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Pets at Home Grp (PETS)

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Wednesday 10 June, 2020

Pets at Home Grp

Notice of AGM

RNS Number : 4565P
Pets At Home Group Plc
10 June 2020






Pets at Home Group Plc: Posting of Annual Report & Accounts and Notice of AGM

Pets at Home Group Plc (LSE: PETS) ("Company") today announces that its Annual Report and Accounts for the year ended 26 March 2020 ("Annual Report"), Notice ("Notice") of the 2020  Annual General Meeting ("AGM") and Form of Proxy for the 2020 AGM have been sent to shareholders and the Annual Report and Notice are available on the Company's website at .

In compliance with LR9.6.1, the Company has today submitted electronic copies of the following documents to the National Storage Mechanism appointed by the Financial Conduct Authority and these will shortly be available for inspection at :

· Annual Report and Accounts for the year ended 26 March 2020;

· Notice of the 2020 AGM; and

· Form of Proxy for the 2020 AGM.

The Company's AGM will be held at 11.00 am on 9 July 2020 at Pets at Home, Chester House, Stanley Green Trading Estate, Handforth, Cheshire, SK9 3RN .

As noted in the Notice of the 2020 AGM, in light of the COVID-19 pandemic, new laws have been introduced to prevent non-essential travel and public gatherings, save for limited purposes.The new laws mean that this year's AGM is expected to be held in a different format to previous years and the Board has decided, in the interests of public safety, that shareholders will not be permitted to attend this year's AGM in person.

As detailed in the Notice of the 2020 AGM, shareholders are able to ensure their votes are counted by submitting proxies in advance, either online or by post. The Board is also inviting shareholders to submit questions in advance of the AGM and answers to questions on key themes will be made available on the Company's website, , as soon as practically possible after the AGM. Further details on how to vote and submit questions in advance of the AGM can be found in the Notice of the 2020 AGM.

The Company's preliminary results announcement on 21 May 2020 included, in addition to the preliminary financial results for the year ended 26 March 2020, information on important events that occurred during the year and their impact on those financial statements. That information, together with the information set out in the Appendix below is provided in compliance with the requirements of DTR6.3.5(2) (b). This information is not a substitute for reading the full Annual Report and Accounts for the year ended 26 March 2020.




Pets at Home Group Plc:

+44 (0) 161 486 6688

Lucy Williams, Company Secretary


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 441 First Opinion practices located both in our stores and in standalone locations, as well as four Specialist Referral centres. For more information visit:




Directors Responsibility Statement


The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the year ended 26 March 2020.


The Directors of Pets At Home Group Plc confirm that to the best of their knowledge:


· the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and


· the strategic report/directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.


The Directors of Pets at Home Group Plc consider the annual report and accounts taken as a whole, is fair, balanced and understandable and provides the necessary information for shareholders to assess the Group's position and performance, business model and strategy.


This responsibility statement was approved by the Board of Directors on 21 May 2020 and signed on its behalf by Peter Pritchard, Group Chief Executive Officer.


Principal Risks and Uncertainties


A risk management framework is in place allowing risks to be identified, assessed and managed within appetite, whilst taking advantage of opportunities. This allows the strategy to be effectively delivered and protects value for shareholders.


Risk Management Framework


The responsibility for risk management operates at all levels throughout the Group.


Board of Directors


The Board of Directors has overall responsibility for the Group's risk and internal control frameworks. It determines the nature and level of principal risks and sets risk appetite. Undertakes a robust assessment of the Group's principal risks.


Audit and Risk Committee


Assists the Board fulfil its corporate governance and oversees responsibilities in relation to financial reporting, internal controls and the risk management framework. Provides oversight and challenge to the assessment of principal risks. Reviews internal financial controls and the risk management framework and assesses their effectiveness in mitigating Group level risks and advises the Executive Management Team on risk appetite. Reviews and oversees the Group risk register - reviews detailed risk reports at each sitting with supplementary reporting from the management team on specific key risks. Conducts regular deep dives into key risk areas with relevant Directors to understand the nature of the risks and adequacy of the mitigations and controls that are in place.


Executive Management Team


Collectively responsible for managing risk. Key risks are allocated to an Executive Management Team member for oversight and ultimate ownership. Receives regular risk updates and reports from Board committees, internal audit, assurance teams and external advisors.


Internal Audit

Gives objective assurance to the Board and Audit and Risk Committee on the effectiveness of the risk management framework. Holds meetings with risk owners across the business four times per year. Updates the individual risk registers, including actions and progess made, assesses risk ratings and documents the controls in place that help mitigate each risk. Recommends improvements and corrective actions.


Operational Management


Owns and manages operational and project risk. Ensures Group policies and procedures are implemented and complied with and implements mitigating actions. Communicates significant risks via reporting processes to the senior management team.  


Key Risks


The key risks identified by the Board are summarised below.


COVID-19 pandemic and Brexit


The Board has reviewed the risks and opportunities that may arise as a result of both the COVID-19 pandemic and Brexit.


Uncertainty around Brexit remains, therefore we are preparing for a scenario that has the most potential for disruption.


In response to the unprecedented challenges presented by COVID-19, we have clearly set out our priorities and have appropriate, balanced and calibrated mitigation plans for our people, our customers and their pets, supply chain, operating model and liquidity.


Our priorities are first and foremost to safeguard the wellbeing and safety of our colleagues, Partners, customers and pets, and suppliers as well as ensuring the continuity of customer service in our stores.


Whilst the longer term effects remain unclear, we continue to monitor the risks and the ongoing impacts closely.


Based on our scenario planning and latest view from government we have assessed that our risk profiles, other than liquidity, remain stable.


We will remain vigilant, continue to plan, stay agile, and communicate with our colleagues and stakeholders accordingly to put our business in the strongest position possible for the future.

Both have the potential to affect the following principal risks:


• Competition

• Our people

• Supply chain and sourcing

• Services and stores expansion

• Liquidity and credit

• Treasury and finance

• Regulatory and compliance


Brand and reputation


Description and impact


Our vision is to be the best pet care business in the world. Our number one value is "We put pets first" and pet welfare remains our highest priority.Protecting our strong brand, reputation and customer loyalty is essential to our business. Failure to do so could result in loss of trust and confidence in the Group brands by customers, colleagues and other stakeholders.




Advancing pet welfare continues to be a priority. Pet welfare across the Group is overseen by the Corporate Social Responsibility and Pets Come First Committee. Its remit is to review pet welfare and clinical standards, and check that appropriate processes are in place to ensure we maintain our high welfare standards.


As a retailer of small pets the highest possible welfare standards must be maintained at all times. We have rigorous processes in place to ensure this across all our stores, including in-store adoption centres, and with our breeders. All are assessed regularly against a comprehensive set of welfare standards both by internal and external independent assessors. We also have a highly visible field operations team that are focused on maintaining the highest pet welfare standards in stores and grooming salons.


Every store colleague is also empowered to refuse to sell a pet if they have any doubts about the suitability of its forever home.


We operate a confidential 'Pet Promise Line' where colleagues are able to raise concerns about pet care directly with our Head of Pets, who is a qualified veterinary surgeon. Any call to this line results in appropriate action to address the concerns raised.


Examples of where we prioritise pet welfare include our decision to suspend the sale and adoption of rabbits at Easter and instead provide workshops to educate about the responsibilities of pet ownership. Over Christmas we encourage customers to buy the relevant housing, accessories and food and to take gift vouchers home rather than pets. This allows new owners the chance to visit one of our stores after Christmas to learn about the welfare needs of their pet before taking it home.


The Group also interacts with customers' pets on a daily basis through its First Opinion veterinary practices and Specialist Referral centres. All veterinary surgeons and nurses are subject to the Royal College of Veterinary Surgeons' (RCVS) Code of Conduct.


283 practices are accredited under the RCVS Practice Standards Scheme (PSS), with a further 66 currently enrolled to become accredited. This is a voluntary scheme, which through setting standards and carrying out regular assessments, aims to promote and maintain the highest standards of veterinary care. To become accredited, practices volunteer for rigorous assessment every four years and will have met a range of standards. Practices are also subject to independent spot-checks between assessments. We will continue to drive and support PSS accreditation. To support our colleagues further our clinical development team, who are all veterinary surgeons, audit to our internally developed "Aspiring to Clinical Excellence" audit programme which has helped improve clinical standards and processes across the Group. We are also leading the way in First Opinion clinical practice with ground-breaking initiatives. A new quality improvement system (Q12020) has been launched which gathers granular detail about practice clinical standards to enable clinical services support to be tailored and targeted to provide maximum benefits.


Our STAR (Stop and Think, are Antibiotics Required?) programme has been developed with extensive input from our practice teams, and includes unique and innovative assets to educate clients, challenge and change established prescribing behaviours, and encourage the responsible use of antibiotics. The result of antibiotic usage auditing was shared and demonstrate a positive reduction in antibiotic use across the Group, over time.




As we continue to increase the size and scale of our pet care services offering, we must ensure that pet welfare standards continue to be maintained at a high level across the Group. We will continue to monitor welfare standards closely, taking appropriate steps where required to maintain them whilst continually looking for ways to improve.


Following Government requirements for COVID-19 and RCVS guidance our First Opinion practices and Specialist Referral centres remain open to deliver emergency care. As professionals we are taking each case on its own merit and continue to undertake what is essential for the pet's health and welfare needs.


Risk profile: High


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, Use data and VIP to better serve customers,

Set our people free to serve




Description and impact


The Group competes with a wide variety of retailers, including other pet specialists, pure play online competitors, supermarkets, discounters, veterinary groups and independent practices. Online competition is also a risk, as large well-known internet businesses expand into pet products and established pet product sites improve and expand their offer.


Failure to offer an attractive model to our future Joint Venture Partners whilst keeping abreast of, and responding to, developments by all our competition in the areas of price, range, quality, clinical care and customer service could have an adverse impact on the Group's financial performance and impact opportunities for growth.




We offer pet owners the complete pet care experience, something our competitors cannot. Through our combination of pet products and related services, which we make affordable, convenient and rewarding, we are able to differentiate ourselves and take share across all market segments.


As a specialist retailer, the delivery of friendly expertise through our highly engaged and trained colleagues is a key element of our proposition and we continue to invest to ensure our service standards are continually improved.


Market research is carried out to review the pet market to understand what our competitors are doing worldwide. This helps identify further changes or initiatives that can be implemented to help keep Pets at Home a leader in the UK market. In addition we are constantly reviewing expansion opportunities into new adjacencies that would contribute to our ecosystem.


We have a competitive pricing strategy across private label Advanced Nutrition foods, branded food lines and pet essentials. We are executing the plan to keep our prices competitive, and to deliver everyday low prices for our most loyal customers. Overall, we have seen strong results, particularly in food and Advanced Nutrition, where increased sales volumes offset the price reductions, leading to overall revenue growth in those categories and have maintained competitiveness against pure online competitors.


We will continue to target price investment into product areas that we believe drive shopper frequency and loyalty, not simply reducing prices across the entire range.


We continue to evolve our proposition through the addition of vets and groomers into our existing store estate whilst continuing to innovate our superstore format - with the intention of making our stores more experiential destinations for our current and prospective customers with the regular introduction of new and exclusive products into our food and accessory ranges.


COVID-19 has created a significant shift towards online, home delivery and contactless delivery options with our omnichannel participation of Retail sales almost doubling. We are expecting more customers to use online as part of their new shopping repertoire as it has been the life line for many pet owners over the past few weeks. Customer buying behaviour was already rapidly changing in an increasingly challenging and competitive retail landscape. Consumers have greater demands around price, convenience, service and experience. In response our online range of food and accessories has been extended and online shopping is available 24/7 for our customers, whilst offering a choice of delivery options.


As part of our continued investment in the digital shopping experience we have upgraded our website functionality and content to bring together our unique combination of products and services. The recent capital investment in automating the picking and packing process at our Northampton Distribution Centre means we are well positioned to meet the continued growth we expect to see in our omnichannel business. We are attracting and retaining even more of the UK's pet lovers, building lifetime relationships with over 5.6m VIP (Very Important Pet) club members whose purchases of products and services has grown 24% year-on-year.


We are uniquely positioned with our VIP data; it is the key driver for one of our strategic pillars' "using data to better serve customers". Our strategy is to establish "Pet Care Analytics for All" where analytics will become the lifeblood of our pet care ambitions across the Group. We are focusing on creating an internal analytics capability that will drive strategic decision making, enables an increasingly personalised customer experience and optimises the working life of our colleagues and partners.


Our veterinary business is the largest branded veterinary business in the UK and continues to have a differentiated strategy versus its scale UK competitors, which all employ variations of a 'buy and build' model. The relationship with our Retail stores and VIP club, Joint Venture model, and ability to advertise at national scale under a single brand are key aspects of a strategy that remain difficult for any competitor to replicate - in part or in whole. We continued to leverage these competitive advantages during the past year to drive above market customer sales growth across our estate, and also took important action to recalibrate our First Opinion veterinary business to create a foundation to return a sustainable profit and cash return profile for our Group and our Joint Venture Partners.




We are in a strong position in a large, resilient market that is both in structural growth and largely defensive.


However, the impact of COVID-19 response both in terms of society and consumer behaviour means the outlook for next year is inherently uncertain, with the longer term effects largely unknown. Our designation by the UK Government as an "essential retailer" means we continue to trade and provide pet products and health care services that are deemed essential to the nation's pet owners.


We are expecting to see a different competitive landscape due to COVID-19 driving shifts in customer behaviours to online, which is expected to continue, and some bricks and mortar retailers not surviving an extended period of reduced trading.


As the flow of goods from the Far East was not severely impacted we are expecting to see over availability of goods, which may increase the levels of deals for customers when unrestricted trading commences.


We will use our unique strengths to attract new pet owners, through our brand, cross-Group offers, and our VIP club and will keep our prices competitive for our most loyal customers. We continue to invest in our online capabilities to maximise this route to market.


Circa 75% of the small animal veterinary market in the UK is corporately owned. We can benefit from our strong strategic footing as the only corporate vet business in the UK that provides an owner-operator model that gives entrepreneurial First Opinion vets the ability to own their own business and operate with complete clinical freedom.


Risk profile: Medium


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, Use data and VIP to better serve customers, 50% of sales from pet services


Services and stores expansion


Description and impact


A key part of the Group's growth strategy is to deliver 50% of sales from pet care services, by having a complete pet care strategy aligned across the Group. If we are unable to deliver the initiatives laid out in our strategy our expected financial performance could be adversely impacted.




We regularly review our offer, store proposition and portfolio to maximise the potential from our retail estate and are continuing to evolve our network with our stores of tomorrow format that bring pet care services and experiences to customers. We have launched 18 pet care centre format stores, including the in-store Groom Rooms and First Opinion veterinary practices, and one standalone First Opinion veterinary practice.


As we move through the roll out programme, our customers' experience and store performance is monitored, and where required we are refining the concept and design. Our colleagues remain our biggest asset and are fundamental to the success of the new store concept.


We also have the ability, with smaller footprint stores, to utilise mezzanine space to deploy vet and Groom Room services, maximising the opportunity to offer a full range of services in our retail stores. Any proposed new veterinary practice, grooming salon or store investment has to deliver an appropriate financial return after taking into account any financial impact on the existing store portfolio. We will ensure we have the right number of stores as we respond to continued channel shift to online.


Our store estate is also entirely leased which gives us great flexibility. As leases come up for expiry or contain a break, we will assess our portfolio on a case by case basis before deciding whether to renew the lease, to close or relocate a unit. We continue to monitor and plan to mitigate the risk of landlords redeveloping sites for alternative uses at lease expiry.


In response to COVID-19 all our stores will be subject to a 12 months business rates holiday, which will also apply to the in-store vet practices. For those stores where we still pay rents quarterly, we are in the process of negotiating a temporary move from quarterly to monthly rent payments which may affect circa 250 stores.


There has been continued growth in subscription customers across our three subscription schemes. There are now over 850k subscription customers across the Group from which we build loyalty and a predictable revenue stream.


Our VIP Subscribe and Save monthly flea and worm offering has been extended to include cat treatments. Our food subscription service "Easy Repeat" allows customers to customise their home delivery of their pet food, rewarded with our best prices. Whilst our First Opinion healthcare plans are designed to provide peace of mind for the predictable elements of pet care. Our flagship healthcare plan "Complete Care" helps to spread the cost of routine treatments.


The continued growth of our veterinary business, both First Opinion and Specialist Referrals, is a key building block for achieving our growth strategy. We made meaningful progress to increase the long term sustainability and competitive position of both of these businesses in FY20. In our First Opinion vet business, we completed a recalibration, to realise free cashflow growth by accelerating maturity in existing practices. The plan remains on-track and throughout the process we have worked closely with our Joint Venture Partners to reach decisions about their businesses in a collaborative manner.


A key priority for our specialist division is to expand our capabilities and capacity and to achieve national coverage of Specialist Referral centres. We are completing an extensive expansion programme at one of our existing sites, plus opening a new Specialist Hospital in Scotland, with state-of-the-art facilities and a highly-experienced team which will come on stream later in the year. We remain active in looking for opportunities for growth.


Following Government requirements for COVID-19 we are maintaining social distancing protocols in our stores, Distribution Centres and practices. We have ceased any operation where the health and safety of our colleagues and customers may be compromised, meaning we have temporarily closed our grooming salons. Furthermore, to comply with requirements and RCVS guidance our First Opinion practices and Specialist Referral centres remain open to deliver emergency care.




In light of the unprecedented uncertainty shaped by the on going pandemic, we remain confident in our long term strategic plan to deliver 50% of sales from pet care services, given the strong competitive position of our Group to capture this opportunity through our differentiated pet care offering and plan to further develop our services offering over the coming years.


We expect to see services and subscription participation to increase, especially as customers take advantage of our subscription packages.


As we continue to monitor developments, there is a high likelihood however that our strategic plans are re-evaluated as we progress through the year.


Risk profile: Medium


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, Set our people free to serve, 50% of sales from pet services


Our People


Description and impact


Our People Strategy recognises that our colleagues are fundamental to the success of our business and key to us achieving our objective of becoming 'The Best Pet Care Business in the World'. We must attract, develop and retain talented, engaged colleagues that will deliver quality service and clinical care to our customers and their pets if we are to achieve our Group strategic ambitions.




This year we have taken the opportunity to focus on the alignment of key people activities across the Group. We are currently shaping our colleague and leadership capability framework which will clearly articulate our expectations of what great looks like for colleagues and leaders. Our reward and grading schemes will be embedded within this framework which will also support career pathways and all future learning and development programmes.


All our learning and development programmes will be underpinned by our new capability framework. Our leader programmes are under review and will focus on leading and mobilising our business strategy, and strengthening our change leadership. We will also be reviewing our colleague development programmes at store level to ensure our colleagues are able to bring the pet experience to life and supporting our customers with regards to their pet care needs. We will continue to map more training programmes to apprenticeships over the coming year, focusing on the development of critical clinical, customer facing and leadership talent groups to shape the future of the Group by attracting, growing and retaining best in class next generation talent that inspires us to discover new ways of wowing our pet care customers.


This year will also see us launch programmes targeted at those who face barriers to employment to ensure we are utilising all available talent pools whilst also enabling better social mobility and creating a lasting impact on people and society.


We continue to develop a healthy pipeline of talented veterinary graduates through our Graduate Programme and in the last three years we have recruited over 300 graduates. This year we will be launching our Graduate Next Steps Alumni fund to support long term professional and personal development and increase retention of our graduates once they have completed the programme.


We have run our first Group wide listening survey and we have robust action plans to support the importance of improving our colleague experience, differentiating our culture, and our people proposition. We recognise the importance of articulating our people proposition internally and externally and work is now underway to develop our story and find effective ways to communicate our unique culture.


We continue to review the impact of Brexit and any future changes to UK immigration policy which may impact the availability, recruitment and retention of talented colleagues across the Group. We have employed long term strategies to mitigate the expected impact, including operating flexible recruitment and retention initiatives, launching graduate recruitment programmes for veterinary surgeons, whilst reviewing opportunities in non-EU vet recruitment markets and identifying key targets.


We are working closely with professional bodies including the Royal College of Veterinary Surgeons and the British Veterinary Association to continue to ensure the veterinary voice is heard during the transition period as the draft immigration bill evolves. Now the 'settled status' process for EU citizens' right of settlement 'indefinite leave to remain' is known, we have an on going communication strategy with our Joint Venture Partners and all affected colleagues to clarify an EU citizen's right of settlement and to provide support to all our EU colleagues.


We are committed to developing a culture of inclusivity across the Group. We are at the start of our journey, and with the implementation of Success Factors this year, we will capture the data to provide us with our starting position. This will help set out our ambition, starting with our policy and process reviews, to shaping an inclusive leadership approach. Diversity and inclusion is already called out as significant within our values and behaviours which run through our Group. This will be embedded further within our leadership capability framework which launches later this year.


We continue to monitor and review Government advice with regards to the COVID-19, to ensure the safety and wellbeing of all our colleagues and customers at this difficult time. We have provided detailed protocols; daily podcasts followed by written communications with commonly asked Q&As' to ensure our colleagues are kept fully informed and reassured by the measures we have taken to safeguard our business.




We continue to make great progress with our People Strategy across the Group this year and remain in a strong position to attract, retain and develop our colleagues.


We continue to seek new opportunities to further enhance our colleague experience; however uncertainties associated with COVID-19 will need a careful and considered approach.


Risk profile: Medium


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, Set our people free to serve


Information Security and Business Systems


Description and impact


The need to maintain core business systems and mitigate security risks whilst supporting our strategy remain paramount again this year.


Protecting customer and colleague data against increasingly sophisticated attacks comes with additional cost linked to the remediation of associated risks (data, people, and infrastructure). Our ability to balance these challenging demands is vital to delivering our strategy, maintaining target growth levels and be secure from data security breaches and legal challenges.




We remain committed to delivering secure high-performance systems that underpin our strategic plan. We continue to move to scalable, secure, cloud-based solutions where they support our strategy.


We maintain a risk-based information security management system, designed to protect the confidentiality, integrity, and availability of business-critical information. The management system ensures that information security controls are reviewed and improved on a continual basis. A risk-based methodology allows us to identify, assess and react to the ever-changing threat landscape, including vulnerabilities exploited at other organisations.


Our established information security training and awareness programme ensures colleagues understand the risks and threats associated with protecting data.


In response to the challenges raised by COVID-19 our Information Security Policies covering people, process and technology continue to be followed and monitored. Risks are being continually assessed and managed as business processes evolve. Home working and social isolating ensures we have sufficient resource to maintain our core functions and information security management system, whilst continuing to identify opportunities for improvement.




To deliver our vision to become the best pet care business in the world we will continue to monitor the threat landscape, utilise a risk management methodology that will allow us to balance risk versus investment and ensure appropriate controls are implemented.


We continue awareness campaigns to educate colleagues about the risks associated with data and physical security.


Cloud-based solutions will continue to be our go-to platform where the technology aligns to our security, strategic and operational goals.


Risk profile: Medium


Change on prior year : Stable


Links to strategy : Use data and VIP to better serve customers, Set our people free to serve


Supply Chain and Sourcing


Description and impact


During the financial year, approximately US$85m of the Group's merchandise cost of goods and £110m of the Vet Group pharmaceutical purchases was globally sourced, and therefore we are exposed to the risks associated with international trade, such as inflation, changing regulatory frameworks and currency exposure.


We are also exposed to the risks associated with the quality and safety of products produced locally and globally on behalf of the Group, many of which are own brand or exclusive private labels.


We must also ensure that our suppliers share and uphold our approach to business ethics, human rights (including safety and modern slavery) and the environment.


A failure to manage this risk adequately could lead to significant reputational damage. We have two national Distribution Centres covering the north and south of the UK respectively. A disaster at one of these may result in a significant interruption to the supply of stock for a large number of stores and in the fulfilment of internet orders.


As the Brexit transition starts, the impact to our domestic and overseas supply chains may still be significant, particularly in view of probable changes to the UK's trading terms with the EU and the rest of the world.


The impact of COVID-19 is dependent on the supply chain and the risk to overseas manufacturing and shipping plus the priority of the vet channel versus the NHS.




During such a challenging period, the strength of our long-standing relationships with key suppliers is crucial to preserving our supply chain. Across third party brands, private label food manufacturers in the UK and accessory suppliers in the Far East, we were able to minimise disruption to customers and continue meeting their pet care needs. Our previous investments in omnichannel capacity, new customer acquisition channels and subscription services had equipped us to meet above-trend levels of demand and, with disruption in Far East supply stabilising relatively quickly, our product availability held up well.


Having Pets at Home colleagues on the ground in the Far East working collaboratively with suppliers enables us to monitor closely compliance with the Group's Code of Ethics and Business Conduct policy, and our Supplier Quality Manual. In addition, an independent third party undertakes visits to further monitor compliance with Group policies.


We continue to invest in our quality assurance processes and to ensure the effectiveness of our Far East sourcing office in mitigating our sourcing risks in the region.


In the Vet Group we continue to work closely with all suppliers. Key contract renewals will be due during the financial year which may be postponed due to COVID-19. However contract extensions are in place to ensure supply and other contractual obligations are met. We are also working closely with the NHS in the requisition of ventilators and personal protective equipment from our Specialist Hospitals.


Five management teams have been established to develop and deliver our CSR strategy. One of these, the Product and Supply Chain Management team, is responsible for developing the Responsible Sourcing strategy in relation to all products sourced for the Group. The scope of this covers the full value chain impact of products including packaging, raw materials, and the environmental impacts of manufacture, Human Rights and product sustainability innovation. During the year the team has focused on evaluating all own brand product packaging to establish the recyclability of materials and creating plans to change packaging where necessary.


Exposure to foreign currency movements is an increased risk that is mitigated through our hedging strategy; see the Treasury and finance risk.


Business continuity plans are in place for the Distribution Centres. They help us mitigate the impact of a disaster by enabling us to service all stores and orders for a priority range of SKUs from a single Distribution Centre whilst we source a second facility and recover full product supply.


We will continue to actively monitor COVID-19 and Brexit developments and will respond to any impact on our supply chain proportionately. We have performed a detailed operational risk assessment of our supply chain. For our own label and private label food products we have identified alternative suppliers where appropriate and have developed contingency plans. The Vet Group has also secured the provision of critical stock lines, including medicines, by contractually ring fencing stock with our wholesaler and suppliers and has built relationships with manufacturers should we encounter any difficulties in our supply chain.




The longer term effects of COVID-19 are still largely unknown, however we have plans in place and continue to monitor daily.


Exposure to foreign currency movements will be a heightened risk.


By bringing forward stock orders scheduled for later in the year, we were also able to send a confident signal to our suppliers that we expect the pet care market to remain resilient.


We are aligning our 2030 strategy to the UN Sustainable Goals, recognising that our actions can impact issues globally and locally and both are important. There is a real consciousness and accelerating trend for ecologically sustainable products. We have ambitions across our key brand strategies to be a fully British brand whilst bringing sustainability into our innovation plans and range architecture going forward.


For the Vet Group, we are expecting to see an impact in the availability of a few critical supply lines in the near future as priority is given to NHS rather than veterinary channels.


We continue to monitor the Brexit transition and manage our mitigation plan accordingly.


Risk profile: Low


Change on prior year : Stable


Links to strategy : Bring the pet experience to life


Liquidity and Credit


Description and impact


The business requires adequate cash resources to enable it to fund its growth plans through its capital projects and working capital requirement. Without adequate cash resources, the Group may be unable to deliver its growth plans, with a consequent impact on future financial performance.




The Group's finances are continually monitored in the context of its growth plans and of the wider economic landscape. The Group's financing facilities were reviewed in September 2018 and are in place until September 2023. The Group maintains close working relationships with its banking partners to ensure sufficient liquidity and credit is available. The Group monitors a range of potential cash flow sensitivities to ensure the banking facilities in place remain sufficient and adequate in light of evolving macro and micro-economic factors. As a result, the Group is confident that it has adequate revolving facilities in place, with a broad syndicate of seven banks.


The Group's growth plans in respect of Joint Venture veterinary practices is predicated on the availability of finance for new Joint Venture veterinary partners to fund both the capital cost and working capital requirement for each new practice opening. The Group also provides additional financial support to First Opinion practices to underpin their working capital requirements and growth in clinical capacity. This investment is a particular feature of the Joint Venture operating model and in making this investment the Group considers its total returns across all practices on a portfolio basis. The Group has completed a project to buy out and consolidate a number of Joint Venture veterinary practices, as part of which, the Group settled any liabilities for third party bank loans and leases within these practices on behalf of the Joint Venture Partner, with all such liabilities being written off. For the practices which the Group continues to operate under a Joint Venture Agreement, the Group has established a credit impairment provision to reflect the assessment of extended loans and investments being repaid over different lengths of time, with different risks of return, to provide for any potential shortfall.


The Group has facilities in place with recognised lenders that give us confidence that our medium term growth plans are financed adequately. The Group ensures that all cash surpluses are invested with banks that have credit ratings and investment criteria that meet the requirements set out in the Group Treasury policy, which has been approved by the Board. The Group's key suppliers are exposed to credit risk and as part of the Group's overall risk management programme, the business has identified alternative suppliers where appropriate and developed contingency plans in respect of own label and private label food products.




The evolving position in relation to COVID-19 has created increased uncertainty in relation to forecast cash flows, liquidity and credit requirements. We continue to monitor our finances and build relationships with our finance providers to ensure that the business is well positioned to manage its cash flows effectively and ensure sufficient liquidity is available.


Mindful of these prevailing circumstances, we recognise the potential need to support some of our Joint Venture veterinary practices with additional funding during the year ahead. Such funding will be available for those businesses that remain viable over the longer term, taking into account the near term benefit of the third party loan repayments secured.


We do not anticipate any other significant macro-economic changes in the short to medium term that may affect this risk area although the outcome of the evolving relationship that the United Kingdom has with the EU may have some bearing.


Risk profile: High


Change on prior year : Increase


Links to strategy : Bring the pet experience to life, 50% of sales from pet services, Use data and VIP to better serve customers


Treasury and Financial


Description and impact


The Group has an exposure to exchange rate risk in respect of the US dollar that is the principal purchase currency for goods sourced from the Far East. The political and macro-economic environment has increased currency pressures and we may see this continue for some time. The Group also faces risks from changes to interest rates and compliance with taxation legislation. If we do not adequately manage this exposure there could be an impact on the Group's financial performance with a consequential impact on operational and growth plans.




This exposure to exchange rate fluctuation is managed via forward foreign currency contracts that are designated as cash flow hedges. The Group has borrowings with floating interest rates linked to LIBOR, thereby exposing the Group to fluctuations in LIBOR and uncertainty regarding the expected cessation of LIBOR by the FCA as the interest rate benchmark by the end of 2021, and the consequent impact on interest cost. To manage this risk the Group has interest rate swaps in place that fix the interest rate on a significant proportion of the Group borrowings, and continues to monitor and engage in the determinant of an alternative benchmark to LIBOR. All hedging activity is undertaken by the Group Treasury function in accordance with the Group Treasury policy that sets out the criteria for counterparties with whom the Group can transact and clearly states that all hedging activities are undertaken in the context of known and forecast cash flows, with speculative transactions specifically prohibited.




On-going currency movements between the US dollar and GBP may result in further exchange risk, particularly in light of the evolving position in relation to coronavirus, and the Brexit process. We will continue to monitor this and adjust our approach to hedging where necessary.


Risk profile: Medium


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, 50% of sales from pet services


Regulatory and Compliance


Description and impact


Many of the Group's activities are regulated by legislation and standards including, but not limited to, trading, advertising, packaging, product quality, health and safety, pet shop licensing, National Minimum Wage, National Living Wage, Equality Act, modern slavery, bribery, data protection, environment, the RCVS Code of Professional Conduct for Veterinary Surgeons and what will be the implementation of the off-payroll regulations (IR35). Failure to comply with these obligations may result in financial or reputational damage.




We actively monitor both regulatory developments in the UK and Europe and compliance with our existing obligations where we have internal policies and standards to ensure compliance where appropriate. We also provide training for colleagues where required and operate a confidential whistleblowing hotline for colleagues to raise concerns regarding any potential breach of legal or regulatory obligations in confidence.


Our suppliers commit to and are audited against adhering to relevant regulations, such as the Modern Slavery Act 2015, the Bribery Act 2010 and the General Data Protection Regulation (implemented in the UK by means of the Data Protection Act 2018) (GDPR). The Group's Data Protection Officer, and executive sponsored steering committee, monitors Group compliance with legal requirements, ensuring relevant policies are up to date and works with our Information Security Steering Committee which monitors data security.


The Animal Welfare (Licensing of Activities Involving Animals) (England) Regulations 2018 was implemented in October 2018. The licensing process across the Group was dealt with as a priority but has been delayed by Councils. It is therefore ongoing and will continue into 2020, with all stores expecting to receiving a licence. DEFRA (the Department for Environment, Food and Rural Affairs) is planning to review the regulations again and as a key stakeholder we will actively engage in the consultation process to ensure the licensing requirements are clear and consistent, driving an update if required to the statutory guidance.


The Group continues to monitor any potential changes to law and regulations which could be brought about by, for example, the withdrawal from the EU and any longer term implications of COVID-19. We have already seen the introduction of the Coronavirus Act 2020 and the Job Retention Scheme by the UK Government and we continue to assess their impact on the Group.


We have also refreshed all relevant agreements in light of the HMRC's off-payroll regulations (IR35) in readiness for the changes which will come into force from April 2021. The Group will continue to monitor any impact on the regulatory and compliance landscape that this and other issues bring




We continue to monitor legal and regulatory developments across the UK and Europe and will plan accordingly.


Risk profile: Low


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, Use data and VIP to better serve customers, 50% of sales from pet services, Set our people free to serve


Sustainability and Climate Change


Description and impact


The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage the impact of any potential climate change on our business model and performance. The key risk to the Group relates to assessing and reducing the environmental impact of the direct operations and across the value chain. This could result in an impact to the Group's reputation and strategic plan. Examples of risk include extreme weather events affecting demand, sales, our operations and supply chains and more stringent environmental regulation could affect the cost of production and operational flexibility.




The Corporate Social Responsibility and Pets Come First Committee meet three times a year to approve and review the impact of CSR strategy. During the year the new role of Group Chief People and Culture Officer was created to take overall responsibility for the agenda. As part of the process a detailed materiality assessment was carried out and five management groups, each sponsored by a member of the Executive Management Team, were established to develop and deliver the strategy for: Climate Change & Waste; Product & Supply Chain; People; Charity & Community; and Pet Welfare.


For extreme weather we actively monitor and forecast demand and, should this risk occur, we would review planned and tactical promotional activity to determine whether

strengthening this would drive sales.




The updated 2030 environment and sustainability strategy will be finalised and launched during FY 2020/21. This will include an assessment of scope 3 carbon impact and the development of a long term carbon reduction target.


Further improvements to our subscription and omnichannel services offering will continue to improve our resilience to reduced store footfall during periods of extreme weather.


Risk profile: Low


Change on prior year : Stable


Links to strategy : Bring the pet experience to life, 50% of sales from pet services



Related Party Transactions


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 due to the factors explained in note 1.4 of the financial statements.


Commitments relating to these veterinary practices are included within notes 25 to 27 of the financial statements.


The transactions entered into during the period, and the balances outstanding at the end of the period are contained in note 27 to the financial statements.

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