Half Yearly Report

RNS Number : 6925G

Pets At Home Group Plc

24 November 2015

 

FOR IMMEDIATE RELEASE, 24 NOVEMBER 2015

Pets at Home Group Plc: Interim Financial Results FY16

Pets at Home Group Plc, the UK's leading specialist retailer of pet food, accessories and services, today announces its interim results for the 28 week period from 27^th March to 8^th October 2015.

H1 FY16 financial highlights

·     Total revenue growth of 6.0% to £404.5m

o  Merchandise revenues up 4.1% to £362.6m: Food revenues up 7.1% to £202.1m, with Advanced Nutrition growing 13.7% to £85.8m. Accessories revenues up 0.6% to £160.5m, offset by continuing challenge to Health & Hygiene product sales

o  Services revenues up 26.2% to £41.9m, reflecting growth in both mature and maturing vets and groomers, and good performance from Northwest Surgeons, our specialist referral hospital acquired at the start of the financial year

·     Like-for-like sales growth of 1.8%

o  Merchandise like-for-like revenue growth of 1.0%

o  Services like-for-like revenue growth of 10.5%

·     Gross margin of 54.1%, +27bps on the prior year; reflecting strong margin expansion in both Merchandise and Services

·     EBITDA growth of 5.1% to £60.7m and margin 15.0%

·     Basic EPS of 7.2 pence, growth of 13.4%

·     Free cashflow of £29.5m, conversion of 47%, compared with the prior year at 38%

·     Interim dividend of 2.0p per share, growth of 11.1%

H1 FY16 operational highlights

·     Space rollout on track

o  Added 6 Pets at Home stores: total 405

o  2 Barkers stores, bringing the trial format to a total of 3

o  Opened 15 veterinary practices: total 353

o  Opened 10 grooming salons: total 190

·     VIP Club reached 3.9m members, up from 3.2m at the end of FY15

·     Website orders for collection in-store increased to over 45% of total online revenues

Nick Wood, Chief Executive Officer, commented:

"Our core strategic drivers remain strong and I am pleased with the progress we have made in the first half of the year, highlighted by a 13.4% rise in earnings per share.  Pet services have again grown significantly, benefitting from sustained organic growth in both our vet and grooming businesses, together with encouraging results from the acquisition of our first specialist referral hospital. In Merchandise we continue to lead the market and grow our share in Advanced Nutrition foods."

 "We have strengthened the business further through the implementation of our new divisional structure, whilst investment in our colleagues and seamless shopping experience continues to build our competitive and strategic strength."

Outlook

Management and the Board remain confident in the long term outlook for the pet retail market and the ability of Pets at Home to remain the differentiated leader, with a high growth, margin supportive pet services business.

Our FY16 rollout targets remain: 20-25 Pets at Home stores, 5 Barkers, 55-60 grooming salons and 50-55 vet practices. The financial outlook for FY16 is in line with current expectations.

Looking to FY17, we estimate the incremental impact of the Living Wage to be £2m, as we adjust both our starting hourly rate and those for colleagues in our Steps training programme.

The Group remains highly cash generative and the Board intends to review the capital structure, taking into account the appropriate balance between opportunities for growth and shareholder returns.

Results presentation

A presentation for analysts and investors will be held today at 9.30am at Nomura, 1 Angel Lane  London, EC4R 3AB, attendance is by invitation only. An audio webcast and statement of these results will be available at http://investors.petsathome.com

Investor Relations Enquiries
Pets at Home Group Plc:	[phone]
Amie Gramlick, Head Of Investor Relations
Media Enquiries
Pets at Home Group Plc:	[phone]
Brian Hudspith, Head Of Corporate Affairs
Maitland:	[phone]
Greg Lawless, Tom Eckersley

 

About Pets at Home

Pets at Home Group Plc is the UK's leading specialist pet omnichannel retailer and services provider. Pets at Home operates from 405 stores located across the UK. The Group operates the UK's largest small animal veterinary business with 353 practices, run principally under a Joint Venture model using the Vets4Pets and Companion Care brand names, and a specialist referral vet hospital. Pets at Home is the UK's leading operator of pet grooming services offered through its 190 grooming salons. The Group also operates 3 specialist High Street based dog stores, called Barkers, as well as Ride-away, an equine retail business with a superstore and website. For more information visit: http://investors.petsathome.com/

Chief Executive Officer's Review

Operational Highlights

ROLLOUT			H1 FY16	H1 FY15		FY15
Stores	Number of stores in period1		408	385		400
	New stores (gross) 1		8	10		25
Vets	Number of vet practices (total)		353	303		338
	Of which Joint Venture practices		344	295		329
	Of which wholly owned practices		9	8		9
	Number of standalone vet practices		130	121		127
	Number of in-store vet practices		223	182		211
	% of stores with vet		55%	47%		53%
	New vet practices in period (total)		15	26		61
	New standalone vet practices		3	2		8
	New in-store vet practices		12	24		53
	Of which retrofits		5	15		32
Groomers	Number of groomers1		190	152		1802
	% of stores with groomer		47%	39%		45%
	New groomers in period		10	23		50
	Of which retrofits		2	12		26
VIP CLUB
	VIP Club members (m)		3.9	2.6		3.2
	VIP swipe as % revenue3		67%	57%		65%
COLLEAGUES
	Net Promoter Score		88%	85%		86%
PRODUCT
	Proportion of product SKUs refreshed		22%	28%		44%

1 Includes Barkers

2 Re-stated to include an additional grooming salon located In Barkers of Wilmslow

3 Average swipe rate over latest quarterly period in-store only

Strategic Update

Like-for-like growth levers

The power of VIP

Our loyalty scheme, VIP club, continued to gain strong traction from engaged pet owners, adding over 700,000 members in the first half of the financial year to reach a total of 3.9 million, with over a quarter of the UK cat population and a third of the UK dog population registered on our database. VIP card swipe rate represented 67% of revenues captured on store tills, rising from 65% at the end of FY15. We are successfully using the loyalty scheme to drive incremental revenues in high margin categories, such as Advanced Nutrition (AN) foods. Amongst VIPs who joined the scheme when it first launched, over 51% purchase AN foods, compared with 41% participation in the overall membership base, which is reflective of the tailored marketing activities we are directing towards our VIPs over time.

We are on track to launch a VIP App in early 2016, which will allow us to scan VIP vouchers and offers directly from customers' smartphones and removes the need to physically carry the VIP loyalty card. It will also enable push messaging, meaning we can enact offers in real time, significantly faster than email or direct mail. We believe the App will further encourage our shoppers to 'swipe' and take advantage of the tailored offers available to them and their pets.

Innovative products at attractive prices

Providing new and innovative products is vital to improving customer loyalty and visit frequency with engaged pet owners. We refreshed more than 1,700 SKUs (Stock Keeping Units) in H1 FY16, representing 22% of our total range. Of those products refreshed, half were private or own label.

A significant part of our retail strategy is to increase the growth of AN foods, through customer education on better pet food diets, alongside range innovation and the addition of new brands. During the period we launched Aatu, a branded high protein food, into the cat range, as well as breed specific extensions to the Royal Canin dog range. We also widened the online range of prescription veterinary food diets. Since the period end, we have exclusively launched Wellness AN dog and cat foods to the UK market. Wellness is the number one independent, family owned brand of natural pet food in the US market and offers selected ingredient diets which are not widely available in the UK market. We have also launched PURE, a naturally dehydrated food which preserves the nutritional quality of raw food without cooking.

We have continued to invest in pricing during the period by adding opening price point products into ranges such as wild bird food, cat accessories and dog bedding. Whilst this has increased our competitive position and value perception, we have also seen some customer mixing into lower priced products. We will continue to invest in pricing, whilst evolving our approach through the selection of appropriate categories and responding to customer purchasing behaviours.

A seamless view of shopping

Traffic and visits to our website, PetsAtHome.com, have continued to grow strongly. We believe this has resulted from improvements to our website, such as enriched content, advice and features. We also benefitted from the temporary closure of an online pure-play competitor during the period.

As one of the only true omnichannel retailers in the UK pet market, our store base is a key strategic asset for customers who wish to Click & Collect. Pickup in-store remains the highest growth segment of the online pet market and now represents over 45% of our total online revenues, compared with 23% in the prior year. A key driver of this growth has been the increase in our extended online product range, which now represents nearly half of all our online revenues. The extended online range has reached what we believe to be optimum levels, with around 13,000 SKUs, more than 5,000 greater than the average range available in-store.

As part of our seamless shopping strategy, we are progressing with the trials of order-in-store, which makes the extended online product range available to customers from a kiosk. The trials are operating in six stores.

Growing our Services business

Within our veterinary practice network, we have launched 24/7 opening hours in two further practices during the period. This brings us to a total of three 24/7 practices and two extended hours practices (open until 10pm during the week). Extended and 24/7 opening hours appointments are available to clients at the same rates as normal operating hours, which we believe is a first in the veterinary market, offering huge convenience to existing clients as well as attracting new clients. These pilot practices are performing well and we look forward to monitoring their progress through the rest of the year.

We are also increasing the size of some of our more mature practices to create super surgeries with additional capacity and expertise. We have two super surgeries in operation and a further four in build phase. The initial results in these practices are very encouraging.

We made our entry into the specialist veterinary referral market at the start of the financial year, acquiring Northwest Surgeons (NWS) in Cheshire. The hospital specialises in orthopaedic, soft tissue, spinal surgery and internal medicine. We are very pleased with the performance of the hospital and integration with our primary practice network. Whilst the Group wholly owns NWS, it remains our intention to move to a shared venture ownership model, which we believe will be more beneficial for the long term growth of the business. We are committed to expanding our presence in the referrals market with further acquisitions, which we believe creates access to an additional segment of the veterinary care market, whilst retaining specialist referral cases and revenue within the Group.

Engaging with customers

During the period we launched the first TV advertising campaign for Wainwright's, our flagship private label Advanced Nutrition. We returned to sponsoring 'Paul O'Grady: For The Love Of Dogs' on ITV1, which recieves around four million viewers per episode. We have also continued with TV advertising of the Vets4Pets brand on mainstream channels, with a vaccination focused promotion which has been well received.

We measure customer advocacy through an online customer survey and collected over 7,000 points of feedback during the H1 period. Our Net Promoter Score was 88%, having stepped forward again from a level of 86% during FY15.

Space rollout and opportunities

During the first half, we continued to execute on our space growth strategy. We finished the period with 405 Pets at Home stores, adding 6 new stores to the portfolio. Our trial of Barkers has continued and we are encouraged by the initial customer feedback and results. We now have Barkers in Wilmslow Cheshire, Ilkley Yorkshire and Marlow Buckinghamshire and further sites in the pipeline. We are investigating the potential for other new store formats which will allow us to infill between traditional Pets at Home retail park locations.

Our grooming salon network saw 10 new openings, taking the total number of Groom Rooms to 190.

We opened 15 vet practices, bringing the total portfolio to 353, consisting of 223 in-store and 130 standalone vets. All new vet practices are opened under the Vets4Pets brand and we continue to work on the rebranding of Companion Care (CC) practices with our Joint Venture vet partners. Vets4Pets branding now represents nearly three quarters of our vet practice estate.

The performance and returns on new stores, vet practices and Groom Rooms remain in line with our expectations.

Building gross margin

Advanced Nutrition (AN) growth and own brand participation are supportive to Merchandise margin, which expanded by 69bps to 56.6% in H1 FY16 (H1 FY15: 55.9%). During the period, AN revenues grew 13.7% to £85.8m (H1 FY15: £75.4m), with our private label product Wainwright's growing by 19.8% to £24.5m (H1 FY15: £20.5m). Wainwright's has benefitted from the success of Grain Free, which now represents an £8m a year product range, from its first introduction to the UK market in Autumn 2013.

Own brand and private label products represented 41.7% of gross store revenues during H1 FY16 (H1 FY15: 42.1%).  Whilst there has been a small decline in own brand participation, this has largely resulted from widening our branded ranges in accessories, which has been supportive to top line growth and improved our competitive position.

Services gross margin, which expanded to 32.2% in H1 FY16 (H1 FY15: 31.7%), has benefitted from the growing maturity of our veterinary practices, with some offset from the addition of our wholly owned specialist referral centre, Northwest Surgeons, and a large number of immature grooming salons which can be dilutive in their early years. Looking forward, we expect to see our Services gross margin increase as our vet practices mature, but the rate of increase may moderate as we intend to acquire further specialist referral hospitals and open increased numbers of grooming salons.

Nick Wood

Chief Executive Officer

24 November 2015

Chief Financial Officer's Review

The H1 FY16 accounting period represents the 28 week period from 27^th March to 8^th October 2015. The H1 FY15 period represents the 28 week period from 28^th March to 9^th October 2014.

Financial Key Performance Indicators

FINANCIALS Revenue						H1 FY16	H1 FY15	Change
	Revenue Split (£m)
	Food					202.1	188.7	7.1%
	Accessories					160.5	159.6	0.6%
	Total Merchandise revenue1					362.6	348.3	4.1%
	Services & Other revenue2					41.9	33.2	26.2%
	Total Group revenue					404.5	381.5	6.0%
	Like For Like growth3					1.8%	4.2%
	Merchandise LFL growth					1.0%	3.7%
	Services LFL growth					10.5%	10.2%
	Revenue Mix (% of total revenues)
	Food					50.0%	49.5%	49 bps
	Accessories					39.6%	41.8%	(215)bps bps
	Total Merchandise					89.6%	91.3%	(166)bps bps
	Services & other					10.4%	8.7%	166 bps
Gross Margin	Merchandise Gross Margin					56.6%	55.9%	69 bps
	Services & Other Gross Margin					32.2%	31.7%	49 bps
	Total Gross Margin					54.1%	53.8%	27 bps
EBITDA	EBITDA (£m)					60.7	57.8	5.1%
	EBITDA margin					15.0%	15.1%	(13) bps
Other Income Statement	Profit before tax (£m)4					45.2	40.5	11.8%
	Net income (£m)4					35.8	31.5	13.4%
	Basic EPS (pence) 4					7.2	6.3	13.4%
	Dividend (pence)					2.0	1.8	11.1%
Cashflow & Leverage	Free cashflow (£m)5					29.5	22.3	32.3%
	Conversion5,6					47.3%	38.0%	929 bps
	CROIC7,8					22.2%	21.4%	81 bps
	Leverage (Net Debt / EBITDA) 8					1.5x	2.0x

1 Includes Food and Accessories revenue

2 Includes veterinary Joint Venture fees and other veterinary income, Groom Room revenue, revenue from live pet sales and insurance commission

3 'Like-for-Like' sales growth comprises total sales/fee revenue in a financial period compared to revenue achieved in a prior period, post cannibalisation, for stores, grooming salons and vets that have been trading for 52 weeks. LfL includes revenue from the Group's online operations

4 H1 FY15 excludes an exceptional tax credit of £4.3m. H1 FY16 excludes an exceptional interest charge of £4.3m associated with the amortization of capitalised fees from the previous finance facility

5 Free Cashflow is defined as net cash from operating activities, less net cash used in investing activities, less interest paid & debt issue costs, and is stated before cash flows for exceptional costs and acquisitions of subsidiaries

6 Conversion represents FCF as a percentage of EBITDA

7 Represents cash returns divided by the average of gross capital (GCI) invested for the last twelve months. Cash returns represent EBITDA before IFRS2 charges, less depreciation & amortisation, plus rental charges, reduced by tax equivalent to the corporate tax rate, plus depreciation and amortisation. GCI represents Gross Property, Plant and Equipment plus Software and other intangibles excluding the goodwill created on the acquisition of the group by KKR (£906,445,000) plus net working capital plus rent multiplied by a factor to impute the commitment of the group to its rental obligation.  A multiple of 8 has been used.

8 Represents last twelve months EBITDA

Sales and revenue

Total revenues in H1 FY16 grew 6.0% to £404.5m (H1 FY15: £381.5m), with strong performance in food and pet services. Like-for-like sales grew 1.8%, driven by strength in Advanced Nutrition, VIP Club momentum and growth in fee income from our veterinary practices and Groom Rooms. This was somewhat offset by continuing challenge to Health & Hygiene product sales, alongside evolution in mix in selected grocery and accessories categories.

Total Merchandise revenues, which includes Food and Accessories, grew 4.1% to £362.6m (H1 FY15: £348.3m).

Food revenues grew strongly by 7.1% to £202.1m (H1 FY15: £188.7m), reflective of robust performance in dog and cat Advanced Nutrition (AN) and frozen dog foods. AN revenues grew 13.7% to £85.8m (H1 FY15: £75.4m), with our private label product Wainwright's an important contributor, growing by 19.8% to £24.5m (H1 FY15: £20.5m). Grocery food performance was weaker, mainly driven by our largest space reallocation last Autumn in favour of AN, alongside customer mixing into grocery wet foods at a lower price point.

Accessories revenues grew 0.6% to £160.5m (H1 FY15: £159.6m). We saw a good performance in our travel and training ranges, and bird accessories. This was significantly offset by the continued weakness in Health & Hygiene product sales, which saw particularly strong growth in the prior year whilst we experienced weather related challenges in the current year. In other Accessories, we saw some customer purchasing in lower price points in selected categories where we have widened our pricing range. We have already adjusted the price architecture in wild bird food, cat accessories and dog bedding, and will continue to move through further selected categories as we see the benefits and results of this strategy.

Services revenues grew 26.2% to £41.9m (H1 FY15: £33.2m), reflecting both new openings and the growing revenue streams from our maturing vet practices and Groom Rooms. Our Joint Venture veterinary practices continue to grow ahead of market rates, even within the mature practices, generating fee income to Pets At Home of £18.4m (H1 FY15: £14.8m), growth of 23.8% on the prior year.

Gross margin

Group H1 FY16 margin expanded by 27bps to 54.1% (H1 FY15: 53.8%), attributable to margin expansion in both our Merchandise and Services businesses.

Gross margin within Merchandise was 56.6%, a significant expansion of 69 bps over the prior year (H1 FY15: 55.9%). This has primarily been achieved through improvements in terms with suppliers, alongside the mix shift from grocery to AN foods, particularly the margin benefit from our private label Wainwright's. These positive movements more than offset the faster growth of food versus accessories, and changing mix in selected grocery and accessories categories.

Gross margin within Services expanded by 49 bps to 32.2% (H1 FY15: 31.7%), which reflects the growing maturity of both our veterinary practices and grooming salons. The maturity benefit was partially offset by our investment in live pet welfare in-store, alongside the addition of Northwest surgeons to our Vet Group. Northwest is not operated under the Joint Venture model which exists within our primary practices, but is wholly owned by the Group with a margin profile lower than that of Services as a whole.

Operating costs

Selling and distribution expenses of £144.2m declined as a percentage of Group revenue, to 35.6% (H1 FY15: 36.1%). Occupation costs (rent, service charges and other costs) declined as a percentage of sales as we continue to benefit from a relatively benign rental market, alongside the contribution to our rental costs from the retrofitting of vet practices to stores. Vet practices in-store contributed £4.7m to our rental costs in H1 FY16 (H1 FY15: £3.5m). Colleague costs increased as a percentage of sales as a result of new stores, high retention rates, wage inflation and moving to holiday pay based upon hours worked (where previously holiday pay was based upon hours contracted).

Administration expenses of £26.4m were 6.5% of revenue (H1 FY15: 5.7%), mainly reflecting the growth in IFRS2 share based payment charges to £1.6m (H1 FY15: £0.8m), colleague cost movements and our investment in business systems.

National Living Wage

Providing our colleagues with a 'truly amazing place to work' is one of our core values.  To achieve this we provide ongoing training and education and a competitive pay and benefits package, in an environment where we work hard and have fun. We know that high colleague engagement rates translate into improved customer satisfaction and NPS scores. Preserving this differentiated work environment will enable us to maintain our sector leading 81% retention rate and deliver a specialist pet retailing experience for our customers.

Our starting rate of pay is £6.79 an hour, which is above the current minimum wage. Colleagues receive increments to their hourly payments as they progress through the Steps training programme on our 'Learn To Earn' model, and can receive additional bonus payments for completing external qualifications, for example, becoming a Suitably Qualified Person (SQP) to sell certain Health & Hygiene products. The Steps programme has been invaluable in developing our highly engaged in-store experts and this will be retained within the Living Wage framework.

The introduction of the £7.20 Living Wage, for those over the age of 25, commences at the start of our financial year 2017. We expect the incremental financial impact to be approximately £2m, as we move our starting hourly rate upwards and adjust the rates for colleagues in the programme outlined above. In implementing the Living Wage we will not differentiate our rates of pay for colleagues under 25.

In the longer term, we estimate the impact to be an incremental £2-3m per year, before mitigation. We believe we can mitigate some of the inflationary cost pressures through pricing adjustments and ongoing operational efficiencies, whilst maintaining the colleague service levels in-store which are vital to our specialist proposition.

EBITDA

EBITDA of £60.7m represented a 5.1% increase on the previous year (H1 FY15: £57.8m), with a margin of 15.0% (H1 FY15: 15.1%). The growing maturity of our vet and grooming businesses were supportive to EBITDA margin, whilst allowing us to invest in our colleagues and strategic developments such as seamless shopping.

Looking to financial year 2017, we expect the impact of the National Living Wage, alongside an increased investment in seamless shopping, to create a minor dilution to EBITDA margin. Our maturing Services business continues to provide ongoing mitigation to operational cost investment and will deliver EBITDA margin accretion to our business in the long term.

Finance expense

Underlying net finance expense for the half year period was £3.0m, a significant decline from the prior year (H1 FY15: £5.4m) as a result of our refinancing in April 2015. An exceptional non cash interest charge of £4.3m relates to the capitalised fees associated with the previous financing facility.

Underlying taxation, net income & EPS

Underlying pre tax profit, which excludes the exceptional interest charge, was £45.2m and grew by 11.8% compared with the prior year (H1 FY15: £40.5m).

Underlying total tax expense for the period was £9.4m, a rate of 21% on underlying pre tax profit, and in line with our expected tax rate for the full financial year.

Underlying trading profit for the period, after tax, was £35.8m (H1 FY15: £31.5m) and basic earnings per share were 7.2 pence, growth of 13.4% compared with the prior year (H1 FY15: 6.3 pence.)

Cash flows

Cash flow generation remains strong. The Group generated £54.0m in operating cash flow during the period (H1 FY15: £49.6m). Free cash flow after interest, tax and before acquisitions was £29.5m (H1 FY15: £22.3m), representing a cash conversion rate of 47.3% (H1 FY15: 38.0%).

Borrowings and net debt

The Group's net debt position at the end of the half year period was £184.6m, which represents a leverage ratio of 1.5x EBITDA, a reduction from the FY15 position of 1.6x and is reflective of cash flow requirements for the second half FY15 dividend payment and the acquisition of Northwest Surgeons. We continue to expect further de-leverage in the second half of the financial year.

£m	Leverage
Gross Debt	213.0
Cash	(28.4)
Net debt	184.6
Last twelve months EBITDA	122.6
Leverage	1.5x

Working capital

The cash movement in working capital for H1 FY16 was an outflow of £(8.1)m, comprised of an £11.5m increase in inventory, an increase in receivables of £3.0m, and offset by an increase in trade payables of £6.4m; all reflective of the normal working capital timing cycle in the trading year. We experienced some additional inventory build as a result of new store openings, additional Health & Hygiene inventory, and the arrival of Wellness food and other new dog food and treat ranges to stores.

Capital investment

Capital investment for H1 FY16 was £13.7m (H1 FY15: £14.7m), of which the majority is represented by new store openings and refurbishments to allow the retrofitting of vet practices and Groom Rooms, alongside business systems investment to support the seamless shopping strategy. New store capital investment totalled £4.5m (H1 FY15: £5.4m), whilst refurbishment capital, which often includes the requirement for a mezzanine floor installation for Services, totalled £3.5m (H1 FY15: £5.3m). The decline in refurbishment capital is reflective of the lower number of Services retrofits in the period when compared with last year. Our investment in business systems totalled £2.1m (H1 FY15: £1.7m).

Cash capital expenditure for the H1 FY16 was £14.7m (H1 FY15: £14.6m).

Dividend

The Board has declared an interim dividend of 2.0 pence per share, which represents growth of 11.1% over the prior year (H1 FY15: 1.8 pence). The interim dividend will be payable on the 8^th January 2016 to shareholders on the register at the close of trading on 11^th December 2015.  The Board remains confident in maintaining a total full year dividend payment of around 40% of earnings.

Ian Kellett

Chief Financial Officer

24 November 2015

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 26 March 2015. 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

·     Extreme weather, where prolonged unusual weather patterns can impact footfall to stores

A detailed explanation of these risks can be found on pages 44 to 49 of the 2015 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 financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·     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 uncertainiies 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 six months 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 23 November 2015

Nick Wood, Chief Executive Officer

Ian Kellett, 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 Statement

INDEPENDENT REVIEW REPORT TO PETS AT HOME PLC 

Introduction 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the 28 week period ended 08 October 2015 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of movements in equity and the related explanatory notes.  We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

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 Disclosure and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("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. 

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 annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. 

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. 

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.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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. 

Conclusion 

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 week period ended 08 October 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FCA. 

Nicola Quayle  

for and on behalf of KPMG LLP 

Chartered Accountants 

1 St Peter's Square

Manchester

M2 3AE

Condensed Consolidated Income Statement

	Note		28 week period ended 8 October 2015	28 week period ended 8 October 2015	28 week period ended 8 October 2015		28 week period ended 9 October 2014	28 week period ended 9 October 2014	28 week period ended 9 October 2014		52 week period ended 26 March 2015	52 week period ended 26 March 2015	52 week period ended 26 March 2015
			£000	£000	£000		£000	£000	£000		£000	£000	£000
			Underlying Trading	Exceptional Items (note 5)	Total		Underlying Trading	Exceptional Items (note 6)	Total		Underlying Trading	Exceptional Items (note 6)	Total
Revenue	2		404,503	-	404,503		381,521	-	381,521		729,086	-	729,086
Cost of sales			(185,748)	-	(185,748)		(176,212)	-	(176,212)		(333,776)	-	(333,776)
Gross profit			218,755	-	218,755		205,309	-	205,309		395,310	-	395,310
Selling and distribution expenses			(144,184)	-	(144,184)		(137,662)	-	(137,662)		(257,853)	-	(257,853)
Administrative expenses			(26,372)	-	(26,372)		(21,812)	-	(21,812)		(40,695)	-	(40,695)
Operating profit	3		48,199	-	48,199		45,835	-	45,835		96,762	-	96,762
Financial income			178	-	178		200	-	200		572	-	572
Financial expense	5		(3,146)	(4,326)	(7,472)		(5,562)	-	(5,562)		(10,369)	-	(10,369)
Net financing expense			(2,968)	(4,326)	(7,294)		(5,362)	-	(5,362)		(9,797)	-	(9,797)
Profit before tax			45,231	(4,326)	40,905		40,473	-	40,473		86,965	-	86,965
Taxation	6		(9,443)	865	(8,578)		(8,924)	4,295	(4,629)		(19,089)	4,295	(14,794)
Profit for the period			35,788	(3,461)	32,327		31,549	4,295	35,844		67,876	4,295	72,171

Basic and diluted earnings per share attributable to equity shareholders of the Company
	Note		28 week period  ended 8 October 2015	28 week period  ended 9 October 2014	52 week period  ended  26 March 2015
Equity holders of the parent - underlying trading - basic		4	7.2p	6.3p	13.5p
Equity holders of the parent - after exceptional items - basic		4	6.5p	7.2p	14.4p
Equity holders of the parent - underlying trading - diluted		4	7.1p	6.3p	13.5p
Equity holders of the parent - after exceptional items - diluted		4	6.4p	7.2p	14.4p

The notes on pages 22 to 39 form an integral part of these financial statements.

Condensed Consolidated Statement of Comprehensive Income

		28 week period ended  8 October 2015	28 week period ended  9 October 2014		52 week period ended  26 March 2015
		£000		£000	£000
Profit for the period		32,327		35,844	72,171
Other comprehensive income
Items that are or may be recycled subsequently into profit or loss:
Foreign exchange translation differences		(1)		2	(4)
Cash flow hedges - reclassified to profit and loss		(1,474)		812	1,113
Effective portion of changes in fair value of cash flow hedges		(824)		175	403
Other comprehensive income for the period, before income tax		(2,299)		989	1,512
Income tax on other comprehensive income		460		(197)	(303)
Other comprehensive income for the period, net of income tax		(1,839)		792	1,209
Total comprehensive income for the period		30,488		36,636	73,380

The notes on pages 22 to 39 form an integral part of these financial statements.

Condensed Consolidated Balance Sheet

	Note		At 8 October 2015	At 9 October 2014	At 26 March 2015
			£000	£000	£000
Non-current assets
Property, plant and equipment	7		104,325	96,589	102,890
Intangible assets	8		959,344	955,020	955,512
Other financial assets			8,724	7,421	8,133
			1,072,393	1,059,030	1,066,535
Current assets
Inventories			59,927	51,924	48,474
Deferred tax assets			-	11	-
Other financial assets			42	344	1,697
Trade and other receivables			54,658	48,097	51,627
Cash and cash equivalents			28,358	92,228	132,966
			142,985	192,604	234,764
Total assets			1,215,378	1,251,634	1,301,299
Current liabilities
Other interest-bearing loans and borrowings	9		-	(5,000)	(5,000)
Trade and other payables			(155,075)	(129,103)	(144,754)
Provisions			(365)	(307)	(365)
Other financial liabilities			(282)	-	(632)
			(155,722)	(134,410)	(150,751)
Non-current liabilities
Other interest-bearing loans and borrowings	9		(211,902)	(315,420)	(315,674)
Other payables			(29,917)	(31,836)	(31,483)
Provisions			(1,461)	(1,772)	(1,706)
Deferred tax liabilities			(4,374)	-	(4,810)
Other financial liabilities			(994)	-	-
			(248,648)	(349,028)	(353,673)
Total liabilities			(404,370)	(483,438)	(504,424)
Net assets			811,008	768,196	796,875
Equity attributable to equity holders of the parent
Ordinary share capital			5,000	5,000	5,000
Consolidation reserve			(372,026)	(372,026)	(372,026)
Merger reserve			113,321	113,321	113,321
Cash flow hedging reserve			(987)	428	851
Translation reserve			(1)	6	-
Retained earnings			1,065,701	1,021,467	1,049,729
Total equity			811,008	768,196	796,875

Company number: 08885072

The notes on pages 22 to 39 form an integral part of these financial statements.

Condensed Consolidated Statement of Changes in Equity

	Share capital	Share premium	Consolidation reserve	Merger reserve	Cash flow hedging reserve	Translation reserve	Retained earnings	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 26 March 2015	5,000	-	(372,026)	113,321	851	-	1,049,729	796,875
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	-	32,327	32,327
Other comprehensive income	-	-	-	-	(1,838)	(1)	-	(1,839)
Total comprehensive income for the period	-	-	-	-	(1,838)	(1)	32,327	30,488
Transactions with owners, recorded directly in equity
Equity dividend	-	-	-	-	-	-	(17,932)	(17,932)
Share based payment transactions	-	-	-	-	-	-	1,577	1,577
Total contributions by and distributions to owners	-	-	-	-	-	-	(16,355)	(16,355)
Balance at 8 October 2015	5,000	-	(372,026)	113,321	(987)	(1)	1,065,701	811,008

Condensed Consolidated Statement of Changes in Equity

	Share capital	Share premium	Consolidation reserve	Merger reserve	Cash flow hedging reserve	Translation reserve	Retained earnings	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 27 March 2014	5,000	1,080,477	(372,026)	113,321	(362)	4	(95,665)	730,749
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	-	35,844	35,844
Other comprehensive income	-	-	-	-	790	2	-	792
Total comprehensive income for the period	-	-	-	-	790	2	35,844	36,636
Transactions with owners, recorded directly in equity
Cancellation of share premium (i)	-	(1,080,477)	-	-	-	-	1,080,477	-
Share based payment transactions	-	-	-	-	-	-	811	811
Total contributions by and distributions to owners	-	(1,080,477)	-	-	-	-	1,081,288	811
Balance at 9 October 2014	5,000	-	(372,026)	113,321	428	6	1,021,467	768,196

(i) As contemplated in the Pets at Home Group Plc IPO Prospectus dated 28 February 2014 and pursuant to a shareholder resolution passed on 27 February 2014, Pets at Home Group Plc completed a reduction of capital, whereby £1,080,477,000 standing to the credit of the Company's share premium account was cancelled, creating distributable reserves of an equivalent amount.  The cancellation was formally approved by the High Court, and the court order was registered by the Registrar of Companies and became effective on 30 July 2014. The cancellation has no effect on the overall net asset position of the Company and/or its group.

Condensed Consolidated Statement of Changes in Equity

	Share capital	Share premium	Consolidation reserve	Merger reserve	Cash flow hedging reserve	Translation reserve	Retained earnings	Total equity
	£000	£000	£000	£000	£000	£000	£000	£000
Balance at 9 October 2014	5,000	-	(372,026)	113,321	428	6	1,021,467	768,196
Total comprehensive income for the period
Profit for the period	-	-	-	-	-	-	36,327	36,327
Other comprehensive income	-	-	-	-	423	(6)	-	417
Total comprehensive income for the period	-	-	-	-	423	(6)	36,327	36,744
Transactions with owners, recorded directly in equity
Equity dividend	-	-	-	-	-	-	(8,942)	(8,942)
Share based payment transactions	-	-	-	-	-	-	877	877
Total contributions by and distributions to owners	-	-	-	-	-	-	(8,065)	(8,065)
Balance at 26 March 2015	5,000	-	(372,026)	113,321	851	-	1,049,729	796,875

Condensed Consolidated Statement of Cash Flows

		28 week period  ended 8 October 2015		28 week period  ended 9 October 2014				52 week period ended 27 March 2015
		£000		£000				£000
Cash flows from operating activities
Profit for the period		32,327		35,844				72,171
Adjustments for:
Depreciation and amortisation		12,543		11,948				22,838
Financial income		(178)		(200)				(572)
Financial expense		7,472		5,562				10,369
Taxation		8,578		4,629				14,794
Share based payment charges		1,577		811				1,657
		62,319		58,594				121,257
Increase in trade and other receivables		(3,031)		(5,938)				(9,468)
Increase in inventories		(11,453)		(5,808)				(2,358)
Increase in trade and other payables		6,408			2,984				16,132
Decrease in IPO related trade and other payables (i)		-			(25,184)				(25,184)
Total increase/(decrease) in trade and other payables		6,408		(22,200)				(9,052)
Decrease in provisions		(245)		(217)				(225)
		53,998		24,431				100,154
Tax payable - underlying		(5,307)		(6,300)				(12,874)
Tax receivable - exceptional		-		4,295				4,295
Net cash from operating activities		48,691		22,426				91,575
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		776		-				874
Interest received		271		51				364
Investment in other financial assets		(591)		(1,273)				(2,176)
Acquisition of subsidiary, net of cash acquired		(2,426)		-				-
Acquisition of property, plant and equipment and other intangible assets		(14,683)		(14,582)				(30,361)
Net cash used in investing activities		(16,653)		(15,804)				(31,299)
Cash flows from financing activities
Equity dividends paid		(17,932)		-				(8,942)
Proceeds from new loan		213,000		-				-
Repayment of borrowings		(325,000)		-				-
Repayment of borrowings on acquisition		(1,751)		-				-
Interest paid		(3,640)		(5,217)				(9,191)
Debt issue costs		(1,323)		-				-
Net cash used in financing activities		(136,646)		(5,217)				(18,133)
Net (decrease)/increase in cash and cash equivalents		(104,608)		1,405				42,143
Cash and cash equivalents at beginning of period		132,966		90,823				90,823
Cash and cash equivalents at end of period		28,358		92,228				132,966

(i)             The IPO related payables at 27 March 2014 of £25,184,000 related to costs incurred as part of the IPO on 17 March 2014, which were included in accruals and other creditors at the period end date, which were settled in full in the period to 9 October 2014.

Notes

1          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 8 October 2015 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 26 March 2015 are available on request from the Company's registered office and via the Company's website.

The consolidated financial statements are prepared on the historical cost basis except for derivative financial instruments, share based payments and certain investments measured at their fair value.

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 IAS34 Interim Financial Reporting as adopted by the EU. 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 26 March 2015.

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 26 March 2015 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 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 the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the condensed consolidated interim financial statements as at and for the 28 week period ended 8 October 2015.

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 8 October 2015 are consistent with the policies applied by the Group in its consolidated financial statements as at and for the 52 week period ended 26 March 2015, 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.

Notes (continued)

1          Basis of preparation (continued)

Accounting estimates and judgments

The preparation of the condensed consolidated interim financial statements in conformity with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS34 Interim Financial Reporting as adopted by the EU 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 ongoing 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 discussed below.

Carrying value of inventories

The Directors review the market value of and demand for its inventories on a periodic basis to ensure inventory is recorded in the financial statements at the lower of cost and net realisable value.  Any provision for impairment is recorded against the carrying value of inventories.  The Directors use their knowledge of market conditions to assess future demand for the Group's products and achievable selling prices.

Impairment of goodwill and other intangibles

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 and a suitable discount rate in order to calculate present value.

Assumptions relating to tax

The Group recognises expected assets for tax based on an estimation of the likely taxes receivable, which requires significant judgment as to the ultimate tax determination of certain items.  Where the actual asset arising from these issues differs from these estimates, such differences will have an impact on income tax and deferred tax assets in the period when such determination is made.

Provisions

Provisions have been made for dilapidations and for closed stores.  The provisions are based on historical experience and management's best knowledge at the time and are reviewed at each balance sheet date.  The actual costs and timing of future cash flows are dependent on future events.  Any difference between expectations and the actual future liability will be accounted for in the period when such determination is made.

Investment in veterinary practices

The Group has a number of non-participatory shareholdings in veterinary practice companies, which are accounted for as joint venture arrangements. The veterinary practices were established under terms that require mutual agreement between the Group and the joint venture partner, and that do not give the Group power over decision making to affect its exposure to, or the extent of, the returns from its involvement with the practices and therefore are not consolidated in these financial statements. Further, the Group is not entitled to profit, losses, or any surplus on winding up or disposal of the veterinary practices, and as such no participatory interest is recognised.

Notes (continued)

1          Basis of preparation (continued)

Accounting estimates and judgments (continued)

Supplier income

A number of different types of supplier income are negotiated with suppliers via the joint business planning process, in connection with the purchase of goods for resale. The supplier income arrangements typically are not co-terminus with the Group's financial period, instead running alongside the calendar year. Such income is only recognised when there is reasonable certainty that the conditions for recognition have been met by the Group, and the income can be measured reliably based on the terms of the contract. This income is recognised as a credit within gross margin and, to the extent that the rebate relates to unsold stock purchases, as a reduction in the cost of inventory. Supplier income comprises three main elements:

1.     Fixed percentage based income: These relate largely to volumetric rebates based on the joint business plan agreements with suppliers. The income accrued is based on the Group's latest forecast volumes and the latest contract agreed with the supplier. Income is not recognised until the Group has reasonable certainty that the joint business agreement will be fulfilled, with the amount of income accrued regularly re-assessed and re-measured throughout the contractual period, based on actual performance against the joint business plan.

2.     Fixed lump sum income: These are typically guaranteed lump sum payments made by the supplier and are not based on volume. Fixed lump sum income is usually predicated on confirmation of a supplier contract and typically includes performance conditions upon the Group, such as marketing and promotional campaigns. These amounts are recognised periodically based on the most recent assessment of contractual performance.

3.     Growth income: These are tiered volumetric rebates relating to growth targets agreed with the supplier in the joint business planning process. These are retrospective rebates based on sales volumes or purchased volumes. Income is recognised to the extent that it is reasonably certain that the conditions will be achieved, with such certainty increasing in the latter part of the calendar year.

Supplier income is recognised on an accruals basis, based on the expected entitlement that has been earned up to the balance sheet date for each relevant supplier contract. The accrued incentives, rebates and discounts receivable at period end are included within trade and other receivables.

Notes (continued)

2          Segmental reporting

The Directors consider there to be one reportable segment, being that of the sale of pet products and services through retail outlets and the Group's website. 

The Group's Board receives monthly financial information at this level and uses this information to monitor the performance of the store portfolio, allocate resources and make operational decisions.  The internal reporting received focuses on the Group as a whole and does not identify individual segments.  To increase transparency, the Group has decided to include an additional voluntary disclosure analysing revenue within the reportable segments.

Revenue				28 week period ended 8 October 2015		28 week period ended 9 October 2014		52 week period ended  26 March 2015
				£000		£000		£000
Food					202,108		188,743		359,377
Accessories					160,489		159,582		306,754
Services and other					41,906		33,196		62,955
					404,503		381,521		729,086

The 'services and other' category includes veterinary group income, grooming revenue, insurance commissions, and the sale of pets.

Notes (continued)

3          Operating profit

The performance of the operating segment is primarily based on a measure of Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) before exceptional items. This can be reconciled to statutory operating profit as follows:

			28 week period ended 8 October 2015	28 week period ended 9 October 2014	52 week period ended 26 March 2015
			£000	£000	£000
Operating profit			48,199	45,835	96,762
Depreciation and amortisation			12,543	11,948	22,838
Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA)			60,742	57,783	119,600

Included in operating profit are the following:

			28 week period ended 8 October 2015	28 week period ended 9 October 2014	52 week period ended 26 March 2015
			£000	£000	£000
Depreciation of tangible fixed assets			11,116	10,773	19,659
Amortisation of intangible assets			1,427	1,175	3,179
Rentals under operating leases:
Hire of plant and machinery			1,923	1,124	3,648
Property			36,307	33,357	66,474
Rental income from sublets			(5,291)	(4,056)	(8,054)
Share based payment charges			1,577	811	1,657

Notes (continued)

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 8 October 2015			28 week period ended  9 October 2014		52 week period ended 26 March 2015
	Underlying		After Exceptionals	Underlying	After Exceptionals	Underlying	After Exceptionals
	£000		£000	£000	£000	£000	£000
Profit attributable to equity shareholders of the parent	35,788		32,327	31,549	35,844	67,876	72,171
	'000s		'000s	'000s	'000s	'000s	'000s
Basic weighted average number of shares	500,000		500,000	500,000	500,000	500,000	500,000
Dilutive potential ordinary shares	3,452		3,452	-	-	1,110	1,110
Diluted weighted average number of shares	503,452		503,452	500,000	500,000	501,110	501,110
Basic earnings per share		7.2p	6.5p	6.3p	7.2p	13.5p	14.4p
Diluted earnings per share		7.1p	6.4p	6.3p	7.2p	13.5p	14.4p

Notes (continued)

5          Financial expense

Recognised in the income statement

		28 week period ended 8 October 2015		28 week period ended 9 October 2014		52 week period ended 26 March 2015
			£000		£000	£000
Bank loans at effective interest rate			3,146		5,560	10,367
Other interest expense			-		2	2
Total underlying financial expense			3,146		5,562	10,369
Exceptional amortisation costs			4,326		-	-
Total exceptional financial expense			4,326		-	-
Total financial expense			7,472		5,562	10,369

Exceptional financial expenses in the 28 week period ended 8 October 2015 related to £4,326,000 of accelerated amortisation of capitalised fees associated with the previous senior banking facilities, which were repaid in full during the period. Detail on the new senior banking facilities can be found in note 9.

Notes (continued)

6          Taxation

Recognised in the income statement

	28 week period ended 8 October 2015							28 week period ended 9 October 2014		52 week period ended                         26 March 2015
	Underlying		Exceptional			Total	Underlying	Exceptional	Total	Underlying		Exceptional				Total
		£000		£000	£000		£000	£000	£000	£000	£000			£000
Current tax expense
Current period		9,419		(865)	8,554		9,087	-	9,087	15,307			-		15,307
Adjustments in respect of prior periods		-		-	-		-	(4,295)	(4,295)	(770)			(4,295)		(5,065)
Current tax expense		9,419		(865)	8,554		9,087	(4,295)	4,792	14,537			(4,295)		10,242
Deferred tax expense/(credit)
Origination and reversal of temporary differences		24		-	24		(171)	-	(171)	4,319			-		4,319
Reduction in tax rate		-		-	-		8	-	8	-			-		-
Adjustments in respect of prior periods		-		-	-		-	-	-	233			-		233
Deferred tax expense/(credit)		24		-	24		(163)	-	(163)	4,552			-		4,552
Total tax expense		9,443		(865)	8,578		8,924	(4,295)	4,629	19,089			(4,295)		14,794

The corporation tax rate applicable to the group was 20% in the period to 8 October 2015. In the Budget on 8 July 2015, further reductions in the main UK corporation tax rate were substantively enacted on 26 October 2015 of additional planned reductions to 19% from April 2017 and to 18% by 2020. This will reduce the group's future current tax charge accordingly. The deferred tax asset at 8 October 2015 has been calculated based on the rate of 20%, being the rate which was substantively enacted at the balance sheet date.

Deferred tax recognised in other comprehensive income

	28 week period ended 8 October 2015			28 week period ended 9 October 2014		52 week period ended  26 March 2015
		£000		£000		£000
Effective portion of changes in fair value of cash flow hedges			(460)		197		303

Notes (continued)

6          Taxation (continued)

Reconciliation of effective tax rate

		28 week period ended 8 October 2015			28 week period ended 9 October 2014			52 week period ended 26 March 2015
		Underlying	Exceptional	Total	Underlying	Exceptional	Total	Underlying	Exceptional	Total
		£000	£000	£000	£000	£000	£000	£000	£000	£000
	Profit for the period	35,788	3,461	32,327	31,549	4,295	35,844	67,876	4,295	72,171
	Total tax expense	9,443	865	8,578	8,924	(4,295)	4,629	19,089	(4,295)	14,794
	Profit excluding taxation	45,231	4,326	40,905	40,473	-	40,473	86,965	-	86,965
	Tax using the UK corporation tax rate for the period	9,046	(865)	8,181	8,499	-	8,499	18,263	-	18,263
	Impact of reduction in tax rate on deferred tax balances	-	-	-	8	-	8	(45)	-	(45)
	Expenditure not eligible for tax relief	397	-	397	417	-	417	1,424	-	1,424
	Other	-	-	-	-	-	-	217	-	217
	Adjustments in respect of prior periods	-	-	-	-	(4,295)	(4,295)	(770)	(4,295)	(5,065)
	Total tax expense	9,443	(865)	8,578	8,924	(4,295)	4,629	19,089	(4,295)	14,794

The UK corporation tax standard rate for the period was 20% (period ended 26 March 2015: 21%; period ended 9 October 2014: 21%).

The exceptional tax credit of £4.3m in the prior period represented the release of a provision in respect of interest on debt associated with the pre IPO structure following agreement with HMRC. As part of the IPO process this debt was repaid.

Notes (continued)

7          Tangible fixed assets

	Freehold buildings		Leasehold improvements		Fixtures, fittings, tools and equipment	Total
	£000		£000	£000		£000
Cost
Balance at 27 March 2014	2,508		32,830	101,858		137,196
Additions	-		926	12,808		13,734
Disposals	-		-	-		-
Balance at 9 October 2014	2,508		33,756	114,666		150,930
Additions	-		1,878	14,183		16,061
Disposals	-		(409)	(1,270)		(1,679)
Balance at 26 March 2015	2,508		35,225	127,579		165,312
Additions	8		2,183	9,085		11,276
On acquisition	1,613		-	438		2,051
Disposals	-		(314)	(1,549)		(1,863)
Balance at 8 October 2015	4,129		37,094	135,553		176,776
Depreciation
Balance at 27 March 2014	79		7,980	35,509		43,568
Depreciation charge for the period	21		1,287	9,465		10,773
Disposals	-		-	-		-
Balance at 9 October 2014	100		9,267	44,974		54,341
Depreciation charge for the period	18		989	7,879		8,886
Disposals	-		(278)	(527)		(805)
Balance at 26 March 2015	118		9,978	52,326		62,422
Depreciation charge for the period	109		1,266	9,741		11,116
Disposals	-		(314)	(773)		(1,087)
Balance at 8 October 2015	227		10,930	61,294		72,451

Net book value
At 27 March 2014	2,429	24,850	66,349	93,628
At 9 October 2014	2,408	24,489	69,692	96,589
At 26 March 2015	2,390	25,247	75,253	102,890
At 8 October 2015	3,902	26,164	74,259	104,325

Notes (continued)

8          Intangible assets

	Goodwill	Software	Total
	£000	£000	£000
Cost
Balance at 27 March 2014	952,032	8,345	960,377
Additions	-	957	957
Balance at 9 October 2014	952,032	9,302	961,334
Additions	-	2,496	2,496
Balance at 26 March 2015	952,032	11,798	963,830
Additions	2,833	2,426	5,259
Balance at 8 October 2015	954,865	14,224	969,089
Amortisation
Balance at 27 March 2014	-	5,139	5,139
Amortisation for the period	-	1,175	1,175
Balance at 9 October 2014	-	6,314	6,314
Amortisation for the period		2,004	2,004
Balance at 26 March 2015	-	8,318	8,318
Amortisation for the period	-	1,427	1,427
Balance at 8 October 2015	-	9,745	9,745

Net book value
At 27 March 2014	952,032	3,206	955,238
At 9 October 2014	952,032	2,988	955,020
At 26 March 2015	952,032	3,480	955,512
At 8 October 2015	954,865	4,479	959,344

Notes (continued)

8      Intangible assets (continued)

Amortisation and impairment charge

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

Impairment testing

Cash Generating Units ('CGU') within the group are considered to be the body of stores and website as disclosed in note 2, and the veterinary hospital operated by Northwest Surgeons Limited as disclosed in note 14. The Group is deemed to have two overall groups of CGUs as follows:

Goodwill
		At 8 October 2015		At 9 October 2014	At 26 March 2015
	£000		£000		£000
Pets at Home Group	952,032			952,032	952,032
Northwest Surgeons Limited	2,833			-	-

The recoverable amount of the CGU groups have been calculated with reference to their value in use.  The key assumptions of this calculation are shown below:

	At 8 October 2015	At 9 October 2014	At 26 March 2015
	£000	£000	£000
Period on which management approved forecasts are based (years)	3	3	3
Growth rate applied beyond approved forecast period	3%	3%	3%
Discount rate (pre-tax)	9%	8%	9%

The goodwill is considered to have an indefinite useful life and the recoverable amount is determined based on "value-in-use" calculations.  These calculations use pre-tax cash flow projections based on a 3 year business plan approved by the Board.  These projections are based on all available information and growth rates do not exceed growth rates achieved in prior periods.

The discount rate was estimated based on past experience and industry average weighted average cost of capital.  Management have assumed a growth rate projection beyond the 3 year period based on inflationary increases. Sensitivity analysis was performed with a 2% movement in the discount rate with no indicators of impairment identified.

The total recoverable amount in respect of goodwill for the CGU group as assessed by the managers using the above assumptions is greater than the carrying amount and therefore no impairment charge has been booked in each period.  The Directors consider that it is not reasonably possible for the assumptions to change so significantly as to eliminate the excess.

Notes (continued)

9          Other interest-bearing loans and borrowings

On 14 April 2015, the Company and certain of its subsidiaries entered into the Amendment Agreement to the Senior Facilities Agreement. The Amendment Agreement became effective on 15 April 2015 (the "Effective Date").

The Amendment Agreement provided that a new revolving facility of £260 million (the "Revolving Facility 2") was incorporated into the Senior Facilities Agreement. The existing term loans and revolving facilities were repaid on 15 April 2015, with cash held on the balance sheet and the proceeds of a drawing under Revolving Facility 2. Upon repayment these term loans and revolving facilities were cancelled.

Revolving Facility 2 is available for drawing to finance and/or refinance (as applicable) the general corporate purposes and/or working capital requirements of the Group. The interest rate applicable to Revolving Facility 2 is LIBOR plus a margin ranging between 0.75% and 2.00% per annum depending on the ratio of consolidated EBITDA to total net debt. The margin currently applicable to utilisations under Revolving Facility 2 is 1.50% per annum.

The Group has available to it the Revolving Facility 2 up to a maximum of £260m, of which £47m was undrawn at the period end. Subject to certain conditions being met, the Amendment Agreement allows the Group to add additional facilities, on consistent terms up to £150,000,000 if required ("Additional Facilities"). Such Additional Facilities would not require further consent from the existing lenders.

The Amendment Agreement commenced on 15 April 2015 and will terminate on 14 April 2020.

All bank borrowings are secured by fixed and floating charges over substantially all of the assets of the Pets at Home Group Plc and certain of its subsidiaries. The security includes fixed charges over the head office freehold property, the distribution centre leasehold properties, and any plant and machinery owned by the Company or the relevant subsidiaries. 

		At 8 October 2015		At 9 October 2014		At 26 March 2015
		£000		£000		£000
Non-current liabilities
Secured bank loans		-		315,420		315,674
Revolving credit facility		211,902		-		-
		211,902		315,420		315,674
Current liabilities
Current portion of secured bank loans		-		5,000		5,000
Total liabilities
Secured bank loans		-		320,420		320,674
Revolving credit facility		211,902		-		-
		211,902		320,420		320,674

Notes (continued)

9      Other interest-bearing loans and borrowings (continued) 

The analysis of repayments on the combined loan principal is as follows:

	At 8 October 2015	At 9 October 2014	At 26 March 2015
	£000	£000	£000
Within one year or repayable on demand	-	5,000	5,000
Between one and two years	-	12,500	12,500
Between two and five years	213,000	72,500	307,500
After five years	-	235,000	-
	213,000	325,000	325,000

Terms and debt repayment schedule

	Nominal interest rate		Year of maturity	Face value	Carrying amount	Face value	Carrying amount	Face value	Carrying amount
				8 October 2015	8 October 2015	9 October 2014	9 October 2014	26 March 2015	26 March 2015
				£000	£000	£000	£000	£000	£000
Senior Facility Bank Loans	LIBOR +2-2.25%		2019/20	-	-	325,000	320,420	325,000	320,674
Senior Facility Revolving Credit Facility 2	LIBOR +1.5%		2020	213,000	211,902	-	-	-	-
				213,000	211,902	325,000	320,420	325,000	320,674

Notes (continued)

9      Other interest-bearing loans and borrowings (continued) 

Pets at Home Group Plc has entered into fixed rate interest rate swap agreements over the senior facility borrowings at various fixed rates using a number of hedging instruments which expire between 30 March 2016 and 30 March 2018.  The instruments are structured to hedge at least 70% of outstanding debt.

The notional values set out according the expiry date of the instrument is as follows:

Period in which the instrument expires:				9 October 2014		26 March 2015		8 October 2015		31 March 2016		30 March 2017		29 March 2018		28 March 2019
Notional value contracted				-		-		-		£200.0m		£150.0m		-		£85.0m
Rate payable				-		-		-		0.716%		1.087%		-		1.639%
Rate receivable				-		-		-		LIBOR		LIBOR		-		LIBOR
Commencement				-		-		-		30/03/2013		30/03/2016		-		30/03/2017
Expiry				-		-		-		30/03/2016		30/03/2017		-		30/03/2018
Notional value applicable at 8 October 2015				-		-		-		£200.0m		-		-		-
Notional value applicable at 9 October 2014				-		-		-		£316.8m		-		-		-
Notional value applicable at 31 March 2015				-		-		-		£316.9m		-		-		-

Notes (continued)

10        Financial instruments

Fair value hierarchy

The table below analyses financial instruments measured at fair value, into a fair value hierarchy based on the valuation technique used to determine fair value.

§  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).

8 October 2015	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Available for sale financial assets
Investment in equity securities	-	-	8,724	8,724
Derivative financial assets
Forward rate contracts	-	42	-	42
Derivative financial liabilities
Interest rate swaps	-	(1,186)	-	(1,186)
Fuel forward contracts	-	(90)	-	(90)
9 October 2014	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Available for sale financial assets
Investment in equity securities	-	-	7,230	7,230
Derivative financial assets
Interest rate swaps	-	191	-	191
Forward rate contracts	-	344	-	344
26 March 2015	Level 1	Level 2	Level 3	Total
	£000	£000	£000	£000
Available for sale financial assets
Investment in equity securities	-	-	8,133	8,133
Derivative financial assets
Forward rate contracts	-	1,697	-	1,697
Derivative financial liabilities
Interest rate swaps	-	(453)	-	(453)
Fuel forward contracts	-	(179)	-	(179)

Notes (continued)

10        Financial instruments (continued)

Measurement of fair values

Valuation techniques and significant unobservable inputs

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

11        Dividends

On 24 November 2015 the directors declared an interim dividend of 2.0 pence per share, amounting to £10.0 million, which is payable on 8 January 2016 to ordinary shareholders on the register at the close of business on 10 December 2015.

12        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 Pets at Home stores.

Notes (continued)

13        Related party transactions

KKR Capital Markets Limited

During the period, KKR Capital Markets Limited, an affiliate of KKR My Best Friend Limited, a substantial shareholder, were paid a fee of £500,000 for arranging the Amendment Agreement disclosed in note 9.

Veterinary practice transactions                                                                                                                     

The Group has entered into a number of arrangements with third parties in respect of veterinary practices.  These veterinary practices are deemed to be related parties.

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

	28 week period ended 8 October 2015	28 week period ended 9 October 2014	52 week period ended  26 March 2015
	£000	£000	£000
Transactions
Fees for services provided to veterinary practices	18,356	14,832	28,249
Rental charges to veterinary practices	4,746	3,525	7,056
	At 8 October 2015	At 9 October 2014	At 26 March 2015
	£000	£000	£000
Balances
Due from veterinary practice companies at end of period included within other receivables	18,189	9,247	17,334

14        Business Combinations

On 15 April 2015, the Group acquired 100% of the share capital of Northwest Surgeons Limited in exchange for initial cash consideration of £2,616,000, and provisional deferred consideration of £562,000.

Northwest Surgeons Limited is a company registered in England and Wales, engaged in the provision of specialist veterinary services to veterinary practices in the north west of England. The acquisition represents the first specialist veterinary referral practice within the group.

It is anticipated that the financial statements of Pets at Home Group Plc for the 53 week period to 31 March 2016 will include a full disclosure in accordance with IFRS 3 of consideration paid or payable, the fair value of net assets acquired, goodwill recognised, and acquisition related costs, at such time as the initial accounting for the business combination is complete.

Provisional goodwill of £2,833,000 has been recognised on the balance sheet within these interim financial statements. Provisional acquisition related costs of £84,000 have been excluded from the consideration transferred and have been recognised as an expense in the profit and loss account in the current year, within the 'administrative expenses' line item.

 

END

 

 

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