# Pets at Home Group revenue exceeded £1bn for the first time

- Link: https://www.directorstalkinterviews.com/pets-at-home-group-revenue-exceeded-1bn-for-the-first-time/412823642
- Published: 2020-05-21T07:28:19+01:00
- Author: Giles Arbor

**Pets at Home Group plc** (LON:PETS) have today provided FY20 preliminary results
for the 52 week period to 26 March 2020.

·      Group like-for-like^(#) (LFL) revenue growth of 9.0%

o  Total Group revenue exceeded £1bn for the first time, with growth of 10.2% to
£1,058.8m

o  Retail LFL^(#) revenue growth of 9.4%, or 15% on a 2-year basis – Q4 LFL revenue
growth of 15.9%

o  Omnichannel revenue^(#) growth of 27.8% or 83% on a 2-year basis, reflecting 
previous investment in capacity and fulfilment

o  Vet Group LFL^(#) revenue growth of 5.6%, with LFL customer sales^(#) growth 
across all First Opinion practices of 13.5%, and Joint Venture practices at 13.2%

·      Growth in Group underlying PBT^(#) of 11.0% to £99.5m on a pre-IFRS16 basis,
and Group underlying free cashflow^(#) of 40.7% to £89.6m

·      Underlying basic earnings per share, excluding the impact of IFRS16, were
16.0 pence^(#) (FY19: 14.1 pence)

·      Resilient balance sheet with significant headroom on debt capacity and covenants

o  Net debt of £85.9m, with net debt/EBITDA of 0.6x vs leverage covenant of 3.25x;
on a post IFRS16 basis, net debt of £549.8m with net debt/EBITDA of 2.5x

o  Total liquidity, comprising cash balances and undrawn portion of £248m RCF (maturity
2023), of approximately £162m; an additional £100m facility agreed post year end

o  Final dividend per share of 5.0p, reflecting our strong performance in FY20 and
robust liquidity and balance sheet, giving a total of 7.5p for FY20, equal with 
the prior year

·      Ongoing expansion of our pet care ecosystem:

o  Number of VIPs who purchase both products and a service grew 24% year-on-year,
representing c16% of all 5.6m active members

o  Number of subscription customers across the Group is now over 865,000, up 23%
YoY

o  Circa 20% of the UK puppy population signed up to VIP Puppy Club, typically spending
23% more than non-members across the Group

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information,
where possible, on page 96. 
All FY20 APMs exclude the impact of IFRS16 unless explicitly
stated.    

> **Peter Pritchard, Pets at Home Group Chief Executive Officer:**
> In normal circumstances, it would have given me great pleasure to reflect on another
> year in which we have grown sales and profits and successfully executed our proven
> pet care strategy. These are, however, far from normal circumstances with the 
> rapid, wide-ranging and devastating effects of COVID-19 having an unprecedented
> impact on all of our lives.

**Response to COVID-19**

In response to this crisis, our planning and actions have focused on preparing the
business for five distinct phases pre and post lockdown, remaining mindful of the
need within each phase to ensure readiness for both the next stage and potential
reversion to the previous one. We discuss each of these phases and our related assumptions
in subsequent sections of this report.

Our immediate priorities were to ensure the wellbeing and safety of our colleagues,
vet Partners, customers, suppliers and pets, and to support our most vulnerable 
colleagues and communities. In line with Government advice, we rapidly implemented
a number of protocols in this respect, which enabled us to provide safe continuity
of customer service, as a designated “essential retailer”, across our Retail and
Veterinary operations. We were also pleased to provide support to colleagues and
communities that need us through £1.1m of funding to nominated pet charities, a 
£1m Hardship Fund for colleagues and their families, and discounts to NHS workers
as they cared for the nation’s health.

In light of uncertainty around the duration of lockdown, disciplined management 
of cash and prudent allocation of capital became increasingly important. In addition
to welcoming certain Government-led initiatives, we implemented specific measures
internally to preserve near-term cash flow, including, but not limited to, deferring
capital and marketing spend and agreeing a temporary 20% reduction in remuneration
across our Executive Management Team, Non-Executive Directors and senior leadership
team. At the same time we have taken the decision across our business not to participate
in the government’s Job Retention Scheme (JRS). We continue to review the position
regarding a small proportion of those colleagues for whom a prolonged period of 
shielding may be necessary – predominantly those who are either highly or extremely
vulnerable or are carers – and, dependent upon government guidance, may participate
in the JRS for these colleagues in future. Across our Vet Group, our Joint Venture
Partners operate independent businesses and are solely responsible for the decisions
made in respect of their colleagues, and a number of our Joint Venture Partners 
have chosen to participate in the JRS.

**Current trading**

As anticipated in our full-year trading update on 2 April, nearly all of the exceptional
demand witnessed in the closing weeks of Q4 has unwound during Q1 of the current
year which, combined with our adherence to guidelines on social distancing across
our operations and restrictions on the sale of pet products and health care services
deemed non-essential, has temporarily depressed normal levels of Group turnover.

While online sales have remained at materially elevated levels, matched by improved
capacity and good product availability, they are, in isolation, unable to mitigate
the reduced level of in-store sales, and their weighting towards food, together 
with an additional £5m of costs relating to our initial response to COVID-19, has
had an adverse effect on profits, margins and cashflow in the financial year to 
date.

Accordingly, we anticipate H1 FY21 Group pre-tax profit, including both the one-
off benefit from the business rates holiday, which will be utilised to partially
mitigate the estimated financial impact of COVID-19 this year, as well as additional
operating costs related to social distancing, to be materially below the prior year.
It remains difficult to make a clear assessment of how consumers will react as we
emerge from lockdown and we, therefore, do not feel it is prudent to provide full-
year guidance at this stage. We will, however, reassess this at our Q1 update at
the end of July.

**Looking ahead**

Over and above managing the business through the pandemic, we must endeavour to 
continue creating value for our shareholders by being well-placed for a recovery
in demand.

Early indications are that some of the behaviours that consumers have displayed 
during lockdown, notably social distancing and the preference to purchase goods 
and services safely and conveniently, may persist post exit. Preparing for this 
has meant adapting our working practices, introducing further precautionary measures
around customer interaction, and implementing new ways of safely delivering products
and services across all channels, all the while retaining discipline over cash utilisation,
thereby maintaining a resilient balance sheet and low financial gearing.

The current environment lacks precedence in the UK and it is difficult, therefore,
to assess the medium to long term effect it will have on consumer behaviour or when
we might see normalisation in shopping habits. This crisis has, however, encouraged
us to critique our business model and how we operate. While some things have changed,
and will continue to do so in a post-pandemic world, we remain confident in the 
long-term [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
of our business for a number of reasons, not least our sustainable retail and owner-
managed veterinary models, our growing multichannel platform, our large and expanding
loyal customer base and our unique solutions-based pet ecosystem.

We operate in a large, growing market with favourable demographics and clear, long-
term demand drivers. While the current crisis is affecting consumer behaviour across
the UK, our pet population is unchanged, pets remain an important part of our lives–
possibly even more so as a result of our present circumstances – and still need 
to be fed, loved and cared for.

These are clearly unprecedented times and Pets at Home will not be immune to the
challenges that we collectively face. We have had to respond quickly and make significant
changes to the way we operate our business, and will undoubtedly need to remain 
focused yet agile as we respond to pandemic-driven issues and opportunities alike.
I am proud to be surrounded by an experienced and adaptable management team who,
with the support of our fantastic colleagues who have continued to work tirelessly
in adverse circumstances, providing essential products and healthcare services for
the nation’s pets, are determined to create a stronger pet care business in a post-
pandemic future.

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