Pets at Home : FY22 Prelim Results

FOR IMMEDIATE RELEASE, 25 MAY 2022

Pets at Home Group Plc: FY22 Preliminary Results

for the 53-week period to 31 March 2022

Record customer acquisition to accelerate future growth in market share

Financial highlights

* Reflects the disposal of the Specialist Group in the prior year

• Total Group revenue growth of 15.3% to £1,317.8m with a further 1.2m million new puppy and kitten customers in the base and average spend compounding across customer cohorts
• Growth in Group customer revenue1 of 16.5% to £1,673.8m, reflecting market share gains across all areas of the business
• Strong growth in Retail revenue reflecting broad-based growth across all channels and categories and Vet Group LFL revenue up 17.1%
• Growth in Group underlying proforma PBT# of 65.3% to £144.7m before the change in IAS38 accounting policy2, ahead of consensus expectations, with growth of 54.8% on a 2-year basis; Growth in Group underlying PBT# of 67.9% to £130.1m having taken account of the accounting policy change in relation to IAS38 Intangible Assets. The impact of the policy change reflects our market leading levels of investment as we continue to digitise the business and improve our customer proposition
• Group free cash flow# of £95.0m, up 40.9% YoY, including strong cash generation across our First Opinion veterinary practices
• Strong balance sheet with net cash (excluding lease liabilities) of £66.0m and intending to launch a 12 month share buyback programme of up to £50m
• Final dividend per share of 7.5p, an increase of 36% YoY, reflecting our robust balance sheet and continued confidence in the prospects of the business, giving a total dividend of 11.8p for the year, up 48% YoY
• Continued momentum with sustained growth across our pet care ecosystem:
• • The number of active VIPs stands at a record 7.3m having increased by 1.1m (18%) YoY, or 29% on a 2-year basis
  • 27% of all VIPs shopped across more than one channel during the year, up 22% YoY
  • The number of Puppy and Kitten Club members grew 36% YoY, with approximately 23,000 average weekly registrations in the year, compared to approximately 7,000 two years ago, creating a significant lifetime value opportunity
  • New client registrations across our First Opinion veterinary practices averaged approximately 9,000 per week, with an active client base of 1.7m
  • The number of pet care plan subscriptions across the Group grew 23% YoY to 1.5m, generating over £120m in annualised recurring customer revenue1

Impact of 53rd Week

FY22 represents a 53-week year, and as such key metrics for FY22 are summarised below on a 52-week basis to aid comparison to the prior year. All other FY22 metrics presented throughout this statement are on a 53-week basis.

Note all metrics above are presented on an underlying proforma basis before the change in IAS38 accounting policy2. 52-week metrics are calculated by excluding all sales and attributable costs from the final week of the financial year.

1. FY22 non-underlying credit of £0.1m (FY21: £0.6m) relates to the release of a provision held against property leases allocated against non-underlying gross margin.
2. FY22 non-underlying credit of £19.2m (FY21: £30.2m) relates to the profit on disposal of the Specialist Group. FY21 non-underlying charge of £1.9m relates to an accounting charge for minority stakes owned by partners in the Specialist Group, prior to disposal on 31 December 2020, allocated against non-underlying operating costs.
3. FY22 non-underlying cost of £0.7m relating to loan fees written off upon refinance of our revolving credit facility, allocated against non-underlying interest charge.

Current trading and outlook

The pet care market remains robust and in growth, with registrations into our Puppy & Kitten club continuing well ahead of pre-pandemic levels and growth in customer spend maintained across all categories and channels.

Our pet care strategy continues to deliver, the advantages of our omnichannel model in consistently taking market share by making pet care affordable, easy, and convenient are clear, and our ongoing investment into capacity and capability is achieving good return.

Notwithstanding enduring industry wide inflationary pressures which we continue to manage proactively, in particular the impact of raw material, energy, and freight costs, we anticipate that FY23 Group underlying pre-tax profit, excluding the impact of the accounting policy change in relation to IAS38 Intangible Assets3, will be in line with analyst consensus, which is currently £151m, with a range of £146m to £157m.

Including the impact of this accounting policy change, we currently anticipate that FY23 Group underlying pre-tax profit will be £131m, compared to £126.4m for FY22 on a 52-week basis.

Our next scheduled update will be our Q1 FY23 release on 5 August 2022.

Peter Pritchard, Group Chief Executive Officer:

Despite another period characterised by significant and evolving external challenges, our performance this year has been noteworthy, delivering record sales, profit, and cash flow. I would like to express my heartfelt thanks to our truly inspiring colleagues and Partners across the Group for their continued adaptability and commitment to making Pets at Home bigger, stronger, and more efficient.

We are well placed to accelerate our growth in market share. The robust backdrop of the UK pet care market, coupled with our clear strategic priorities, proven omnichannel model and strong Executive Team, mean that I hand over leadership of this great business to Lyssa McGowan with the utmost confidence that Pets at Home will continue to create value for all stakeholders in both the near and longer-term.

Notes

1. Customer revenue includes customer sales made by Joint Venture vet practices and differs to the fee income recognised within Vet Group revenue.
2. In our Q3 trading statement on 26 January 2022, we anticipated that full year Group proforma underlying pre-tax profit would be at least £140m prior to the impact of any accounting policy change in relation to IAS38 Intangible Assets. Excluding the impact of this accounting policy change our FY22 underlying pre-tax profit was £144.7m and the impact of the accounting policy change was £14.6m. A reconciliation is set out below, with further detail provided in the CFO review.

1. In light of the clarification from the IFRS Interpretations Committee (IFRIC) regarding how companies should account for configuration and customisation costs relating to cloud computing arrangements, including Software as a Service (SaaS), which has led to a change in accounting policy in the application of IAS38 Intangible Assets, we estimate an approximate £20m non-cash impact on full-year underlying PBT in FY23.
2. Proforma amortisation charge had the amounts now expensed been capitalised

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

Results webcast

An audio webcast and presentation of these results will be available on our website (https://investors.petsathome.com/investors/) from 07.00am on 25 May. Management will host a Q&A conference call for analysts and investors at 10.30am. To join the call in listen-only mode, please click on the following link (webcast). Those wishing to participate in the Q&A session should email petsathome-Maitland@maitland.co.ukfor call details.

Investor Relations Enquiries

Pets at Home Group Plc:

Roger Tejwani, Director of Investor Relations & External Communication +44 (0)1279 927022

Chris Ridgway, Head of Investor Relations +44 (0)7788 783925

Media Enquiries

Pets at Home Group Plc:

Natalie Cullington, Head of Media & Corporate Affairs +44 (0)7974 594 701

Maitland:

Clinton Manning

+44 (0)7711 972662

Joanna Davidson +44 (0)7827 254567

About Pets at Home

Pets at Home Group Plc is the UK's leading pet care business; our commitment is to make sure pets and their owners get the very best advice, products and care. Pet products are available online or from our 457 stores, many of which also have vet practices and grooming salons. Pets at Home also operates a UK leading small animal veterinary business, with 443 First Opinion practices located both in our stores and in standalone locations. For more information visit: http://investors.petsathome.com/

Disclaimer

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

Chief Executive Officer's Review

Our business is in great shape. Over the past year we have welcomed more than 1.1 million new VIP customers across the Group, delivered record sales, profit and cash flow, and accelerated investment into analytics capability, digital innovation, and our supply chain to join up our pet ecosystem, enhance the customer experience and entrench the competitive advantages of our omnichannel model.

We are growing share across every part of our business, achieving customer revenue1 of almost £1.7bn.

In Retail, broad-based growth across key categories, both in-store and online, contributed to strong like-for-like progression and good profit conversion on both a one and two-year basis.

In Veterinary, our unique owner-managed model is delivering sector leading performance, with 2-year LFL up 24.5% and average practice revenue surpassing £1m. Gross margin expansion and good cost control, together with strong revenue growth, means that c90% of practices are now profitable, and Vet Group profit accounts for one third of the overall Group, despite representing less than 10% of Group revenue.

This increasing profitability is driving good cash flow and balance sheet efficiency at practice level, with free cash flow generation up three-fold over the past two years to £50.9m, and operating loans now standing at £20.2m, having more than halved since the start of the planned recalibration. Furthermore, the continuing growth in new client registrations provides a clear underpin to future value creation.

We also continued to make good progress in our social value strategy, aligned across the three pillars of Planet, People and Pets.

I am incredibly proud of all our colleagues and Partners across the Group for their tireless efforts and commitment to consistently doing the right thing for our customers, supplier partners and the communities we serve, in what is an extremely challenging external environment.

#All like-for-like (LFL) revenue figures are based on statutory revenue. Within the Vet Group this includes Joint Venture (JV) fee income and revenue from company managed practices

##Retail Q4 2-year LFL annualises against customer stockpiling activity seen in March 2020 (contributing to Q4 FY20 Retail LFL of 15.9%) shortly prior to the UK entering the first national lockdown

Key Performance Indicators

1. Customer revenue includes total revenue across the Group including customer sales made by Joint Venture vet practices, and therefore differs to the fee income recognised within Vet Group revenue
2. 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 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, and incorporating the impact of the IFRIC clarification to IAS38 on capitalisation of software costs
3. Number of VIP loyalty club members who transacted across the group in the last 52 weeks from end of the reporting period
4. Defined as customer sales made by JV vet practices, revenue from our Specialist Referral centres (up until the date of disposal on 31 December 2020) and company managed vet practices, grooming services, subscriptions, pet sales and pet insurance commissions
5. VIP customer revenue includes customer sales at First Opinion vet practices

After eleven years in the business, I am stepping down from my role as CEO at the end of May and will be succeeded by Lyssa McGowan who brings strong strategic and operational expertise across a range of consumer-facing businesses, and significant experience in customer and digital-first initiatives.

I am confident that this transition in leadership comes at a time of great opportunity for the business.

Pet care spend has proven resilient across all economic cycles, and the significant step-up in pet ownership over the past two years, combined with continued themes of pet humanisation and premiumisation, is increasing the size our addressable market. We see a clear pathway to at least £2.3bn of customer revenue over the medium term, optimising wallet share across our existing customer base alone.

Our omnichannel pet care strategy, providing customers with everything they need through the lifetime of their pets, allows us to access all components of spend within this growing market. Our unique ability to combine a broad range of products and services into personalised, pet-specific solutions is a key enabler of how we consistently take share and grow faster than the market.

This strategy, centred on our unwavering commitment to provide affordable, convenient, and best-in-class pet care and customer experience, has served us well over the past five years, with over 60% of our growth coming from market share gains.

In conjunction with continued investment and our clear initiatives to drive operational efficiencies and navigate inflationary pressures, it will enable us to deliver further value for all stakeholders in both the near and longer-term.

Strategic Review

I. Our business will continue to grow market share

The UK pet care market has grown at an estimated CAGR of 4% over the past five years. In comparison, by leveraging our omnichannel positioning and end-to-end pet ecosystem, we have grown our customer revenue at 10% CAGR over the same period and by 12% in each of the last two years.

The continued resilience of the pet care market, combined with our product and service breadth and planned investment to make pet care even easier and more convenient, will enable us to continue growing market share in both the near and long term.

i. An affordable, defensive product and service ecosystem in a robust, growing market

A robust and growing market

• The UK pet care market has proven robust across all economic cycles, growing consistently between 3% and 4% each year prior to the pandemic, with pet humanisation and premiumisation driving higher spend across a pet population that was broadly stable, but continually renewed.
• COVID-19has been a clear catalyst for a significant step-up in pet ownership over the past two years, the pace of which continues ahead of pre-pandemic levels, and we estimate that the future annual underlying growth rate of our addressable market has increased at least to between 4% and 5%.
• This growth in new pets, combined with the aforementioned demand drivers that have supported spend propensity and decreased how discretionary that spend is perceived to be, make pet care one of the more defensive categories of consumption.
• This is clearly evident across our most recent customer cohort, where relative affluence, engagement across multiple channels and propensity to cross-shop products and services is translating, relative to previous cohorts, into a 24% increase in average customer value in year one, a 7% increase in subscription penetration and a 16% increase in Advanced Nutrition participation.
• Anecdotal evidence suggests that over 90% of VIP customers are not intending to reduce their level of pet spend, and of those that are approximately one third would consider switching to one of our broad range of own label products to feed their pet a high quality diet suitable to their budget. Furthermore, approximately two thirds of owners prefer an omnichannel approach when looking after their pet care needs.

Notwithstanding the above, our overarching aim is to continue making pet care as affordable, easy, and convenient as possible, maximising our market share opportunity.