FY22 Interim Results

RNS Number : 1954T

Pets At Home Group Plc

23 November 2021

 

FOR IMMEDIATE RELEASE, 23 NOVEMBER 2021

Pets at Home Group Plc: FY22 Interim Results
for the 28-week period to 07 October 2021

Sustained growth in new pets significantly increases our market opportunity

· Total Group revenue growth of 18.0% to £677.6m, with the continuing increase in active customers

underpinning strong volume growth

· Group like-for-like^# (LFL) revenue growth of 22.2%, or 28.6% on a 2-year basis

· Retail LFL^# revenue growth of 21.9%, or 28.9% on a 2-year basis, with broad-based growth across categories and LFL growth across stores of 21.1%

· Omnichannel revenue^# growth of 21.5%, or 101.4% on a 2-year basis; Participation of total Retail revenue of 15.1% in H1

· Vet Group LFL^# revenue growth of 26.2%, or 23.8% on a 2-year basis; LFL customer sales^#1 growth across all First Opinion practices of 26.9% (28.4% 2-year basis), and LFL Joint Venture fee income up 29.3% (25.2% 2-year basis)

· Group underlying PBT^# growth of 77.2% to £70.2m, with growth of 68.3% on a 2-year basis

· Group headline free cash flow^# of £91.6m, up 51.3% YoY, reflecting strong cash generation across our First Opinion veterinary practices and £21m in working capital timing benefits which are expected to reverse in H2; Net cash (excluding lease liabilities) of £64.7m

· Interim dividend per share of 4.3p, an increase of 72% YoY, reflecting continued strong cash generation and a robust balance sheet

· Sustained momentum across our omnichannel pet care ecosystem:

· The number of active VIPs increased 13% YoY to 6.8m, with those shopping across more than one channel up 19% YoY and representing 27% of VIPs

· The number of Puppy and Kitten Club members grew 107% YoY with members typically spending a third more per annum across the Group compared to non-members

· New client registrations across our First Opinion veterinary practices averaged approximately 10,000 per week; comprising approximately 10% of all veterinary visits

· The number of pet care plan subscriptions across the Group grew 45% YoY to over 1.4m, generating over £110m in annualised recurring customer revenue¹

· No change to full year guidance, with FY22 Group underlying pre-tax profit anticipated to be at the top end of the current range of analyst expectations

· The stronger than expected and continuing growth in the pet population over the past eighteen months is materially increasing the size of our addressable market. In conjunction with our continued strong performance and good progress across strategic initiatives, we now see a pathway to £2.3bn of customer revenue across our business over the medium term, compared to the £1.4bn achieved last year.

1 Customer revenue includes customer sales made by Joint Venture vet practices and differs to the fee income recognised within Vet Group revenue.

# Alternative Performance Measures (APMs) are defined and reconciled to IFRS information, where possible, on page 18.

All FY22 APMs include the impact of IFRS16 unless explicitly stated.

Current trading and outlook

Current trading

Strong growth in pet ownership continues, reflected in the elevated level of customer registrations across our Puppy and Kitten club, and the performance across our retail and veterinary operations continues to be robust, notwithstanding some widely reported challenges in the near-term operating environment relating to supply, logistics and labour availability.

We are not immune to such challenges, but are, as the UK's leading pet care retailer, well placed to manage them, having adapted our operations to be able to continue providing our segment leading levels of pet care to customers with minimal disruption.

The vast majority of our product range is sourced domestically on long lead times and is neither perishable nor seasonal. Inventory levels across our distribution centres are good, with range breadth in stores and online enabling good levels of product substitution, where required.

We have, to date, managed the challenges around the cost and availability of shipping containers well, and we utilise a small number of HGVs and in-house drivers to support our overall logistics requirement. Our competitive reward structure and clear focus on wellbeing gives us a high level of colleague retention.

We are also making good progress in our programme of rent reductions and initiatives to target efficiencies across goods not for resale and continue to work closely with our broad base of long-term suppliers and partners to mitigate inflationary pressures across the supply chain and maintain our competitive price index.

Outlook

At this stage, considering both the ongoing momentum across our business and the challenges in the near-term operating environment, we anticipate that FY22 Group underlying pre-tax profit will be at the top end of the current range of analyst expectations*.

Looking further ahead, the stronger than expected and continuing growth in the pet population over the past eighteen months, combined with continued customer themes of pet humanisation, premiumisation and renewal, is increasing the size of our market and scale of the opportunity facing us. In conjunction with the clear advantages of our omnichannel model in consistently taking market share by providing everything a pet owner needs through the full lifetime of their pet, we now see a pathway to £2.3bn of customer revenue across our business over the medium term.

Our next scheduled update will be our Q3 FY22 release on 26 January 2022.

*As at 22 November 2021, the company-compiled consensus estimate of analyst expectations for the 53-weeks FY22 full-year post IFRS-16 underlying pre-tax profit was £131m, with a range of £128m to £135m.

Peter Pritchard, Group Chief Executive Officer:

Our business has never been more robust. Our pet care strategy continues to deliver, we continue to take market share and improve spend per customer and the benefits of our investment in capacity and capability are really starting to deliver.

Notwithstanding some near-term, industry-wide challenges, we continue to grow ahead of our plans and, based on trading year to date, we are on track to report a record year of sales and profit growth.

I am very proud of the progress we are making and was particularly pleased to note external recognition of our collective efforts through our recent Retail Week awards as Best Retailer and Best Place to Work 2021. I would like to express my sincere thanks to all our colleagues and Partners across the Group for their tireless work and dedication.

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 23 November. Management will host a Q&A conference call for analysts and investors at 10.00am. To join the call in listen-only mode, please click on the following link ( https://brrmedia.news/petsathome ). Those wishing to participate in the Q&A session should email [e-mail] for call details.

Investor Relations Enquiries

Pets at Home Group Plc:

Roger Tejwani, Director of Investor Relations & External Communication
[phone] 

Chris Ridgway, Head of Investor Relations
[phone]

Media Enquiries

Pets at Home Group Plc:

Natalie Cullington, Head of Media & Corporate Affairs
[phone]

Maitland/AMO:  

Clinton Manning
[phone]

Joanna Davidson
[phone]

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 453 stores, many of which also have vet practices and grooming salons. Pets at Home also operates a UK leading small animal veterinary business, with 442 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

The strong performance across both parts of our business during the last year accelerated throughout the past six months.

In Retail, broad-based growth across key categories and channels contributed to strong like-for-like progression on both a one and two-year basis and good profit conversion. In Veterinary, strong growth in new client registrations has underpinned a significant uplift in practice profitability and cash flow, with almost 90% of practices making a profit and operating loans continuing their downward trajectory.

There are three key factors underlying this strong performance:

First, stronger than anticipated growth in new pets over the past eighteen months continues to lead to a significant increase in new customers across our loyalty clubs, subscription platforms and veterinary practices, and has strengthened the outlook for growth across the UK pet care market.

Second, our omnichannel pet care model, providing pet owners with everything they need through the lifetime of their pets, enables us to access all components of spend within this growing market.  Our unique ability to combine a growing portfolio of products, services and advice across multiple channels into tailored, convenient propositions for pet owners is a key enabler of how we consistently outgrow the market in which we operate.

Third, we continue to build capacity and capability at pace, using intelligent data and digital innovation to join up our pet ecosystem, own the end-to-end customer experience and, by making pet care more convenient and rewarding for customers, entrench the long-term competitive advantages of our omnichannel model.

The early success in growing our subscription business to circa 9% of Group revenue is one example of how we are leveraging in-house capability, integrating analytics into our extensive pet dataset to generate unparalleled insights that support investment decision-making to drive long-term, high-quality growth. Our growing analytics expertise is empowering us to increasingly use intelligent data across our wider business and is key to unlocking significant future value. 

We are also making meaningful progress across our digital agenda, marrying our in-house data and digital expertise to create digital-first, customer-led pet care journeys across our end-to-end platform of products and services, as well as digitising the wider business to improve our service proposition and drive operational efficiencies.

And we continue with our programme of infrastructure investment, transforming our stores into experiential pet care centres, futureproofing our supply chain, deploying new technology to support best-in-class fulfilment, and enhancing the client and vet experience across practices.

I am very proud of our achievements to date and hugely excited by the opportunity for the business ahead. The significant step-up in pet ownership over the last eighteen months, the pace of which has been sustained over the last six months beyond previous expectations, is increasing the size of our addressable market and has led to a material step up in our medium-term customer revenue opportunity.

The demonstrable advantages of our omnichannel model in acquiring new customers and, by providing their full pet care needs through the lifetime of their pets, increasing our share of wallet are clear, and we will continue to make the right investments in capacity and capability to deliver quality and profitable growth.

Key Performance Indicators

Financial KPIs1		H1 FY22	H1 FY21	YoY change
Customer revenue#, 2 (£m)		867.6	724.7	19.7%
Group underlying PBT# (£m)		70.2	39.6	77.2%
Group headline free cashflow# (£m)		91.6	60.5	51.3%
Cash Return on Invested Capital (CROIC) 3		25.1%	22.7%	238bps
Strategic KPIs	Measure	H1 FY22	H1 FY21	YoY change
Bring the pet experience to life	Number of active VIPs4 (m)	6.8	6.0	12.8%
50% of revenue from pet care services	Customer revenue#, 2 from services5 (£m)	284.3 32.8%	242.4 33.4%	17.3% (67)bps
Use our data to better serve customers	VIP customer revenue#, 2, 6 (£m)	1,046.5	826.6	26.6%
Set our people free to serve	Customer revenue#, 2 per FTE colleague (£k)	114.9	95.0	20.9%

1.  Financial KPIs shown above represent those used by the business to monitor performance.  Management recognise that as Alternative Performance Measures they differ to statutory metrics, but believe they represent the most appropriate KPIs

2.  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

3.  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. The comparative CROIC numbers have been restated to reflect the impact of IFRS 16 and enhance comparability.

4.  Number of VIP loyalty club members who transacted across the group in the last 52 weeks from end of the reporting period

5.  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

6.  VIP customer revenue is shown on a rolling 12-month basis and include spend at First Opinion vet practices

I. The outlook for the UK pet care market continues to strengthen

The UK pet care market was strong pre-Covid, growing on average between 3% and 4% each year, with pet humanisation and premiumisation driving higher spend across a pet population that was broadly stable, but continually renewed.

Covid-19 was a clear catalyst for a significant step-up in pet ownership over the last eighteen months, the pace of which continues to be sustained above previous expectations and, combined with structural demand drivers such as humanisation, premiumisation and renewal, is increasing the estimated future annual underlying growth rate of our addressable market to between 4% and 5%.

II. Leveraging our growing data capability to increase customer share of wallet

Generating unparalleled data insights

Our growing, in-house data capability is underpinned by a 50-strong team of colleagues across a range of analytical and CRM disciplines, providing deep, actionable insights across our unique and growing dataset of eight million pets and their owners.

At the household level, our holistic and integrated view of pets and owners across all parts of our business enables us to communicate with customers individually by relevant category, service or channel. At the individual customer level, our "customer DNA" profiling dynamically segments pet owners across more than 300 customer-specific attributes, including life stage, affluence, transaction history and propensity to engage with other pet products and services.

In aggregate, this equates to over 150 billion customer data points on our cloud-based platform and represents a truly unparalleled view of the UK's pet owning population. This enables us to predict our customers' future pet care requirements better than any other provider and, combining our suite of products and physical and digital services, provide relevant, joined-up pet care solutions through the full lifetime of a pet.

Greater personalisation leading to improved responsiveness and efficacy

The speed at which we now iterate, supported by approximately 250,000 unique segmentation requests each month, is enabling a significant step up in marketing velocity while lowering the cost of customer acquisition. Across the last six months, we have launched over 300 targeted marketing campaigns and a threefold increase in supplier-driven communications, improving response rates and marketing efficacy:

-  Our subscription plans grew 45% during the period as we utilised data insights across existing subscribers to identify more customers with propensity to take an additional product or service across the Group. Subscription growth remains a significant opportunity, with a customer demographic well-attuned to shopping multiple channels and an approximate ninefold uplift in annual spend from those who do.

-  Across recent, established marketing campaigns, our enhanced "threshold offers", which optimise incentives based on anticipated spend, have achieved a two-fold increase in basket spend from customers redeeming the offer compared to those not targeted.

-  Our recent churn campaign, using an "always on" predictive model to target customers most at risk of churn with relevant interventions, saw more than two-thirds of reactivated customers return for a second time outside of the offer.

While our ability to leverage our data insights will only increase over the coming months, these early indications of the potential for higher levels of engagement and spend are highly encouraging.

Beyond our CRM activities, we are increasingly using intelligent data to optimise decision-making across the wider business and empower colleagues and Partners across stores and veterinary practices.

-  Our new pet lifetime value model, incorporating retail and veterinary data specific to over four million dogs, is being used to predict the full lifetime of spend across all major breeds, thereby improving the planning of sales, resource, and treatments at practice level.

-  Across our retail operations, profiling customer baskets and determining substitute and complementary products at individual store level is helping to optimise inventory management and ranging, and the continued success of our Contactless Collection service is being supported by real-time monitoring of KPIs.

III. Digitising our business to create a seamless pet care experience

Progressing Project "Polestar"

Our 100-strong team of in-house analysts, developers, testers and customer experience experts commenced the initial sprints in this digital transformation during the period.

"Polestar" underpins our overarching aim to make pet care as easy, convenient, supportive, and rewarding as possible, by marrying the data-led insights we have on our customers' pet care needs with personalised journeys across a unique, proprietary digital interface that seamlessly connects our ecosystem of products and services across all channels and entrenches the competitive advantages of our omnichannel model. 

This clearly phased programme will deliver new features and functionality in the first stages such as the ability for customers to access all our pet products and services through a frictionless single login and a new iteration of our mobile app for a much-improved shopping experience.

Digitising the wider business

We continue to harness our digital capabilities in stores and for colleagues, with a focus on convenience and speed across the end-to-end pet care experience:

-  Our one-hour Click and Collect service, available across our full estate, continues to perform well and, in conjunction with our Contactless Collection service which has been extended to 360 stores, is embedding best-in-class fulfilment for customers while generating operational efficiencies across the Group.

-  Initial results from our Deliver from Store trial have been highly encouraging, with the capability to do this now available across more than 130 stores, almost half of which are trialling same day delivery. Our Click and Collect and Deliver from Store proposition currently account for almost one fifth of our omnichannel revenue and are a major driver of our omnichannel growth.

-  Our store operations are increasingly benefitting from digital innovation, with the launch of 'Go-in-Store' video functionality connecting online customers live to expert store colleagues, and the rollout of our in-house developed handheld device, "One Device", simplifying daily tasks and empowering store colleagues to deliver a joined-up pet care experience. 

IV. Investing in infrastructure to provide a best-in-class customer experience

Retail operations

Our store transformation programme continues at pace across our existing estate, and five new pet care centres so far this year in Handforth, Clacton-on-Sea, Guildford, Balham and Brighton, the latter incorporating several new initiatives on energy efficiency and sustainability which can be rolled out across the wider estate.

These next generation centres play a pivotal role in bringing the pet experience to life by connecting local communities of pet owners and their pets to all their pet care requirements. The performance across recent openings continues ahead of plan and is helping to inform our thinking on future transformations.

Development of our new storage and distribution facility in Stafford commenced in July and remains on track to become fully operational by Summer 2023. This purpose-built and highly automated facility will significantly improve our fulfilment capacity and inventory flexibility and is being designed with a clear focus on sustainability through use of LED lighting, solar energy, rainwater harvesting and a BREEAM rating target of "Excellent" for the build.

Veterinary operations

We continued to invest in infrastructure and resource across our veterinary practices to broaden our service proposition, improve the client experience and accelerate practice maturity.

Our 'Pathfinder' initiative, launched in our new pet care centres in Handforth and Guildford, combining design innovation, the latest client-facing technology and our new "Pet Care Advisor" role, is helping to optimise allocation of clinical resource, enhance client engagement, and improve practice economics, and will be rolled out across additional practices over the coming months.

V. Sustainable, profitable growth over the medium term

Our financial position remains strong, with our robust balance sheet and strong cash generation giving us the flexibility not only to invest in strategically important initiatives that will help us achieve our medium-term growth ambitions, but also to pay a progressive dividend and assess other opportunities to maximise returns for our shareholders.

We are firmly committed to meeting our wider obligations as a responsible corporate citizen and made good progress during the half in our social value strategy, aligned across the three pillars of Planet, People and Pets. 

Planet

We sell close to 200 million pet food pouches each year. As part of our commitment to 100% recyclable packaging by 2025, we rolled out collection units for the recycling of pet food packaging across 75 stores, and plan to extend this across much of our store estate by the end of 2022. Currently over 75% of our packaging is recyclable.

We have committed to become net zero carbon operationally (scope 1 and 2) by 2030 and aim to have a net zero carbon value chain (scope 3) by 2040. During the period, using the guidance of the science-based target initiative (sbti), we set a target to reduce our overall supply chain emissions by 42% in absolute terms by 2030 versus our 2020 base.

People

In partnership with the Prince's Trust, Pets at Home is supporting the Government's Kickstart programme to provide work opportunities to young people. We have had over 130 "kickstarters" to date working in a variety of roles across our business, and plan to extend this in the current financial year.

Colleague wellbeing remains of paramount importance, with our continued focus on diversity and inclusion leading to the recent launch of four new colleague diversity networks on gender balance, disability, LGBTQ+ and race and ethnicity, as well as our Diversity & Inclusion Charter.

Pets  

The Pets at Home Foundation is the largest supporter to rescues in the UK and, during our first half awarded grants and donations to charities worth over £1m, taking the total level of donations to date to over £23m. This year we broadened our remit to also support charities that help people through pets and were delighted to donate to both Dogs4Good and Pets as Therapy.

We have extended our partnership with the Woodland Trust to introduce a 'pet memory scheme', which enables our veterinary practices to donate in memory of each pet that passes, thereby supporting the creation, restoration, and planting of 20,000 acres of woodland by 2030, and the capture of 5,000 tonnes of carbon a year.

Our strong performance over the first half would not have been possible without the ongoing support of our hardworking, passionate and skilled colleagues and Partners across the Group. I am incredibly grateful for their commitment and equally proud of their successes.

Peter Pritchard

Group Chief Executive Officer

23 November 2021

Chief Financial Officer's Review

The H1 FY22 period represents the 28 weeks from 26 March 2021 to 7 October 2021. The comparative period represents the 28 weeks from 27 March 2020 to 8 October 2020.

The Group's results are shown as three segments that represent the size of the respective businesses and our internal reporting structures; Retail (includes products purchased online and in-store, pet sales, grooming services and insurance products), Vet Group (includes First Opinion practices) and Central (includes Group costs, finance expenses and the Group's veterinary telehealth business).

The Group completed its disposal of its five Specialist Referral centres (the "Specialist Group") on 31 December 2020 and therefore the Vet Group, and Group, financial information shown for H1 FY21, includes an element of discontinued operations, however given the immateriality of these operations (revenue £22.9m, underlying PBT £1.1m) to Group revenue and profit they have not been disclosed separately.

	H1 FY22	H1 FY21	YoY change
Group like-for-like revenue growth#	22.2%	5.3%
Retail	21.9%	5.8%
Vet Group	26.2%	1.2%
Group revenue (£m)	677.6	574.4	18.0%
Retail	619.6	507.8	22.0%
Vet Group	56.8	66.6	(14.7)%
Central	1.2	-	NM
Group underlying gross margin1,#	48.7%	47.7%	101bps
Retail	48.1%	48.5%	(34)bps
Vet Group1	54.6%	41.7%	1,289bps
Group underlying PBT1,# (£m)	70.2	39.6	77.2%
Retail	53.1	32.3	64.4%
Vet Group1	24.5	16.4	49.2%
Central	(7.4)	(9.1)	18.8%
Group underlying PBT margin1,#	10.4%	6.9%	346bps
Retail	8.6%	6.4%	221bps
Vet Group1	43.1%	24.7%	1,847bps
Group statutory PBT (£m)	70.6	38.9	81.3%
Underlying basic EPS1,# (p)	11.3	6.3	78.1%
Statutory basic EPS (p)	11.4	6.2	82.9%
Group non-underlying items1 (£m)	0.4	(0.7)	NM
Group non-underlying cash costs (£m)	-	-	NM
Group headline free cashflow# (£m)	91.6	60.5	51.3%
Dividend (p)	4.3	2.5	72.0%
Number of
Stores	453	451	2
Grooming salons	317	315	2
Joint Venture First Opinion vet practices	390	394	(4)
Company managed First Opinion vet practices	52	46	6

1.  H1 FY22 non-underlying credit of £0.4m relates to the release of a provision held against property leases. H1 FY21 non-underlying charge of £0.7m relates to an accounting charge for the potential future acquisition of minority stakes owned by vet partners in the Specialist Group (disposed of on 31 December 2020). Both have been allocated against non-underlying gross margin.

Impact of Covid-19 on the interim financial statements

Throughout the prior year and particularly in its first quarter, Covid-19 impacted the Group by placing revenue restrictions on the business and leading us to incur both one-off costs and ongoing, additional operational costs.

This resulted in an estimated £30m adverse financial impact in the prior year, all of which is included in our underlying results, and we are planning for operational costs relating to Covid-19 of £5m in the current year.

Revenue

Group revenue in H1 FY22 grew 18.0% to £677.6m (H1 FY21: £574.4m) and like-for-like (LFL) revenue grew 22.2%^#. On a 2-year basis, Group LFL^# revenue grew 28.6%.

Retail revenue grew 22.0% to £619.6m (H1 FY21: £507.8m), including omnichannel revenue growth of 21.5% to £93.7m, representing 15.1% of total Retail revenue (H1 FY21: 15.2%). The LFL revenue growth in Retail was 21.9%^# for the period and 28.9% on a 2-year basis.

Food revenue grew by 21.4% to £336.7m (H1 FY21: £277.4m), reflecting our continued success in recruiting new customers throughout the period as well as an increase in Advanced Nutrition participation.

Accessories revenue grew 20.9% to £257.7m (H1 FY21: £213.2m), with strong growth in categories such as dog toys, consumables and training accessories.

Grooming revenues increased by 62.2% in the first half to £15.5m (H1 FY21: £9.6m), annualising against the closure of all salons for the first 10 weeks of the prior year.

Vet Group LFL revenue grew by 26.2% for the period, however total revenue declined by 14.7% to £56.8m (H1 FY21: £66.6m), driven by the disposal of the Specialist Group on 31 December 2020. LFL revenue grew by 23.8% on a 2-year basis.

Total Joint Venture fee income increased by 29.1% to £36.9m (H1 FY21: £28.6m), with LFL fee income up 29.3%^#. As our program of fee adjustments was fully implemented and annualised in the prior year as planned, LFL fee income growth was more closely aligned to LFL growth in Joint Venture customer sales, at 27.4%.

Revenues ^# from company managed First Opinion practices increased by 31.3% to £16.2m (H1 FY21: £12.3m). 

Revenue of £1.2m (H1 FY21: £nil) was recognised within our Central division in relation to The Vet Connection, the financial performance of which has been fully consolidated since the acquisition on 30 November 2020.

Gross margin

Underlying group gross margin^# increased year-on-year by 101 bps to 48.7% (H1 FY21: 47.7%).

Gross margin within Retail was 48.1%, a reduction of 34 bps over the prior period (H1 FY21: 48.5%), with positive contributions from improved product mix and increased grooming revenue offset by a £5.9m (87bps) year-on-year increase in freight costs.

Underlying gross margin^# within the Vet Group increased by 12.9% to 54.6% (H1 FY21: 41.7%). This increase reflects the strong sales growth across our Joint Venture estate driving strong fee income growth with the cost base to support those practices remaining largely fixed. The year-on-year movement in gross margin also reflects the disposal of the Specialist Group on 31 December 2020 (+5.8% YoY impact).

Operating costs and profit before tax

Underlying Group pre-tax profit was £70.2m (H1 FY21: £39.6m), with a profit margin of 10.4%^# (H1 FY21: 6.9%). Group underlying operating costs of £192.2m (H1 FY21: £164.9m) grew at 16.6% or 11.2% adjusting for non-recurring impacts; specific COVID-19 costs, the timing of business rates payment, and the disposal of the Specialist Group in the prior year. Before investment in fulfilment, customer acquisition, and our Support Office capabilities, underlying cost growth was 3.6%.

At the beginning of the current financial year, we planned for additional operational costs relating to Covid-19 of £9m. Based on our year-to-date position, we now estimate the full year impact to be approximately £5m and will continue to closely monitor the evolving external environment.

We continue to assess and mitigate where possible the widely reported challenges in the near-term operating environment relating to supply, logistics and labour availability. While we are not immune to such challenges, we are well placed to manage them.

Retail pre-tax profit was £53.1m (H1 FY21: £32.3m) with a profit margin of 8.6%^# (H1 FY21: 6.4%) reflecting the sustained strong trading across the first half, and annualisation of the revenue and cost implications of Covid-19 in the prior year. Operating cost growth, excluding depreciation and amortisation, was 20.5% to £181.3m (H1 FY21: £150.5m), or 8.2% after normalising the timing of payment of business rates; in the prior year no P&L charge was recognised in H1, with £28.9m voluntarily repaid in H2.

Underlying Vet Group pre-tax profit was £24.5m^# (H1 FY21: £16.4m) with a profit margin of 43.1%^# (H1 FY21: 24.7%). Operating costs in the Vet Group, excluding depreciation and amortisation, were £4.7m (H1 FY21: £8.4m), a decrease of 43.5% on the prior year. The year-on-year change in operating costs reflects the disposal of the Specialist Group part way through the prior year, as well as achieved cost efficiencies across several areas.

Our Central division generated a loss of £7.4m (H1 FY21: £9.1m), reflecting reduced interest charge and the profit generated by the Vet Connection, acquired on 30 November 2020, offset by increased investment in group headcount.

Finance expense

The net finance expense for the period decreased to £7.8m (H1 FY21: £10.0m) with the decrease driven by reduction in debt as well as non-recurring fees incurred in the prior year relating to an additional credit facility arranged as part of our Covid-19 response. This facility remained unutilised for the entire term and has been allowed to expire without seeking renewal.

Group profit before tax

Underlying pre-tax profit was £70.2m^# (H1 FY21: £39.6m) an increase of 77.2%. Statutory pre-tax profit, including all non-underlying items was £70.6m (H1 FY21: £38.9m). 

Taxation, profit after tax & EPS

Underlying total tax expense for the period was £13.8m^#, a rate of 19.6% on underlying pre-tax profit.

Underlying profit after tax increased by 78.1% to £56.4m^# (H1 FY21: £31.7m). Underlying basic earnings per share were 11.3 pence (H1 FY21: 6.3 pence) and statutory basic earnings per share were 11.4 pence (H1 FY21: 6.2 pence).

Cash working capital

The cash movement in trading working capital for H1 FY22 was an inflow of £58.1m^#. This was predominantly driven by one-off timing benefits estimated at £21m, resulting in a much stronger working capital position than otherwise.

The strong financial performance across our Joint Venture First Opinion vet practices, supported by favourable market dynamics, contributed to the gross value of operating loans reducing by £4.4m to £22.3m from £26.7m at FY21 year end (H1 FY21: £29.1m). This increased the overall Group cash working capital inflow to £62.5m (H1 FY21: £22.0m) and helped support the strong cash generation of the Vet Group.

The provision held against the gross value of operating loans was £5.2m (H1 FY21: £7.4m) representing 23% of the gross value of the loans.   

Capital investment

Capital investment was £32.9m (H1 FY21: £17.4m) and was focused on three strategic growth areas; investment in data analytics and business systems totalling £16.9m (H1 FY21: £8.4m), as we continue to progress our data and digital agenda, a £5.7m (H1 FY21: £1.9m) investment as we build capacity across our distribution network, and £3.7m (H1 FY21: £1.8m) to rollout our next generation store format. Cash capital expenditure was £36.7m (H1 FY21: £16.3m). 

Group headline free cashflow

Group headline free cashflow after interest and tax, but before acquisitions and disposals increased to £91.6m^# (H1 FY21: £60.5m), representing a cash conversion rate¹ of 65.2% (H1 FY21: 54.3%). The increase in free cashflow compared with the prior year is largely driven by the strong year-on-year profit growth, as well as disciplined capital investment, and the one-off timing benefit to working capital described above, offset by the timing of business rates payment, with £28.9m repaid in H2 of last year.

Group headline free cashflow#  (£m)	H1 FY22	H1 FY21
Operating cashflow#	159.2	89.4
Tax and Interest	(15.8)	(9.9)
Debt issue costs	-	(0.2)
Net Capex	(36.7)	(16.3)
Purchase of own shares to satisfy colleague options	(15.1)	(2.5)
Group headline free cashflow#	91.6	60.5

Divisional headline free cashflow#	Headline FCF (£m)	FCF conversion1
Retail	43.1	36.9%
Vet Group	64.6	245.8%
Central	(16.1)	NM
Group headline free cashflow#	91.6	65.2%

1.  Calculated as headline free cashflow as a percentage of underlying cash EBITDA.

As a result of strong cash generation and the initial proceeds from the disposal of the Specialist Group in the prior year, the Group's net cash position at the end of the period was £64.7m, and net debt was £333.2m on a lease-adjusted basis. This represents a leverage ratio of -0.4x underlying EBITDA^# or 1.4x on a lease-adjusted basis.

Group net cash/(debt) (£m)	H1 FY22	FY21
Opening net cash/(debt)	1.4	(85.9)
Headline free cashflow#	91.6	67.4
Ordinary dividends paid	(27.2)	(37.1)
Acquisitions2	(1.1)	(16.8)
Disposals3	-	79.4
Non-underlying cash outflow	-	(5.5)
Closing net cash/(debt)	64.7	1.4
Leverage (Net cash/(debt) / underlying EBITDA#)	-0.4x	0.0x
Lease-adjusted leverage (Net cash/(debt) / underlying EBITDA#) 4	1.4x	1.9x

2.  H1 FY22 and H1 FY21 includes investment in certain company managed practices.

3.  In FY21 includes the £80m cash proceeds in relation to the disposal of the Specialist Group in the year net of fees and cash held upon disposal.

4.  Underlying EBITDA for H1 FY22 is £137.7m on a lease-adjusted basis.

The Group's cash return on invested capital^# in the period increased to 25.1% (H1 FY21: 22.7%).

Capital allocation

At our preliminary results in May 2021, we communicated an updated policy which prioritises investing cash in areas that will expand the Group and deliver attractive returns. This includes organic investment into our digital capability and our infrastructure, including our store regeneration program. Our next priority is to provide a progressive ordinary dividend to shareholders which approximates to 50% of earnings per share. We will consider value-accretive opportunities, including M&A, which are strategically aligned to expanding our ecosystem in core and adjacent markets and where we consider the potential opportunity to drive incremental value as attractive. Finally, post all other identified and anticipated uses for capital, including the ordinary dividend, we would expect to return surplus free cashflow to shareholders through a special dividend or share buyback. We continue to keep our balance sheet and capital structure under ongoing review.

Dividend

The Board has recommended an interim dividend of 4.3 pence per share, an increase of 72% on the prior year.   The interim dividend will be payable on 7 January 2022 to shareholders on the register at the close of trading on 3 December 2021. 

Impact of the UK's exit from the European Union

Following the United Kingdom's exit from the European Union (EU) and the end of the transition period on 31 December 2020, we continue to take actions across the Group to mitigate any related impact on tariffs, logistics, vet availability and currency.

Our foreign exchange policy uses a mix of forward contracts to hedge our USD requirement to cover the next 12-18 months. Our hedging requirements for FY22 are in place at an average rate of 1.37 (H1 FY21: 1.29) USD:GBP, and any foreign exchange impact is included within financial guidance.

We continue to monitor the potential regulatory implications for our operations in Northern Ireland, specifically concerning Export Health Certificates. We continue to work with the relevant professional bodies to assess the protocols involved in bringing products into Northern Ireland, and our planning for the current year includes an increase in associated logistics costs.

Mike Iddon

Chief Financial Officer

23 November 2021

Risks and Uncertainties

An effective risk management process has been adopted to help the Group achieve its strategic objectives and enjoy long term success. The Board does not consider that the principal risks and uncertainties have changed since the publication of the annual report for the year ended 25 March 2021. These comprise:

· Protecting reputation

· Competition with other retailers and vet practices, including other pet specialists, supermarkets, discounters, and online retailers

· Stores and services expansion and rollout

· Retaining and developing engaged colleagues

· Keeping core business systems up to date and with the capability to support the Group's growth plans

· Supply chain and sourcing risk

· Liquidity and credit risk

· Treasury and financial risk from exposure to US dollar fluctuations, in respect of goods sourced from Asia

· Regulatory and compliance risk

· Sustainability and climate change risk, including extreme weather, where prolonged unusual weather patterns can impact footfall to stores

The Board continues to review the risks and opportunities that may arise as a result of either COVID-19 or Brexit, particularly the impact on domestic haulage and international freight.  Mitigation plans are continuing to be developed in the following areas:

· Our people

· Supply chain and sourcing

A detailed explanation of these risks can be found on pages 54 to 63 of the 2021 Annual Report which is available at http://investors.petsathome.com/ .

Responsibility Statement

We confirm that to the best of our knowledge:

· the condensed set of interim financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as issued by the IASB and adopted for use in the UK;

· the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of

important events that have occurred during the first 28 weeks of the financial year

and their impact on the condensed set of financial statements; and a description of

the principal risks and uncertainties for the remaining 25 weeks of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party

transactions that have taken place in the first 28 weeks of the current financial year

and that have materially affected the financial position or performance of the entity

during that period, and any changes in the related party transactions described in the

last annual report that could do so.

By order of the Board on 22 November 2021

Peter Pritchard, Chief Executive Officer Mike Iddon, Chief Financial Officer

Disclaimer

This statement of interim financial results 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 advisor.

Certain statements in this statement of interim financial results 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 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 of interim financial results. 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.

INDEPENDENT REVIEW REPORT TO PETS AT HOME GROUP PLC

Conclusion 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 7th October 2021 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity and the condensed consolidated statement of cash flows and the related explanatory notes. 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 28 weeks ended 7th October 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). 

Scope of review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

Directors' responsibilities 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

The latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be prepared in accordance with UK-adopted international accounting standards. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK. 

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Stuart Burdass

for and on behalf of KPMG LLP 

Chartered Accountants 

1 St Peter's Square

Manchester

M2 2AE

22^nd November 2021

Alternative Performance Measures ("APMs")

Guidelines on Alternative Performance Measures (APMs) issued by the European Securities and Markets Authority came into effect for all communications released on or after 3 July 2016 for issuers of securities on a regulated market.

In the reporting of financial information, the Directors have adopted various APMs of historical or future financial performance, position or cash flows other than those defined or specified under International Financial Reporting Standards (IFRS).

The Directors measure the performance of the Group based on the following financial measures which are not recognised under UK-adopted IFRS and consider these to be important measures in evaluating the Group's strategic and financial performance. The Directors believe that these APMs assist in providing additional useful information on the underlying trends, performance and position of the Group.

APMs are also used to enhance the comparability of information between reporting periods, by adjusting for non-underlying items to aid the user in understanding the Group's performance.

Consequently, APMs are used by the Directors and management for performance analysis, planning, reporting and incentive setting purposes and have remained consistent with prior year.

All APMs relate to the current period's results and comparative periods where provided.

A full glossary of APMs is included in the most recent Annual Report & Accounts which are available at http://investors.petsathome.com .

The key APMs used by the Group are:

'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 and veterinary practices that commenced trading more than 52 weeks prior to the reporting date, excluding fee income from Joint Venture practices where the Group has bought out the Joint Venture Partners or will offer to buy out the Joint Venture Partners in the future.

Omni-channel revenue: Revenue net of discounts and VAT from online sales, subscriptions and order to store.

Underlying PBT: Underlying profit before tax (PBT) is based on pre-tax profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

Underlying free cash flow: Net increase/(decrease) in cash before the impacts of dividends paid, acquisition of subsidiaries, proceeds from new loans and repayment of borrowings.

Underlying CROIC: 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 on PPE and 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.

Non-underlying items: Certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.

References to Underlying GAAP measures and Underlying APMs throughout the interim statements are measured before the effect of non-underlying items.

APM	Definition		Reconciliation
Cash EBITDA	Underlying EBITDA (see below) adjusted for share based payment charges.		Cash EBITDA (£m) HY22 HY21 Note Underlying EBITDA 137.7 108.9 2 Share based payment charge 2.8 2.4 3 Cash EBITDA 140.5 111.3
Underlying EBITDA	Earnings before interest, tax, depreciation and amortisation before the effect of non-underlying items in the period.		Underlying EBITDA (£m) HY22 HY21 Note Statutory operating profit 78.4 48.9 2 Depreciation on tangible fixed assets 13.5 14.8 3 Depreciation on right-of-use assets 37.1 37.9 3 Amortisation of intangible assets 9.1 6.6 3 Non-underlying items (0.4) 0.7 3 Underlying EBITDA  137.7 108.9
Underlying CROIC	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. The comparative CROIC numbers have been restated to reflect the impact of IFRS 16 and enhance comparability.		Underlying CROIC (£m) HY22 HY21 Note Cash returns: Underlying operating profit 134.4 109.2 Share based payment charges 5.1 4.3 139.5 113.5 Effective tax rate 19% 20% Tax charge on above (26.5) (22.7) 113.0 90.8 Depreciation and amortisation 111.1 108.8 Cash returns 224.0 199.6 Gross capital invested (GCI): Gross property, plant and equipment 326.5 313.6 8 Gross right-of-use assets 533.5 525.9 Intangibles 1,071.8 1,056.8 10 Less KKR goodwill (906.4) (906.4) Investments 11.5 14.4 Net working capital (140.0) (111.7) see definition GCI 896.9 892.6 Average 893.5 879.9 Underlying CROIC 25.1% 22.7%
Underlying free cash flow	Net increase/(decrease) in cash before the impacts of dividends paid, acquisition of subsidiaries, proceeds from new loans and repayment of borrowings.		Underlying free cash flow (£m) HY22 HY21 Note Underlying free cash flow 91.6 60.5 Underlying free cash flow Dividends paid (27.2) (24.7) CFS Acquisition of subsidiaries (1.1) (0.8) CFS Proceeds from new loans - 20.0 CFS Repayment of borrowings - (20.0) CFS Net increase in cash 63.3 35.0 CFS = Consolidated Statement of Cash Flows

Like-for-like	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 and veterinary practices that commenced trading more than 52 weeks prior to the reporting date, excluding fee income from Joint Venture practices where the Group has bought out the Joint Venture Partners or will offer to buy out the Joint Venture Partners in the future.		Not applicable.
2-year like-for-like	2-year 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 and veterinary practices that commenced trading more than 104 weeks prior to the reporting date, excluding fee income from Joint Venture practices where the Group has bought out the Joint Venture Partners or will offer to buy out the Joint Venture Partners in the future		Not applicable.
Underlying basic EPS	Underlying basic earnings per share (EPS) is based on earnings per share before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.		Underlying basic EPS (p) HY22 HY21 Note Underlying basic EPS 11.3 6.3 4 Non-underlying items 0.1 (0.1) Basic earnings per share 11.4 6.2
Underlying operating profit	Underlying operating profit is based on operating profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.		Underlying operating profit (£m) HY22 HY21 Note Underlying operating profit 78.0 49.6 2 Non-underlying items 0.4 (0.7) 3 Operating profit 78.4 48.9
Underlying profit before tax	Underlying profit before tax (PBT) is based on pre-tax profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.		Underlying PBT (£m) HY22 HY21 Note Underlying PBT  70.2 39.6 CIS Non-underlying items 0.4 (0.7) 3 PBT 70.6 38.9           CIS = Consolidated Income Statement
Underlying profit after tax	Underlying profit after tax (PAT) is based on post tax profit before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.		Underlying PAT (£m) HY22 HY21 Note Underlying PAT  56.4 31.7 CIS Non-underlying items 0.3 (0.7) CIS PAT 56.7 31.0 CIS = Consolidated Income Statement
Underlying total tax expense	Underlying total tax expense is based on the statutory tax expense for the period (being the net of current tax and deferred tax) before the impact of certain costs or incomes that derive from events or transactions that fall outside the normal activities of the Group and are excluded by virtue of their size and nature in order to reflect management's view of the performance of the Group.		Underlying total tax expense (£m) HY22 HY21 Note Underlying tax expense  13.8 7.9 5 Non-underlying items 0.1 - 5 Tax expense 13.9 7.9

Underlying net working capital	Underlying net working capital movement is a measure of the cash required by the business to fund its inventory, receivables and payables. The change year on year reflects the cash in/outflow in relation to changes in the working capital cycle excluding non-underlying items. The change in working capital is a key component of the free cash flow measure of the Group.			Underlying net working capital movement (£m) HY22 HY21 Note Net working capital per cash flow statement 61.5 21.4 CFS Being: Movement in trade and other receivables (1.3) (15.4) Movement in inventories 2.9 (17.0) CFS Movement in trade and other payables  55.3 44.8 CFS Movement in provisions  1.2 1.2 CFS Trading working capital movement 58.1 13.6 Movement in gross operating loans 4.4 8.4 Cash working capital movement 62.5 22.0 Underlying allowance for expected credit losses against operating loans (1.0) (0.6) Net working capital movement 61.5 21.4 CFS = Consolidated statement of cash flows (£m) HY22 HY21 Note Receivables 50.1 64.3 CBS Inventory 80.9 79.8 CBS Trade and other payables (263.4) (250.4) Provisions (4.6) (2.7)   CBS Non-current provisions (3.0) (3.5)   CBS Net working capital (140.0) (112.5) CBS = Consolidated statement of cash flows
Underlying cash working capital	Working capital before decrease in gross operating loans to Joint Venture practices			Underlying cash working capital (£m ) HY22 HY21 Note Net working capital (above)  61.5 21.4 Net loans and borrowings (3.4) (7.8) 15 Underlying cash working capital 58.1 13.6
Operating cash flow	Net cash flow from operating activities per the cash flow statement, before the effects of corporation tax payments, non-underlying items, lease payments, proceeds from the sale of PPE and costs to acquire right-of-use assets.				Operating cash flow (£m) HY22 HY21 Note  Net cash flow from operating activities (per cash flow statement) 187.9 123.9 Add back: Tax paid 14.6 8.1 Pre-tax underlying operating cash flow 202.5 132.0 Capital lease payments (36.9) (35.1) Interest paid on lease liabilities (6.2) (7.1) Proceeds from sale of PPE - 0.1 Costs to acquire right-of-use assets (0.2) (0.5) Operating cash flow 159.2 89.4 Tax paid (14.6) (8.1) Interest paid (1.3) (2.0) Interest received 0.1 0.2 Debt issue costs - (0.2) Purchase of own shares (15.1) (2.5) Acquisition of PPE and intangible assets (36.7) (16.3) Underlying free cash flow 91.6 60.5 CFS = Consolidated statement of cash flows
Omni-channel revenue	Revenue net of discounts and VAT from core online sales, order to store and subscriptions.				Omni-channel revenue (£m) HY22 HY21 Note Omni-channel revenue 93.7 77.1
Net cash/(debt)	Cash and cash equivalents less loans and borrowings.			Net cash/(debt) (£m) HY22 HY21 Note Cash and cash equivalents  164.7 114.1 CBS Loans and borrowings (100.0) (165.0) 12 Net cash/(debt) 64.7 (50.9) CBS = Consolidated balance sheet
Total indebtedness	Cash and cash equivalents less loans and borrowings plus lease liabilities.			Total indebtedness (£m) HY22 HY21 Note Cash and cash equivalents  164.7 114.1 CBS Loans and borrowings (100.0) (165.0) 12 Net cash/(debt) 64.7 (50.9) Lease liabilities (397.9) (456.3) 9 Total indebtedness (333.2) (507.2)
Customer sales	Customer sales being statutory Group revenue, less Joint Venture veterinary practice fee income (which forms part of statutory revenue within the Vet Group), plus gross customer sales made by Joint Venture veterinary practices (unaudited).			Customer sales (£m) HY22 HY21 Note Statutory Group revenue  677.6 574.4 2 Fee income (36.9) (28.6) 2 Sales by Joint Venture veterinary practices 226.9 178.9 Customer sales 867.6 724.7

Condensed consolidated income statement

	Note	28 week period ended 7 October 2021			28 week period ended 8 October 2020
		Underlying trading £m	Non-underlying items (note 3)  m	Total £m	Underlying trading  m	Non-underlying items (note 3)  m	Total £m
Revenue	2	677.6	-	677.6	574.4	-	574.4
Cost of sales		(348.9)	0.4	(348.5)	(301.2)	-	(301.2)
Impairment gains on receivables	3	1.2	-	1.2	0.6	-	0.6
Gross profit		329.9	0.4	330.3	273.8	-	273.8
Selling and distribution expenses		(195.4)	-	(195.4)	(165.2)	-	(165.2)
Administrative expenses		(56.5)	-	(56.5)	(59.0)	(0.7)	(59.7)
Operating profit	2	78.0	0.4	78.4	49.6	(0.7)	48.9
Financial income		0.1	-	0.1	0.2	-	0.2
Financial expense		(7.9)	-	(7.9)	(10.2)	-	(10.2)
Net financing expense		(7.8)	-	(7.8)	(10.0)	-	(10.0)
Profit before tax		70.2	0.4	70.6	39.6	(0.7)	38.9
Taxation	5	(13.8)	(0.1)	(13.9)	(7.9)	-	(7.9)
Profit for the period		56.4	0.3	56.7	31.7	(0.7)	31.0

All activities relate to continuing operations.

Basic and diluted earnings per share attributable to equity shareholders of the Company:

	Note	28 week period ended 7 October 2021	28 week period ended 8 October 2020
Equity holders of the parent - basic	4	11.4p	6.2p
Equity holders of the parent - diluted	4	11.2p	6.1p

Dividends paid and proposed are disclosed in note 6.

Condensed consolidated statement of comprehensive income

		28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Profit for the period		56.7	31.0
Other comprehensive income
Items that are or may be recycled subsequently into profit or loss:
Foreign exchange translation differences		0.0	-
Effective portion of changes in fair value of cash flow hedges		4.4	3.8
Other comprehensive income for the period, before income tax		4.4	3.8
Income tax on other comprehensive income		(0.5)	(0.1)
Other comprehensive income for the period, net of income tax		3.9	3.7
Total comprehensive income for the period		60.6	34.7

The notes on pages 27 to 52 form an integral part of these consolidated interim financial statements.

Condensed consolidated balance sheet

	Note	At 7 October 2021 £m	At 8 October 2020 £m	At 25 March 2021 £m
Non-current assets
Property, plant and equipment	8	102.9	110.0	99.6
Right-of-use assets	9	356.9	415.3	368.7
Intangible assets	10	1,008.2	1,010.3	1,000.2
Other non-current assets		14.6	20.0	16.7
		1,482.6	1,555.6	1,485.2
Current assets
Inventories	11	80.9	79.8	83.7
Other financial assets		1.8	1.0	2.9
Deferred tax assets		0.9	3.5	1.5
Trade and other receivables		50.1	64.3	49.3
Cash and cash equivalents		164.7	114.1	101.4
		298.4	262.7	238.8
Total assets		1,781.0	1,818.3	1,724.0
Current liabilities
Trade and other payables		(262.8)	(243.9)	(212.6)
Lease liabilities	9	(79.5)	(80.8)	(78.4)
Provisions		(4.6)	(2.7)	(4.3)
Other financial liabilities		(0.1)	(1.0)	(1.3)
		(347.0)	(328.4)	(296.6)
Non-current liabilities
Other interest-bearing loans and borrowings	12	(99.2)	(163.8)	(98.7)
Lease liabilities	9	(318.4)	(375.5)	(331.3)
Provisions		(3.0)	(3.5)	(2.1)
Other financial liabilities		(0.5)	(6.8)	(1.6)
		(421.1)	(549.6)	(433.7)
Total liabilities		(768.1)	(878.0)	(730.3)
Net assets		1,012.9	940.3	993.7
Equity attributable to equity holders of the parent
Ordinary share capital		5.0	5.0	5.0
Consolidation reserve		(372.0)	(372.0)	(372.0)
Merger reserve		113.3	113.3	113.3
Translation reserve		(0.0)	(0.1)	(0.0)
Cash flow hedging reserve		0.6	(2.5)	(1.5)
Retained earnings		1,266.0	1,196.6	1,248.9
Total equity		1,012.9	940.3	993.7

The notes on pages 27 to 52 form an integral part of these consolidated interim financial statements .

Condensed consolidated statement of changes in equity

	Share capital £m	Consolidation reserve £m	Merger reserve £m	Cash flow hedging reserve £m	Translation reserve £m	Retained earnings £m	Total equity £m
Balance at 25 March 2021	5.0	(372.0)	113.3	(1.5)	(0.0)	1,248.9	993.7
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	56.7	56.7
Other comprehensive income	-	-	-	3.9	0.0	-	3.9
Total comprehensive income for the period	-	-	-	3.9	-	56.7	60.6
Hedging gains & losses reclassified to inventory	-	-	-	(1.8)	-	-	(1.8)
Total hedging gains & losses reclassified to inventory	-	-	-	(1.8)	-	-	(1.8)
Transactions with owners, recorded directly in equity
Equity dividends paid	-	-	-	-	-	(27.2)	(27.2)
Share based payment charge	-	-	-	-	-	2.8	2.8
Deferred tax movement on IFRS 2 reserve	-	-	-	-	-	(0.1)	(0.1)
Purchase of own shares	-	-	-	-	-	(15.1)	(15.1)
Total contributions by and distributions to owners	-	-	-	-	-	(39.6)	(39.6)
Balance at 7 October 2021	5.0	(372.0)	113.3	0.6	(0.0)	1,266.0	1,012.9

	Share capital £m	Consolidation reserve £m	Merger reserve £m	Cash flow hedging reserve £m	Translation reserve £m	Retained earnings £m	Total equity £m
Balance at 26 March 2020	5.0	(372.0)	113.3	(2.8)	(0.1)	1,187.6	931.0
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	31.0	31.0
Other comprehensive income	-	-	-	3.7	0.0	-	3.7
Total comprehensive income for the period	-	-	-	3.7	0.0	31.0	34.7
Hedging gains & losses reclassified to inventory	-	-	-	(3.4)	-	-	(3.4)
Total hedging gains & losses reclassified to inventory	-	-	-	(3.4)	-	-	(3.4)
Transactions with owners, recorded directly in equity
Equity dividends paid	-	-	-	-	-	(24.7)	(24.7)
Share based payment charge	-	-	-	-	-	2.4	2.4
Deferred tax movement on IFRS 2 reserve	-	-	-	-	-	2.8	2.8
Purchase of own shares	-	-	-	-	-	(2.5)	(2.5)
Total contributions by and distributions to owners	-	-	-	-	-	(22.0)	(22.0)
Balance at 8 October 2020	5.0	(372.0)	113.3	(2.5)	(0.1)	1,196.6	940.3

The notes on pages 27 to 52 form an integral part of these consolidated interim financial statements.

Condensed consolidated statement of cash flows

	28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Cash flows from operating activities
Profit for the period	56.7	31.0
Adjustments for:
Depreciation and amortisation	59.7	59.3
Financial income	(0.1)	(0.2)
Financial expense	8.0	10.2
Share based payment charges	2.8	2.4
Taxation	13.9	7.9
	141.0	110.6
Decrease/(increase) in trade and other receivables	2.1	(7.6)
Decrease/(increase) in inventories	2.9	(17.0)
Increase in trade and other payables	55.3	44.8
Increase in provisions	1.2	1.2
	202.5	132.0
Tax paid	(14.6)	(8.1)
Net cash flow from operating activities	187.9	123.9
Cash flows from investing activities
Proceeds from sale of property, plant and equipment	-	0.1
Interest received	0.1	0.2
Costs to acquire right-of-use assets	(0.2)	(0.5)
Acquisition of subsidiaries, net of cash acquired (underlying)	(1.1)	(0.8)
Acquisition of property, plant and equipment and other intangible assets	(36.7)	(16.3)
Net cash used in investing activities	(37.9)	(17.3)
Cash flows from financing activities
Equity dividends paid	(27.2)	(24.7)
Proceeds from new loan	-	20.0
Repayment of borrowings	-	(20.0)
Debt issue costs	-	(0.2)
Capital lease payments	(36.9)	(35.1)
Purchase of own shares	(15.1)	(2.5)
Finance lease obligations	-	(0.0)
Interest paid	(1.3)	(2.0)
Interest paid on lease obligations	(6.2)	(7.1)
Net cash used in financing activities	(86.7)	(71.6)
Net increase in cash and cash equivalents	63.3	35.0
Cash and cash equivalents at beginning of period	101.4	79.1
Cash and cash equivalents at end of period	164.7	114.1

The notes on pages 27 to 52 form an integral part of these consolidated interim financial statements.

Notes (forming part of the condensed consolidated interim financial statements)

1  Accounting policies

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated interim financial statements.

Basis of preparation

Pets at Home Group Plc (the Company) is a company incorporated in the United Kingdom and its registered office is Epsom Avenue, Stanley Green, Handforth, Cheshire, SK9 3RN.  The Company is listed on the London Stock Exchange.

The condensed consolidated interim financial statements as at and for the 28 week period ended 7 October 2021 comprise the Company and its subsidiaries (together referred to as the Group).

The consolidated financial statements of the Group as at and for the 52 week period ended 25 March 2021 are available on request from the Company's registered office and via the Company's website.

The interim financial statements are prepared under the historical cost convention, as modified by the revaluation of derivative financial instruments to fair value, and in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS as adopted by the UK.

Statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting as adopted by the UK. They do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the 52 week period ended 25 March 2021.

The financial information included in this interim statement of results does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the "Act"). The statutory accounts for the 52 weeks ended 25 March 2021 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditor's report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

Going concern

The Company's business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report of the Annual Report for the year ended 25 March 2021, including a detailed COVID-19 assessment within the Chief Executive's Statement. The financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Chief Financial Officer's Review. In addition, note 12 and 13 to these interim financial statements includes the Company's policies and processes for managing its capital; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk.

The Directors of the Group have prepared cash flow forecasts for a period of at least 12 months from the date of the approval of these interim financial statements which indicate that, taking account of reasonably possible downsides, the Group will have sufficient funds, through its revolving credit facility, to meet its liabilities as they fall due for that period.

In preparing the forecasts for the Group, the Directors have carefully considered the impact of COVID-19 on the Group's financial position, liquidity and future performance.

The Group has access to a revolving facility of £248m, which expires in September 2023, with £100.0m drawn down on 7 October 2021 and cash balances of £164.7m. The lowest level of headroom forecast over the next 12 months from the date of signing of the financial statements is in July 2022 and is in excess of £248.2m in the base case scenario. On a sensitised basis, the lowest level of headroom forecast over the next 12 months from the date of approving of the financial statements is £214.7m.

The Group has been in compliance with all covenants applicable to this facility within the financial year and is forecast to continue to be in compliance for 12 months from the date of signing of the financial statements.

A number of severe but plausible downside scenarios were calculated compared to the base case forecast of profit and cash flow to assess headroom against facilities for the next 12 months. These scenarios included:

Scenario 1: Reduction on Group like-for-like sales growth assumptions of 1% in each year throughout the forecast period, with ordinary dividends continuing to be paid

Scenario 2: Using scenario 1 outcomes and further impacted by a conflated risk impact of £12.0m on sales and £6.0m on PBT, with dividends held at 8.0p per share

Scenario 3: Group like-for-like sales decline to 0% over the next year and a conflated risk impact of £82.5m on sales and £42.75m on PBT is used, with dividends cut to nil to conserve cash

Against these negative scenarios, adjusted projections showed no breach of covenants with the lowest level of headroom in the strategic planning horizon being £187.4m at the end of March 2026. Further mitigating actions could also be taken in such scenarios should it be required, including reducing capital expenditure.

The Directors of Pets at Home Group Plc, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for a period of at least 12 months from the date of approval of these financial statements and that, therefore, it is appropriate to adopt the going concern basis in preparing the consolidated financial statements as at and for the 28 weeks ended 7 October 2021.

Significant accounting policies

The accounting policies adopted in preparation of the condensed consolidated interim financial statements as at and for the 28 week period ended 7 October 2021 are consistent with the policies applied by the Group in its consolidated financial statements as at and for the 52 week period ended 25 March 2021, except as described below:

• Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss

Accounting estimates and judgments

The preparation of the condensed consolidated interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions concerning the future that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.  These judgments are based on historical experience and management's best knowledge at the time and the actual results may ultimately differ from these estimates.  Estimates and underlying assumptions are reviewed on an on-going basis and revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 

The estimates and assumptions that have significant risk of causing a material adjustment to the carrying value of assets and liabilities are explained below.

Impairment of goodwill and other intangibles (significant estimate)

Determining whether goodwill and other intangibles are impaired requires an estimation of the value in use of the cash-generating units to which goodwill and other intangible assets have been allocated. The value in use calculation requires estimation of future cash flows expected to arise from the cash-generating unit (CGU) and a suitable discount rate in order to calculate present value. Details of CGUs as well as further information about the assumptions made are disclosed in note 10. 

Joint Venture receivables (significant estimate)

The Group provides longer term operating loans and other loans to a number of Joint Venture veterinary practices to cover their working capital requirements.  The operating loans advanced to the practices are interest free and either repayable on demand or repayable within 90 days of demand.   In line with IFRS 9, judgement is applied in determining expected credit losses on these loans, the qualitative and quantitative risk-related criteria used to assess default and therefore also probability of default, and in estimating an appropriate 'loss given default' percentage applied to each loan based on future cash flows. In assessing the qualitative and quantitative information the Group takes into account factors including current performance against business plan, availability of suitable personnel to operate effectively, and level of indebtedness. The revenue, profit and cash flow expectations of the practices are taken into account in determining the length of time that the practice is expected to take in order to repay the loans. This is also the period over which losses are estimated should default occur within the contractual period. The provision for expected credit loss is based on forward-looking information, taking into account expected credit losses giving due consideration to the Joint Venture's business plan, as well as macro-economic factors such as growth in the size of the veterinary market, availability of veterinary practitioners and cost inflation within the industry.  The quantum of operating loans and other loans and expected credit loss made against these receivables is disclosed in notes 16, 17 and 27 in the annual consolidated financial statements.

Assessment of control with regard to Joint Ventures (significant judgement)

The Group has assessed, and continually assesses whether the level of an individual Joint Venture veterinary practices' indebtedness to the Group, particularly those with high levels of indebtedness, implies that the Group has the practical ability to control the Joint Venture, which would result in the requirement to consolidate. In making this judgement, the Group reviewed the terms of the Joint Venture agreement and the question of practical ability as a provider of working capital to control the activities of the practice. This included consideration of barriers to the Group's ability to exercise such practical or other control, which include difficulty in replacing Joint Venture Partners due to the shortage of veterinarians in the UK and reputational damage within the veterinary network should the Group attempt to exercise control, as well as potential barriers to the Joint Venture Partner exercising their own power over the activities of the practice. We note that under the terms of the Joint Venture agreement, our partners run their practices with complete operational and clinical freedom.  The Group is satisfied that on the balance of evidence from the Group's experience as shareholder and provider of working capital support to the practices, it does not have the current ability to exercise control over those practices to which operating loans are advanced, and therefore non consolidation is appropriate.

2  Segmental reporting

The Group has three reportable segments, Retail, Vet Group and Central which are the Group's strategic business units. The Group's operating segments are based on the internal management structure and internal management reports, which are reviewed by the Executive Directors on a periodic basis.  The Executive Directors are considered to be the Chief Operating Decision Makers.

The Group is a pet care business with the strategic advantage of being able to provide products, services and advice, addressing all pet owners' needs. Within this strategic umbrella, the Group has three reportable segments, Retail, Vet Group and Central which are the Group's strategic business units. The strategic business units offer different products and services, are managed separately and require different operational and marketing strategies.

The operations of the Retail reporting segment comprise the retailing of pet products purchased online and in-store, pet sales, grooming services and insurance products. The operations of the Vet Group reporting segment comprise First Opinion practices. Central includes a veterinary telehealth business, group costs and finance expenses. Revenue and costs are allocated to a segment where reasonably possible. 

The following summary describes the operations in each of the Group's reportable segments.  Performance is measured based on segment underlying operating profit, as included in the management reports that are reviewed by the Executive Directors. These internal reports are prepared in accordance with IFRS accounting policies consistent with these interim financial statements. All material operations of the reportable segments are carried out in the UK and all revenue is from external customers.

				28 week period ended 7 October 2021
Income Statement				Retail £m	Vet Group £m	Central £m	Total £m
Revenue				619.6	56.8	1.2	677.6
Gross profit				298.1	31.0	0.8	329.9
Underlying operating profit/(loss)				59.1	24.5	(5.6)	78.0
Non-underlying items				-	0.4	-	0.4
Segment operating profit/(loss)				59.1	24.9	(5.6)	78.4
Net financing expenses				(6.0)	(0.0)	(1.8)	(7.8)
Profit/(loss) before tax				53.1	24.9	(7.4)	70.6
			28 week period ended 8 October 2020
Income Statement			Retail £m		Vet Group £m	Central £m	Total £m
Revenue			507.8		66.6	-	574.4
Gross profit			246.1		27.7	-	273.8
Underlying operating profit/(loss)			38.9		16.7	(6.0)	49.6
Non-underlying items			-		(0.7)	-	(0.7)
Segment operating profit/(loss)			38.9		16.0	(6.0)	48.9
Net financing expenses			(6.6)		(0.3)	(3.1)	(10.0)
Profit/(loss) before tax			32.3		15.7	(9.1)	38.9
Non-underlying items are explained in note 3. 28 week period ended 7 October 2021 Reconciliation of EBITDA before non-underlying items Retail £m   Vet Group £m Central £m Total £m Underlying operating profit/(loss) 59.1 24.5 (5.6) 78.0 Depreciation of property, plant and equipment 12.9 0.6 - 13.5 Depreciation of right-of-use assets 36.4 0.7 - 37.1 Amortisation of intangible assets 8.4 0.5 0.2 9.1 Underlying EBITDA 116.8 26.3 (5.4) 137.7 28 week period ended 8 October 2020 Reconciliation of EBITDA before non-underlying items Retail £m   Vet Group £m Central £m Total £m Underlying operating profit/(loss) 38.9 16.7 (6.0) 49.6 Depreciation of property, plant and equipment 13.6 1.2 - 14.8 Depreciation of right-of-use assets 36.8 1.1 - 37.9 Amortisation of intangible assets 6.2 0.4 - 6.6 Underlying EBITDA 95.5 19.4 (6.0) 108.9                 EBITDA before non-underlying items is defined on page 19. 28 week period ended 7 October 2021 Segmental revenue analysis by revenue stream  Retail £m   Vet Group £m Central £m Total £m Retail - Food 336.7 - - 336.7 Retail - Accessories 257.7 - - 257.7 Retail - Services 25.2 - - 25.2 Vet Group - First Opinion fee income - 36.9 - 36.9 Vet Group - Company managed practices - 16.2 - 16.2 Vet Group - Other income - 3.7 - 3.7 Central - Veterinary telehealth services - - 1.2 1.2 Total 619.6 56.8 1.2 677.6 28 week period ended 8 October 2020 Segmental revenue analysis by revenue stream  Retail £m   Vet Group £m Central £m Total £m Retail - Food 277.4 - - 277.4 Retail - Accessories 213.2 - - 213.2 Retail - Services 17.2 - - 17.2 Vet Group - First Opinion fee income - 28.6 - 28.6 Vet Group - Company managed practices - 12.3 - 12.3 Vet Group - Other income - 2.8 - 2.8 Vet Group - Specialist - 22.9 - 22.9 Total 507.8 66.6 - 574.4                   The Group completed its disposal of its five Specialist Referral centres (the "Specialist Group") on 31 December 2020 and therefore the financial information shown for H1 FY21 includes an element of discontinued operations, however given the immateriality of these operations (revenue £22.9m, underlying PBT £1.1m) to Group revenue and profit they have not been disclosed separately.

3  Expenses

Included in operating profit are the following:

	28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Non-underlying items
Impairment of right of use asset following acquisition of Joint Venture subsidiaries	(0.4)	-
Increase in fair value of put and call liability	-	0.7
Total non-underlying items	(0.4)	0.7
Underlying items
Impairment gains on receivables	(1.2)	(0.6)
Depreciation of property, plant and equipment	13.5	14.8
Amortisation of intangible assets	9.1	6.6
Depreciation of right-of-use assets	37.1	37.9
Rentals under operating leases:
Expenses relating to short-term leases	0.0	0.0
Other income
Rental income from sub-leasing right-of-use assets to third parties1	(0.2)	(0.1)
Rental income from related parties1	(3.9)	(4.0)
Share based payment charges	2.8	2.4

¹ The other income is presented within selling and distribution expenses

Non-underlying items

The non-underlying credit of £0.4m recognised in the 28 week period ended 7 October 2021 relates to the reversal of the impairment of a right-of-use asset previously recognised on acquisition of a Joint Venture veterinary practice. The property has now been subleased, and therefore the impairment has been reversed. The credit has been treated as a non-underlying item since the original impairment was also treated in this way.

The non-underlying operating expenses of £0.7m in the period ended 8 October 2020 related to an increase in the financial liability for put and call options over shares held by clinicians in Dick White Referrals Limited and Veterinary Specialists (Scotland) Limited, both of which were disposed of in the 52 week period ended 25 March 2021. The charge represented an increase in the equity 'option' value held by those clinicians based on the Board's best estimate of the future settlement on exercise of the put and call.  The charge was classified within operating expenses as a clinician was required to remain an employee of the Group in order to access the full equity value of the option at the time of the exercise.

Income or costs considered by the Directors to be non-underlying were disclosed separately to facilitate year on year comparison of the underlying trade of the business. The Directors consider that changes to the fair value of the put and call liabilities warranted separate disclosure due to the nature of these arrangements as they did not relate to the underlying trade of the business.

Underlying items

The rentals under short-term leases disclosed in relation to the 28 week period ended 7 October 2021 and the 28 week period ended 8 October 2020 relate to leases under short term agreements. These fall under the short-term exemption so are excluded from the requirements of IFRS 16 on the basis that the lease terms are 12 months or less. 

4  Earnings per share

Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.

	28 week period ended  7 October 2021		28 week period ended  8 October 2020
	Underlying trading	After non-underlying items	Underlying  trading	After non-underlying items
Profit attributable to equity shareholders of the parent (£m)	56.4	56.7	31.7	31.0
Basic weighted average number of shares (m)	500.0	500.0	500.0	500.0
Dilutive potential ordinary shares (m)	8.4	8.4	6.8	6.8
Diluted weighted average number of shares	508.4	508.4	506.8	506.8
Basic earnings per share	11.3p	11.4p	6.3p	6.2p
Diluted earnings per share	11.1p	11.2p	6.3p	6.1p

5  Taxation

Recognised in the income statement

	28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Current tax expense
Current period	12.5	9.1
Current tax expense	12.5	9.1
Deferred tax expense
Origination and reversal of temporary differences	1.2	(1.2)
Impact of difference between deferred and current tax rates	0.2	-
Deferred tax expense	1.4	(1.2)
Total tax expense	13.9	7.9

The UK corporation tax standard rate for the period was 19% (2020: 19%). Deferred tax at 7 October 2021 has been calculated based on the rate of 22% which is the blended rate at which the majority of items are expected to reverse. This is due to the increase in the main rate of corporation tax to 25% from April 2023, which was substantively enacted on 24 May 2021.

Deferred tax recognised in comprehensive income

	28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Effective portion of changes in fair value of cash flow hedges	0.5	0.1

Reconciliation of effective tax rate

	28 week period ended 7 October 2021			28 week period ended 8 October 2020
	Underlying trading £m	Non-underlying items £m	Total £m	Underlying trading £m	Non-underlying  items  m	Total £m
Profit for the period	56.4	0.3	56.7	31.7	(0.7)	31.0
Total tax expense	13.8	0.1	13.9	7.9	-	7.9
Profit excluding taxation	70.2	0.4	70.6	39.6	(0.7)	38.9
Tax using the UK corporation tax rate for the period of 19% (28 week period ended 8 October 2020:19%)	13.3	0.1	13.4	7.5	(0.1)	7.4
Impact of change in tax rate on deferred tax balances	0.3	-	0.3	-	-	-
Depreciation on expenditure not eligible for tax relief	0.4	-	0.4	-	-	-
Enhanced tax reliefs	(0.5)	-	(0.5)	-	-	-
Expenditure not eligible for tax relief	0.3	-	(0.2)	0.4	0.1	0.5
Total tax expense	13.8	0.1	13.9	7.9	-	7.9

6  Dividends paid and proposed

	28 week period ended 7 October 2021 £m	28 week period ended 8 October 2020 £m
Declared and paid during the period
Final dividend of 5.5p per share (2020: 5.0p per share)	27.2	24.7
Proposed for approval by shareholders at the AGM
Interim dividend of 4.30p per share (2020 2.5p per share)	21.5	12.4

The trustees of the following holdings of Pets at Home Group Plc shares under the Pets at Home Group Employee Benefit Trusts have waived or otherwise foregone any and all dividends paid in relation to the period ended 7 October 2021 and to be paid at any time in the future (subject to the exceptions in the relevant trust deed) on its respective shares for the time being comprised in the trust funds:

Computershare Nominees (Channel Islands) Limited (holding at 7 October 2021 6,593,610 shares, holding at 8 October 2020: 5,189,945 shares).

7  Business combinations

Acquisition of Joint Venture veterinary practices

In the 28 week period ended 7 October 2021, the Group has acquired 100% of the 'A' shares of 5 veterinary practices, which were previously accounted for as Joint Venture veterinary practices.  These practices were previously accounted for as Joint Venture veterinary practices as the Group only held 100% of the non-participatory 'B' ordinary shares equating to 50% of the total shares.  Acquisition of the 'A' shares has led to the control and consolidation of these practices.  A detailed explanation for the basis of consolidation can be found in note 1.4 of the annual consolidated financial statements for the 52 week period ended 25 March 2021.

In the 28 week period ended 7 October 2021, £0.9m of operating loans relating to these practices were written off in advance of the acquisitions.

Up to the date of acquisition and in the 52 week period ending 25 March 2021, the entities listed below were all accounted for as a Joint Venture veterinary practice where the Group held 100% of the non-participatory 'B' ordinary shares. Acquisition of the 'A' shares has led to control and consolidation of these practices on the dates below, leading to control from the date of acquisition and consolidation from that date forward.

Subsidiaries acquired

	Principal activity	Date of acquisition	Proportion of voting equity instruments acquired	Total proportion of voting equity instruments owned following the acquisition	Cash consideration transferred £m
South Shields Quays Vets4Pets Limited	Veterinary practice	8 April 2021	50%	100%	-
Companion Care (Barnsley Cortonwood) Limited	Veterinary practice	29 April 2021	50%	100%	-
Crewe Vets4Pets Limited	Veterinary practice	20 July 2021	50%	100%	-
Lancaster Vets4Pets Limited	Veterinary practice	19 August 2021	50%	100%	0.9
Ely Vets4Pets	Veterinary practice	13 September 2021	50%	100%	0.7

Intangible assets acquired
	£m
Consideration	1.6
Less:  Fair value of assets acquired	0.8
Intangible assets arising on acquisition	2.4
Impairment of goodwill	(1.3)
Carrying value of intangible assets:	1.1
Split between:
Goodwill	0.6
Customer list	0.5

8  Property, plant and equipment

	Freehold Property £m	Short leasehold property £m	Fixtures, fittings, tools and equipment £m	Total £m
Cost
Balance at 25 March 2021	2.4	62.4	245.3	310.1
Additions	-	5.0	11.6	16.6
Assets acquired on acquisition	-	0.4	0.0	0.4
Disposals	-	(0.3)	(0.3)	(0.6)
Balance at 7 October 2021	2.4	67.5	256.6	326.5
Depreciation
Balance at 25 March 2021	0.3	29.4	180.8	210.5
Depreciation charge for the period	0.0	2.1	11.4	13.5
Disposals	-	(0.2)	(0.2)	(0.4)
Balance at 7 October 2021	0.3	31.3	192.0	223.6
Net book value
At 25 March 2021	2.1	33.0	64.5	99.6
At 7 October 2021	2.1	36.2	64.6	102.9

	Freehold Property £m	Short leasehold property £m	Fixtures, fittings, tools and equipment £m	Total £m
Cost
Balance at 26 March 2020	2.4	63.9	239.9	306.2
Additions	-	1.9	5.8	7.7
Assets acquired on acquisition	-	0.1	0.0	0.1
Disposals	-	(0.2)	(0.2)	(0.4)
Balance at 8 October 2020	2.4	65.7	245.5	313.6
Depreciation
Balance at 26 March 2020	0.3	26.8	162.0	189.1
Depreciation charge for the period	0.0	2.2	12.6	14.8
Disposals	-	(0.1)	(0.2)	(0.3)
Balance at 8 October 2020	0.3	28.9	174.4	203.6
Net book value
At 26 March 2020	2.1	37.1	77.9	117.1
At 8 October 2020	2.1	36.8	71.1	110.0

9   Leases

As Lessee

Property, plant and equipment comprise owned and leased assets that do not meet the definition of investment property.

The majority of the Group's trading stores, standalone veterinary practices, distribution centres and support offices are leased under operating leases, with remaining lease terms of between 1 and 21 years.  The Group also has a number of non-property leases relating to vehicle, equipment and material handling equipment, with remaining lease terms of between 1 and 6 years.

Right-of-use assets

	Property £m	Equipment £m	Total £m
Cost
Balance at 25 March 2021	493.5	14.7	508.2
Additions	24.6	0.7	25.3
Balance at 7 October 2021	518.1	15.4	533.5
Depreciation
Balance at 25 March 2021	132.8	6.7	139.5
Depreciation charge for the period	35.3	1.8	37.1
Balance at 7 October 2021	168.1	8.5	176.6
Net book value
At 25 March 2021	360.7	8.0	368.7
At 7 October 2021	350.0	6.9	356.9

	Property £m	Equipment £m	Total £m
Cost
Balance at 26 March 2020	486.3	11.6	497.9
Additions	25.0	2.8	27.8
On acquisition	0.2	-	0.2
Balance at 8 October 2020	511.5	14.4	525.9
Depreciation
Balance at 26 March 2020	69.1	3.6	72.7
Depreciation charge for the period	36.4	1.5	37.9
Balance at 8 October 2020	105.5	5.1	110.6
Net book value
At 26 March 2020	417.2	8.0	425.2
At 8 October 2020	406.0	9.3	415.3

The following table sets out the maturity analysis of lease payments, showing the undiscounted lease payments to be received after the reporting date:

Maturity analysis - contractual undiscounted cash flows

	At 7 October 2021 £m	At 8 October 2020 £m	At 25 March 2021 £m
Less than one year	79.5	81.1	78.4
Between one and five years	242.4	255.7	241.9
More than five years	120.8	177.7	131.9
Total undiscounted lease liabilities	442.7	514.5	452.2
Carrying value of lease liabilities in the statement of financial position	397.9	456.3	409.7
Current	79.5	80.8	78.4
Non-current	318.4	375.5	331.3

For lease liabilities at 7 October 2021, a 0.1% reduction in the discount rate would have increased the carrying value of lease liabilities by £1.6m

Surplus leases

The Group has a small number of leases on properties from which it no longer trades.  A small number of these properties are currently vacant or the sublet is not for the full term of the lease and there is deemed to be a risk on the sublet. 

Short-term leases

The Group has a small number of leases on properties from which it no longer trades, or a subsection of a trading retail store. These properties are sublet to third parties at contracted rates. 

In line with IAS 36, the carrying value of the right-of-use asset will be assessed for indicators of impairment and an impairment charge will be recognised if necessary.  Under IAS 17 an onerous lease provision was recognised where management believed there was a risk of default or where the property remained vacant for a period of time. As part of this review the Group has assessed the ability to sub-lease the property and the right-of-use asset has been written down to £nil where the Group does not consider a sublease likely.

10  Intangible assets

	Goodwill £m	Customer list £m	'Know how' - Call Scripts £m	Software £m	Total £m
Cost
Balance at 25 March 2021	958.5	3.6	2.6	88.7	1,053.4
Additions	-	-	-	16.3	16.3
On acquisition	1.9	0.5	-	-	2.4
Disposals	(0.3)	-	-	-	(0.3)
Balance at 7 October 2021	960.1	4.1	2.6	105.0	1,071.8
Amortisation
Balance at 25 March 2021	0.1	0.4	-	52.7	53.2
Amortisation charge for the period	-	0.3	0.1	8.7	9.1
Impairment on acquisition	1.3	-	-	-	1.3
Balance at 7 October 2021	1.4	0.7	0.1	61.4	63.6
Net book value
At 25 March 2021	958.4	3.2	2.6	36.0	1,000.2
At 7 October 2021	958.7	3.4	2.5	43.6	1,008.2

	Goodwill £m	Customer list £m	Software £m	Total £m
Cost
Balance at 26 March 2020	981.3	1.9	63.1	1,046.3
Additions	-	-	9.7	9.7
On acquisition	0.4	0.5	-	0.9
Disposals	-	-	(0.1)	(0.1)
Balance at 8 October 2020	981.7	2.4	72.7	1,056.8
Amortisation
Balance at 26 March 2020	0.1	0.5	39.3	39.9
Amortisation charge for the period	-	0.1	6.5	6.6
Balance at 8 October 2020	0.1	0.6	45.8	46.5
Net book value
At 26 March 2020	981.2	1.4	23.8	1,006.4
At 8 October 2020	981.6	1.8	26.9	1,010.3

Amortisation and impairment charge

The amortisation charge is recognised in total in operating expenses within the income statement.

Impairment testing

Cash generating units (CGUs), as defined by IAS 36, within the Group are considered to be aligned to the three operating segments as shown in the table below. Within the Retail operating segment, the CGU comprises the body of stores, online operations, grooming operations and insurance operations. Within the Vet Group operating segment, the CGU comprises the First Opinion practices. The veterinary telehealth business, hereafter disclosed as The Vet Connection (TVC) CGU, forms part of the Central operating segment. Revenue and costs are allocated to a segment and CGU where reasonably possible.

As at 7 October 2021 and 8 October 2020, the Group is deemed to have three overall groups of CGUs as follows:

	Goodwill
	At 7October 2021 £m	At 8 October 2020 £m
Retail	586.1	586.1
Vet Group	361.5	395.5
Central	11.1	-
Total	958.7	981.6

In line with previous practice, the Group conducts goodwill impairment tests as part of the interim financial statements and the annual financial statements. The recoverable amount of the CGU group has been calculated with reference to its value in use. The key assumptions of this calculation are shown below:

	28 week period ended  7 October 2021				28 week period ended  8 October 2020
	Retail		Vet Group	TVC	Retail	Vet Group	TVC
Period on which management approved forecasts are based (years)		5	5	5	5	5	NA
Growth rate applied beyond approved forecast period		2.0%	3.5%	2.0%	2.0%	3.5%	NA
Discount rate (pre-tax)		10.2%	10.6%	10.6%	10.7%	10.1%	NA
Like-for-like sales growth		7.6%	9.9%	34.0%	3.7%	10.7%	NA
Gross profit margin		47.6%	58.2%	65.0%	47.8%	49.4%	NA

The goodwill is considered to have an indefinite useful economic life and the recoverable amount is determined based on 'value-in-use' calculations. These calculations use a post-tax cash flow projection based on a five-year plan approved by the Board. For the purposes of intangible asset impairment testing, the model removes all cash flows associated with business units (for example stores or practices yet to open, but within the planning horizon) which the Group has a strategic intention to invest capital in, but has not yet done so, thus ensuring that the future cash flows used in modelling for impairment exclude any cash flows where the investment is yet to take place, in accordance with the requirements of IAS 36 to exclude capital expenditure to improve asset performance.  Contributions from and costs associated with new stores and veterinary practices which are already operational at the impairment test date are included in the cash flows. The Group reviews components within CGUs such as stores and veterinary practices for indicators of impairment. This approach is consistent with impairment reviews carried out in the 2021 financial statements.

The discount rate was estimated based on past experience and a market participant weighted average cost of capital.  A post tax discount rate was used within the value in use calculation.  The related pre-tax discount rate is disclosed above in line with IAS 36 requirements.

The key assumptions in the business plans for both the Retail and Vet Group CGUs are like-for-like sales growth and gross profit margin. The Retail forecast assumptions reflect continual innovation and our deep understanding of our customers, incorporating assumptions based on past experience of the industry, products and markets in which the CGU operates, in order to generate the detailed assumptions used in the annual budget setting process, and five year strategic planning process. The Vet Group forecast assumptions are based on a deep understanding of the maturity profile of the practices and their performance, incorporating assumptions based on past experience of the industry, services and markets in which the CGU operates, in order to generate the detailed assumptions used in the annual budget setting process, and five year strategic planning process.  The projections are based on all available information and growth rates do not exceed growth rates experienced in prior periods. A different set of assumptions may be more appropriate in future years depending on changes in the macro-economic environment and the industry in which each CGU operates. Due to the timing of the Group's forecasting cycle, assumptions used for the Retail and Vet Group CGUs are from the strategic plan presented to the board on 5 November 2020. The TVC CGU uses assumptions from the strategic plan presented to the Board on 4 November 2021.

The Directors have assumed a growth rate projection beyond the five-year period based on market growth rates based on past experience within the Group taking into account the economic growth forecasts within the relevant industries. The long term growth rate in the Vet Group CGU exceeds the long term average for the UK but is an appropriate rate for the industry.

The total recoverable amount in respect of goodwill for the CGU group as assessed by the Directors using the above assumptions is greater than the carrying amount and therefore no impairment charge has been recorded in each period, with the exception of the goodwill impaired immediately following the acquisition of certain First Opinion veterinary practices (see note 7).

Within the Retail, Vet Group and TVC CGUs, a number of sensitivities have been applied to the assumptions in reaching this conclusion including:

- Reduction in growth rate applied beyond forecast period by 100 bps

- Increasing the discount rate by 100 bps

- Reduction in gross margin percentage of 100 bps

None of the above, considered reasonably possible changes in assumptions, would result in impairment when applied either individually or collectively.

The Directors consider that it is not reasonably possible for the assumptions to change so significantly as to eliminate the excess of the recoverable amount over the carrying value.

11  Inventories

	At 7 October 2021 £m	At 8 October 2020 £m	At 25 March 2021 £m
Finished goods	80.9	79.8	83.7

The cost of inventories recognised as an expense and included in 'cost of sales' is £304.6m (period ended 8 October 2020: £245.0m).

Inventory expensed to cost of sales includes the cost of the Stock Keeping Units (SKUs) sold, supplier income, stock wastage and foreign exchange variances.

At 7 October 2021 the inventory provision amounted to £3.8m (8 October 2020: £4.4m). The inventory provision is calculated by reference to the age of the SKU and the length of time it is expected to take to sell. The provision percentages applied in calculating the provision are as follows:

Discontinued stock greater than 365 days: 100%

Current stock greater than 365 days with a use by date: 50%

Current stock within 180 and 365 days with a use by date: 25%

Greater than 180 days with no use by date: 25%

In addition, a provision is held to account for store stock losses during the period since which the SKU was last counted.

The value of inventory against which an ageing provision is held is £9.5m (8 October 2020: £7.2m).

In the 28 week period ended 7 October 2021, the value of inventory written off to the income statement amounted to £4.8m (28 week period ended 8 October 2020: £4.7m).

12  Other interest-bearing loans and borrowings

	At 7 October 2021 £m	At 8 October 2020 £m	At 25 March 2021 £m
Non-current liabilities
Unsecured bank loans	99.2	163.8	98.7

Terms and debt repayment schedule

								At 7 October 2021
					Currency	Nominal interest rate	Year of maturity	Face value £m	Carrying amount £m
Revolving credit facility					GBP	LIBOR +1.15%	2023	100.0	99.2
								At 8 October 2020
					Currency	Nominal interest rate	Year of maturity	Face value £m	Carrying amount £m
Revolving credit facility					GBP	LIBOR +1.15%	2023	165.0	163.8

The Group has revolving facilities of £248.0m, which expire in 2023. 

The drawn amount on the £248.0m facility was £100.0m at 7 October 2021 (£165.0m at 8 October 2020) and this amount is reviewed each month. Interest is charged at LIBOR plus a margin based on leverage (net debt: EBITDA). Face value represents the principal value of the revolving credit facility. The facility is unsecured. 

Interest-bearing borrowings are recognised initially at fair value, being the principal value of the loan net of attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at a carrying value, which represents the amortised cost of the loans using the effective interest method.

The analysis of repayments on the loans is as follows:

	At 7 October 2021  m	At 8 October  2020 £m	At 25 March 2021 £m
Within one year or repayable on demand	-	-	-
Between one and two years	100.0	-	-
Between two and five years	-	165.0	100.0
	100.0	165.0	100.0

The Group has fixed interest rate swap agreements over a total of £100.0m of the senior facility borrowings at the balance sheet date at a blended fixed rate of 0.811% which commenced on 31 March 2021 and expires on 25 September 2023.

The hedges are structured to hedge at least 70% of the forecast outstanding debt for the next 12 months.

13  Financial instruments

Fair value hierarchy

The table below shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices)

Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)

At 7 October 2021
Carrying amount	Fair value - hedging instruments		FVOCI - equity instruments		Financial assets at amortised cost	Other financial liabilities	Total carrying amount
	£m	£m		£m		£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices	-	0.2		-		-	0.2
Other investments	-	1.1		-		-	1.1
Forward exchange contracts used for hedging	1.0	-		-		-	1.0
Fuel forward contract used for hedging	0.3	-		-		-	0.3
Interest rate swaps used for hedging	0.0	-		-		-	0.0
	1.3	1.3		-		-	2.6
Financial assets not measured at fair value
Current trade and other receivables	-	-		23.6		-	23.6
Amounts owed by Joint Venture veterinary practices - funding, trading and operating loans	-	-		17.1		-	17.1
Cash and cash equivalents	-	-		164.7		-	164.7
Loans to Joint Venture veterinary practices - initial set up loans	-	-		10.3		-	10.3
Loans to Joint Venture veterinary practices - other loans	-	-		2.6		-	2.6
Other receivables	-	-		0.9		-	0.9
	-	-		219.2		-	219.2
Financial liabilities measured at fair value
Fuel forward contract used for hedging	(0.0)	-		-		-	(0.0)
Forward exchange contracts used for hedging	(0.1)	-		-		-	(0.1)
Interest rate swaps used for hedging	(0.5)	-		-		-	(0.5)
	(0.6)	-		-		-	(0.6)
Financial liabilities not measured at fair value
Current lease liabilities (note 9)	-	-		-		(79.5)	(79.5)
Non-current lease liabilities (note 9)	-	-		-		(318.4)	(318.4)
Trade payables	-	-		-		(124.4)	(124.4)
Amounts owed to Joint Venture veterinary practices	-	-		-		(5.1)	(5.1)
Other interest-bearing loans and borrowings (note 12)	-	-		-		(99.2)	(99.2)
	-	-		-		(626.6)	(626.6)

At 7 October 2021
Fair value			Level 1	Level 2	Level 3	Total
			£m	£m	£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices			-	-	0.2	0.2
Other investments			-	-	1.1	1.1
Financial assets not measured at fair value
Amounts owed by Joint Venture veterinary practices - funding, trading and operating loans			-	-	17.1	17.1
Loans to Joint Venture veterinary practices - initial set up loans			-	-	10.3	10.3
Loans to Joint Venture veterinary practices - other loans			-	-	2.6	2.6
Other receivables			-	-	0.9	0.9
Financial liabilities not measured at fair value
Other interest-bearing loans and borrowings (note 12)		-		(100.0)	-	(100.0)

At 8 October 2020
Carrying amount	Fair value - hedging instruments	FVOCI - equity instruments	Financial assets at amortised cost	Other financial liabilities	Total carrying amount
	£m	£m	£m	£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices	-	0.2	-	-	0.2
Other investments	-	1.1	-	-	1.1
Forward exchange contracts used for hedging	0.3	-	-	-	0.3
Interest rate swaps used for hedging	0.2	-	-	-	0.2
	0.5	1.3	-	-	1.8
Financial assets not measured at fair value
Current trade and other receivables	-	-	31.1	-	31.1
Amounts owed by Joint Venture veterinary practices - funding, trading and operating loans	-	-	25.8	-	25.8
Cash and cash equivalents	-	-	114.1	-	114.1
Loans to Joint Venture veterinary practices - initial set up loans	-	-	13.1	-	13.1
Loans to Joint Venture veterinary practices - other loans	-	-	3.9	-	3.9
Other receivables	-	-	2.2	-	2.2
	-	-	190.2	-	190.2
Financial liabilities measured at fair value
Fuel forward contracts used for hedging	(0.2)	-	-	-	(0.2)
Forward exchange contracts used for hedging	(0.7)	-	-	-	(0.7)
Interest rate swaps used for hedging	(2.7)	-	-	-	(2.7)
	(3.6)	-	-	-	(3.6)
Financial liabilities not measured at fair value
Finance lease liabilities	-	-	-	(0.1)	(0.1)
Current lease liabilities (note 9)	-	-	-	(80.8)	(80.8)
Non-current lease liabilities (note 9)	-	-	-	(375.5)	(375.5)
Trade payables	-	-	-	(115.1)	(115.1)
Amounts owed to Joint Venture veterinary practices	-	-	-	(1.9)	(1.9)
Put and call liability	-	-	-	(4.1)	(4.1)
Other interest-bearing loans and borrowings (note 12)	-	-	-	(163.8)	(163.8)
	-	-	-	(741.3)	(741.3)

At 8 October 2020
Fair value	Level 1			Level 2		Level 3	Total
		£m		£m		£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices		-		-		0.2	0.2
Other investments		-		-		1.1	1.1
Financial assets measured at fair value
Amounts owed by Joint Venture veterinary practices- funding, trading and operating loans		-		-	25.8		25.8
Loans to Joint Venture veterinary practices- initial set up loans		-		-	13.1		13.1
Loans to Joint Venture veterinary practices-other loans		-		-	3.9		3.9
Other receivables		-		-	2.2		2.2
Financial liabilities not measured at fair value
Put and call liability		-		-	(4.1)		(4.1)
Other interest-bearing loans and borrowings (note 12)		-		(165.0)	-		(165.0)

At 25 March 2021
Carrying amount	Fair value - hedging instruments	FVOCI - equity instruments	Financial assets at amortised cost	Other financial liabilities	Total carrying amount
	£m	£m	£m	£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices	-	0.2	-	-	0.2
Other investments	-	1.1	-	-	1.1
Forward exchange contracts used for hedging	0.8	-	-	-	0.8
Fuel forward contracts used for hedging	0.1	-	-	-	0.1
Interest rate swaps used for hedging	0.2	-	-	-	0.2
	1.1	1.3	-	-	2.4
Financial assets not measured at fair value
Current trade and other receivables	-	-	20.4	-	20.4
Amounts owed by Joint Venture veterinary practices - funding, trading and operating loans	-	-	20.8	-	20.8
Cash and cash equivalents	-	-	101.4	-	101.4
Loans to Joint Venture veterinary practices - initial set up loans	-	-	11.3	-	11.3
Loans to Joint Venture veterinary practices - other loans	-	-	3.3	-	3.3
Other receivables	-	-	1.2	-	1.2
	-	-	158.4	-	158.4
Financial liabilities measured at fair value
Fuel forward contracts used for hedging	(0.0)	-	-	-	(0.0)
Forward exchange contracts used for hedging	(1.2)	-	-	-	(1.2)
Interest rate swaps used for hedging	(1.7)	-	-	-	(1.7)
	(2.9)	-	-	-	(2.9)
Financial liabilities not measured at fair value
Current lease liabilities (note 9)	-	-	-	(78.4)	(78.4)
Non-current lease liabilities (note 9)	-	-	-	(331.3)	(331.3)
Trade payables	-	-	-	(107.1)	(107.1)
Amounts owed to Joint Venture veterinary practices	-	-	-	(17.6)	(17.6)
Other interest-bearing loans and borrowings (note 12)	-	-	-	(98.7)	(98.7)
	-	-	-	(633.1)	(633.1)

At 25 March 2021
Fair value	Level 1		Level 2		Level 3	Total
		£m	£m		£m	£m
Financial assets measured at fair value
Investments in Joint Venture veterinary practices		-	-		0.2	0.2
Other investments		-	-		1.1	1.1
Financial assets measured at fair value
Amounts owed by Joint Venture veterinary practices - Funding and operating loans		-	-	20.8		20.8
Loans to Joint Venture veterinary practices - initial set up loans		-	-	11.3		11.3
Loans to Joint Venture veterinary practices - other loans		-	-	3.3		3.3
Other receivables		-	-	1.2		1.2
Financial liabilities not measured at fair value
Other interest-bearing loans and borrowings (note 12)		-	(100.0)	-		(100.0)

Measurement of fair values

The following table shows the valuation techniques used in measuring Level 2 and Level 3 fair values at the balance sheet dates, as well as the significant unobservable inputs used.

Type	Valuation technique	Significant unobservable inputs	Inter-relationship between significant unobservable inputs and fair value measurement
Investment in equity securities	The fair value of investments in unlisted equity securities are considered to be their carrying value as the impact of discounting future cash flows has been assessed as not material and the investment is non-participatory.	Not applicable	Not applicable
Forward exchange contracts and interest rate swaps	Market comparison technique - the fair values are based on broker quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions on similar instruments.	Not applicable	Not applicable
Other financial liabilities	Other financial liabilities include the fair values of the put and call options over the non-controlling interests of subsidiary undertakings and contingent consideration in relation to acquisitions.  The fair values represent the best estimate of amounts payable based on future earnings performance discounted to present value.	Future earnings performance	Fair value linked to increase or decrease in the best estimate of the future earnings performance

Hedge accounting

Cash flow hedges

At 7 October 2021 and 8 October 2020, the Group held the following instruments to hedge exposures to changes in foreign currency and interest rates.

	Maturity
	1-6 months	6-12 months	More than 1 year	1-6 months	6-12 months	More than 1 year
	2022	2022	2022	2021	2021	2021
Foreign currency risk
Forward exchange contracts
Net exposure (£m)	37.4	26.5	-	34.1	25.0	-
Average GBP-USD forward contract rate	1.38	1.38	-	1.27	1.30	-
Average GBP-EUR forward contract rate	1.16	1.16	-	1.13	1.10	-
Interest rate risk
Interest rate swaps
Net exposure (£m)	-	-	100.0	140.0	-	100.0
Average fixed interest rate	-	-	0.811%	0.918%	-	0.811%

14  Seasonality of operations

The Group's sales can be sensitive to periods of extreme weather conditions. The Group sometimes sees a reduction in sales during periods of hot weather in the UK, due to reduced customer footfall and reduced demand as pets eat less and generally spend more time outdoors, reducing the need for essentials such as food and cat litter. If temperatures are extremely high for a prolonged period, declines in sales can be material. The number of customers visiting Pets at Home's stores also declines during periods of snow or extreme weather conditions affecting the local catchment area. In addition, the sales of certain products and services designed to address pet health needs, such as flea and tick problems, can also be seasonal, increasing in times of warm and wet weather.

Traditionally the financial performance of the Group in the four-week period to the end of December is marginally stronger than in the other periods, due to Christmas purchasing. Purchasing of Accessories is also more prevalent during this season. Timing of the holiday season and any adverse weather conditions that may occur during that season impacting delivery may adversely affect sales in our stores.

15  Related parties

Veterinary practice transactions

The Group has entered into a number of arrangements with third parties in respect of veterinary practices. During the period, the Group had in place certain guarantees over the bank loans taken out by a number of veterinary practice companies in which it holds an investment in non-participatory share capital. At the end of the period, the total amount of bank overdrafts and loans guaranteed by the Group amounted to 11.7m (8 October 2020: £9.4m).

The transactions entered into during the period, and the balances outstanding at the end of the period are as follows:

	7 October 2021 £m	8 October 2020 £m	25 March 2021 £m
Transactions
- Fees for services provided to Joint Venture veterinary practices	36.9	28.6	57.0
- Rental and other occupancy charges to Joint Venture veterinary practices	6.3	4.5	8.2
Total income from veterinary practices	43.2	33.1	65.2
Acquisitions
- Consideration for Joint Venture veterinary practices acquired (note 7)	1.6	1.6	1.6
Balances
Included within trade and other receivables:
- Funding for new practices	-	0.3	0.3
- Trading balances	-	3.8	-
- Operating loans
- Gross value of operating loans	22.3	29.1	26.7
- Allowance for expected credit losses held for operating loans	(5.2)	(7.4)	(6.2)
- Net operating loans	17.1	21.7	20.5
Included within other financial assets and liabilities:
- Loans to Joint Venture veterinary practices - initial set up loans
- Gross value of initial set up loans	11.3	13.1	12.5
- Allowance for expected credit losses for initial set up loans	(1.0)	-	(1.2)
- Net initial set up loans	10.3	13.1	11.3
- Loans to other related parties (other loans)
- Gross value of other loans	2.6	3.9	3.3
- Allowance for expected credit losses held for other loans	-	-	-
- Net other loans	2.6	3.9	3.3
Included within trade and other payables:
- Trading balances	(5.1)	(1.9)	(17.6)
Total amounts receivable from veterinary practices (before provisions)	31.1	48.3	25.2

Fees for services provided to related party veterinary practices are included within revenue and relate to charges for support services offered in such areas as clinical development, promotion and methods of operation as well as service activities including accountancy, legal and property. In accordance with IFRS 15, revenue in the 28 week period ended 7 October 2021, the 52 week period ended 25 March 2021 and the 28 week period ended 8 October 2020 excludes irrecoverable fee income from Joint Venture veterinary practices.

Funding for new practices represents the amounts advanced by the Group to support veterinary practice opening costs. The funding is short term and the related party Joint Venture veterinary practice draws down their own bank funding to settle these amounts outstanding with the Group shortly after opening.

Trading balances represent costs incurred/income received by the Group in relation to the services provided to the veterinary practices that have yet to be recharged.

Operating loans represent amounts advanced to related party Joint Venture veterinary practices to support their working capital requirements and longer term growth. The loans advanced to the practices are interest free and either repayable on demand or repayable within 90 days of demand. No facility exists and the levels of loans are monitored in relation to review of the practice's performance against business plan. Based on the projected cash flow forecast on a practice by practice basis, the funding is often expected to be required for a number of years. As practices generate cash on a monthly basis it is applied to the repayment of brought forward operating loans.  For immature practices, loan balances may increase due to operating requirements. The balances above are shown net of allowances for expected credit losses held for operating loans of £5.2m (25 March 2021: £6.2m, 8 October 2020: £7.4m). 

In the 28 week period ended 7 October 2021, the value of loans written off recognised in the income statement amounted to £0.9m (8 October 2020: £nil).

At 7 October 2021, the Group had a commitment to increase the loan funding to Joint Venture companies of £0.5m (25 March 2021: £0.8m, 8 October 2020: £0.8m), this increase in funding is written into the Joint Venture agreements and becomes payable when certain criteria are met.

The Group is a guarantor for the leases for veterinary practices that are not located within Pets at Home stores.

 

END

 

 

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