Investor Presentation - Pets at Home Group plc · 4.4% through 2012-17 Online penetration of pet...

Pets at Home Group Plc

Investor Presentation

Building the best pet care business in the world March 2019


Forward looking statements

2

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.


Today’s presentation

3

Market overview and business model

Our Retail business

Our Vet Group

Group strategy

Latest financials


© 2019


Market overview and business model

4 Pets at Home Group Plc

© 2019


UK pet market size in CY2017 (£bn) A market in structural growth

5

The UK pet market is worth £7.1bn and has a broad split between products and services

Overall market CAGR 4.4% through 2012-17

Online penetration of pet products is c12%

Continued increase in pet insurance is helping to drive growth of veterinary market

£2.5bn

£0.9bn

£2.3bn

£0.3bn

Food

Accessories

Veterinary

Grooming

Source: Pets at Home and UK pet market reports, OC&C, calendar year 2017 Note: Food and accessories market data includes online spend. Food market contains Advanced Nutrition segment, which is estimated at c£350m in value. Veterinary market includes First Opinion and Specialist Referral. Insurance market worth £1.2bn not shown above.


Market size and 2012-17 CAGR by segment (£bn) Spend has grown in all segments

6

We have seen sustained growth across key segments, demonstrating the resilience of the pet care market

Pet population has remained steady

Increasing spend per pet

Driven by continued humanisation and premiumisation

Underpinned by increase in pet insurance penetration

0

0.5

1

1.5

2

2.5

3

Food Accessories Veterinary Grooming

2012

2017

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

2.9%

1.2%

5.2%

6.3%


We continue to take share across all market segments

7

16%

39%

13% 11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Grooming

Veterinary

Accessories

Food

Pets at Home market share and gains in CY2017

+0.2%

+0.5%

+1.6% +1.0%

In CY2018, we have seen above market

growth across all segments – we

believe we continue to take share.


Our pet care company: a unique combination of product, services and expertise

8

Trusted and well known brand

Passionate and expert colleagues, groomers and veterinarians

Customer insights from VIP loyalty club and vet practice data

Strong management expertise

Corporate social responsibility – ‘doing the right thing’

For pets:

˃ Everything a pet needs to keep them happy and healthy

˃ Supported by our welfare and care standards

For pet owners:

˃ Everything pet owners need to take the best care of their pets

For colleagues:

˃ Sector leading reward, benefits and wellbeing

˃ Externally accredited training schemes

For the Group:

˃ Generate value for shareholders through free cashflow growth

Our differentiators Business activities Value created

Pet Care


We are the only business who can deliver complete pet care for customers

9

Annual spend by different customers

£0

£100

£200

£300

£400

£500

£600

£700

£800

£900

£1,000

Store customer Omnichannel customer(store + online)

Omnichannel + vetcustomer

Omnichannel + vet +grooming customer

Retail spend

Vet spend

Grooming spend

6x 12x >20x >30x Annual visit

frequency

Our biggest opportunity: only 14% of our

customers buy both products and a

service, but their numbers are growing

Customers who

channel shift spend

more overall


© 2019


Our Retail business


© 2019


£422m £344m

£38m

Food

Accessories

Other

Retail revenue in FY18 Group revenue (£m)

11

Retail sales are balanced across both food and accessories

94

804

Vet Group Retail

Note: Financials shown are for the Financial Year (FY) 2018 ended 29 March 2018 Other Retail revenue includes that from grooming, live pet sales and insurance commissions

Includes Advanced

Nutrition sales of

£190m


12

Our Retail business

“Pets at Home is a healthy business; customers are loving what we do and how we do it. We offer pet owners the complete pet care experience – something our competitors cannot.”

Peter Pritchard

Group CEO

Locations nationwide and knowledgeable colleagues

VIP loyalty club

Fast growing omnichannel

business

Strong penetration of private label

Note: All data correct as of H1 FY19

˃ 451 stores

˃ 314 grooming salons

˃ More than 6,000 colleagues with expert pet knowledge

˃ Omnichannel revenue growth of >40%

˃ 9% participation of Retail revenue

˃ Increasing traffic & conversion

˃ Growing numbers signed up to subscription services

˃ Participation c30% of Food revenue

˃ Even higher within Advanced Nutrition category, driven by performance of flagship brands Wainwrights and AVA

˃ Participation c50% in Accessories

˃ More than 4m active members

˃ 70% of revenues transacted by VIPs

˃ £10m donated to charities through the VIP club since its launch


Sales LFL as a result of price changes, innovation & omnichannel growth

We have demonstrated sustained trading momentum in Retail, with positive LFL growth each quarter since FY18

13

1.4%

4.5%

6.4% 6.9%

5.3%

3.8%

4.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Q1 FY18 Q2 FY18 Q3 FY18 Q4 FY18 Q1 FY19 Q2 FY19 Q3 FY19

Retail LFLContinued LFL ahead of

the market, despite high

comparatives from FY18

Estimated

market growth


£12m £15m

£19m

£29m

£51m

£0

£10

£20

£30

£40

£50

£60

FY14 FY15 FY16 FY17 FY18

Omnichannel revenue growth has been particularly strong, growing ahead of the underlying market

14

Omnichannel1 revenue (£m)

FY14-18 CAGR = 44% vs

underlying online market

growth of c11%

1. Refers to Retail revenues 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, or by colleagues through the sale of flea product subscription sales in-store which are delivered to the customers’ home


We believe the integration of our stores and omnichannel business provide us with a strategic asset

15

1. Defined as Retail revenues 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, or by colleagues through the sale of flea product subscription sales in-store which are delivered to the customers’ home

2. Defined as having positive EBITDA (before central overhead allocation) in FY18. Excludes those stores opened in FY17 and FY18. 3. Compares average spend of a store only shopper vs average spend of a store + omnichannel shopper

2.3x

More spend from

customers who

shop across both

channels3

Of omnichannel1

revenues involve

colleagues in store

c60% 98%

Of Pets at Home

stores are

profitable2


Wherever possible, we are adding services to our available Retail space

Our bricks and mortar Retail locations offer more than just a pet shop; they are a destination for the pet owner

69% 70%

59%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Stores with a Groomer Stores with a Vet Stores with a Groomer + Vet

16

Note: Correct as of H1 FY19


© 2019


Our Vet Group


© 2019


Vet Group revenue in FY18

Group revenue (£m)

18

Our Vet Group business

£53.1m

£33.7m

£7.2m

Joint Venture FirstOpinion practice feeincome

Specialist ReferralCentres consolidatedcustomer revenue

Other

94

804

Vet Group Retail

Note: Financials shown are for the Financial Year (FY) 2018 ended 29 March 2018 Other Vet Group revenue includes customer revenues from wholly owned First Opinion practices and other veterinary income

Pets at Home Group Plc 19

Vet Group has its core business in first opinion veterinary practices, plus presence in the specialist referral segment

˃ 4 independently run centres handling complex veterinary medicine across a range of disciplines:

− Internal medicine

− Oncology

− Orthopaedic surgery

− Soft tissue surgery

− Neurology and neurosurgery

− Diagnostic imaging

Specialist referral centres First opinion small animal veterinary practices

˃ 475 practices

− 317 in-store & 158 standalone

˃ Covers all aspects of general small animal veterinary work: preventative care, emergency care, sick pet work

˃ Our preferred model is to establish practices as Joint Ventures with entrepreneurial veterinarians who become Joint Venture Partners (JVPs)

˃ We can also choose to operate practices ourselves

in some circumstances


20

Our Vet Group benefits from a unique model and has a number of strategic advantages

“Our Vet Group has experienced a period of rapid growth. Despite ongoing challenges within the market, releasing free cashflow from this business remains our single biggest value creation opportunity.”

Peter Pritchard

Group CEO

Partnership model incentivises growth

Unified brand driving

customer recognition

Clients have access to full

spectrum of veterinary care

Unique benefits from being part of Pets at Home Group

˃ Cross-sell opportunities with Pets at Home VIP loyalty club

˃ Recruitment on to Pet Care Plans

˃ Increased footfall for practices located in-store

˃ Entrepreneurial First Opinion veterinarians become business owners

˃ Joint Venture model unique in the market

˃ Referral centres structured as partial ownership Shared Ventures

˃ Convenient access to First Opinion care and advice

˃ World class specialists able to treat pets with specific requirements

˃ Largest branded veterinary business in the UK

˃ Centrally co-ordinated marketing


Partnership is at the heart of our Vet Group business model; incentivising growth and delivering returns for both sides

21

First Opinion Joint Venture Model Specialist Referral Shared Venture Model

Type of partner Joint Venture Partner (JVP) Shared Venture Partner (SVP)

Funding requirements

˃ JVP funded set-up loan (c£30k)

˃ Pets at Home investment (c£30-60k), plus additional operating loans where required

˃ Third party bank loan (up to £450k)

˃ Businesses have been acquired by Pets at Home

˃ Ongoing capital investment for growth

Equity / capital value

entitlement

˃ JVP has 100% entitlement to dividends when debts repaid & capital proceeds at exit

˃ No equity stake for Pets at Home

˃ Key clinicians hold 5-25% equity

˃ Pets at Home has the option to buy the clinician stakes in the future

Economics to Pets at

Home

˃ Receive %age of practice customer revenues as fee income, in return for providing business support services.

˃ In-store practices pay rent to Pets at Home

˃ Full ownership and control of Referral Centre businesses

Impact on Pets at Home

Group financials

˃ Fee income forms part of Vet Group revenue

˃ Operating costs reflect Support Office service centre

˃ Rent from in-store practices is an offset to Retail business rental costs

˃ Working capital to support young practices

˃ Free cashflow generation as practices mature

˃ Referral centre revenues, costs, cashflow & balance sheet are all consolidated in full, with annual income statement charge that reflects the future buyout option

Economics to partner ˃ Take a competitive salary from Year 1

˃ Potential for dividends and practice capital value

˃ SVP is paid a competitive salary

˃ Potential for an attractive future earn-out


We have many young JV First Opinion practices

22

-£200

£0

£200

£400

£600

£800

£1,000

£1,200

<1 year 1-2 years 3-4 years 5-6 years 7-9 years 10+ years

£0

00

Avg Revenue Avg PBT Avg fee income to PAH

Number of

practices

at H1 FY19

88 78 107 112 76 10

Fee income for Pets at Home is generated from year one

The practice P&L is expected to be loss making in early years


Releasing free cashflow as First Opinion practices mature is the biggest value creation opportunity us

Practice age and FCF at maturity1 Current practice age and FCF

1. Assuming each existing practice is individually mature, and without opening any new practices

42%

39%

19%

Practice age Expected Vet Group FCFin FY19

0 - 4 years 5 - 9 years 10 years+ FCF

£10-13m

100%

Practice age Expected Vet Group FCFwhen all practices mature

0 - 4 years 5 - 9 years 10 years+ FCF

Up to £60m


© 2019


Group strategy


© 2019


Our Group strategy: building the best pet care business in the world

25

Connect our data across the retail and vet businesses

Personalise customer experience and offers

Give colleagues information to better serve customers at the point of sale

Utilise data across the business to drive strategic decision making and automation

˃ Repurpose and right size our store network

˃ Put our pets centre stage in-store

˃ Digitise our business and become the specialist market leader for online pet care

˃ Keep prices competitive and cheaper than competitors for our most loyal customers

˃ Grow private labels to 50% of our sales.

˃ Give our highly trained store colleagues more time with customers

˃ Build the systems to enable our new strategy and reduce overheads across the business

˃ Ensure we are building the right teams with the capability and skills to deliver our plan

˃ Develop our stores of tomorrow, with more space dedicated to pet care and services

˃ Extend our subscription expertise into pet care plans

˃ Recalibrate our First Opinion vet business and realise free cashflow growth

˃ Grow our Specialist Referral business through existing hospitals and opening new

Use data and VIP to better serve customers

Bring the pet experience to life

Set our people free to serve

50% of sales from Pet Services

Be the best Pet Care business

in the world (sustainable,

unique, rewarding)

Vision


Retail price investment is largely complete; we have a compelling price position

26

Our position vs the lowest price competitor4

1. Refers to our online frequent order delivery service

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 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

4. All price comparisons correct as of 26/11/18


-(2)%

Cheaper for

customers

who opt into

‘Easy Repeat’

delivery1

Around the

same price

on the most

important

products to

customers2

+5%

Only slightly

more expensive

on comparable

products3


Customers are loving our lower prices and market leading offer

27

Growth in average spend by VIP members

Growth in PetsAtHome.com website traffic

Growth in number of VIPs who buy products and a service

Private label participation of dog & cat food


3% y/y 16% y/y

16% y/y 1.5 percentage points y/y



˃ Operating in a robust market, growing at c5%

˃ Customer revenues and growth remain strong

˃ Unique shared ownership model with Joint Venture Partners (JVPs)

‒ Incentivises JVPs to drive their business

‒ Results in mature practices consistently growing ahead of market rates

˃ Significant cash profits to be realised from the existing practice base, for both Pets at Home and JVPs

28

Strategic review reinforced a positive outlook

˃ Tight supply of UK veterinarians continues to slow our rollout

˃ Upward pressure on salaries and fee income charged by PAH is limiting some practices from reaching profitability

˃ Leads to delayed returns for JVPs and increased operating loans and funding from Pets at Home

˃ In recent years, we have become too focused on practice rollout

˃ There is a cost to us in making these changes, but they will create a more sustainable business and FCF generation

Challenges across the market and within our own business

50% of sales from pet services

We have a robust first opinion business, but have had to respond to recent changes


The majority of practices are on track but some require a change in structure

29

190 profitable practices

471 existing First Opinion practices

281 young/loss making practices

Practices on track to maturity

91 practices debt

free & JVPs

receiving a dividend

25 Company

managed

446 Joint Venture practices

380 practices repaying loans to 3rd party lenders or PAH

Require a

change in

structure


Note: practice numbers are correct as of H1 FY19


The recalibration of our first opinion business will release cash profits by working with JVPs

30

New

practices

Offer to buy back practice

from JVP to become

company managed

(Starting H2 FY19 and

through FY20)

c391 practices c30

practices

New JV model and a simpler fee

structure

(From FY20)

FY19: up to 20

From FY20:

up to 10 / yr


c50 practices

Retain as

existing

company

managed

practice

Potential

to close

Company managed

practice



Joint Venture practice

Towards

700 UK

rollout

target Note: practice numbers are correct as of H1 FY19

Will be achieved gradually, in

light of ongoing challenges

around new vet talent


Using our market leading position to drive customer spend across pet services

˃ Recently launched ‘Pet Care Plan’ initiative incentivises store colleagues to introduce customers to vet practices and health plans

˃ Have made over 10,000 care plan introductions through this initiative since its launch in September

31

Pet Care Plan initiative

˃ Puppy club gives customers the benefit of combined offers across retail, grooming and vet practices

˃ c185,000 puppy owners have joined, which is c20% of the puppy population

˃ Puppy club customers spend 20% more when compared to shoppers not in the club

VIP Puppy Club

Waiting imagery




We are building a strong subscription business, making pet care easy and affordable

Over 670,000 customers are on a form of subscription

32

Easy Repeat delivery

˃ Proactive veterinary treatment programmes

˃ Big opportunity where we under index peers in the US market

Vet practice healthplans

Flea product subscription

Grooming Bubble Bundle

˃ Established subscription package for single, monthly flea treatments delivered to customers home address

˃ Predictable delivery schedule and volumes present logistic efficiency opportunities

˃ Different packages currently being trialled

˃ Review and refinement will lead to full rollout across all salons in 2019

˃ Online repeat delivery

˃ In early launch across >350 products

˃ Intention to extend to additional ‘add-on’ products in 2019



We will launch our pet care centre format in 2019, repurposing existing stores

A more engaging and digital experience

33



We are already using our data more effectively

34

Using our data to serve customers

˃ Personalised communication with VIPs

˃ We are driving higher spend with them

˃ A third of all new vet client registrations have originated from the VIP customer database

VIP is an increasing source of vet clients

˃ Operating a range optimisation trial in select stores

˃ United VIP spending data with range analysis software to:

‒ Ensure we stock our most popular lines

‒ Stock at the right levels

‒ Reduce range in some areas

˃ Leading to:

‒ Higher sales

‒ More efficient replenishment and cost savings

‒ More time for colleagues to spend with customers

Data is driving range optimisation


Setting our people free to serve

We are giving our highly trained colleagues more time to spend with customers

By creating efficiencies in store …

… we have reallocated hours to customer service and deliver cost savings

˃ Headsets, ipads and iphones for colleagues, to

improve communications and streamline activities

˃ Removing paperwork and digitalizing our processes

˃ Product deliveries are organised and packed in a more

efficient manner


© 2018

36

Latest financials


Pets at Home business segments

32%

68%

Vet Group Retail

Underlying EBIT in H1 FY19 Revenue in H1 FY19

11%

89%

Vet Group Retail

Note: Underlying EBIT shown above excludes £3.2m of central costs


Group

Revenue (£m) H1 FY18 H1 FY19 Change

Total1 468.0 499.3 6.7%

Like-for-like1 3.9% 5.3%

Retail


Food 220.0 237.8 8.1%

Accessories 176.8 183.6 3.9%

Other2 21.7 22.3 2.2%

Total 418.5 443.7 6.0%

Like-for-like 2.8% 4.7%

Vet Group


Fee income from JV vet practices1 28.0 30.0 7.4%

Specialist referral hospitals 18.2 19.7 8.1%

Other3 3.3 5.9 78.8%

Total 49.5 55.6 12.3%

Like-for-like1 16.7% 11.9%

1. H1 FY19 excludes fee income of £2.2m from Joint Venture practices which we will offer to buyback from Joint Venture Partners in the future. In H1 FY18, £1.9m in fee income from these practices is

included in total revenue growth, but excluded from LFL growth

2. Includes revenue from grooming sales, live pet sales and insurance commission

3. Includes revenue from wholly owned first opinion vet practices & other veterinary income

Our latest half year results demonstrate strong customer revenue growth in both Retail and Vet Group


Underlying gross margin reflects planned retail price investment and core vet practice provisions

39

Retail underlying

gross margin

H1 HY18 52.2%

H1 FY19 51.0%

Vet Group underlying

gross margin1

H1 HY18 49.4%

H1 FY19 45.5%

Planned price

investment H1 FY18 Mix

Underlying

performance Provision held for vet

practice loans2 H1 FY19

Retail

Group underlying gross margin1 bridge

Vet Group

(72) bps (42) bps

(49) bps

+4 bps 51.9%

50.3%

1. H1 FY19 excludes £29.0m relating to a provision made against all funding provided by Pets at Home, and partial recognition of third party obligations relating to JV practices which we will offer to buy back from JVPs in the

future (H1 FY18: £nil). This has been charged against Vet Group, and Group, non-underlying gross profit

2. Core provision refers to our underlying provisioning methodology for funding made by Pets at Home to practices which we plan to retain as Joint Venture practices in the future. For such practices, we adopt a c22%

provision against funding made by Pets at Home to the practices


We are focused on core operational cost efficiency and investment in strategic growth areas

40

Support

Office2

Distribution

Centre

Established

Stores23

Omni-channel Vet Group Immature

Stores4

H1 FY18

6.2% growth

£181.0m

H1 FY19

£192.2m

1.Underlying costs in H1 FY19 excludes £0.9m relating to an accounting charge for the potential future acquisition of minority stakes owned by vet partners in the specialist referral centres, which have

been charged against operating costs (H1 FY18: £1.0m). This has been charged against Vet Group, and Group, operating costs

2.Support office Includes support centre colleagues and marketing

3.Established stores include all stores opened to 31 March 2017

4.New stores includes all stores opened since 1 April 2017

Underlying Operating Cost1 Bridge Excluding D&A, £m

Operational Efficiency Investing in Growth

£183.1m

1.2% growth

+£0.3m

+£2.2m

+£3.1m

+£3.4m

+£2.6m

(£0.4m)


Underlying profit is lower YoY, reflecting the investments made in Retail and the actions we are taking in the Vet Group

41

£m H1 FY18 H1 FY19 Change

Underlying EBITDA 62.2 59.2 (4.8)%

Depreciation & amortisation (18.0) (19.4) 7.5%

Underlying EBIT 44.1 39.8 (9.7)%

Margin 9.4% 8.0% (145) bps

Net interest (2.4) (2.0) (17.6)%

Underlying PBT 41.8 37.9 (9.3)%

Effective tax rate 20% 19% NM

Underlying basic EPS (pence) 6.7 6.1 (8.3)%

DPS (pence) 2.5 2.5 NM

Non-underlying items1 (1.0) (29.9) NM

Statutory PBT 40.8 8.0 (80.5)%

1. H1 FY19 excludes £0.9m (H1 FY18: £1.0m) accounting charge for the potential future acquisition of minority stakes owned by vet partners in the specialist referral centres. H1 FY19 also excludes a

charge of £29.0m relating to a provision made against any funding provided by Pets at Home or third party lenders to Joint Venture practices which we will offer to buy back from Joint Venture

Partners in the future (H1 FY18: £nil)


Capital investment is closely aligned to strategic growth areas of vet services and omnichannel

42

£m H1 FY18 H1 FY19

New stores 5.0 4.3

Refurbishment and retrofit of services into store estate 7.5 3.3

Business Systems and Omnichannel 4.8 4.7

Other Vet Group including Specialist Referrals 2.5 1.6

Distribution 0.7 2.9

Energy savings programme 2.2 0.0

Other 1.3 0.5

Total 24.0 17.3

1. Definition contained within the appendix

5 Vet retrofits and 3 store

refurbs

Including Order in Store

and mobile site development

Includes investment in

automated online order

picking

Returns on capital H1 FY18 H1 FY19

CROIC1 19.4% 18.3%


Trading working capital management remains efficient, whilst also providing support to underpin vet practices

43

Operating loan balances to JV vet practices (£m) H1 FY18 FY18 H1 FY19

Gross operating loans 30.9 38.0 46.9

Non-underlying provision against practices we will

offer to buy back from JV partners in the future1 0.0 (4.0) (16.3)

Core provision2 (3.0) (4.3) (6.8)

Net operating loan balance 27.9 29.7 23.8

£m H1 FY18 movement H1 FY19 movement

Inventories (6.8) (4.9)

Trade and other payables 10.6 13.3

Trade and other receivables 4.5 (2.7)

Trading cash working capital 8.3 5.7

Increase in gross operating loans to Joint Venture vet practices (7.8) (8.9)

Group cash working capital movement 0.5 (3.2)

1. Over the coming months we intend to offer to buy back up to 55 JV practices from Joint Venture Partners. For such practices, we have provided, in full, for any funding already made by Pets at

Home to those practices

2. Core provision refers to our underlying provisioning methodology for funding made by Pets at Home to practices which we intend to retain as Joint Venture practices in the future. For such

practices, we adopt a c22% provision against funding made by Pets at Home to the practice


£m H1 FY18 H1 FY19

Underlying cash EBITDA1 64.5 61.2

Cash working capital 0.6 (3.2)

Core operating loan provision movement (0.3) 2.5

Underlying operating cashflow 64.8 60.5

Tax and interest (11.9) (9.7)

Debt issue costs 0.0 (1.8)

Capex (25.7) (19.9)

Purchase of own shares to satisfy colleague options (4.0) (1.8)

Free cashflow 23.2 27.3

Conversion2 35.9% 44.6%

Ordinary Dividend (24.9) (24.8)

Acquisitions3 0.0 (2.1)

Other (0.9) 0.0

Net retained cash (2.6) 0.4

Leverage (ND: underlying EBITDA) 1.2x 1.1x

Solid FCF generation, allowing us to maintain the dividend and reduce leverage

44

1. Calculated as underlying EBITDA plus non-cash share based payment charges (H1 FY18: £2.3m, H1 FY19: £2.0m)

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

3. Includes the purchase of two mature, Joint Venture practices from Joint Venture Partners, which will now be operated as company managed practices


£4.5m

£30.6m

Vet Group Retail

45.5% 51.0%

Vet Group Retail

In summary: key financial metrics

45

Revenue1 & Like-For-Like Growth Underlying gross margin2 & YoY change

Underlying EBIT2,3 & margin Underlying free cashflow4 & conversion

4.7% 11.9% (129) bps

6.6% 24.6% 64.5% 30.0%

(393) bps

£13.7m

£29.4m

Vet Group Retail

1. H1 FY19 excludes fee income of £2.2m from Joint Venture practices which we will offer to buyback from Joint Venture Partners in the future. In H1 FY18, £1.9m in fee income from these

practices is included in total revenue growth, but excluded from LFL growth

2. H1 FY19 excludes a charge of £29.0m (H1 FY18: £nil), relating to a provision made against funding provided by Pets at Home or third party lenders to Joint Venture practices which we will offer to

buy back from Joint Venture Partners in the future

3. H1 FY19 excludes £0.9m (H1 FY18: £1.0m) accounting charge for the potential future acquisition of minority stakes owned by vet partners in the specialist referral centres

4. Excludes (£7.8m) of free cashflow allocated as central

£55.6m

£443.7m

Vet Group Retail


Capital allocation priorities

46

Invest our cash generation in areas that will expand the Group and

deliver appropriate returns, including organic capital investment and

the working capital needs of our vet business

Return any surplus free cashflow to shareholders in the form of a

special dividend or share buyback

Maintain an ordinary dividend payment at c50% of underlying basic

earnings per share


Financial guidance: impact of Vet Group recalibration

Non underlying items

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Income statement Cashflow

Repayment of liabilities for practices we will offer to buyback from JVPs1:

‒ Third party bank loans

‒ Property leases for standalone practices

‒ Business closure and employee costs

Non-underlying cash cost of up to £13m in FY19 and up to £14m in FY20

Provision, or write off, of liabilities for practices we will offer to buyback from JVPs1:

‒ Practice funding owed to Pets at Home by JVPs

‒ Third party bank loans

‒ Property leases for standalone practices

‒ Business closure and employee costs

Non-underlying income statement cost of up to £40m in FY19 and up to £9m in FY20

Vet Group: other non-underlying charges

£1-2m in FY19 and £1-2m in FY20 relates to the accounting treatment of the minority stakes owned by vet partners in the Specialist Referral Centres, as previously guided

1. Includes the major costs associated with non –underlying financial items. Other smaller items are not described in detail


Financial guidance

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£m FY19 FY20 Comments

Vet Group

Total revenue £110-120m Slight growth y/y

Fee income from JV practices £60-65m

Consolidated revenue from company

managed First Opinion practices,

Specialist Referral centres and other

Vet Group revenue

£50-55m

Underlying EBIT# £30-33m Slight decline y/y FY19 includes a core provision of c£3m against

funding made by PAH to practices remaining as JVs

Total non-underlying items# Up to £42m Up to £11m

Underlying free cashflow# £10-13m Slight growth y/y FY19 includes a cash outflow of operating loans to

practices remaining as JVs of c£10-12m

Gross balance of funding liabilities c£70-75m Reduction y/y

Includes all funding from PAH to JV practices: incl.

gross balance of operating loans (£45-50m), initial

practice setup investments & any other loans

Pets at Home Group

Underlying Group PBT# £80-85m Slight decline y/y

Underlying Group free cashflow# At least £55m Slight growth y/y

Leverage (net debt: underlying EBITDA# ) c1x c1x

# Definition contained within the appendix


Track record of financial metrics

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£m FY14 FY15 FY161 FY17 FY18

Group LFL 2.4% 4.2% 2.2% 1.5% 5.5%

- Retail 4.6%

- Vet Group 15.0%

- Merchandise2 2.4% 3.7% 1.5% 0.8% 5.0%

- Services2 2.1% 10.7% 10.4% 7.9% 8.5%

Group revenue (£m) £665 £729 £778 £834 £899

Growth YoY 9.6% 6.7% 7.2%1 7.8%

Underlying Group EBITDA3 (£m) £110.7 £119.6 £124.7 £130.5 £123.3

Underlying Group EBITDA (margin) 16.6% 16.4% 16.0% 15.6% 13.7%

Underlying EPS (p) n/m 13.5 15.1 15.3 13.5

DPS (p) n/m 5.4 7.5 7.5 7.5

CAPEX (£m) £30 £33 £42 £45 £41

Free cashflow (£m) £50 £72 £78 £65 £56

1. Numbers presented above for FY16, and growth rates thereon, are on a 52 week basis, rather than a statutory 53 week basis. to ensure comparability with other years.

2. The financial year ending 28 March 2019 is the first year where our financial reporting disclosures are presented under the two segments of Retail and Vet Group. In previous years, the segmentation used was that of Merchandise

and Services. The difference results from grooming services, live pet sales and insurance commissions historically being shown within Services, whereas from FY19 onwards they are included within the Retail segment. For

comparability purposes to all other disclosures elsewhere in this presentation, FY18 above has been shown under both segmentations.

3. Stated after charging for IFRS2 share based payments

n/m = not meaningful as year of IPO


Financial definitions

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‘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 non-underlying 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 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.


Accounting treatment of veterinary specialist referral centres

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Specialist referral centre ownership is structured to incentivise growth

Accounting treatment required

˃ Ownership of four referral centres

‒ Two practices wholly owned subsidiaries by Pets at Home

‒ Two practices ≥75% share owned by Pets at Home

‒ Remaining shares owned by Shared Venture Partners (SVPs)

˃ PAH has option to buy SVP’s shares (from 3 or 5 years after acquisition)

˃ Accounting requirement of the option is treated as a forward contract

˃ Balance sheet & cashflow

‒ Full consolidation

˃ Income statement

‒ Discounted future value of SVP’s shares recognised as expense over period to exercise on a risk adjusted basis

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