Pets at Home : FY21 Interim Results Presentation

"In spite of the ongoing and wide-ranging impact of COVID-19, there is much to be optimistic about. We are, more than ever, confident in the resilience and longevity of our pet care platform."

Peter Pritchard

Group CEO

• Taking market share across all channels - a true omnichannel pet care platform
• • 2-yearRetail LFL of 14.8%; 2-year omnichannel revenue growth of 118%
  • Resumption of strong sales growth post lockdown across our First Opinion practices; half the number of loss-making practices vs FY20
• Customer acquisition and retention strategy is increasing our share of wallet and enhancing the proportion of recurring revenues
• • Number of VIPs increased 15% to 6.0m, with the number shopping across more than one channel +20% YoY
  • Puppy and Kitten Club members +25% YoY - our strongest half for new sign ups
  • Number of subscription customers now over 970,000, generating c£80m in visible, recurring customer sales
• Early indications from leveraging data are encouraging

"The start of our new financial year coincided with the implementation of lockdown across the UK. The investments we made pre-COVID in both our online capacity and data capability, together with the adaptability of our operations post the onset of the pandemic, helped to underpin the strong revenue growth witnessed from the mid-point of Q1 FY21".

Mike Iddon

Group CFO

• Group revenue growth of 5.1% to £574.4m with LFL growth of 5.3%
• • A half of two quarters with Q2 LFL revenue growth of 12.7%
• Retail LFL revenue growth of 5.8%; Q2 LFL growth of 12.5%
• • Our 15th consecutive quarter of LFL growth; Q2 Store LFL growth of 7.9% highlights the strength of our store estate
• Vet Group LFL revenue growth of 1.2%, despite extensive restrictions on the provision of services during Q1
• • Q2 LFL customer sales growth across all First Opinion practices of 14.2%
• Decline in underlying PBT of -5.1% to £39.6m; Q2 growth of 43.7%
• Group underlying free cash flow of £60.5m, reflecting strong cash generation from our First Opinion estate post successful recalibration
• Maintained a resilient Balance Sheet and strong liquidity:
• • Pre-IFRS16:Net debt £50.9m and leverage 0.4x; Post-IFRS16 net debt £507.2m and leverage 2.3x
  • Liquidity £297.1m including £100m backstop agreed post FY20
  • Interim dividend of 2.5 pence per share, maintained with prior year

"There is much to be proud of over the last six months and much to look forward to in equal measure. As we continue our transformational journey, there remains plenty to strive for and achieve, and we will remain both focused and agile in our determination to succeed."

Peter Pritchard

Group CEO

• Pet market remains resilient with recent change to working norms supporting rising levels of pet ownership - good proxy for future growth
• Our focus on customer acquisition is underpinning market share gains across all channels
• • Nationwide store estate combining a wide range of competitively- priced branded and own label products with economically-resilient services
  • Growing our online share of the pet care market, matching customer preference for convenience with fast and frictionless execution
  • Strong growth in our VIP and Puppy and Kitten clubs
• Customer-centricpet care platform, underpinned by the UK's most extensive proprietary pet dataset and true omnichannel capability
• • Clear opportunity to use data to drive engagement, wallet share and lifetime value across our 6.0m (and growing) VIP customers
  • Increasing base of loyal subscription customers raising the visibility, resilience and quality of our sales profile
• Introducing new ways to engage, serve and fulfil our customers making pet care as affordable, convenient, engaging and flexible as possible
• We will continue to make the right investments to prioritise growth opportunities across our customer-centric pet care platform

30.0%

20.0%

10.0%

0.0%

-10.0%

-20.0%

-30.0%

National

lockdown

in UK

• Adapted in-store protocols on footfall and customer engagement
• Contactless collection; Remote sign up to Clubs and Subs; Home delivery of medication
• Focus on safe provision of product and services

Group Customer Sales LFL growth

Bring the pet experience to life

Record numbers across the Group

Active VIP members

Website visitors

Website orders

Store average basket value

Subscription customers

First Opinion vet clients

Puppy & Kitten club members

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Bring the pet experience to life

H1 FY21 LFL growth across all channels ˃ Store1 growth 1%

1. Refers to Retail revenues generated by colleagues through the sale of products in-store, that can be taken home by customers on the same day
2. Refers to Retail revenues generated by customers who purchase on our website, for delivery to their home (does not include orders collected in store)
3. Refers to Retail revenues generated online as above, plus those generated by customers who purchase on our website for collection in-store, by colleagues in-store who facilitate a customer order on our website for delivery to their home or for the customer to collect in store another day, by colleagues through the sale of flea product subscription sales in-store which are delivered to the customers' home, or by customers who sign up to our online subscription service 'Easy Repeat' and choose to collect in-store

Bring the pet experience to life

Qualified and experienced colleagues

• Bespoke and trusted advice
• Sign up to subscription platforms
• Lead and harness fitting service

Complementing our fulfilment offering

• One Hour Click & Collect picked from store
• Order-in-Storeservice, with option of delivery to home or store
• Orders placed online can be delivered to any store in our network

Experiential pet care centres

• Pet villages create theatre within our stores
• Event space for puppy training/socialising, birthday parties and more
• Making stores a community hub for pet owners

50% of sales from pet services

Customer sales growth ahead of market

• Even in mature practices, driven by incentivisation of JV model
• Record numbers of new client registrations and healthplan subscribers

Improved underlying practice profitability

• Improved gross margin and cost control at practice level
• Higher cumulative practice profit
• Higher number of profitable practices

Stronger practice Balance Sheets

• Lower level of total practice indebtedness1
• Fewer practices with Pets at Home operating loan
• 6 month loan repayment holiday agreed with third party banks as part of COVID-19 response

1. Defined as third party bank debt plus Pets at Home operating loans

Fee adjustments are driving practice maturity

• Adjustments suppress JV fee income initially, but deliver cashflow benefits to both JVPs and Pets at Home
• Impact of all fee adjustments will annualise in H2 FY21
• Simpler fee structure enables Support Office efficiencies

50% of sales from pet services

Practice age and Vet Group FCF in FY20

Practice age and FCF in the future at maturity1

Includes the impact of planned adjustments to JV fee arrangements

Favourable market dynamics

• Large, growing and resilient market
• Favourable demographics and clear, structural demand drivers
• Significant headroom in core areas such as nutrition, veterinary services and subscriptions

Integrated provider of pet care solutions

- Non-discretionary,non-seasonal, small- ticket pet products and economically- resilient services

• Well-locatednationwide network of experiential and profitable stores
• Subscription platforms providing annuity revenue streams

Large and growing loyal customer base

• Most extensive and unique proprietary pet dataset in UK - 6.0m active VIP members
• Data-ledinsights to offer personalised, curated solutions and drive loyalty, retention and lifetime value

Scalable position in macro-resilient vet market

• Unique joint venture model in First Opinion practices incentivises growth
• Largest UK branded network, both in-store and in standalone locations
• Practice maturity represents a significant future cashflow opportunity

Scalable omnichannel platform

• Recent investment in automation, distribution and logistics give significant long-term capacity
• Increasing digital capabilities and flexible fulfilment
• Taking market share across all channels

Financial strength and resilience

• Good liquidity of £297m, including £100m backstop facility
• Low leverage of 0.4x (2.3x post-IFRS16)
• Cash conversion of 54% with a 2.5 pence dividend maintained in H1 FY21

Preference to shop in a safe and compliant manner

New in-store protocols on footfall and customer engagement; Provision of PPE; Contactless collection for customers; Additional measures on safe provision of product and services

More focus on health and well being for pets

Competitively-priced own label Advanced Nutrition brands offer an attractive alternative for branded, grocery-led customers; Focus on welfare grooming; Delivery of healthcare products to home

Setting our people free to serve

Investing to better serve our customers

• Purpose-built,modern, c670k sq.ft facility located in Stafford
• Consolidating our legacy infrastructure into a single site drives operational efficiency
• Future-focusedplatform, serving both our stores and online orders
• Optionality over additional space increases flexibility
• £48m planned gross capital investment between FY21 to FY26

Foundations

Ambition

Early Success

Migrating in-house: Most extensive proprietary dataset of pet ownership in the UK;

Seven years of VIP customer and pet-related metrics

Built: Dedicated team of 45 data scientists and data engineers; Creating our single view

of customer and household pet care

Predict customer preferences and responsiveness to specific campaigns and messaging

Personalise customer interaction through informed, pet-specific thinking on integrated pet

care solutions across our platform

Predict which customers are most at risk of churn and generate targeted retention and

reactivation activity

Achieving better return on marketing investment - First reward mailer achieved highest

redemption rate to date

Number of VIPs shopping across more than one channel increased 20% in H1, and

represented 26% of members

50% of sales from

26% of all VIPs use our stores and at least one additional

channel; an increase of 20% YOY

pet services

£950

£850

£750

£650

£550

£450

£350

£250

£150

£50

Retail spend

Vet spend

Grooming spend

Growth in customer numbers YoY

Customers

who

channel

shift spend

more

overall

Using our data to serve customers

By focusing on new puppies & kittens we can create significant lifetime value for the business

• Growing population of puppies and kittens in the UK
• Currently have c20% of puppies and c10% of kittens signed up
• Members spend c20% more compared to shoppers not in the club
• Spend uplift continues in to adulthood
• Drives loyalty and spend over lifetime of the pet (typically 13 years for a dog)

By capturing data specific to the pet, we create engaged and loyal customers

• Record number of 6.0m active VIPs
• Ability to reduce churn of existing members, with further benefits expected from our "propensity to churn" model
• Reactivation of previously lapsed VIPs

Pets

People

Planet

• Pets are at the heart of everything we do, with our support organised around 3 main programmes
• • Charitable foundation Support Adoption for Pets, which has raised >£35m since launch and last year issued 77 grants totalling £1.5m
  • VIP Lifelines are a unique type of loyalty point generated by customers every time they swipe their VIP card, which are then converted in to vouchers for animal charities to spend
  • Educational workshops for children which bring animal welfare to life
• Our colleagues are the heartbeat of our business; we have a responsibility to listen and respond in a way that fits with their evolving needs and values
• • Focus on mental health and wellbeing, including partnering with MIND to create ambassadors across the Group and also holding "Mind Matters" workshops for our vet practice colleagues
  • Range of apprenticeships to unlock the potential of colleagues across a range of disciplines: dog grooming, veterinary nurse academy and Support Office
  • We encourage a positive culture embracing Diversity, Inclusion and Health & Safety
• We recognise the environmental impacts that our diverse business has across the full value chain and are working hard to identify opportunities to make a positive change in the following key areas:
• • Recyclability of product packaging across our own brand and exclusive branded products
  • Waste and recycling processes across animal bedding, plastic shrink wrap and cardboard
  • Energy reduction, particularly in stores where there are specific animal welfare considerations
  • Minimising our carbon footprint by remaining carbon neutral and reducing electricity consumption

Purpose

Vision

Pillars

Goals

For a better life together: Creating a better world for pets and the people who love them

To become the most responsible pet care business in the world

Targets

• By 2030 increase the impact of grants, donations and skill sharing to the rescue sector
• By 2030 educate 2m children in responsible pet ownership
• By 2030 improve the health of the nation's pets by focusing on nutrition and health plans
• By 2025 set the standards for the safety and quality of pet care products

• By 2030 increase the number and diversity of people who can benefit from time with pets
• By 2025 be the leading employer of pet care experts
• By 2025 create opportunities for 5,000 people who face barriers to employment to experience working with us

• By 2025 be leading the way in sustainable pet care products
• By 2030 become net zero carbon operationally (scope 1 &
• 1. and by 2040 aim to have a net zero carbon value chain (scope
  2. using a science based initiative approved methodology
• By 2030 maximise the value of our waste by adopting circular economy principles

"The start of our new financial year coincided with the implementation of lockdown across the UK. The investments we made pre-COVID in both our online capacity and data capability, together with the adaptability of our operations post the onset of the pandemic, helped to underpin the strong revenue growth witnessed from the mid-point of Q1 FY21".

Mike Iddon

Group CFO

• Group revenue growth of 5.1% to £574.4m with LFL growth of 5.3%
• • A half of two quarters with Q2 LFL revenue growth of 12.7%
• Retail LFL revenue growth of 5.8%; Q2 LFL growth of 12.5%
• • Our 15th consecutive quarter of LFL growth; Q2 Store LFL growth of 7.9% highlights the strength of our store estate
• Vet Group LFL revenue growth of 1.2%, despite extensive restrictions on the provision of services during Q1
• • Q2 LFL customer sales growth across all First Opinion practices of 14.2%
• Decline in underlying PBT of -5.1% to £39.6m; Q2 growth of 43.7%
• Group underlying free cash flow of £60.5m, reflecting strong cash generation from our First Opinion estate post successful recalibration
• Maintained a resilient Balance Sheet and strong liquidity:
• • Pre-IFRS16:Net debt £50.9m and leverage 0.4x; Post-IFRS16 net debt £507.2m and leverage 2.3x
  • Liquidity £297.1m including £100m backstop agreed post FY20
  • Interim dividend of 2.5 pence per share, maintained with prior year

1. Support Office includes support centre colleague and occupation costs, plus all central costs covering Group functions such as IT teams
2. Established stores and distribution centre includes ongoing CV-19 related costs. Established stores refers all stores opened in FY19 or earlier, and includes grooming costs.
3. Includes specific one-off costs incurred in relation to the pandemic including PPE, an additional 'thank you' bonus for store colleagues and a £1.0m colleague hardship fund
4. Includes costs in relation to growth in online and flea & worm subscriptions
5. Includes investment in our Data, Business Systems and Customer Service teams and capability
6. Immature stores includes stores opened in FY20 and FY21

£164.9m

H1 FY21

28.7%

Market dynamics

Stable pet population of c18m dogs & cats, with c2m puppies & kittens

Continued humanisation and premiumisation

Increasing spend per pet

Online penetration of pet products c16%, with our share at c15%

Increasing pet insurance penetration

Pets at Home share of pet care market in CY2019

Source: Pets at Home and UK pet market reports, OC&C 2017

Note: Food and accessories market data includes online spend. Food market contains Advanced Nutrition segment. Veterinary market includes First Opinion and Specialist Referral.

Bring the pet experience to life

Our price position4 vs the lowest price competitor has remained stable for over 12 months

1. Refers to the price of all branded and easily comparable private label products sold by Pets at Home, compared with an online pureplay, weighted to the average volumes sold by Pets at Home
2. Refers to the price of items which we consider important to customer purchasing decisions, and where we have taken planned price action
3. Refers to our online frequent order delivery service
4. All price comparisons correct as of 17/11/20

'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, vet practices & referral centres that have been trading for 52 weeks or more.

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

Free Cashflow being net cash from operating activities, after tax, less net cash used in investing activities (excluding acquisitions), less interest paid

• debt issue costs, and is stated before cash flows for non-underlying items.

CROIC being 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 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 is stated before the impact of IFRS16 as it is based on a 12 month rolling average.