement that has been earned up to the balance sheet date for each relevant supplier contract. Supplier income is recognised as a credit within gross margin to cost of sales and is outside of the scope of IFRS 15 and therefore a contract asset has not been separately recognised.

13 Provisions

	Dilapidation provision £000	Closed stores provision £000	Provisions for guarantees and lease obligations relating to Joint Venture veterinary practices £000	Provisions for exit and closure costs relating to Joint Venture veterinary practices £000	Total £000
Balance at 29 March 2018	667	2,368	-	-	3,035
Provisions made during the period	73	2,168	13,947	8,549	24,737
Provisions utilised during the period	-	(1,719)	(8,531)	-	(10,250)
Provisions released during the period	-	(482)	-	-	(482)
Balance at 28 March 2019	740	2,335	5,416	8,549	17,040

	At 28 March 2019 £000	At 29 March 2018 £000
Current	15,353	835
Non-current	1,687	2,200
	17,040	3,035

The closed stores provision relates to the rent and rates payable on sublet or vacant stores. A provision is made where the rent receivable on the properties is less than the rent payable. The timing of the utilisation of these provisions is variable dependent upon the lease expiry dates of the properties concerned, which vary between 1 and 10 years. Market conditions have a significant impact and hence the assumptions on future cash flows are reviewed regularly and revisions to the provision made where necessary.

The provision is discounted at a rate of 8%, being the estimated average implicit lease rate. A decrease in this rate of 100 bps would increase the provision by £0.1m.

The provisions for guarantees and lease obligations relating to Joint Venture veterinary practices includes guarantees to third parties for bank loans, overdrafts and lease obligations payable by Joint Venture veterinary practices which the group has bought or will offer to buy out from Joint Venture Partners in future, and therefore which have been provided for under IFRS 9.

The provisions for exit and closure costs relating to Joint Venture veterinary practices relate to expenses forecast to be incurred by the Group from 29 March 2019 until the date at which the 'A' shares in those Joint Venture veterinary practices which the Group will offer to buy out from Joint Venture Partners in the future are acquired, and therefore which have been provided for under IAS 37.

Glossary - Alternative Performance Measures

Guidelines on Alternative Performance Measures (APMs) issued by the European Securities and Markets Authority came into effect for all communications released on or after 3 July 2016 for issuers of securities on a regulated market.

In the reporting of financial information, the Directors have adopted various APMs of historical or future financial performance, position or cash flows other than those defined or specified under International Financial Reporting Standards (IFRS).

The Directors measure the performance of the Group based on the following financial measures which are not recognised under EU-adopted IFRS, and consider these to be important measures in evaluating the Group's strategic and financial performance. The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

APMs are also used to enhance the comparability of information between reporting periods, by adjusting for non-underlying items, to aid the user in understanding the Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and have remained consistent with the prior year.

All APMs relate to the current period's results and comparative periods where provided.

The key APMs used by the Group are:

'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, veterinary practices and Specialist Referral Centres that have been trading for 52 weeks or more, excluding fee income from Joint Venture veterinary practices where the Group has either completed, or has offered or holds an intention to buy out the 'A' shares from the Joint Venture Partners in future.

Omni-channel revenue: Revenue net of discounts and VAT from core online sales, subscriptions and order to store.

EBITDA: Earnings before interest, tax, depreciation and amortisation.

Free Cash Flow: Net cash from operating activities, after tax, less net cash used in investing activities (excluding acquisitions), less interest paid and debt issue costs.

CROIC: Cash return on invested capital, represents cash returns divided by the average of gross capital invested (GCI) for the last 12 months. Cash returns represent pre-non-underlying 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.

Non-underlying items: Certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

References to Underlying GAAP measures and Underlying APMsthroughout the interim statements are measured before the effect of non-underlying items.

APM

Definition

Reconciliation

Cash EBITDA

Underlying EBITDA (see below) adjusted for share based payment charge.

Cash EBITDA (£m)	FY18	FY19	Note
Underlying EBITDA	123.3	130.0	2
Share based payment charge	3.9	3.5	3
Cash EBITDA	127.2	133.5

CROIC

Cash return on invested capital, represents cash returns divided by the average of gross capital (GCI) invested for the last 12 months. Cash returns represent pre-non-underlying 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.

CROIC	FY18	FY19	Note
Cash returns:
Underlying operating profit	88.8	93.2	2
Property rental costs	75.9	77.0	3
Share based payment charges	3.9	3.5	3
	168.6	173.7
Effective tax rate	20%	21%
Tax charge on above	(33.7)	(37.0)
	134.9	136.7
Depreciation and amortisation	34.5	36.8	3
Cash returns	169.4	173.5
Gross capital invested (GCI):
Gross property, plant and equipment	263.1	284.8
Intangibles	1,014.4	1,030.5
Less KKR goodwill	(906.5)	(906.5)
Investments	14.7	13.8
Net working capital	(89.8)	(103.7)	see definition
Capitalised operating leases	607.4	615.8	8x
GCI	903.3	934.7
Average	873.2	919.1
Cash returns/average CGI	19.4%	18.9%

Underlying EBITDA

Earnings before interest, tax, depreciation and amortisation before the effect of non-underlying items in the period.

Underlying EBITDA (£m)	FY18	FY19	Note
Statutory operating profit	83.9	53.1	2
Depreciation and amortisation	34.5	36.8	3
Non-underlying items	4.9	40.1	3
Underlying EBITDA	123.3	130.0

Underlying free

cash flow

Net cash from operating activities, after tax, less net cash used in investing activities (excluding acquisitions), less interest paid and debt issue costs before the effect of non-underlying items in the period.

Underlying free cash flow (£m)	FY18	FY19	Note
Underlying free cash flow	55.8	63.6
Dividends	(37.3)	(37.2)	CFS
Acquisition of subsidiary	-	(4.2)	CFS
Deferred consideration	-	(1.0)	CFS
Settlement of 'put and call' liabilities	-	(0.1)	CFS
Repayment of borrowings on acquisition	-	(6.4)	CFS
Proceeds from new loan	-	181.0	CFS
Repayment of borrowings	(15.0)	(195.0)	CFS
Net increase in cash	3.5	0.7
CFS = Consolidated statement of cash flows

Like-for-like

'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, veterinary practices and Specialist Referral Centres that have been trading for 52 weeks or more, excluding fee income from Joint Venture veterinary practices which the Group has either completed, or has offered or holds an intention to buy out the 'A' shares from the Joint Venture Partners in future.

Not applicable.

Underlying basic EPS

Underlying basic earnings per share (EPS) is based on earnings per share before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying basic EPS (p)	FY18	FY19	Note
Underlying basic EPS	13.5	14.1	5
Non-underlying items	(0.9)	(8.0)	5
Basic earnings per share	12.6	6.1

Underlying operating profit

Underlying operating profit is based on operating profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying operating profit (£m)	FY18	FY19	Note
Underlying operating profit	88.8	93.2	2
Non-underlying items	(4.9)	(40.1)	3
Operating profit	83.9	53.1

Underlying profit before tax

Underlying profit before tax (PBT) is based on pre-tax profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying PBT (£m)	FY18	FY19	Note
Underlying PBT	84.5	89.7
Non-underlying items	(4.9)	(40.1)	3
PBT	79.6	49.6

Underlying profit after tax

Underlying profit after tax (PAT) is based on post-tax profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying PAT (£m)	FY18	FY19	Note
Underlying PAT	67.5	70.4	CIS
Non-underlying items	(4.7)	(39.9)	CIS
PAT	62.8	30.5

Underlying total tax expense

Underlying total tax expense is based on the statutory tax expense for the period (being the net of current and deferred tax) before the impact of certain costs of incomes that derive from events or transactions that fall outside the normal activities of the Group, and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying total tax expense (£m)	FY18	FY19	Note
Underlying tax expense	(17.0)	(19.3)
Non-underlying items	0.2	0.2	3,8
Tax expense	(16.8)	(19.1)

Net working

capital

Net working capital movement is a measure of the cash required by the business to fund its inventory, receivables and payables.

The change year on year reflects the cash in/outflow in relation to changes in the working capital cycle excluding non-underlying items.

The change in net working capital is a key component of the free cash flow measure of the Group.

Net working capital (£m) movement	FY18	FY19	Note
Net working capital per cash flow statement	2.9	33.1	CFS
Excluding movement in receivables relating to non-underlying items	-	(10.1)
Excluding movement in payables relating to non-underlying items	(2.4)	-
Excluding movement in provision relating to non-underlying items	(0.9)	(17.6)
	(0.4)	5.4
Being:
Movement in trade and other receivables	(6.0)	(1.8)	CFS
Movement in inventories	(4.1)	(7.3)	CFS
Movement in trade and other payables	9.4	12.5	CFS
Movement in provisions	0.3	2.0	CFS
Net working capital per cash flow statement	(0.4)	5.4
Underlying provision against operating loans	(5.0)	(2.9)
Net working capital	(5.4)	2.5
CFS = Consolidated statement of cash Flows

Net working capital (£m)	FY18	FY19	Note
Receivables	74.8	68.9
Inventory	60.5	68.2
Trade and other payables	(222.1)	(223.7)
Provisions	(0.8)	(15.4)
Non-current provisions	(2.2)	(1.7)
Net working capital	(89.8)	(103.7)

Cash working capital

Working capital before increase in underlying operating loans to Joint Venture veterinary practices.

Cash working capital (£m)	FY18	FY19	Note
Net working capital per cash flow statement (above)	(0.4)	5.4
Underlying operating loans to Joint Venture veterinary practices	9.8	6.7
Cash working capital	9.4	12.1

Omni-channel revenue

Revenue net of discounts and VAT from core online sales, subscriptions and order to store.

Omni-channel revenue (£m)	FY18	FY19	Note
Omni-channel revenue	51.4	73.5

Underlying EBIT

Earnings before interest and tax agreed to operating profit relating to underlying trading.

Underlying EBIT (£m)	FY18	FY19	Note
Operating profit relating to underlying trading (EBIT)	88.8	93.2	2

Retail Underlying EBIT

Earnings before interest and tax agreed to operating profit relating to underlying trading for the Retail division.

Underlying EBIT (£m)	FY18	FY19	Note
Retail operating profit relating to underlying trading (EBIT)	65.1	67.2	2

Vet Group Underlying EBIT

Earnings before interest and tax agreed to operating profit relating to underlying trading for the Vet Group division.

Underlying EBIT (£m)	FY18	FY19	Note
Vet operating profit relating to underlying trading (EBIT)	29.6	32.1	2

Net debt

Cash and cash equivalents less loans and borrowings.

Net debt (£m)	FY18	FY19	Note
Cash and cash equivalents	59.8	60.5
Loans and borrowings	(195.0)	(181.0)
Net debt	(135.2)	(120.5)

Customer sales

Customer sales being statutory Group revenue, less Joint Venture veterinary practice fee income (which forms part of statutory revenue within the Vet Group), plus gross customer sales made by Joint Venture veterinary practices (unaudited).

Customer sales (£m)	FY18	FY19	Note
Statutory Group revenue	898.9	961.0	IS
Fee income	(50.0)	(52.6)
Sales by Joint Venture veterinary practices	273.5	309.8
Customer sales	1,122.4	1,218.2
IS = Consolidated income statement

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Pets at Home Group plc published this content on 22 May 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 22 May 2019 06:17:17 UTC

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