Pets at home Regulatory News (PETS)

FOR IMMEDIATE RELEASE, 23 NOVEMBER 2022

Pets at Home Group Plc: FY23 Interim Resultsfor the 28-week period to 13 October 2022

Record customer levels drive +7.3% H1 sales; FY PBT guidance held at £131m

· Total Group revenue growth of 7.3% to £727.2m, with Group like-for-like# (LFL) revenue up 6.4%, with Q2 LFL# accelerating versus the Q1 run rate, and the final period of H1 the strongest to date

· Vet Group revenue increased by 12.4%, with LFL# revenue up 10.5%. LFL# customer sales2 across all General Practices up 7.1% and LFL# Joint Venture fee income up 10.7%

· Retail revenue growth of 6.8%, and LFL# growth of 5.9%. Omnichannel# revenue growth of 16.2%; participation of total Retail revenue of 16.5% in H1

· Group underlying PBT# down 9.3% to £59.2m in line with plan, impacted by increased freight and energy costs and the YoY increase in investment in digital assets, which, in line with IAS 38 accounting, are expensed through the P&L.

· No change to full year guidance, and we continue to expect full-year Group underlying profit before tax to be in line with analyst consensus, which is currently £131m and would reflect a return to our more normal H1:H2 PBT split

*Due to a clarification of accounting policies, certain cloud computing costs, previously capitalised as intangible assets, have been expensed through the income statement in the current and prior years. The £8.1m YoY impact reflects peak investment in Project Polestar in FY23

· Group free cash flow# down 54.8% to £41.4m reflecting YoY profit performance, planned increased investment, and annualisation against working capital timing benefits reported at FY22 H1

· Balance sheet remains robust with net cash (excluding lease liabilities) of £43.1m

· Interim dividend per share of 4.5p, an increase of 4.7% YoY

· Sustained momentum across key strategic KPIs and customer acquisition metrics;

· Sign ups to our Puppy and Kitten Club continued at pace, averaging 29,000 per week in Q2, more than three-fold higher than pre-pandemic, and ahead of the FY22 exit rate

· The number of active VIPs increased 9% YoY to 7.6m, with those engaging across more than one channel up 10% YoY and representing 27% of VIPs

· New client registrations across our veterinary practices remained strong, growing to an average of 8,800 per week, increasing our active client base to 1.7m

· The number of subscription plans across the Group grew 11% YoY to 1.6m, generating over £135m in annualised recurring customer revenue2

Current trading and outlook

The business, and the wider pet care market, remains resilient and in growth. New customer acquisition remains strong with registrations into our Puppy & Kitten club accelerating throughout H1 and customer spend maintained across the Group. Consumer demand remains strong, with a record number of UK pet owners continuing to prioritise spending on their pets, underpinned by the structural trends of humanisation and premiumisation. Trading post period end has continued in line with the Q2 run rate with LFLs in mid-single digits.

We are conscious of the macro-economic backdrop and continue to manage the business proactively. The inflationary environment creates pressures for both our customers and the business. We are conscious of the challenges faced by many consumers, and continue to prioritise making pet care as convenient and affordable as possible. We will never let price be a reason not to shop with us.

We continue to actively manage industry-wide cost headwinds, which we see persisting in the near term, in particular the impact of foreign exchange, energy, and National Living Wage. As well as directly mitigating these costs where possible, we are also proactively offsetting them through a range of self-help levers including our programme of rent reductions, and initiatives to target efficiencies across consumables and goods not for resale. We are driving further productivity gains across our stores and supply chain, leveraging technology to lower our overall cost to serve. 

We continue to expect full-year Group underlying profit before tax to be in line with analyst consensus, despite the challenging macro-economic environment. Consensus is currently £131m, with a range of £121m-£136m. The business remains highly cash generative, and we expect to finish the year in a net cash position.

Looking further ahead, the prospects for the business remain strong. We are continuing with our strategic investments, and our £2.3bn medium term customer revenue opportunity remains intact, having made better than expected progress to date.

Our next scheduled update will be our Q3 FY23 release on 31 January 2023.

Lyssa McGowan, Chief Executive Officer:

In my first six months as CEO, I have spent my time forming a deep understanding of the business and sector, learning from the ground up how the business operates. I am more convinced that Pets at Home is well positioned to capitalise on an attractive growth opportunity in our structurally growing pet care market, supported by our unique blend of products and services, deeply embedded culture and expert, passionate colleagues, and partners.

Our first half performance shows progress and resilience across the business. In a challenging macro-environment, the pet care industry remains in growth across all channels, and we have continued to acquire new customers at an impressive rate, setting new records for customer numbers in recent months. 

Results webcast

An audio webcast and presentation of these results will be available on our website (https://investors.petsathome.com/investors/) from 07.00am on 23 November. Management will host a Q&A conference call for analysts and investors at 09.30am. To join the call in listen-only mode, please click on the following link (https://stream.brrmedia.co.uk/broadcast/634ed7c76815e65bb9fdc1b2). Those wishing to participate in the Q&A session should email petsathome-maitland@h-advisors.global for call details.

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About Pets at Home

Pets at Home Group Plc is the UK's leading pet care business, providing pets and their owners with the very best advice, products and care. Pet products are available online or from our 457 stores, many of which also have vet practices and grooming salons. The Group also operates a leading small animal veterinary business, with 444 veterinary General Practices located both in our stores and in standalone locations. For more information visit: http://investors.petsathome.com/

Disclaimer

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

Key Performance Indicators

1. Financial KPIs represent those used by the business to monitor performance. Management recognise that as Alternative Performance Measures they differ to statutory metrics, but believe they represent the most appropriate KPIs. GAAP Measures are presented on pages 20-23.

2. Customer revenue includes customer sales made by Joint Venture vet practices, and therefore differs to the fee income recognised within Vet Group revenue.

3. Cash return on invested capital, represents cash returns divided by the average of gross capital invested (GCI) for the last twelve months. Cash returns represent underlying operating profit before share based payments subject to tax, then adjusted for depreciation of PPE, right-of -use assets and amortisation. GCI represents gross PPE, right-of-use assets and software, and other intangibles excluding the goodwill created on the acquisition of the Group by KKR (£906,445,000) plus net working capital, before the effect of non-underlying items in the period.

4. Number of VIP loyalty club members who transacted across the group in the last 52 weeks from end of the reporting period.

5. Defined as customer sales made by JV vet practices, company managed vet practices, grooming services, subscriptions, pet sales and pet insurance commissions.

6. VIP customer revenue is shown on a rolling 12 month basis rather than a year-to-date basis.

7. The comparative Group underlying PBT has been restated to reflect the reclassification of expenditure to the income statement following the impact of the accounting policy change detailed in note 1 of the accounts.

Chief Executive Officer's Review

A unique business in a resilient and growing market

Six months into the CEO role, I am more convinced than ever that this is a great business built on a strong and differentiated platform. Our pet care market is underpinned by structural growth trends where premiumisation and humanisation continue to drive spend and innovation. These have been joined by another trend of increased pet-ownership. Far from being a COVID boom - elevated levels of pet ownership are here to stay and continue to drive growth.

Our market leadership within the UK gives us economies of scale and positions us as the partner of choice in the sector. We are the 'go-to' brand for consumers embarking on a new pet care journey or requiring advice for their beloved companion. Our omnichannel and data capabilities are industry leading and our special colleague culture and deep expertise is a distinctive and hard to replicate competitive advantage, and something we will continue to protect and grow. We have real category authority in pet care, reinforced by the clinical freedom and expertise of our vet partners, our commitment to pet welfare, and our shared purpose of making lives better for pets and the people that love them.

Since joining, I've undertaken a re-organisation to de-layer, simplify and speed up decision-making and to better integrate the vets and retail businesses. We have been able to promote and rotate our best people, securing expertise and providing continuity. As part of this change in structure I have also created a new Consumer function bringing together customer value proposition, digital, and marketing. This team will be led by the newly created Chief Consumer Officer role which will step-change our customer centricity. As you would expect I've taken a good look at our strategic initiatives to ensure our big investments (such as our new distribution centre, our digital re-platforming, and our store refurbishment programme) land well.

Looking forward, our vision is to be the world's best pet care business, providing the best products, services and advice to guide pet owners through their pet care journey. I would argue that we are already a global leader, having created a unique pet care platform bringing together retail, vets and grooming, but there remains a very significant opportunity ahead of us. We will extend and deepen our strategy to create a customer-centric, omnichannel, pet care ecosystem, delivering exactly what pet owners need, where and how they need it, to power our growth.

A strategy to drive long-term, sustainable growth

Our strategy of building an integrated omnichannel pet care ecosystem continues to deliver. We will continue investing to grow the business as planned, focusing on our key strategic initiatives to drive long-term sustainable growth. We remain firmly on track to achieve our medium-term customer revenue opportunity of at least £2.3bn. Our balance sheet strength underpins the ability to invest to reach this target and continue to grow beyond it.

I. A customer-centric focus

A growing base of highly engaged pet owners

· We continue to grow and deepen our relationship with our 7.6m VIP customers, +9% YoY

· 2m VIPs use more than one channel, +10% YoY, contributing c60% of total customer spend

· New customer acquisition continues at pace; c750k Puppy & Kitten Club members added in H1, with members typically spending 20% more and exhibiting a lower churn rate

An extensive and growing data capability

· Proprietary in-house data capability provides unparalleled insights to drive customer engagement, having doubled the response rate to our flagship reward mailer

· AI-based predictive churn model has supported a c230bps reduction in churn, and over 95% of average customer spend is retained beyond their first year

· Leveraging data across the business, using basket profiling to optimise localised store ranging

A scalable subscriptions platform

· Pet care plans offer convenience and value, whilst driving share of wallet and long-term loyalty

· Three core plans up 11% YoY to 1.6m, generating over £135m in annualised customer revenue

· Representing 8% of Group customer revenue, the opportunity ahead is significant

II. A unique omnichannel approach

Digitising the business

· Polestar will seamlessly connect our ecosystem of products and services into a single customer platform

· Recently launched enhanced mobile app brings together VIP and shopping in one easy to use experience

· Clearly phased programme giving customers even more choice over how they engage with us

Investing in our pet care centres to provide a best-in-class customer experience

· Pet care centres bring together the best of our retail offer with enhanced services proposition

· Omnichannel approach enables best-in-class fulfilment, with c25% of all online sales now fulfilled from our store network

· 13 refurbishments in H1, with 65 pet care centres across the estate now incorporating our latest thinking. Plan to open new 5 pet care centres and refurbish c40 each year

Our future-focused distribution platform will enhance our service proposition

· Development of our new distribution facility remains on budget and on track to become operational by summer 2023

· Purpose-built and highly automated facility; improved fulfilment capacity and inventory flexibility, while lowering our overall cost to serve

· Future proofing operations, providing capacity to support 10+ years of revenue growth

III. A truly integrated ecosystem

Innovating and growing our unique veterinary business

· Estate goes from strength to strength. In past 4 years the profitability of the underlying practice estate has increased six-fold, with over 60% of practices still to reach maturity

· We will continue to invest in infrastructure and resource across our veterinary estate and plan to open between 5 and 15 new practices each year

· We are innovating our formats, extending existing sites and opening new sites with enhanced capabilities. Extended sites are delivering an 8% increase in active clients and 30% growth in sales

Enhancing the synergies across our ecosystem

· Our Pathfinder initiative, now launched across 21 vet practices, is designed to improve allocation of clinical resource, enhance client engagement, and optimise cross-referral opportunities

· Early results point to improved productivity and performance across a range of key metrics including health plan penetration, average transaction value and client visits

· This approach will inform rollout more broadly across the practice estate going forward

Integrating our physical and digital proposition

· Our telehealth business broadens our digital capabilities in the provision of trusted advice and pet care solutions, handling over 95,000 remote consultations per year

· Trial of Pet Expert Live video functionality, connecting online customers to expert colleagues in-store, proven highly successful with approximately 1,000 calls per week to date

· Store colleagues can now be digitally connected into our ecosystem via a single handheld device, simplifying daily tasks and empowering colleagues to deliver a joined-up pet care experience

Maintaining our strong commitment to a sustainable future

We are firmly committed to meeting our wider obligations as a responsible corporate citizen and made good progress during the period in our social value strategy, aligned across the three pillars of Pets, Planet and People.

Pets

· The Pets at Home Foundation is the largest supporter to rescues in the UK and, during our first half awarded grants and donations to charities worth c£3.2m

· In partnership with pet charity Blue Cross, we have recently launched a nationwide trial of pet foodbank donation points in stores to help support pets and owners during the cost-of-living crisis

Planet

· We rolled out collection units for the recycling of pet food packaging across more than 375 stores to date, and plan to further extend this across our estate

· Received approval from the science-based target initiative (sbti) for our target to reduce our overall supply chain emissions by 42% in absolute terms by 2030 versus our 2020 base

People

· In partnership with the Prince's Trust, we have provided work opportunities to over 170 young people under the Government's Kickstart programme, many of which have led to permanent roles

· All colleagues are encouraged to take one paid day each year to support a charity of their choice. These 'Better World Pledge' days are integral to our annual bonus scheme, with approximately 12,000 hours collectively volunteered to date

Lyssa McGowan

Chief Executive Officer

23 November 2022

Chief Financial Officer's Review

The H1 FY23 period represents the 28 weeks from 1 April 2022 to 13 October 2022. The comparative period represents the 28 weeks from 26 March 2021 to 7 October 2021.

The Group's results are shown as three 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), Vet Group (includes General Practices) and Central (includes Group costs, finance expenses and the Group's veterinary telehealth business).

1. H1 FY23 non-underlying items of £4.5m relate to pre-opening costs relating to our new distribution centre recognised within Retail, and £1.3m relating to restructuring of certain support functions recognised within Central, both allocated against non-underlying operating costs. H1 FY22 non-underlying credit of £0.4m relates to the release of a provision held against property leases recognised within Vet Group, allocated against non-underlying gross margin.

2. The comparative figures have been restated to reflect the reclassification of expenditure to the income statement following the impact of the accounting policy change detailed in note 1 of the accounts.

Revenue

Group revenue in H1 FY23 grew 7.3% to £727.2m (H1 FY22: £677.6m) and like-for-like (LFL) revenue grew 6.4%#.

Retail revenue grew 6.8% to £661.5m (H1 FY22: £619.6m), including omnichannel revenue growth of 16.2% to £108.9m, representing 16.5% of total Retail revenue (H1 FY22: 15.1%). The LFL revenue growth in Retail was 5.9%# for the period.

Store revenues increased by 5.0% in the first half to £535.0m (H1 FY22: £509.3m), with store LFL +4.2%, and grooming revenues up by 7.4% to £16.7m (H1 FY22: £15.5m) with 4% more dogs groomed YoY.

Food revenue grew by 15.1% to £387.6m (H1 FY22: £336.7m), underpinned by strong volume growth as we continue to grow our customer base.

Accessories revenue was down 3.5% to £248.8m (H1 FY22: £257.7m), with strong growth in consumables (cat litter, hygiene products, licensed medicines) offset by weaker performance in categories such as dog toys and fashion. Product innovation remains an important driver of performance, with our recent Halloween and Christmas ranges continuing to trade well.

Vet Group LFL revenue grew by 10.5% for the period, with total revenue up 12.4%.

Total Joint Venture fee income increased by 10.4% to £40.7m (H1 FY22: £36.9m), with LFL fee income up 10.7%#. LFL growth in General Practice customer sales was 7.1%, and revenues# from company managed practices increased by 18.7% to £19.2m (H1 FY22: £16.2m). 

Revenue of £1.9m (H1 FY22: £1.2m) was recognised within our Central division in relation to The Vet Connection, our growing telehealth business.

Gross margin

Underlying group gross margin# decreased YoY in line with expectations by 123 bps to 47.5% (H1 FY22: 48.7%).

Gross margin within Retail was 46.7%, a reduction of 142 bps over the prior period (H1 FY22: 48.1%), impacted by food growing ahead of accessories (147bps impact on Group gross margin) and a £4.0m year-on-year increase in freight container rate costs (49bps impact on Group gross margin).

Underlying gross margin# within the Vet Group increased by 65 bps to 55.3% (H1 FY21: 54.6%). This increase reflects the strong sales growth across our Joint Venture estate driving strong fee income growth with the cost base to support those practices remaining relatively fixed.

Operating costs and profit before tax

Underlying Group profit before tax was £59.2m (H1 FY22: £65.3m), with a profit margin of 8.1%# (H1 FY22: 9.6%), impacted by increased freight and energy costs and the YoY increase in investment in digital assets, which are expensed through the P&L in line with IAS38 accounting policies. Group statutory profit before tax was £53.4m (H1 FY22: £65.7m).

Group underlying operating costs, excluding depreciation and amortisation, of £223.6m (H1 FY22: £200.9m) grew at 11.3%. Before growth in our fulfilment costs and investment in our digital proposition, underlying cost growth was 4.1%.

We continue to maintain a tight operational grip on industry-wide cost headwinds, including raw materials, wages, energy, and freight costs. As well as directly mitigating these costs where possible, we are also proactively offsetting them through our ongoing self-help initiatives. Our programme of rent reductions is progressing well, achieving an average cash reduction on 25%, and we continue to target efficiencies across consumables and goods not for resale. We are driving further productivity gains across our stores and supply chain, leveraging technology to lower our overall cost to serve. 

We have seen some normalisation in container rates since year end, whilst the Government's energy support plan for businesses provides certainty over the balance of year. In addition, our foreign exchange requirements are fully hedged at $1.34 for FY23. We have hedged our dollar requirements forward in line with our treasury policy, with currently c50% of FY24 hedged at an average rate of $1.17.

Retail underlying profit before tax was £39.5m (H1 FY22: £48.7m) with a profit margin of 6.0%# (H1 FY22: 7.9%) reflecting the sustained strong trading across the first half, offset by the cost headwinds described above. Operating cost growth, excluding depreciation and amortisation, was 11.4% to £211.0m (H1 FY22: £189.4m). Before growth in our fulfilment costs and investment in our digital proposition, underlying cost growth was 3.5%.

Vet Group underlying profit before tax was £27.8m# (H1 FY22: £24.0m) with a profit margin of 43.5%# (H1 FY22: 42.3%).

Net costs of £8.1m (H1 FY22: £7.4m) in our Central division reflecting continued investment in group capabilities.

Finance expense

The net finance expense, including interest charged on lease liabilities, decreased to £7.2m (H1 FY22: £7.8m) predominantly driven by a YoY increase in interest received on cash balances.

Group profit before tax

Underlying profit before tax was £59.2m# (H1 FY22: £65.3m), a decrease of 9.3%. Statutory profit before tax, including all non-underlying items was £53.4m (H1 FY22: £65.7m). 

Taxation, profit after tax & EPS

Underlying total tax expense for the period was £11.4m#, a rate of 19% on underlying profit before tax. Total tax expense was £10.3m for the period.

Underlying profit after tax decreased by 13.3% to £47.8m# (H1 FY22: £55.1m). Statutory profit after tax decreased by 22.2% to £43.1m (H1 FY22: £55.4m). Underlying basic earnings per share were 9.6 pence (H1 FY22: 11.0 pence) and statutory basic earnings per share were 8.7 pence (H1 FY22: 11.1 pence).

Working capital

The movement in trade working capital for H1 FY23 was an inflow of £26.6m#. This compares to a trade working capital inflow of £58.1m in H1 FY22 predominantly driven by one-off timing benefits estimated at £21m, resulting in stronger working capital inflows in the prior year.

The strong financial performance across our Joint Venture vet practices, supported by favourable market dynamics, contributed to the gross value of operating loans reducing by £5.3m to £14.9m from £20.2m at FY22 year end (H1 FY22: £22.3m). The provision held against the gross value of operating loans decreased by £0.6m to £4.4m from £5.0m at FY22 year end (H1 FY22: £5.2m).

This increased the underlying net working capital inflow to £31.3m (H1 FY22: £61.5m inflow).

Investment

Total Group investment in H1 was £55.8m, split £39.0m capital investment and £16.8m of cloud-based digital investments which are expensed through the P&L, up from £8.7m in the previous year. We expect full year investment of c£100m, with approximately £70m in capital, and the balance to be expensed.

Total investment of £55.8m (H1 FY22: £32.9m) was focused on three strategic growth areas; investment in data analytics and business systems totalling £20.1m (H1 FY22: £16.9m), as we continue to progress our data and digital agenda, a £19.3m (H1 FY22: £5.7m) investment as we build out our new distribution centre, and £13.4m (H1 FY22: £3.7m) to continue with our store refurbishment programme. 

Group free cashflow

Group free cashflow after interest and tax, but before acquisitions was £41.4m# (H2 FY22: £91.6m), representing a cash conversion rate1 of 33.3% (H1 FY22: 69.5%). The decrease in free cashflow compared with the prior year is driven by year-on-year profit performance, planned increased investment, and annualisation against working capital timing benefits described above.

1. Calculated as free cashflow as a percentage of underlying cash EBITDA.

The cash generation described above, enables us to pay a record dividend payment and fund our ongoing share buyback programme. The Group's net cash position at the end of the period was £43.1m, and net debt was £379.7m on a lease-adjusted basis. This represents a leverage ratio of (0.3)x underlying EBITDA# or 1.6x on a lease-adjusted basis.

2. Includes investment in certain company managed practices.

3. FY22 includes the cash proceeds in relation to the disposal of the Specialist Group net of fees and cash held upon disposal.

The Group's cash return on invested capital# in the period decreased to 21.5% (H1 FY22: 22.0%) in part as our invested capital base increased as we took the £46.4m lease asset for our Stafford DC onto our balance sheet. But for this addition, CROIC would have been stable.

Capital allocation

Our capital allocation policy prioritises investing cash in areas that will expand the Group and deliver attractive returns. These areas include organic investment (into our digital capability, our infrastructure, and our store regeneration program), our progressive ordinary dividend policy (which approximates to 50% of earnings per share) and value-accretive opportunities including M&A (which are strategically aligned to expanding our ecosystem in core and adjacent markets). We will return to shareholders any surplus free cashflow after these items, and it is the Board's intention to review this on an annual basis.

At our preliminary results in May 2022, we announced a 12 month share buyback programme of up to £50m. The programme commenced on 20 June 2022 and continues to progress well.

Dividend

The Board has recommended an interim dividend of 4.5 pence per share, an increase of 4.7% on the prior year. The interim dividend will be payable on 6 January 2023 to shareholders on the register at the close of trading on 2 December 2022. 

Mike Iddon

Chief Financial Officer

23 November 2022

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on pages 15-19.

Risks and Uncertainties

An effective risk management process has been adopted to help the Group achieve its strategic objectives and enjoy long term success. The Board has continued to refresh the principal risks and uncertainties since the publication of the annual report for the 53 week period ended 31 March 2022, and recognise that those risks and uncertainties impacted by macro-economic factors and geopolitical tensions have become more acute. The principal risks and uncertainties comprise:

Technological

· Security of information assets and business systems

· Data protection

· Delivery and execution of key business system projects

· Loss of IT services

· Delivery against our data and analytics opportunity

Financial

· Inflation

· Level of joint venture profitability and indebtedness

· Competition

· Delivery and execution of distribution centre project

Pets

· Pet welfare

· Product availability

People

· Recruitment and retention of critical talent

· Joint Venture Partner pipeline

Planet

· Ability to achieve our net carbon zero targets

· Delivery of sustainable product and service ranges

The Board continues to review the risks and uncertainties that may arise as a result of geopolitical tensions and the actual and potential impact on supply chains, as well as energy cost inflation and foreign exchange volatility.

A detailed explanation of the risks and uncertainties which were identified for the 53 week period ended 31 March 2022 can be found on pages 72 to 85 of the 2022 Annual Report which is available at http://investors.petsathome.com.

Responsibility Statement

We confirm that to the best of our knowledge:

· The condensed set of interim financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting adopted for use in the UK;

·  The interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first 28 weeks of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining 24 weeks of the year; and

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first 28 weeks of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board on 23 November 2022

Disclaimer

This statement of interim 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 advisor.

Certain statements in this statement of interim 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 of interim financial results. 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.

INDEPENDENT REVIEW REPORT TO PETS AT HOME GROUP PLC

(a) Conclusion 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 28 week period ended 13 October 2022 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 13 October 2022 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ('the DTR') of the UK's Financial Conduct Authority ('the UK FCA').

(b) Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ('ISRE (UK) 2410') issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern, and the above conclusions are not a guarantee that the group will continue in operation.

(c) Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

The annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards.

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

In preparing the condensed set of financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

(d) Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

(e) The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Ailsa Griffin

for and on behalf of KPMG LLP 

Chartered Accountants 

8 Princes Parade

Liverpool

L31QH

23 November 2022

Alternative Performance Measures ('APMs')

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 UK-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 prior year.

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

Comparative period APMs have been restated to reflect the reclassification of expenditure to the income statement following the impact of the accounting policy change outlined in note 1.

Several APMs exclude non-underlying items (see definition below) in order to reflect management's view of the performance of the business. This can result in a difference between APMs and total results. As such, APMs should not be viewed in isolation but as supplementary information to the interim financial statements.

A full glossary of APMs is included in the most recent Annual Report & Accounts which are available at http://investors.petsathome.com.

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 and veterinary practices that commenced trading more than 53 weeks prior to the reporting date, excluding fee income from Joint Venture practices where the Group has bought out the Joint Venture Partners or will offer to buy out the Joint Venture Partners in the future.

Underlying PBT: 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 non-recurring nature, in order to reflect management's view of the performance of the Group.

Underlying free cash flow: Net increase/(decrease) in cash before the impacts of dividends paid, acquisition of subsidiaries, share buybacks proceeds from new loans and repayment of borrowings.

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 non-recurring nature, in order to reflect management's view of the performance of the Group.

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

1 See note 1 for an explanation of the prior year restatement.

All activities relate to continuing operations.

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

1 See note 1 for an explanation of the prior year restatement.

Dividends paid and proposed are disclosed in note 6.

Condensed consolidated statement of comprehensive income

1 See note 1 for an explanation of the prior year restatement.

The notes on pages 24 to 51 form an integral part of these consolidated interim financial statements.

Condensed consolidated balance sheet

1 See note 1 for an explanation of the prior year restatement.

The notes on pages 24 to 51 form an integral part of these consolidated interim financial statements.

Condensed consolidated statement of changes in equity

1 See note 1 for an explanation of the prior year restatement.

The notes on pages 24 to 51 form an integral part of these consolidated interim financial statements.

Condensed consolidated statement of cash flows

1 See note 1 for an explanation of the prior year restatement.

The notes on pages 24 to 51 form an integral part of these consolidated interim financial statements.

Notes (forming part of the condensed consolidated interim financial statements)

1 Accounting policies

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated interim financial statements.

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 condensed consolidated interim financial statements as at and for the 28 week period ended 13 October 2022 comprise the Company and its subsidiaries (together referred to as the 'Group').

The consolidated financial statements of the Group as at and for the 53 week period ended 31 March 2022 are available on request from the Company's registered office and via the Company's website.

The interim financial statements are prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments to fair value, and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under UK adopted international accounting standards. The following interpretation issued by the International Financial Reporting Interpretations Committee (IFRIC) has had a material impact on the Group's financial statements during the 28 week period ended 13 October 2022 and the 28 week period ended 7 October 2021.

IFRIC: Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS38 Intangible Assets)

In April 2021, the IFRS Interpretations Committee published an agenda decision in relation to configuration and customisation expenditure relating to cloud computing arrangements, including Software as a Service (SaaS). The Committee has clarified the position that configuration and customisation expenditure that is distinct from access to the cloud software can only be capitalised to the extent it gives rise to an asset for a SaaS customer, i.e., they have the power to obtain the future economic benefits and can restrict others' access to those benefits, otherwise such expenditure should be expensed. Following the interpretation being published, the Group reviewed and revised its accounting policy in relation to IAS38 Intangible Assets, which includes accounting for computer software. The full impact of the change in accounting policy was finalised after the 2021 interim results had been released. This change in accounting policy was reflected in the financial statements for the 53 week period ended 31 March 2022. Consequently, the prior period comparatives in these interim financial statements have now been restated to reflect the change in accounting policy. This change has resulted in a reduction to net assets at 25 March 2021 by £17.2m. In respect of the 28 week period ended 7 October 2021, this has resulted in reclassifying £8.7m of expenditure that was previously capitalised as an intangible asset and expensing this to the income statement as administrative expenses. Accordingly, £3.8m of amortisation charged in the 28 week period ended 7 October 2021 relating to expenditure previously capitalised has been reversed. The impact on profit before tax for the 28 week period ended 7 October 2021 is a reduction in PBT of £4.9m. The cumulative reduction to net assets at 7 October 2021 is £18.5m. The detailed impact of the restatement is set out below:

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the UK. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the 53 week period ended 31 March 2022.

The financial information included in this interim statement of results does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the 'Act'). The statutory accounts for the 53 weeks ended 31 March 2022 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report of the Annual Report for the 53 week period ended 31 March 2022.The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chief Financial Officer's Review. In addition, note 12 and 13 to these interim financial statements includes the Company's policies and processes for managing its capital; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Directors of the Group have prepared cash flow forecasts for a period of at least 12 months from the date of the approval of these interim financial statements which indicate that, taking account of reasonably possible downsides, the Group will have sufficient funds, through its revolving credit facility, to meet its liabilities as they fall due for that period.

In preparing the forecasts for the Group, the Directors have carefully considered the impact of consumer confidence, climate change, geopolitical tensions, and the actual and potential impact on supply chains, energy cost inflation and foreign exchange volatility on liquidity and future performance.

The Group has access to a revolving facility of £300m, which expires in March 2027, with £100.0m drawn down on 13 October 2022 and cash balances of £143.1m. The lowest level of liquidity headroom forecast over the next 12 months from the date of signing of the financial statements is in July 2023 and is in excess of £346.6m in the base case scenario. Under the most severe but plausible downside scenario described below (scenario 3), the lowest level of headroom forecast over the next 12 months from the date of approving of the financial statements is £325.3m.

The Group has been in compliance with all covenants applicable to this facility within the financial year and is forecast to continue to be in compliance for 12 months from the date of signing of the financial statements.

A number of severe but plausible downside scenarios were calculated compared to the base case forecast of profit and cash flow to assess headroom against facilities for the next 12 months. These scenarios included:

Scenario 1: Reduction on Group like-for-like sales growth assumptions of 1% in each year throughout the forecast period, with margin also falling 1.1% compared to forecast. Interest rates rise to 6.85% but ordinary dividends continue to be paid.

Scenario 2: Using scenario 1 outcomes and further impacted by GBP/USD exchange rates assumed at par and an additional £10.5m per year on energy (+120% vs year ended 31 March 2022) as a result of high global energy prices. Dividends held at 11.8p per share

Scenario 3: Group like-for-like sales growth declines to 0% in each year and a conflated risk impact of £102.5m on sales (£74.5m Retail and £28.0m Vet Group) and £50.3m on PBT (£37.3m Retail and £13.0m Vet Group) on PBT is applied, with dividends cut to nil to conserve cash.

Against these negative scenarios, adjusted projections showed no breach of covenants. Further mitigating actions could also be taken in such scenarios should it be required, including reducing capital expenditure.

Despite net current liabilities of £28.5m in the Company, 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 a period of at least 12 months from the date of approval of these financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the consolidated financial statements as at and for the 28 weeks ended 13 October 2022.

Significant accounting policies

The accounting policies adopted in preparation of the condensed consolidated interim financial statements as at and for the 28 week period ended 13 October 2022 are consistent with the policies applied by the Group in its consolidated financial statements as at and for the 53 week period ended 31 March 2022, except as described below:

· Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss

Accounting estimates and judgments

The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions concerning the future that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. These judgments are based on historical experience and management's best knowledge at the time and the actual results may ultimately differ from these estimates. Estimates and underlying assumptions are reviewed on an on-going basis and revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 

The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of assets and liabilities are explained below.

Impairment of goodwill and other intangibles (significant estimate)

Determining whether goodwill and other intangibles are impaired requires an estimation of the value in use of the cash-generating units to which goodwill and other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the cash-generating unit (CGU) and a suitable discount rate in order to calculate present value. Details of CGUs as well as further information about the assumptions made are disclosed in note 10. The Directors consider that it is not reasonably possible for the assumptions for the current financial year to change so significantly to warrant inclusion as a significant estimate but acknowledge that there is estimation uncertainty over the assumptions used in future financial periods when calculating future cash flows.

2 Segmental reporting

The Group has three reportable segments, Retail, Vet Group and Central which are the Group's strategic business units. 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 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 three reportable segments, Retail, Vet Group and Central which are the Group's strategic business units. 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 veterinary General Practices. Central includes a veterinary telehealth business, group costs and finance expenses. Revenue and costs are allocated to a segment where reasonably possible. For the purposes of goodwill allocation, the veterinary telehealth business (hereafter known as TVC) is classed as a separate CGU which sits within the central operating segment.

The following summary describes the operations in each of the Group's reportable segments. Performance is measured based on segment underlying 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 interim financial statements. All material operations of the reportable segments are carried out in the UK and all revenue is from external customers.