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nemo2014\Presentations\Analyst Presentation Jan14\201401 Nemo Analyst Presentation Master-22nd Jan FINAL.pptx [xxx]
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Interim Results FY18
28th November 2017
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Forward looking statements
Forward-Looking Statements
INCLUDED IN THIS PRESENTATION ARE FORWARD-LOOKING MANAGEMENT
COMMENTS AND OTHER STATEMENTS THAT REFLECT MANAGEMENT’S CURRENT
OUTLOOK FOR FUTURE PERIODS
These expectations are based on currently available competitive, financial, and economic
data along with our current operating plans and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by the forward-
looking statements.
The forward-looking statements in this presentation should be read in conjunction with the
risks and uncertainties discussed in the Pets At Home Annual Report and Accounts.
2
nemo2014\Presentations\Analyst Presentation Jan14\201401 Nemo Analyst Presentation Master-22nd Jan FINAL.pptx [xxx]
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13.36cm 0.39cm 0.43cm 13.36cm
6.03cm
5.12cm
0.76cm
1.64cm
7.20cm
8.43cm
Highlights Ian Kellett, Group CEO
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Improved trading momentum: pricing and other initiatives are
delivering results and the Vet Group remains in strong growth
Positive momentum in Merchandise with H1 like-for-like growth of 3.1% (Q1:1.5%, Q2:5.1%)
Strong omnichannel revenue growth of 81% driven by new initiatives
Veterinary business continuing to take market share
Income from First Opinion Joint Venture practices up 16.1% to £28.0m
Double digit revenue growth in Specialist Referral centres
FCF of £23.2m and ordinary dividend 2.5 pence per share
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Financials Mike Iddon, Group CFO
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We have benefitted from positive momentum in Merchandise,
reinforced by continued high growth in Services
£m H1 FY17 H1 FY18 Change
Group
Total 441.3 468.0 6.0%
Like-for-like 2.5% 3.9%
Merchandise
Food 209.5 220.0 5.0%
Accessories 169.9 176.8 4.0%
Total 379.5 396.7 4.6%
Like-for-like 1.9% 3.1%
Services
Income from JV vet practices 24.1 28.0 16.1%
Other1 37.8 43.3 14.7%
Total 61.9 71.3 15.3%
Like-for-like 8.7% 9.5%
1. Includes revenue from wholly owned Group Venture vet practices & other veterinary income, including specialist referrals, grooming salons, live pet sales & insurance commission 6
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13.36cm 0.39cm 0.43cm 13.36cm
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53.9%
51.9%
(229) bps 31 bps
(198) bps
Our reduction in gross margin is due to planned price investment
in Merchandise, offset by significant expansion in Services
Merchandise
H1 FY17 H1 FY18
57.5% 54.9%
Services
H1 FY17 H1 FY18
32.0% 35.8%
Growing Advanced
Nutrition and private label
Pricing actions
FX
Omnichannel sales with
higher food mix
First Opinion vets
Specialist Referral vets
Pet routines
Newer grooming salons
Group gross margin bridge
H1 FY17 H1 FY18
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14.8%
13.3%
Of which: FX
(74 bps)
We have achieved an EBITDA margin of 13.3%, with operational
leverage and cost savings helping to offset price investment
1. Exceptional items in H1 FY17 refer to £1.0m of exceptional costs related to the disposal of Farm Away Limited, the Group’s equestrian retailing business
2. Exceptional items in H1 FY18 refer to £1.0m non cash accounting treatment of minority stakes owned by vet partners in the specialist referral centres
Group EBITDA margin bridge
£62.2m2
(4.6%)
(198bps)
Operational
Leverage
Growth in
Omnichannel
Sales
Operational
Cost Savings
Group Gross
Margin
Movement
£65.2m1
(25 bps) 30 bps
45 bps
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We have focussed on operational efficiency in the business,
which has enabled investment in future growth
Group Pre-Exceptional Operating Cost Bridge Excluding D&A, £m
m m
m
m
m
Operational Efficiency
Support Office1 Distribution Core Stores2 Omnichannel Vet Group New Stores3
4.7%
growth
Investing in Growth
0.2%
growth
£173.3m
£181.0m
£172.9m
1. Support office includes support centre and marketing
2. Core stores include all stores open as at 31 March 2016
3. New stores includes all stores opened since 1 April 2016
H1 FY17 H1 FY18
£0.2m £0.5m (£0.3m) £1.6m
£2.1m
£4.0m
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Our profit reflects the price investment in Retail and is in line with
expectations
1. Exceptional items in H1 FY17 refer to £1.0m of exceptional costs related to the disposal of Farm Away Limited, the Group’s equestrian retailing business
2. Exceptional items in H1 FY18 refer to £1.0m accounting charge for the acquisition of minority stakes owned by vet partners in the specialist referral centres
£m
H1 FY17 H1 FY18 Change
Pre-exceptional EBITDA 65.2 1 62.2 2 (4.6%)
Margin 14.8% 13.3% (148) bps
Depreciation & amortisation (15.4) (18.0) 16.8%
Net interest (2.7) (2.4) (12.9%)
Pre-exceptional PBT 47.0 41.7 (11.2%)
Effective tax rate 21% 20% NM
Pre-exceptional basic EPS (pence) 7.4 6.7 (10.0%)
DPS (pence) 2.5 2.5 NM
Exceptional items (1.0) (1.0) NM
Statutory PBT 46.0 40.8 (11.3%)
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Our capital investment is focused on strategic growth areas,
including Services rollout and Omnichannel development
Returns on capital H1 FY17 H1 FY18
CROIC1 21.3% 19.4%
£m
H1 FY17 H1 FY18
New stores 3.3 5.0
Refurbishment and retrofit of services into store estate 7.5 7.5
Business Systems and Omnichannel 2.8 4.8
Other Vet Group including Specialist Referrals 1.9 2.5
Distribution 0.6 0.7
Energy savings programme 3.6 2.2
Other 1.2 1.3
Total 20.9 24.0
Exceptional project
which totalled £8m
and is now complete
Systems upgrades
and website
enhancements
1. Definition contained within the appendix
Timing of capital
investment earlier
this year
Specialist referral
capacity expansion
7 Services retrofits
and 5 store refurbs
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We remain efficient in our management of trading working
capital, whilst providing support to underpin vet practice growth
£m H1 FY17
movement
H1 FY18
movement
Inventories (7.7) (6.8)
Trade payables, other payables and provisions 13.0 10.6
Trade and other receivables 3.2 4.5
Trading working capital 8.4 8.4
Operating loans to Joint Venture vet practices (5.8) (8.1)
Group cash working capital movement 2.6 0.3
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The movement in free cashflow is due to our planned investment
in both the retail business and in working capital
1. Includes provisions movement
£m H1 FY17 H1 FY18 Change
EBITDA 65.2 62.2 (4.6%)
Non-Cash Share Based Payment Charges 1.7 2.3 37.2%
Cash EBITDA 66.9 64.5 (3.6%)
Working capital1 2.6 0.3 NM
Operating cashflow 69.5 64.8 (6.8%)
Tax (8.6) (9.7) 13.0%
Interest cost (2.5) (2.2) (8.4%)
Capex (24.0) (25.8) 6.7%
Purchase of own shares to satisfy colleague options - (4.0) NM
Free cashflow 34.4 23.2 (32.7%)
Conversion 51.4% 35.9% NM
Leverage (ND:EBITDA) 1.3x 1.2x NM
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13.36cm 0.39cm 0.43cm 13.36cm
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5.12cm
0.76cm
1.64cm
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8.43cm H1 FY17 H1 FY18
£65.2m £62.2m
£468.0m
In summary: we are delivering our key financial metrics in line
with our expectations for this financial year
Basic pre-exceptional EPS & Dividend Per Share
Revenue & Like-For-Like Growth
2.5% 3.9%
Pre-exceptional EBITDA & Margin
Free cashflow & Conversion
14.8% 13.3%
2.5p 2.5p
£441.3m
Interim
Dividend
maintained 7.4p
6.7p
£34.4m
£23.2m
36% 51%
H1 FY17 H1 FY18 H1 FY17 H1 FY18
H1 FY17 H1 FY18 14
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13.36cm 0.39cm 0.43cm 13.36cm
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8.43cm
FY20 onwards
Services maturity
benefits evident
FY19
Transition to
Group profit growth
Looking ahead: our three year transition to deliver future profit
growth is on track
15
FY18
Reposition the Merchandise
business
On track to deliver profits in line with
market expectations
Updates to financial guidance
Price investment plans
accelerated – Group gross
margin guidance dilution 200-
250 bps
Operating cost growth 6-6.5%
(excluding D&A) as we see
higher overall sales growth and
invest in omnichannel
Through the majority of price
repositioning
Annualisation of FY18 investment
Further investment in selected
areas
Targeting Merchandise LFL above
market levels and taking share
Vet Group delivering ongoing high
profit growth
Continued operational cost savings
action
Continued above market growth
in Merchandise
Group operating margin
expansion evident and supported
by Vet Group maturation
Group profit growth at high single
digit levels
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8.43cm
Strategic update Ian Kellett, Group CEO
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Merchandise trading momentum is the result of multiple initiatives;
omnichannel developments, accessories innovation and pricing
Customer are seeking value, choice, innovation and convenience
Note: Q3 FY17 and Q4 FY17 both adjusted to reflect equal numbers of trading days compared with the prior year period
-0.5%
0.5%
1.5%
5.1%
Q3 FY17 Q4 FY17 Q1 FY18 Q2 FY18
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H1 FY17 H1 FY18
Pricing initiatives are driving strong Advanced Nutrition volume
growth and private labels are increasing their participation
Advanced Nutrition revenues Private label volume1 participation within
Advanced Nutrition
Total AN Revenue
£99.0m Total AN Revenue
£94.6m
Volumes1
+8.9%
Revenue
+4.6%
Participation
+6.4 ppts
H1 FY17 H1 FY18
1. Definition of volume is tonnes
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Around 30% of customers who have purchased our lower priced
dog Advanced Nutrition are considered incremental
Classification of VIP customers
who have purchased lower priced Advanced Nutrition lines
New customer
Customer who has not shopped with
PAH for >12 months
Existing shopper new to AN (i.e.
previously purchased economy food
or did not buy food at PAH)
30%
70%
Existing customers where …
Purchasing habits are unchanged
Switching AN brands
Trading up to larger bag sizes
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Pricing action has been focused on private labels and key dog food
brands. We now have plans to accelerate our investment
Accelerating FY19 investment plans into FY18
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H1 FY17 H1 FY18
Omnichannel revenue growth of 81% has been driven by new
initiatives: Order in-store and subscription for flea products
£24m
£13m
81%
60% of omnichannel
revenues involve
either a colleague
assisted sale or are
collected in-store
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We have recently simplified and improved the online checkout
experience with a focus on mobile devices first
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Range change and innovation in accessories has also been a
key driver of Merchandise trading
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Innovation is not restricted to accessories – we continue to grow
the Advanced Nutrition market by introducing new segments
Baked recipes have a protected nutritional content and greater flavour
Private label:
Our Wainwright’s range has been expanded
with a baked range to promote healthy skin and
coats
Branded:
Nineteen 87 is a premium dog food baked with
natural and ingredients with British provenance
from St Asaph's, Wales
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Our campaign to improve awareness around the ingredients in
dog foods is improving our reputation as a trusted advisor
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Our new VIP Puppy Club is designed to maximise the benefits of
our integrated product and services offer, creating long term loyalty
10% off your first puppy shop
Free bag of food with a nutrition
consultation
First month free on subscription
to flea prevention products
Free puppy groom
Free nurse check at our vet
practices
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We have scale in our grooming business with over 300 salons,
where we are focused on driving utilisation & operational efficiency
Drive revenue
per hour spent
grooming
Increase colleague
utilisation
(currently 50-60%)
Maximise colleague
time spent
grooming
Manage colleague
salon hours
Integrate store
and grooming
operations
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A national brand in our First Opinion veterinary business allows
us to leverage marketing campaigns to best effect
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The profit potential in our Vet Group is significant and will be
delivered through maturation and further rollout
FY17a Current Vet Group (438practices, 4 referral centres)
MATURE Current Vet Group(438 practices, 4 referral
centres)
MATURE Full UK rollout VetGroup (700 practices, 4 referral
centres)
MATURE Full UK rollout VetGroup (1000 practices, 4
referral centres)
FY17a Current Vet Group
438 practices, 4 referral centres
Mature Current Vet Group2
438 practices, 4 referral centres
Mature 700 rollout Vet Group,3
700 practices, 4 referral centres
Mature 1000 rollout Vet Group3
1000 practices, 4 referral centres
1. Mature fee income forecasts for first opinion practices are based upon those for FY17 cohorts aged 10+years – with c1% inflation per annum. EBITDA does not include any central cost
allocation for the Executive Management team or Pets at Home Group Head Office support. Referral centre revenue and EBITDA is assumed to remain flat from FY17 actuals
2. EBITDA to PAH assumes no additional colleagues required at Vet Group Support Office to support the existing practice base. Colleague costs are inflated at c5% per annum
3. EBITDA to PAH assumes additional colleagues are required at Vet Group Support Office to support new practice openings. New and existing colleague costs are inflated at c5% per
annum
EBITDA1 to Pets at Home from the Vet Group
c2x
Today
Today
>3x
Today
c5x
Today
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Our Vet Graduate programme is vital to growing our own talent
Two year Vet Graduate Development programme
Permanent full time role in a JV practice
Paid leave to complete CPD
Mentorship from the Joint Venture Partner and
Support Office colleagues
Potential to consider JV Partnership at the end of
the programme
70 graduates have joined the scheme in 2017
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Why we are better together: our unique business model with
integrated products and services drives higher customer spend
Participation of customer numbers Participation of customer spend
VIP members purchasing both product and a service (vet or grooming)
VIPs purchasing product and a service
VIPs purchasing product only
14%
32%
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Evolving our strategy to adapt to customers’ needs will deliver
market share gains in a competitive environment
FY18 profit outlook in line with expectations – investing significantly to improve our
competitive position
Accelerating the repositioning of our Merchandise business
Focused on delivering the profit potential of our veterinary business
Focus on taking market share and leveraging the unique attributes of Pets at Home
Ability to become our customers’ lifetime pet partner, more than just a pet shop
Integrated omnichannel capabilities
Private labels
Services; veterinary, grooming, nutrition
Expertise and advice from colleagues and veterinary professionals
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Appendix
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Financial definitions
‘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 & amortization before the effect of exceptional items
in the period.
Free Cash flow 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 exceptional
costs.
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 pre-exceptional 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.
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Rollout of around 10 superstores, 40-50 vet practices and 20-30 grooming salons
Group gross margin down 200-250 bps
Operational cost growth (excluding depreciation and amortisation) of 6-6.5%
Depreciation and amortisation £34–35m
Net interest £4-5m
Effective tax rate 20%
Capital investment c£40-42m
Working capital outflow of around £5m to support vet practice growth
Ordinary dividend payment maintained at least at the prior year level
FY18 guidance
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13.36cm 0.39cm 0.43cm 13.36cm
6.03cm
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Our priorities for use of cash remain focused on growth
opportunities
Strong balance sheet
Leverage policy up to 1.5x ND:EBITDA, extending up to c1.75x for appropriate acquisitions
Organic investment
Ongoing programme currently
focused on rollout & omnichannel
strategies
Progressive dividend
Ordinary dividend policy around
50% of earnings
Invest for growth
Disciplined bolt-ons or investment
in-line with strategy, aim to deliver
returns ahead of our WACC1
Further shareholder returns
Surplus FCF returned
1. Weighted Average Cost of Capital
36