TIDMPETS
RNS Number : 6090U
Pets At Home Group Plc
26 November 2019
FOR IMMEDIATE RELEASE, 26 NOVEMBER 2019
Pets at Home Group Plc: FY20 Interim Results
for the 28 week period to 10 October 2019
A strong first half; on track to deliver full year profit growth
ahead of plan
-- First anniversary of launching our pet care strategy, which
continues to deliver strong results
-- Sustained momentum in Retail business, with like-for-like(#) (LFL) revenue growth of 7.8%
o Omnichannel revenues(#) up 31.7% to GBP46.5m
o Stores delivering positive LFL(#) revenue growth and a solid
operating margin
-- Vet Group underlying business performing well, with LFL(#) revenue growth of 6.4%
o First Opinion customer sales(#) growth across all vet
practices of 11.8%, with Joint Venture (JV) practice LFL(#) of
14.0% and mature practice sales again growing ahead of the
market
o Planned changes to fee arrangements for Joint Venture
practices starting to have positive impact: increasing practice
profitability and improving our Group cash performance
o JV practice buy outs now complete: total of 57 sites, with 36
having subsequently closed
-- We are introducing more customers to our complete pet care offer:
o Number of VIPs who purchase both products and a service has
grown 22% year-on-year, and now represents c16% of all active
members
o Number of subscription customers across the Group is now over
790,000
-- Group underlying PBT, on a comparable pre-IFRS16 basis, up
18.9% year-on-year to GBP45.0m(1,#) , driven by quality revenue
growth in Retail converting strongly to profit
-- Given progress in the first half, we remain confident about
the rest of the year despite continued consumer uncertainty, and
expect full year profit towards top end of current market
consensus(2)
-- After over 9 years as Chairman, succession plan for Tony DeNunzio commenced
GBPm H1 FY20 H1 FY19 YoY change LFL growth(#)
----------------------------------- -------- -------- ----------- --------------
Group revenue 546.3 499.3 9.4% 7.6%
=================================== ======== ======== =========== ==============
Retail revenue 479.8 443.7 8.1% 7.8%
=================================== ======== ======== =========== ==============
Vet Group revenue 66.5 55.6 19.6% 6.4%
----------------------------------- -------- -------- ----------- --------------
Group underlying gross margin(3) 49.0% 50.3% (132) bps
----------------------------------- -------- -------- =========== --------------
Group underlying PBT (including
IFRS16)(4,#) 41.7 37.9 10.2%
----------------------------------- -------- -------- ----------- --------------
Group underlying PBT (excluding
IFRS16)(1,4,#) 45.0 37.9 18.9%
----------------------------------- -------- -------- ----------- --------------
Group statutory PBT (including
IFRS16) 34.0 8.0 327.3%
----------------------------------- -------- -------- ----------- --------------
Group statutory PBT (excluding
IFRS16)(1,#) 37.3 8.0 368.8%
----------------------------------- -------- -------- ----------- --------------
Group underlying free cashflow(#) 24.9 27.3 (8.6)%
----------------------------------- -------- -------- ----------- --------------
Group non-underlying charges(3,4) (7.7) (29.9) (74.2)%
----------------------------------- -------- -------- ----------- --------------
Group non-underlying cash
costs(5) (15.8) - NM
----------------------------------- -------- -------- ----------- --------------
# Alternative Performance Measures (APMs) are defined and
reconciled to IFRS information, where possible, on pages 18 to 21.
All H1 FY20 APMs exclude the impact of IFRS16 unless explicitly
stated.
1. Adjusted financial metrics for H1 FY20, which exclude the
impact of the transition of IFRS16, have been provided to aid
comparability with the prior period
2. Company compiled consensus estimates for FY20 Group
underlying PBT, before the impact of IFRS16, have a mean of GBP89m
and a range of GBP87m to GBP93m
3. H1 FY20 non-underlying charges relating to costs incurred by
the Group in buying out, and in some cases closing, JV practices
include GBP7.6m charged against Vet Group, and Group,
non-underlying gross margin (H1 FY19: GBP29.0m)
4. H1 FY20 non-underlying charges also include GBP0.1m relating
to an accounting charge for the potential future acquisition of
minority stakes owned by vet partners in the Specialist Referral
centres, which has been charged against non-underlying operating
costs (H1 FY19: GBP0.9m)
5. H1 FY20 non-underlying cash costs include GBP9.4m relating to
practices that we have bought out (H1 FY19: GBPnil), plus GBP6.4m
in relation to payments made to Shared Venture Partners in our
Specialist Referral centres to acquire certain remaining minority
stakes (H1 FY19: GBPnil)
Comment from Peter Pritchard, Group Chief Executive Officer
"I am very pleased with what we have achieved in the first half
of the year. We have executed our plans well, and this has been
reflected in the strong customer sales growth across the Group. Our
commitment, and that of the Group's Joint Venture Partners, is to
make sure pets and their owners get the very best advice, care and
products; and this has led to record levels of VIPs, First Opinion
practice clients and subscription customers. In short, our pet care
strategy is working.
We have seen sustained momentum in Retail, with a 2-year
like-for-like of 13%. This has been complemented by a meticulous
delivery of our Vet Group recalibration. The programme to buy out a
number of Joint Venture practices is already complete, whilst
changes we have made to the fee arrangements for ongoing practices
are already showing signs of positive progress and will be followed
by further planned adjustments in the second half of the year.
All this provides a strong foundation, meaning we have much to
look forward to in FY20 and beyond, and we now expect to return to
profit growth a year ahead of our original plan. In the meantime,
we will remain focussed on serving our customers, their pets and
our partners better than ever before."
Outlook
We have been successful in sustaining profit growth in Retail
and expect this to continue. In the Vet Group, the second half of
FY20 will see the full impact of changes to the fee arrangements
for ongoing JV practices, in line with our original plan. In
addition, we will incur certain pre-opening costs associated with
the capacity extension at Dick White Referrals, plus the opening of
our fifth Specialist Referral centre in Scotland, all of which will
reduce Vet Group underlying profit in the year.
Due to the progress we have made in the first half of FY20, we
are confident about the rest of the year and now expect to deliver
full year underlying profit growth, with Group underlying profit
before tax(#) on a pre-IFRS16 basis towards the top end of current
market consensus.
We now expect full year Group underlying free cashflow to be
broadly flat, despite the previously disclosed one-off outflow of
GBP10.7m relating to a change in timing to Corporation Tax
payments.
New openings will include up to five new stores, grooming salons
and vet practices, and the one-off programme to buy out a number of
JV practices is now complete.
Our focus remains on sustaining the return to profit growth and
we expect to generate further underlying profit and free cashflow
growth from FY21, despite the potential headwind posed to Retail
gross margin by USD currency movements. Due to our current hedging
position, such movements will not impact FY20 profit guidance
issued below.
FY20 Group underlying guidance
------------------------------------------------------------------------------
Total revenue growth Ahead of market
----------------------------------------- -----------------------------------
Depreciation & amortisation (excluding GBP39-41m
IFRS16)
----------------------------------------- -----------------------------------
Net finance expense (excluding GBP4-5m
IFRS16)
----------------------------------------- -----------------------------------
Underlying profit before tax Towards the top end of current
(excluding IFRS16)(#) market consensus
----------------------------------------- -----------------------------------
Impact of IFRS16 on Group underlying Reduction of GBP6-7m
profit before tax(#)
----------------------------------------- -----------------------------------
Underlying tax rate c20%
----------------------------------------- -----------------------------------
Capital expenditure Up to GBP40m
----------------------------------------- -----------------------------------
Underlying free cashflow(#) Broadly flat year on year
----------------------------------------- -----------------------------------
Dividend per share In line with prior year
----------------------------------------- -----------------------------------
H2 FY20 non-underlying financial items relating to the Vet
Group
------------------------------------------------------------------------------
Non-underlying income statement Further accounting charge for
charge Specialist Referrals of cGBP0.3m.
We anticipate no further charges
relating to the First Opinion
business recalibration
----------------------------------------- -----------------------------------
Non-underlying cash costs Up to GBP3m cash outflow relating
to the completion of the First
Opinion business recalibration
----------------------------------------- -----------------------------------
Results presentation
A presentation for analysts and investors will be held today at
10:00am at Numis Securities Limited, The London Stock Exchange
Building, 10 Paternoster Square, London EC4M 7LT, 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
Jonny Armstrong, Head of Investor Relations
Contact: +44 (0)161 486 6688 or irelations@petsathome.co.uk
Media Enquiries
Pets at Home Group Plc
Gill Hammond, Head of Media and Public Affairs
Contact: +44 (0)161 486 6688 or irelations@petsathome.co.uk
Maitland/AMO
Clinton Manning and Joanna Davidson
Contact: +44 (0)20 7379 5151 or
PetsAtHome-Maitland@maitland.co.uk
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 452 stores, many of which also have vet practices and
grooming salons. Pets at Home also operates a UK leading small
animal veterinary business, with 439 First Opinion practices
located both in our stores and in standalone locations, as well as
four Specialist Referral centres. For more information visit:
http://investors.petsathome.com
Disclaimer
This statement of preliminary 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 adviser.
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 plans and
expectations, operations, financial performance, financial
condition and business is a forward-looking statement. Such
forward-looking statements are subject to risks and uncertainties
that may cause actual results to differ materially. These risks and
uncertainties include, among other factors, changing economic,
financial, business or other market conditions. These and other
factors could adversely affect the outcome and financial effects of
the plans and events described in this statement. As a result you
are cautioned not to place reliance on such forward-looking
statements. Nothing in this statement should be construed as a
profit forecast.
Chief Executive Officer's Review
Key Performance Indicators
YoY
Financial KPIs H1 FY20 H1 FY19 change
-------------------------- ------------------------------ -------- -------- --------
Customer sales(#,1) (GBPm) 695.3 637.2 9.1%
---------------------------------------------------------- -------- -------- --------
Group underlying PBT (excluding IFRS16)(#)
(GBPm) 45.0 37.9 18.9%
---------------------------------------------------------- -------- -------- --------
Group underlying free cashflow(#) (GBPm) 24.9 27.3 (8.6)%
---------------------------------------------------------- -------- -------- --------
YoY
Strategic KPIs Measure H1 FY20 H1 FY19 change
-------------------------- ------------------------------ -------- -------- --------
Bring the pet experience No. of customer transactions
to life (m) 30.2 29.0 4.4%
-------------------------- ------------------------------ -------- -------- --------
50% of sales from pet Customer sales(#,1)
care services from services 35.4% 34.5% 99 bps
-------------------------- ------------------------------ -------- -------- --------
Use our data to better VIP customer sales(#,1,2)
serve customers (GBPm) 715.8 580.8 23.2%
-------------------------- ------------------------------ -------- -------- --------
Set our people free Customer sales(#,1)
to serve per colleague (GBPk) 100.7 95.3 5.6%
-------------------------- ------------------------------ -------- -------- --------
1. Customer sales include gross customer sales made by Joint
Venture vet practices of GBP178.6m (H1 FY19: GBP166.8m), and
therefore differs to the fee income recognised within Vet Group
revenue
2. VIP customer sales are shown on a rolling 12 month basis
rather than a year-to-date basis, and include gross spend at First
Opinion vet practices
Strategic update: becoming the best pet care business in the
world
One year on from launching our pet care strategy, it continues
to deliver strong results. The UK pet care market is in structural
growth and remains resilient against a backdrop of continued
consumer uncertainty. By providing the complete pet care experience
to customers, we are able to strengthen our position and deliver
market share gains across all segments.
We have seen growth across our pet care ecosystem in H1 FY20 -
whether that is in Puppy and Kitten Club members, online and
offline transactions, subscription numbers or vet practice new
client registrations; pet owners are shopping with us more than
ever before.
Strategic pillar: Bring the pet experience to life
By making all aspects of pet care convenient and affordable for
customers, we are able to capture a greater share of their overall
spend. Within Retail we have maintained our competitive price
position throughout the first half of the year, having remained
within 5% of our most competitive online peer on all comparable
items, and the same price when comparing the products we believe
really matter. All parts of our omnichannel business continue to
grow and around 60% of transactions involve a store-based
colleague; demonstrating the benefit of having an integrated
offer.
Having launched the first of our new pet care centre format at
two existing stores at the end of FY19, we have extended this trial
at a further three locations during the first half of this year.
Initial feedback from customers and colleagues alike has been
positive, proving that whilst we will continue to refine and
optimise the format, investing in our store experience will provide
us with a competitive advantage.
We have seen real strength in the performance of both our VIP
Puppy and Kitten Clubs. These free-to-join clubs provide a
programme of advice and offers designed to encourage shopping
across product, grooming and vet services - acting as valuable long
term customer acquisition tools and providing opportunities to take
a greater share of overall spend by building brand loyalty. Early
indications are that the spend uplift seen in Puppy Club members
during the first 12 months continues to apply in to adulthood,
demonstrating the potential to increase customer lifetime
value.
Strategic pillar: Deliver 50% of sales from pet care
services
In H1 FY20, 35.4% of customer sales(#) came from pet care
services. We have seen strong growth across the different
subscription packages that we offer, and now have more than 790,000
customers on plans across our Group. In particular, our Pet Care
Plan initiative, which rewards store colleagues for introducing
customers to vet practices, continues to be successful at
increasing the number of vet clients on a healthplan. We have also
expanded the range of products available via our Easy Repeat online
platform, where customers enjoy our very best prices, and there
remains a significant opportunity to capture a greater share of
customer spend across both food and accessories.
(1 including gross customer sales made by First Opinion vet
practices, revenue from our Specialist Referral centres, grooming
services, subscriptions, pet sales and pet insurance
commissions)
In the Vet Group, our programme of buying out certain Joint
Venture (JV) First Opinion vet practices is now complete. Over the
past 12 months we have bought out a total of 57 JV practices, of
which 36 have closed and the remaining 21 have been retained as a
company managed practice, controlled and operated by Pets at Home.
Throughout this period, we have worked collaboratively with the
Joint Venture Partners involved to ensure the best possible outcome
has been reached in each case.
The planned changes to the fee arrangements for ongoing JV
practices are progressing in line with our original expectations;
we have already begun making adjustments for some practices and
during the second half of the year we will extend this further as
we look to make our fee structure simpler and fairer. Whilst this
leads to an initial decrease in the JV fee income taken by Pets at
Home, it will enable practices to become debt free sooner and also
reduces the need for Pets at Home to provide additional funding
support in the form of operating loans. Looking ahead, we expect to
see fee income increase from FY21 as practices mature in a more
sustainable way.
Customer sales(#) across the entire First Opinion estate
increased by 11.8%, and mature JV practices once again grew their
customer sales ahead of the market, driven by the incentivisation
of our shared ownership model. The underlying health of our First
Opinion estate has improved year on year, giving us confidence that
the actions we are taking will help release free cashflow as
practices mature.
Elsewhere in the Vet Group, our Specialist Referral division has
delivered revenue growth broadly in line with the underlying
market, and we are pursuing ways in which we can optimise overall
performance. At the same time, we are looking to grow our capacity
and capability by expanding Dick White Referrals and opening our
first greenfield site in Scotland during FY21.
Strategic pillar: Use our data to better serve customers
The health of our VIP loyalty club remains strong, with further
new signs-ups and lower churn leading to a record number of active
members at over 5 million. By capturing data specific to the
individual pet, we are able to ensure that communications are
personalised and relevant to the customer, helping to increase
customer spend. Our work to take the management and analytics of
the VIP data in-house and migrated on to a cloud-based platform,
whilst building a team of data scientists to leverage that wealth
of data, is progressing well. These are key enablers in allowing us
to become increasingly sophisticated in our marketing approach as
we look to encourage shopping across both products and services,
where we know there is a significant opportunity.
We are continuing to use our data to optimise store-specific
product ranging. Alongside our new pet care centre format, we have
been able to deliver increased sales from less space and a fewer
number of products. By applying this new approach to ranging in
upcoming store re-fits, it will enable us to maximise sales whilst
creating new experience and events areas within the store, giving
customers even more reasons to visit.
Strategic pillar: Set our people free to serve
We continue to create operational efficiencies across our Group,
whether that is in store, grooming salons, distribution centres or
our Support Offices. In doing so, we are able to provide the very
best service to our customers, colleagues and Partners. The
impressive Retail like-for-like sales growth has been achieved
despite operating off fewer colleague hours in store, and all
whilst customer satisfaction scores continue to increase -
testament to the quality service that our colleagues provide every
single day.
Following the first phase of automated picking for our flea
treatment subscription service at Northampton Distribution Centre
last year, we have now extended this with packing automation for
the rest of our online order fulfilment. This has doubled our
maximum capacity, and ensures that we have the infrastructure in
place to support the continued growth of our omnichannel business,
where we expect the channel shift to online to continue.
The shortage of vets in the UK has been widely documented, and
whilst the Government has now agreed to restore veterinary surgeons
to the shortage occupation list, the continued uncertainty
surrounding the UK's departure from the EU means these challenges
are likely to persist in the short term. In the meantime, practices
remain focused on their existing vets, where vacancy rates have
been reduced and turnover stabilised. This has been achieved by
adopting a flexible approach to working arrangements that reflect
the modern day demands of personal and professional life,
supporting graduates and providing more opportunities for career
development. Alongside a commitment to clinical freedom, these
initiatives will help practices become the employer of choice for
small animal veterinarians.
Chairman succession planning
After over 9 years as Chairman and in accordance with the new
Corporate Governance Code, Tony DeNunzio has advised the Board that
now is an appropriate time to commence a succession plan. The Board
has appointed recruitment consultants and will consider both
external candidates as well as existing Non-Executive Board
members, before making a formal recommendation. In order to
facilitate an effective succession plan, Tony will remain as
Chairman until the announcement and induction of his successor. In
the meantime, he remains fully committed to the company and is
supportive of our pet care strategy.
Peter Pritchard
Group Chief Executive Officer
26 November 2019
Chief Financial Officer's Review
The H1 FY20 period represents the 28 weeks to 10 October 2019.
The comparative period represents the 28 weeks to 11 October
2018.
The Group's results are shown as two segments that represent the
size of the respective businesses and our internal reporting
structures; Retail (includes products purchased online and
in-store, pet sales, grooming services and insurance products) and
Vet Group (includes First Opinion practices and Specialist Referral
centres).
The financial statements for H1 FY20 have been prepared under
the requirements of IFRS16 for the first time. To aid comparability
with the prior period, adjusted financial information shown before
the impact of IFRS16, are also shown in the table below. This will
be presented throughout FY20 until the transition to IFRS16 is
complete. The impact of IFRS16 on the Group interim financial
statements has been to decrease underlying profit before tax by
GBP3.3m, and is shown in further detail on page 12.
H1 FY20 H1 FY20
(post (pre IFRS16) H1 FY19 YoY change
IFRS16) (pre IFRS16) (pre IFRS16)
Group like-for-like revenue
growth(#) 7.6% 7.6% 5.3%
Retail 7.8% 7.8% 4.7%
Vet Group 6.4% 6.4% 11.9%
Group revenue (GBPm) 546.3 546.3 499.3 9.4%
------------------------------------- --------- -------------- -------------- --------------
Retail 479.8 479.8 443.7 8.1%
-------------- -------------- --------------
Vet Group 66.5 66.5 55.6 19.6%
-------------- -------------- --------------
(132)
Group underlying gross margin(1) 49.0% 49.0% 50.3% bps
--------------
(106)
Retail 49.9% 49.9% 51.0% bps
--------------
(268)
Vet Group(1) 42.8% 42.8% 45.5% bps
==============
Group underlying EBIT(2,3,#)
(GBPm) 51.7 47.2 39.8 18.6%
Retail 38.1 33.8 29.4 15.2%
Vet Group(2) 17.6 17.4 13.7 27.6%
------------------------------------- --------- -------------- -------------- --------------
Central (4.0) (4.0) (3.2) 26.1%
------------------------------------- --------- -------------- -------------- --------------
Group underlying EBIT margin(2,3,#) 9.5% 8.6% 8.0% 67 bps
------------------------------------- --------- -------------- -------------- --------------
Retail 7.9% 7.0% 6.6% 43 bps
------------------------------------- --------- -------------- -------------- --------------
Vet Group(2) 26.4% 26.2% 24.6% 165 bps
==============
Group underlying PBT(3,#)
(GBPm) 41.7 45.0 37.9 18.9%
--------------
Group statutory PBT(3) (GBPm) 34.0 37.3 8.0 368.8%
--------------
Underlying basic EPS(1,2,3,#)
(p) 6.7 7.2 6.1 17.5%
--------------
Statutory basic(3) EPS (p) 5.1 5.7 1.2 354.2%
--------------
Group non-underlying charges(1,2)
(GBPm) (7.7) (7.7) (29.9) (74.2)%
-------------- -------------- --------------
Group non-underlying cash
costs(4) (GBPm) (15.8) (15.8) - NM
-------------- -------------- --------------
Group underlying free cashflow(#)
(GBPm) 24.9 24.9 27.3 (8.6)%
Dividend (p) 2.5 2.5 2.5 -
Number of
------------------------------------- --------- -------------- -------------- --------------
Stores 452 451 1
--------------
Grooming salons 313 313 -
--------------
Joint Venture First Opinion
vet practices 393 451 (58)
------------------------------------- --------- -------------- -------------- --------------
Company managed First Opinion
vet practices 46 20 26
------------------------------------- --------- -------------- -------------- --------------
1. H1 FY20 non-underlying charges relating to costs incurred by
the Group in buying out, and in some cases closing, JV practices
include GBP7.6m charged against Vet Group, and Group,
non-underlying gross margin (H1 FY19: GBP29.0m)
2. H1 FY20 non-underlying charges also include GBP0.1m relating
to an accounting charge for the potential future acquisition of
minority stakes owned by vet partners in the Specialist Referral
centres, which has been charged against non-underlying operating
costs (H1 FY19: GBP0.9m)
3. Adjusted financial metrics for H1 FY20, which exclude the
impact of the transition of IFRS16, have been provided to aid
comparability with the prior period. For further information on the
impact of IFRS16, see page 12
4. H1 FY20 non-underlying cash costs include GBP9.4m relating to
practices that we have bought out (H1 FY19: GBPnil), plus GBP6.4m
in relation to payments made to Shared Venture Partners in our
Specialist Referral centres to acquire certain remaining minority
stakes (H1 FY19: GBPnil)
Impact of IFRS16 and Vet Group recalibration on the interim
financial statements
The financial information in pages 8 to 13, and associated
commentary, have been presented on a constant accounting basis and
do not reflect the impact of IFRS16. The impact of IFRS16 on the
Group interim financial statements is shown on page 12.
As part of the recalibration of the First Opinion vet business,
a total non-underlying charge of GBP7.6m (H1 FY19: GBP29.0m)
relating to any practice buy out commenced or completed in H1 FY20,
has been recognised against Vet Group, and Group, gross profit.
This accounts for all costs incurred by the Group relating to
practices that we have bought out and/or closed during the period.
In addition to this income statement charge in H1 FY20, an existing
balance sheet provision of GBP23.5m from FY19 has been
utilised.
Total cumulative non-underlying costs relating to the
recalibration of the First Opinion vet business incurred since FY19
have been in line with previously issued guidance, and with the buy
out programme now complete, no further non-underlying charges
relating to our recalibration plans are expected in H2 FY20.
Revenue
Group revenue in H1 FY20 grew 9.4% to GBP546.3m (H1 FY19:
GBP499.3m) and like-for-like (LFL) revenues grew 7.6%(#) .
Retail revenues grew 8.1% to GBP479.8m (H1 FY19: GBP443.7m),
including omnichannel revenue growth of 31.7% to GBP46.5m. LFL
revenue growth in Retail was 7.8%(#) . Food revenues grew by 9.8%
to GBP261.1m (H1 FY19: GBP237.8m), reflecting strong performance
across both dog and cat Advanced Nutrition (AN) lines, and also dog
treats. AN revenues overall grew 12.7% to GBP122.4m (H1 FY19:
GBP108.7m). Accessories revenues grew 5.6% to GBP193.9m (H1 FY19:
GBP183.6m), with categories such as dog toys and cat litter
performing well. Due to the hot and wet weather over the Summer
months, we saw a particularly strong performance in our Health
& Hygiene category.
Vet Group revenues grew 19.6% to GBP66.5m (H1 FY19: GBP55.6m),
with LFL growth of 6.4%(#) . Customer sales made by all First
Opinion vet practices were up 11.8% to GBP190.2m(#) (H1 FY19:
GBP170.1m) despite ending the period with 32 fewer practices,
driven by the continued maturation of practices. Total Joint
Venture fee income increased by 2.8% to GBP29.7m (H1 FY19:
GBP28.9m), whilst LFL fee income growth was 2.5%(#) (H1 FY19:
14.7%). This LFL growth is lower than seen previously due to the
fee adjustments which have been in place for some JV practices
throughout the period.
Consistent with the accounting treatment during the comparative
period, from the point at which any practice buy out was completed,
the financial performance of that practice has been consolidated.
(Please refer to Note 1 in the financial statements for more
detail.) This has led to consolidated customer revenues from
company managed First Opinion practices increasing significantly to
GBP11.6m (H1 FY19: GBP3.3m).
Elsewhere in the Vet Group, we also saw growth of 8.4% in
revenues from our Specialist Referral centres to GBP21.3m (H1 FY19:
GBP19.7m).
Gross margin
Group underlying gross margin declined by 132 bps to 49.0% (H1
FY19: 50.3%), whilst Group statutory gross margin was 47.6% (H1
FY19: 44.5%).
Underlying (and statutory) gross margin within Retail was 49.9%,
a reduction of 106 bps over the prior period (H1 FY19: 51.0%). This
was driven by strong food transaction growth, both in store and
online, creating an adverse margin mix effect but delivering an
overall cash margin benefit due to the revenue performance. As our
omnichannel business increases its participation of Retail
revenues, this also contributes to gross margin dilution due to the
greater mix of food product versus higher margin accessories.
Underlying gross margin within the Vet Group decreased by 268
bps to 42.8% (H1 FY19: 45.5%). This decrease reflects the impact of
the planned fee adjustments, which have supressed Vet Group revenue
whilst the costs which are charged against gross profit have
remained stable. In addition, the consolidation of a number of
practices which have been bought out and retained under a company
managed model, which were not consolidated in the prior period, has
had a dilutive impact on Vet Group gross margin. Finally, there was
a lower charge of GBP0.6m (H1 FY19: GBP2.5m) made to the underlying
provision held against operating loan funding provided to First
Opinion vet practices we intend to retain as Joint Ventures.
Statutory Vet Group gross margin, after all non-underlying
charges, was 31.3% (H1 FY19: (6.7)%). This reflects a total charge
of GBP7.6m (H1 FY19: GBP29.0m) relating to costs incurred by the
Group in buying out, and in some cases closing, certain JV
practices during the period.
Operating profit and operating costs (pre-IFRS16)
Underlying Group EBIT was GBP47.2m(#) (H1 FY19: GBP39.8m), with
a margin of 8.6%(#) (H1 FY19: 8.0%).
Underlying Retail EBIT was GBP33.8m(#) (H1 FY19: GBP29.4m) with
a margin of 7.0%(#) (H1 FY19: 6.6%) and operating cost growth,
excluding depreciation and amortisation, was 4.9% to GBP187.3m (H1
FY19: GBP178.6m). This margin expansion was achieved despite the
slightly lower gross margin as noted above, and represents our
success in controlling operating costs. Occupation costs (rent,
service charges and other property costs) again declined as a
percentage of sales due to our success in achieving rent reductions
during lease renewal negotiations, as did colleague and
distribution costs. Excluding IFRS16 right-of-use assets,
depreciation and amortisation in Retail increased slightly to
GBP18.3m (H1 FY19: GBP18.2m).
Underlying Vet Group EBIT was GBP17.4m(#) (H1 FY19: GBP13.7m)
with a margin of 26.2%(#) (H1 FY19: 24.6%). Operating costs in the
Vet Group, excluding depreciation and amortisation, were GBP9.4m
(H1 FY19: GBP10.4m), a decline of 9.6% on the prior year. The year
on year change in operating costs reflects the benefit of one-off
project costs incurred in the prior period not being applicable in
the current period, but offset by overhead costs relating to any
bought out JV practice being recognised throughout H1 FY20, whereas
these practices had not yet been consolidated in the prior period.
Excluding IFRS16 right-of-use assets, depreciation and amortisation
in the Vet Group increased to GBP1.6m (H1 FY19: GBP1.2m).
In the Vet Group, non-underlying operating costs totalling
GBP0.1m were recognised in relation to the ownership structures and
accounting treatment of the Specialist Referral centres (H1 FY19:
GBP0.9m). During the period, we exercised options to purchase
shareholdings from certain Partners in our Specialist Referral
centres, at a total cash cost of GBP6.4m, in line with previously
issued guidance, and which represented an average EBITDA multiple
of >9x. As such, three of our four centres are now wholly owned,
with the remaining one structured as a Shared Venture ownership
model, where Pets at Home maintains a minimum 75% controlling
share, with the remaining shares owned by multiple Shared Venture
Partners (SVPs). Pets at Home has an option to buy the SVP shares
in the future, with the value of these shares related to profit
performance targets. The accounting treatment of such an option is
therefore structured as a forward contract. Within the income
statement, the discounted future value of the growth element of the
SVP's shares is recognised as an expense over the period to which
the option can be exercised, and recognised as a non-underlying
expense.
Central costs, including Group overheads and colleagues,
increased to GBP4.0m (H1 FY19: GBP3.2m).
Finance expense
Excluding IFRS16 interest charges, the net finance expense for
the half year period increased slightly to GBP2.2m (H1 FY19:
GBP2.0m).
Profit before tax
Excluding the impact of IFRS16, underlying pre tax profit was
GBP45.0m(#) (H1 FY19: GBP37.9m) and statutory pre tax profit,
including all non-underlying items, increased significantly to
GBP37.3m (H1 FY19: GBP8.0m). This increase in statutory pre tax
profit reflects the strength of underlying trading in Retail, plus
a reduced non-underlying charge of GBP7.7m (H1 FY19: GBP29.9m),
largely relating to the recalibration of the First Opinion vet
business.
Taxation, net income & EPS
After removing the impact of IFRS16, underlying total tax
expense for the period was GBP9.1m(#) , a rate of 20.1% on
underlying pre tax profit.
Excluding the impact of IFRS16, underlying net income for the
year, after tax, increased by 17.5% to GBP36.0m(#) (H1 FY19:
GBP30.6m). Underlying basic earnings per share were 7.2 pence(#)
(H1 FY19: 6.1 pence) and statutory basic earnings per share were
5.7 pence (H1 FY19: 1.2 pence).
Cash working capital
The cash movement in trading working capital for H1 FY20 was an
inflow of GBP1.2m(#) . This comprised of an GBP11.5m increase in
payables offset by a GBP3.7m increase in inventory and a GBP6.6m
increase in receivables.
Whilst we supported some ongoing Joint Venture First Opinion vet
practices with operating loan funding in the period, we also saw
some practices make repayments against existing loans such that the
net cash inflow from these practices was GBP0.4m (H1 FY19: net cash
outflow of GBP5.2m). This increased the overall Group cash working
capital inflow to GBP1.6m.
The gross value of operating loans at the end of the period was
GBP34.6m (H1 FY19: GBP46.9m). This was slightly lower than
expected, and reflects the positive impact our fee remediation
measures have had in terms of reducing the need to extend operating
loans to Joint Venture practices. Following the completion of our
buy out programme in H1 FY20, operating loans totalling GBP7.2m
relating to these practices have been written off in full by
utilising the 100% non-underlying provision established in FY19,
and there are no remaining operating loan balances relating to any
practice which has been bought out. As such, the total provision of
GBP7.7m (H1 FY19: GBP23.0m) now held against the gross value of
operating loans is entirely an underlying provision held against
the balance of operating loans for practices which we expect to
continue operating as Joint Ventures at an average of c22%.
Capital investment
Excluding IFRS16 right-of-use asset additions, capital
investment was GBP16.8m (H1 FY19: GBP17.3m), where GBP5.6m (H1
FY19: GBP3.3m) is represented by the ongoing refurbishment and
maintenance of our existing store estate, including rollout of our
pet care centre trial at a further three stores. Investment in
omnichannel and business systems totalled GBP4.1m (H1 FY19:
GBP4.7m), as we continue to invest in our digital capabilities.
Cash capital expenditure was GBP15.6m (H1 FY19: GBP20.3m).
Group underlying free cashflow
On a pre-IFRS16 basis, Group underlying free cashflow after
interest, tax and before acquisitions decreased to GBP24.9m(#) (H1
FY19: GBP27.3m), representing a cash conversion rate of 35.9%(#)
(H1 FY19: 44.6%). The decrease in free cashflow compared with the
prior year is largely driven by the one-off additional outflow of
GBP10.7m relating to a change in timing to Corporation Tax
payments.
Group underlying free cashflow(#) (GBPm) H1 FY20 H1 FY19
--------------------------------------------- -------- --------
Operating cashflow(#) 65.9 60.5
--------------------------------------------- -------- --------
Tax (20.2) (8.4)
--------------------------------------------- -------- --------
Interest (1.9) (1.3)
--------------------------------------------- -------- --------
Debt issue costs - (1.8)
--------------------------------------------- -------- --------
Net capex (15.9) (19.9)
--------------------------------------------- -------- --------
Purchase of own shares to satisfy colleague
options (3.0) (1.8)
--------------------------------------------- -------- --------
Group underlying free cashflow(#) 24.9 27.3
--------------------------------------------- -------- --------
Underlying FCF
H1 FY20 Group underlying free cashflow(#) (GBPm) FCF conversion
------------------------------------------- --------------- ---------------
Retail 20.0 37.3%
------------------------------------------- --------------- ---------------
Vet Group 12.3 63.4%
------------------------------------------- --------------- ---------------
Central(1) (7.4) NM
------------------------------------------- --------------- ---------------
Group underlying free cashflow(#) 24.9 35.9%
------------------------------------------- --------------- ---------------
1. Includes central costs of GBP4.0m plus interest paid of
GBP2.2m, a corporation tax credit of GBP1.5m, purchase of own
shares of GBP3.0m and a credit relating to IFRS2 of GBP0.4m
The Group's net debt position at the end of the half year period
was GBP136.3m, which represents a leverage ratio of 1.0x underlying
EBITDA(#) on a pre-IFRS16 basis.
Group net debt (GBPm) (pre-IFRS16) H1 FY20 FY19
------------------------------------------- -------- --------------
Opening net debt (120.5) (135.2)
------------------------------------------- -------- --------------
Underlying free cashflow(#) 24.9 63.6
------------------------------------------- -------- --------------
Ordinary dividends paid (24.8) (37.2)
------------------------------------------- -------- --------------
Acquisitions(2) (1.3) (2.8)
------------------------------------------- -------- --------------
Net cash inflow upon completion of JV buy
out programme 1.2 -
------------------------------------------- -------- --------------
Non-underlying cash outflow(3) (15.8) (8.9)
------------------------------------------- -------- --------------
Closing net debt (136.3) (120.5)
------------------------------------------- -------- --------------
Leverage (Net debt/ underlying EBITDA(#)
) 1.0x 0.9x
=========================================== ======== ==============
2. FY19 includes the purchase of two mature, JV practices from
Joint Venture Partners for GBP2.1m, which are now operated as
company managed practices, GBP(0.3)m of net cash acquired by
purchasing three other existing JV practices, and deferred
consideration of GBP1.0m relating to one of our Specialist Referral
centres. H1 FY20, includes an investment in Tailster.com and in
certain company managed practices
3. H1 FY20 includes GBP9.4m relating to practices bought out
during the period (FY19: GBP8.8m), plus GBP6.4m in relation to
payments made to certain Shared Venture Partners in our Specialist
Referral centres to acquire remaining minority stakes (FY19:
GBP0.1m)
Capital allocation
Our capital allocation policy prioritises investing our cash
generation in areas that will expand the Group and deliver
appropriate returns. This includes organic investment and the
working capital needs of our Vet Group, plus bolt-on acquisition
opportunities where we consider the potential opportunity to drive
incremental value as attractive. Our second priority is to maintain
an ordinary dividend payment, where despite the reduction in
profits due to the adoption of IFRS16, there is no impact on the
cash value of the dividend we intend to pay. Finally, dependent
upon our acquisition outlook, and should we not foresee any
alternative investment uses, it is our intention to return surplus
free cashflow to shareholders through a special dividend or share
buyback.
Dividend
The Board has recommended an interim dividend of 2.5 pence per
share, equal with the prior year. The interim dividend will be
payable on 10 January 2020 to shareholders on the register at the
close of trading on 6 December 2019.
Persons Discharging Managerial Responsibility (PDMRs)
Pets at Home is pleased to confirm that two members of the
Executive Management Team, Jane Balmain, Chief Operating Officer of
the Vet Group, and David Robinson, Chief Operating Officer of
Retail, are each to be considered PDMRs. As at the date of this
announcement, Jane has a beneficial interest in a total of 122,791
Pets at Home Group Plc ordinary shares ("Shares") together with
116,301 options/awards held under the Company's share plans. The
number of Shares over which David holds options/awards under the
Company's share plans is 164,383.
Transition to IFRS16
The financial statements for H1 FY20 have been prepared under
the requirements of IFRS16 for the first time. Implementation of
IFRS16 has had no effect on how the business is run, nor on cash
flows generated. It has, however, had an impact on the assets,
liabilities and income statement of the Group, as well as the
classification of cash flows relating to lease contracts.
IFRS16 seeks to align the presentation of leased assets more
closely to owned assets. In doing so, a right-of-use asset and
lease liability are brought onto the balance sheet, with the lease
liability recognised at the present value of future lease payments.
Whilst the right-of-use asset is matched in value to the lease
liability at inception, it differs in value through the life of the
lease. The total value of the discounted lease liability under
IFRS16 on the Group's Balance Sheet at the end of the half year
period is GBP488.7m.
IFRS16 permits a choice on the method of implementation and
after careful consideration the Group has applied the modified
retrospective approach. Under this method, all prior year
comparative balances have not been restated, but the cumulative
effect of adopting IFRS16 has been recognised as an adjustment to
the opening balance sheet for FY20. Both the right-of-use asset and
lease liability are recognised as the present value of future lease
payments as of the date of transition, adjusted for any remaining
deferred income relating to landlord incentives and rent free
periods, outstanding prepayments or provisions for onerous
leases.
In Retail, the application of IFRS16 results in all store and
distribution centre rent no longer being included within operating
costs but replaced instead by an additional depreciation charge. On
a post-IFRS16 basis, Retail operating costs including depreciation
were GBP201.3m with an operating margin of 7.9%. Including all
IFRS16 right-of-use assets, total depreciation and amortisation was
GBP55.3m.
In the Vet Group, right-of-use assets relate predominantly to
our four Specialist Referral centres. On a post-IFRS16 basis, Vet
Group operating costs including depreciation were GBP10.9m with an
operating margin of 26.4%. Including all IFRS16 right-of-use
assets, total depreciation and amortisation was GBP2.8m.
Including all IFRS16 interest charges, the net finance expense
for the period was GBP10.0m.
The net impact of IFRS16 in the half year period was to reduce
Group underlying and statutory profit before tax by GBP3.3m to
GBP41.7m and GBP34.0m respectively.
In order to clearly show the impact of transitioning to IFRS16,
we show a reconciliation for Group underlying profit before tax and
cashflow as follows.
Pre Exclude Include Post
GBPm IFRS16 rent Include depreciation interest IFRS16
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Revenue 546.3 - - - 546.3
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Operating lease rentals (42.7) 42.7 - - -
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Depreciation & amortisation (19.9) - (38.2) - (58.1)
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Underlying operating
profit(#) 47.2 42.7 (38.2) - 51.7
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Finance income 0.2 - - - 0.2
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Finance expense (2.4) - - (7.8) (10.2)
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Underlying PBT(#) 45.0 42.7 (38.2) (7.8) 41.7
---------------------------- ----------- -------------- ----------------------- ------------------ --------------
Add back Replace with interest Post
GBPm Pre IFRS16 rent & capital repayment IFRS16
--------------------------- ------------- ------------------ --------------------------------------- -------------
Operating cashflow(#) 65.9 42.7 - 108.6
--------------------------- ------------- ------------------ --------------------------------------- -------------
Tax (20.2) - (7.8) (28.0)
--------------------------- ------------- ------------------ --------------------------------------- -------------
Interest (1.9) - - (1.9)
--------------------------- ------------- ------------------ --------------------------------------- -------------
Repayment of lease
obligations - - (34.9) (34.9)
--------------------------- ------------- ------------------ --------------------------------------- -------------
Net capex (15.9) - - (15.9)
--------------------------- ------------- ------------------ --------------------------------------- -------------
Purchase of own shares (3.0) - - (3.0)
--------------------------- ------------- ------------------ --------------------------------------- -------------
Group underlying free
cashflow(#) 24.9 42.7 (42.7) 24.9
--------------------------- ------------- ------------------ --------------------------------------- -------------
Impact of the UK's exit process from the EU
We continue our work to assess and mitigate the likely impact of
the United Kingdom's exit from the European Union (EU). Given the
range of possible scenarios it is impossible for us to be specific,
however, we are keeping the following areas under review:
1) Consumer demand - although we expect the UK pet care market
to remain resilient, we will be vigilant to signs that consumer
demand is being adversely affected, so that we may seek to respond
appropriately and expediently.
2) Although pet products are unlikely to 'spoil' as a result of
any border delays, there is a risk that our supply chain becomes
disrupted. In such circumstances, we may consider increasing our
inventory holding to mitigate the potential impact on our Retail
division.
3) We do not currently expect to see a material tariff impact,
as the majority of our products are imported from outside the
EU.
4) Exchange rates - the exit process may prompt movements in the
USD/GBP exchange rate. The Group purchases products from Asia to a
value of around US$70m each year. Our policy is to use a mix of
foreign exchange forward contracts to hedge our USD requirement to
cover the next 18 months. Our hedging requirements for FY20 are in
place at an average rate of 1.34 USD:GBP, and any foreign exchange
impact is included within our financial guidance. Looking ahead to
FY21, forward contracts are already in place for approximately 50%
of our total requirement at an average rate of 1.27 USD:GBP, and we
will monitor exchange rates closely as we look to mitigate any
pressure on Retail gross margin.
5) A significant number of colleagues, particularly within our
Vet Group and distribution centres, are non-UK EU nationals. Whilst
Brexit may result in changes to UK immigration policy which could
increase the risk around the availability, recruitment and
retention of these individuals, it may also make it easier to
recruit highly skilled workers. Although it is a positive step that
the Government has accepted the Migration Advisory Committee's
recommendation that veterinary surgeons be restored to the shortage
occupation list, we will continue to work closely with professional
bodies including the Royal College of Veterinary Surgeons and the
British Veterinary Association to assess the potential impact of
restrictions on free movement for EU nationals.
Mike Iddon
Chief Financial Officer
26 November 2019
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 28 March 2019. 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
The Board continues to review the risks and opportunities that
may arise as a result of Brexit. Mitigation plans are continuing to
be developed in the following areas:
-- Our people
-- Supply chain and sourcing
-- Treasury and finance
A detailed explanation of these risks can be found on pages 38
to 45 of the 2019 Annual Report which is available at
http://investors.petsathome.com.
During the year ended 28 March 2019, the Financial Reporting
Council ("FRC") Corporate Review team began a review of our Annual
Report and Accounts for the year to March 2018. The Corporate
Review team entered into correspondence with the Group, which is
ongoing. All correspondence received to date and our responses have
been discussed with the Audit and Risk Committee. The
correspondence covers accounting for investments in Joint Venture
veterinary practices, practice loans provided to those practices,
and impairment testing, including goodwill and investments in
subsidiaries. As a result of the FRC's review, we have, and will
continue to, improve the clarity of disclosure, including the
related judgements and estimates, in relation to these areas in our
Annual Report and Accounts.
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 uncertainties for the remaining 24 weeks
of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party
transactions that have taken place in the first 28 weeks of the
current financial year
and that have materially affected the financial position or
performance of the entity
during that period; and any changes in the related party
transactions described in the
last annual report that could do so.
By order of the Board on 25 November 2019
Peter Pritchard, Chief Executive Mike Iddon, Chief Financial Officer
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.
INDEPENT REVIEW REPORT TO PETS AT HOME GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
28 week period ended 10 October 2019 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 changes in equity and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 28 week ended 10
October 2019 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting as adopted by
the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed financial statements.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
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 International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted 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.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Stuart Burdass
for and on behalf of KPMG LLP
Chartered Accountants
1 St Peter's Square
Manchester
M2 2AE
Alternative Performance Measures ("APMs")
Guidelines on Alternative Performance Measures (APMs) issued by
the European Securities and Markets Authority came into effect for
all communications released on or after 3 July 2016 for issuers of
securities on a regulated market.
In the reporting of financial information, the Directors have
adopted various APMs of historical or future financial performance,
position or cash flows other than those defined or specified under
International Financial Reporting Standards (IFRS).
The Directors measure the performance of the Group based on the
following financial measures which are not recognised under
EU-adopted IFRS, and consider these to be important measures in
evaluating the Group's strategic and financial performance. The
Directors believe that these APMs assist in providing additional
useful information on the underlying trends, performance and
position of the Group.
APMs are also used to enhance the comparability of information
between reporting periods, by adjusting for non-underlying items to
aid the user in understanding the Group's performance.
Consequently, APMs are used by the Directors and management for
performance analysis, planning, reporting and incentive setting
purposes and have remained consistent with prior year.
All APMs relate to the current period's results and comparative
periods where provided. Where the current period APM has been
amended to exclude the impact of transition to IFRS 16, this has
been set out in the definition below.
A full glossary of APMs is included in the most recent Annual
Report & Accounts.
The key APMs used by the Group are:
'Like-for-like' sales growth comprises total revenue in a
financial period compared to revenue achieved in a prior period for
stores, online operations, grooming salons, vet practices &
specialist referral centres that have been trading for 52 weeks or
more, excluding fee income from Joint Venture practices where the
Group has bought out the Joint Venture Partners or will offer to
buy out the Joint Venture Partners in the future.
Omni-channel revenue: Revenue net of discounts and VAT from
online sales, subscriptions and order to store.
Underlying EBITDA: Earnings before interest, tax, depreciation
& amortisation before the effect of non-underlying items in the
period.
Underlying free cash flow: Net cash from operating activities,
after tax, less net cash used in investing activities (excluding
acquisitions), less interest paid & debt issue costs before the
effect of non-underlying items in the period.
Underlying CROIC: Cash return on invested capital, represents
cash returns divided by the average of gross capital invested (GCI)
for the last twelve months. Cash returns represent underlying
operating profit before property rentals and share based payments
subject to tax, then adjusted for depreciation 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 (GBP906,445,000) plus net working
capital, plus capitalised rent multiplied by a factor of 8x, before
the effect of non-underlying items in the period.
Non-underlying items: Certain costs or incomes that derive from
events or transactions that fall outside the normal activities of
the Group, and are excluded by virtue of their size and nature in
order to reflect management's view of the performance of the
Group.
References to Underlying GAAP measures and Underlying APMs
throughout the interim statements are measured before the effect of
non-underlying items.
Alternative Performance Measures ("APMs") (continued)
APM Definition Reconciliation
----------------- ------------------------------------- ----------------------------------------------------------
Cash EBITDA Underlying EBITDA (see below) Cash EBITDA (GBPm) HY19 HY20 Note
adjusted for IFRS 16 transactions and Underlying EBITDA 59.2 109.8 2
share based payment charges. Effect of IFRS 16
on EBITDA - (42.7)
-------------------- ----- ------ -----
EBITDA before IFRS
16 59.2 67.1
Share based payment
charge 1.9 2.4 3
-------------------- ----- ------ -----
Cash EBITDA 61.1 69.5
----------------- ------------------------------------- ----------------------------------------------------------
Underlying CROIC Cash return on invested capital, Underlying CROIC
represents cash returns divided by (GBPm) HY19 HY20 Note
the average of gross capital Cash returns:
invested (GCI) for the last twelve Underlying operating
months. Cash returns represent profit 84.5 100.6
underlying operating profit Property rental
before property rentals and share costs 76.5 77.3
based payments subject to tax, then Share based payment
adjusted for depreciation charges 3.6 3.9
and amortisation. GCI represents ----------------------- ------- ------- --------------
gross property, plant and equipment 164.6 181.8
plus software and other Effective tax rate 20% 20%
intangibles excluding the goodwill Tax charge on above (32.9) (36.4)
created on the acquisition of the ----------------------- ------- ------- --------------
Group by KKR (GBP906,445,000) 131.7 145.4
plus net working capital, plus Depreciation and
capitalised rent multiplied by a amortisation 35.8 37.4
factor of 8x. CROIC is stated ----------------------- ------- ------- --------------
before the impact of IFRS 16 as it is Cash returns 167.5 182.8
based on a 12 month rolling average. Gross capital invested
(GCI):
Gross property,
plant and equipment 275.4 296.8 8
Intangibles 1,020.9 1036.1 10
Less KKR goodwill (906.4) (906.4)
Investments 15.1 13.3
Net working capital (109.5) (98.0) see definition
Capitalised operating
leases 612.0 618.6 8x
----------------------- ------- ------- --------------
GCI 907.5 960.4
Average 917.6 947.6
----------------------- ------- ------- --------------
Underlying CROIC 18.3% 19.3%
----------------- ------------------------------------- ----------------------------------------------------------
Underlying EBITDA Earnings before interest, tax, Underlying EBITDA
depreciation and amortisation before (GBPm) HY19 HY20 Note
the effect of non-underlying Statutory operating
items in the period. profit 9.9 44.0 2
Depreciation and
amortisation 19.4 58.1 3
Non-underlying items 29.9 7.7 3
--------------------- ----- ----- -----
Underlying EBITDA 59.2 109.8
----------------- ------------------------------------- ----------------------------------------------------------
Underlying free Net cash from operating activities, Underlying free
cash flow after tax, less net cash used in cash flow (GBPm) HY19 HY20 Note
investing activities Underlying free cash
(excluding acquisitions), less flow 27.3 24.9
interest paid & debt issue costs Dividends (24.8) (24.8) CFS
before the effect of non-underlying Acquisition of subsidiary (2.1) (0.3) CFS
items in the period. Investments - (1.0) CFS
Proceeds from new
loan 195.1 36.0 CFS
Repayment of borrowings (195.0) (36.0) CFS
Non-underlying cash
flow
Proceeds from sale
of PPE - 0.3 CFS
Settlement of put
& call - (6.4) CFS
Acquisition of subsidiary - (3.8) CFS
Repayment of borrowings - (5.9) CFS
Non-underlying working
capital - 1.2 CFS
Net increase/(decrease)
in cash 0.5 (15.8)
CFS = Consolidated Statement
of Cash Flows
----------------- ------------------------------------- ----------------------------------------------------------
Alternative Performance Measures ("APMs") (continued)
Like-for-like Like-for-like sales growth comprises Not applicable.
total revenue in a financial period
compared to revenue
achieved in a prior period for stores,
online operations, grooming salons,
vet practices &
specialist referral centres that have
been trading for 52 weeks or more,
excluding fee income
from Joint Venture practices where the
Group has bought out the Joint Venture
Partners or
will offer to buy out the Joint
Venture Partners in the future.
---------------------------- -------------------------------------- ----------------------------------------------
2-year like-for-like 2-year like-for-like sales growth Not applicable.
comprises total revenue in a financial
period compared to
revenue achieved in the financial
period before the prior period for
stores, online operations,
and grooming salons that have been
trading for 104 weeks or more.
---------------------------- -------------------------------------- ----------------------------------------------
Underlying basic EPS Underlying basic earnings per share Underlying basic
(EPS) is based on earnings per share EPS (p) HY19 HY20 Note
after the impact Underlying basic
of IFRS 16, but before the impact of EPS 6.1 6.7 4
certain costs or incomes that derive Non-underlying items (4.9) (1.6) 4
from events or transactions --------------------- ----- ----- -----
that fall outside the normal Basic earnings per
activities of the Group, and are share 1.2 5.1
excluded by virtue of their
size and nature in order to reflect
management's view of the performance
of the Group.
---------------------------- -------------------------------------- ----------------------------------------------
Underlying operating profit Underlying operating profit is based Underlying operating
on operating profit before the impact profit (GBPm) HY19 HY20 Note
of certain costs Underlying operating
or incomes that derive from events or profit 39.8 51.7 2
transactions that fall outside the Non-underlying items (29.9) (7.7) 3
normal activities ---------------------- ------ ----- -----
of the Group, and are excluded by Operating profit 9.9 44.0
virtue of their size and nature in
order to reflect management's
view of the performance of the Group.
---------------------------- -------------------------------------- ----------------------------------------------
Underlying profit before tax Underlying profit before tax (PBT) is Underlying PBT (GBPm) HY19 HY20 Note
based on pre-tax profit before the Underlying PBT 37.9 41.7 CIS
impact of certain Non-underlying items (29.9) (7.7) 3
costs or incomes that derive from ----------------------- ------ ----- -----
events or transactions that fall PBT 8.0 34.0
outside the normal activities CIS = Consolidated Income Statement
of the Group, and are excluded by
virtue of their size and nature in
order to reflect management's
view of the performance of the Group.
---------------------------- -------------------------------------- ----------------------------------------------
Underlying profit after tax Underlying profit after tax (PAT) is Underlying PAT (GBPm) HY19 HY20 Note
based on post tax profit before the Underlying PAT 30.6 33.3 CIS
impact of certain Non-underlying items (24.4) (7.7) CIS
costs or incomes that derive from ----------------------- ------ ----- -----
events or transactions that fall PAT 6.2 25.6
outside the normal activities
of the Group, and are excluded by
virtue of their size and nature in
order to reflect management's
view of the performance of the Group.
---------------------------- -------------------------------------- ----------------------------------------------
Underlying total tax expense Underlying total tax expense is based Underlying total
on the statutory tax expense for the tax expense (GBPm) HY19 HY20 Note
period (being the Underlying tax expense 7.2 8.4 5
net of current tax and deferred tax) Non-underlying items (5.5) - 5
before the impact of certain costs or ----------------------- ----- ----- -----
incomes that derive Tax expense 1.7 8.4
from events or transactions that fall
outside the normal activities of the
Group, and are
excluded by virtue of their size and
nature in order to reflect
management's view of the performance
of the Group.
---------------------------- -------------------------------------- ----------------------------------------------
Alternative Performance Measures ("APMs") (continued)
Underlying net working Net working capital Underlying net working Note
capital movement is a measure of capital movement (GBPm) HY19 HY20
the cash required by the Net working capital
business to fund its per cash flow statement (0.6) 2.2 CFS
inventory, receivables and
payables. Being:
Movement in trade and
The change year on year other receivables (6.5) (6.6) CFS
reflects the cash Movement in inventories (4.9) (3.7) CFS
in/outflow in relation to Movement in trade and
changes in the working other payables 12.2 13.4 CFS
capital cycle excluding Movement in provisions 1.2 (1.9) CFS
non-underlying items. ----------------------------- ------- ------- -----
Trading working capital
The change in working movement 2.0 1.2
capital is a key component Movement in gross operating
of the free cash flow loans (5.2) 0.4
measure of the Group. ----------------------------- ------- ------- -----
Cash working capital
movement (3.2) 1.6
----------------------------- ------- ------- -----
Underlying allowance
for expected credit
losses against operating
loans 2.6 0.6
Net working capital
movement (0.6) 2.2
CFS = Consolidated
statement of cash flows
(GBPm) HY19 HY20 Note
Receivables 69.2 66.3
Inventory 65.4 72.2
Trade and other payables (226.1) (200.4)
Provisions (13.9) (4.2)
Non-current provisions (3.1) (1.2)
----------------------------- ------- ------- -----
Net working capital (108.5) (67.3)
---------------------------- --------------------------- -------------------------------------------------------
Underlying cash working Working capital before Underlying cash working
capital increase/decrease in gross capital (GBPm) HY19 HY20 Note
operating loans to Joint Net working capital
Venture practices (above) (0.6) 2.2
Net loans and borrowings 2.6 (1.0) 14
------------------------- ----- ----- -----
Underlying cash working
capital 2.0 1.2
---------------------------- --------------------------- -------------------------------------------------------
Omni-channel revenue Revenue net of discounts and Omni-channel revenue
VAT from core online, sales, (GBPm) HY19 HY20 Note
subscriptions and order to ---------------------- ----- ----- -----
store. Omnichannel revenue 35.3 46.5
---------------------------- ----------------------------- -------------------------------------------------------
Underlying EBIT Earnings before interest Underlying EBIT (GBPm) HY19 HY20 Note
and tax agreed to operating ------------------------ ----- ----- -----
profit relating to Operating profit
underlying trading. relating to underlying
trading (EBIT) 39.8 51.7 2
---------------------------- --------------------------- -------------------------------------------------------
Retail underlying EBIT Earnings before interest Retail underlying
and tax agreed to operating EBIT (GBPm) HY19 HY20 Note
profit relating to -------------------- ----- ----- -----
underlying trading Retail operating
for the Retail division. profit relating to
underlying trading
(EBIT) 29.4 38.1 2
---------------------------- --------------------------- -------------------------------------------------------
Vet Group underlying EBIT Earnings before interest Vet Group underlying
and tax agreed to operating EBIT (GBPm) HY19 HY20 Note
profit relating to ---------------------- ----- ----- -----
underlying trading Vet Group operating
for the Vet Group division. profit relating to
underlying trading
(EBIT) 13.7 17.6 2
---------------------------- --------------------------- -------------------------------------------------------
Net debt Cash and cash equivalents Net debt (GBPm) HY19 HY20 Note
less loans and borrowings. Cash and cash equivalents 60.3 44.7 CBS
Loans and borrowings (195.1) (181.0) 11
-------------------------- ------- ------- -----
Net Debt (134.8) (136.3)
CBS = Consolidated balance sheet
---------------------------- --------------------------- -------------------------------------------------------
Customer sales Customer sales being Customer sales (GBPm) HY19 HY20 Note
statutory Group revenue, Statutory Group revenue 499.3 546.3
less Joint Venture Fee income (28.9) (29.7) 2
veterinary practice fee Sales by Joint Venture
income veterinary practices 166.8 178.7
(which forms part of ------------------------ ------ ------ -----
statutory revenue within Customer sales 637.2 695.3
the Vet Group), plus gross
customer sales made
by Joint Venture veterinary
practices.
---------------------------- --------------------------- -------------------------------------------------------
Condensed consolidated income statement
28 week period ended 28 week period ended
10 October 2019 11 October 2018
------------------------- ---- ------------------------------------- -------------------------------------
Non-underlying Non-underlying
items items
Underlying (note Underlying (note
trading 3) Total trading 3) Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Revenue 2 546,338 - 546,338 499,345 - 499,345
Cost of sales (277,857) (7,925) (285,782) (247,935) (12,800) (260,735)
Impairment losses
on receivables 3 (600) 305 (295) - (16,230) (16,230)
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Gross profit 267,881 (7,620) 260,261 251,410 (29,030) 222,380
Selling and distribution
expenses (165,794) - (165,794) (168,138) - (168,138)
Administrative expenses (50,389) (91) (50,480) (43,450) (880) (44,330)
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Operating profit 2 51,698 (7,711) 43,987 39,822 (29,910) 9,912
Financial income 253 - 253 463 - 463
Financial expense (10,233) - (10,233) (2,415) - (2,415)
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Net financing expense (9,980) - (9,980) (1,952) - (1,952)
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
Profit before tax 41,718 (7,711) 34,007 37,870 (29,910) 7,960
Taxation 5 (8,431) - (8,431) (7,254) 5,516 (1,738)
Profit for the period 33,287 (7,711) 25,576 30,616 (24,394) 6,222
------------------------- ---- ---------- -------------- --------- ---------- -------------- ---------
All activities relate to continuing operations.
Basic and diluted earnings per share attributable to equity
shareholders of the Company:
28 week 28 week period
period ended ended
10 October 11 October
Note 2019 2018
--------------------------------------- ---- ------------- --------------
Equity holders of the parent - basic 4 5.1p 1.2p
Equity holders of the parent - diluted 4 5.1p 1.2p
--------------------------------------- ---- ------------- --------------
Condensed consolidated statement of comprehensive income
28 week
28 week period
period ended ended
10 October 11 October
2019 2018
GBP000 GBP000
----------------------------------------------- ------------- -----------
Profit for the period 25,576 6,222
Other comprehensive income
Items that are or may be recycled subsequently
into profit or loss:
Foreign exchange translation differences (17) (70)
Cash flow hedges - reclassified to profit
and loss (1,034) 1,173
Effective portion of changes in fair value
of cash flow hedges 502 1,912
------------------------------------------------ ------------- -----------
Other comprehensive income for the period,
before income tax (549) 3,015
Income tax on other comprehensive income 97 (586)
------------------------------------------------ ------------- -----------
Other comprehensive income for the period,
net of income tax (452) 2,429
------------------------------------------------ ------------- -----------
Total comprehensive income for the period 25,124 8,651
------------------------------------------------ ------------- -----------
The notes on pages 26 to 62 form an integral part of these
consolidated interim financial statements.
Condensed consolidated balance sheet
At 28
At 10 October At 11 October March
2019 2018 2019
Note GBP000 GBP000 GBP000
------------------------------ ---- ------------- ------------- ---------
Non-current assets
Property, plant and equipment 8 119,939 126,741 123,684
Right-of-use assets 9 452,336 - -
Intangible assets 10 1,001,235 995,619 1,000,726
Other non-current assets 19,952 19,623 18,653
1,593,462 1,141,983 1,143,063
------------------------------ ---- ------------- ------------- ---------
Current assets
Inventories 72,181 65,396 68,209
Other financial assets 2,469 2,255 1,610
Trade and other receivables 66,280 69,175 68,886
Cash and cash equivalents 44,747 60,295 60,534
------------------------------ ---- ------------- ------------- ---------
185,677 197,121 199,239
------------------------------ ---- ------------- ------------- ---------
Total assets 1,779,139 1,339,104 1,342,302
------------------------------ ---- ------------- ------------- ---------
Current liabilities
Trade and other payables (196,370) (186,803) (196,071)
Lease liabilities 9 (84,106) - -
Provisions (4,250) (13,900) (15,353)
Other financial liabilities (694) (1,487) (7,333)
(285,420) (202,190) (218,757)
------------------------------ ---- ------------- ------------- ---------
Non-current liabilities
Other interest-bearing loans
and borrowings 11 (179,044) (192,614) (178,778)
Other payables (238) (37,769) (33,579)
Lease liabilities 9 (404,568) - -
Provisions (1,162) (3,098) (1,687)
Other financial liabilities (3,326) (8,448) (2,497)
Deferred tax liabilities (2,620) (4,683) (4,028)
------------------------------ ---- ------------- ------------- ---------
(590,958) (246,612) (220,569)
------------------------------ ---- ------------- ------------- ---------
Total liabilities (876,378) (448,802) (439,326)
------------------------------ ---- ------------- ------------- ---------
Net assets 902,761 890,302 902,976
------------------------------ ---- ------------- ------------- ---------
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
Translation reserve (53) (30) (36)
Cash flow hedging reserve 402 1,549 837
Retained earnings 1,156,117 1,142,488 1,155,880
Total equity 902,761 890,302 902,976
------------------------------ ---- ------------- ------------- ---------
The notes on pages 26 to 62 form an integral part of these
consolidated interim financial statements.
Condensed consolidated statement of changes in equity
Cash
flow
Share Consolidation Merger hedging Translation Retained Total
capital reserve reserve reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Balance at 28 March 2019 5,000 (372,026) 113,321 837 (36) 1,155,880 902,976
Total comprehensive income
for the period
Profit for the period - - - - - 25,576 25,576
Other comprehensive income - - - (435) (17) - (452)
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Total comprehensive income
for the period - - - (435) (17) 25,576 25,124
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Transactions with owners,
recorded directly in
equity
Equity dividends paid - - - - - (24,771) (24,771)
Share based payment charge - - - - - 2,380 2,380
Purchase of own shares - - - - - (2,948) (2,948)
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Total contributions by
and distributions to
owners - - - - - (25,339) (25,339)
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Balance at 10 October
2019 5,000 (372,026) 113,321 402 (53) 1,156,117 902,761
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Cash
flow
Share Consolidation Merger hedging Translation Retained Total
capital reserve reserve reserve reserve earnings equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Balance at 29 March 2018 5,000 (372,026) 113,321 (950) 40 1,160,967 906,352
Total comprehensive income
for the period
Profit for the period - - - - - 6,222 6,222
Other comprehensive income - - - 2,499 (70) - 2,429
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Total comprehensive income
for the period - - - 2,499 (70) 6,222 8,651
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Transactions with owners,
recorded directly in
equity
Equity dividends paid - - - - - (24,807) (24,807)
Share based payment charge - - - - - 1,951 1,951
Purchase of own shares - - - - - (1,845) (1,845)
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Total contributions by
and distributions to
owners - - - - - (24,701) (24,701)
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
Balance at 11 October
2018 5,000 (372,026) 113,321 1,549 (30) 1,142,488 890,302
--------------------------- -------- ------------- -------- -------- ----------- --------- --------
The notes on pages 26 to 62 form an integral part of these
consolidated interim financial statements.
Condensed consolidated statement of cash flows
28 week
28 week period period
ended ended
10 October 11 October
2019 2018
GBP000 GBP000
------------------------------------------------------- -------------- -----------
Cash flows from operating activities
Profit for the period 25,576 6,222
Adjustments for:
Depreciation and amortisation 58,130 19,395
Non-underlying impairment 4,005 -
Financial income (253) (463)
Financial expense 10,233 2,415
Settlement of 'put & call' liabilities (growth
element) (750) -
Share based payment charges 2,380 1,951
Taxation 8,431 1,738
------------------------------------------------------- -------------- -----------
107,752 31,258
Increase in trade and other receivables (5,581) (9,084)
Increase in inventories (3,670) (4,867)
Increase in trade and other payables 13,409 12,174
(Decrease)/increase in provisions (1,935) 1,163
Increase in working capital relating to non-underlying
items 1,178 29,910
111,153 60,554
Tax paid (20,208) (8,402)
------------------------------------------------------- -------------- -----------
Net cash flow from operating activities 90,945 52,152
------------------------------------------------------- -------------- -----------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 260 441
Interest received 253 463
Investment in other financial assets (1,000) -
Acquisition of subsidiaries, net of cash acquired
(non-underlying) (3,764) (2,100)
Repayment of borrowings owed by Joint Venture
practices in advance of acquisition of subsidiaries (5,898) -
Acquisition of subsidiaries, net of cash acquired
(underlying) (350) -
Acquisition of property, plant and equipment
and other intangible assets (15,633) (20,323)
------------------------------------------------------- -------------- -----------
Net cash used in investing activities (26,132) (21,519)
------------------------------------------------------- -------------- -----------
Cash flows from financing activities
Equity dividends paid (24,771) (24,807)
Proceeds from new loan 36,000 195,086
Repayment of borrowings (36,000) (195,000)
Debt issue costs - (1,790)
Capital lease payments (37,067) -
Settlement of 'put & call' liabilities (minimum
amount) (5,639) -
Purchase of own shares (2,948) (1,845)
Finance lease obligations (208) (36)
Interest paid (2,169) (1,770)
Interest paid on lease obligations (7,798) -
------------------------------------------------------- -------------- -----------
Net cash used in financing activities (80,600) (30,162)
------------------------------------------------------- -------------- -----------
Net (decrease)/increase in cash and cash equivalents (15,787) 471
Cash and cash equivalents at beginning of period 60,534 59,824
------------------------------------------------------- -------------- -----------
Cash and cash equivalents at end of period 44,747 60,295
------------------------------------------------------- -------------- -----------
Notes (forming part of the condensed consolidated interim
financial statements)
1 Accounting policies
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
consolidated financial statements.
Basis of preparation
Pets at Home Group Plc (the Company) is a company incorporated
in the United Kingdom and its registered office is Epsom Avenue,
Stanley Green, Handforth, Cheshire, SK9 3RN. The Company is listed
on the London Stock Exchange.
The condensed consolidated interim financial statements as at
and for the 28 week period ended 10 October 2019 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 28 March 2019 are available on request
from the Company's registered office and via the Company's
website.
The interim financial statements are prepared under the
historical cost convention, as modified by the revaluation of
derivative financial instruments to fair value, and in accordance
with those parts of the Companies Act 2006 applicable to companies
reporting under IFRS as adopted by the European Union.
Statement of compliance
These condensed consolidated interim financial statements have
been prepared in accordance with the Disclosure and Transparency
Rules of the Financial Conduct Authority and with IAS 34 Interim
Financial Reporting as adopted by the 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 28
March 2019.
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 28 March 2019 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 10 October
2019.
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 10 October 2019 are consistent with the policies
applied by the Group in its consolidated financial statements as at
and for the 52 week period ended 28 March 2019, 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
-- The adoption of IFRS 16 (described below)
The Group has initially adopted the following IFRS's from 29
March 2019 and these have been applied in these interim financial
statements.
IFRS 16 Leases (effective date 1 January 2019)
IFRS 16 Leases is effective for the Group from 29 March 2019 and
replaces existing lease guidance under IAS 17 Leases. IFRS 16 sets
out the principles for the recognition, measurement, presentation
and disclosure of leases and lessees to account for all leases
under a single on-balance sheet model similar to the accounting for
finance leases under IAS 17.
i) Leases in which the Group is a lessee
The majority of the Group's trading stores, standalone
veterinary practices, specialist referral centres, distribution
centres and support offices are leased. The Group also has a number
of non-property leases relating to vehicles, equipment and material
handling equipment. The commitments as at 28 March 2019 and 29
March 2018 are disclosed in note 24 of the annual financial
statements.
Under IFRS 16, the Group recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. The
lease liability is initially measured at the present value of the
remaining lease payments, discounted using the interest rate
implicit in the lease, or if that rate cannot be readily determined
the Group's incremental borrowing rate. The rate implicit in the
lease cannot be readily determined and therefore a rate based on
the Group's incremental borrowing rate is used. This rate is
adjusted to take into account the risk associated with the length
of the lease. A higher discount rate is applied to a longer lease.
Lease payments will include any fixed payments including as a
result of stepped rent increases.
The right-of-use asset is initially measured at cost, which
comprises the initial amount of the lease liability adjusted for
any lease payments made at or before the lease commencement date,
any lease incentives received or premiums paid.
Under IAS 17, the Group recognised operating lease expenses on a
straight line basis over the term of the lease, and recognised
assets and liabilities only to the extent that there was a timing
difference between actual lease payments and the expense
recognised. Lease incentives received or paid are recognised as an
integral part of the total lease expense over the term of the
lease. Rent prepayments are disclosed within prepayments and
deferred income in respect of landlord incentives on property
leases are disclosed within trade and other payables. Under IFRS
16, the current rent charge is replaced by a depreciation charge
for the right-of-use asset and an interest expense on the lease
liability.
There are recognition exemptions for low-value assets and
short-term leases with a lease term of 12 months or less. Any
leases under a short term licence agreement are excluded as they
fall into the lease term of 12 months or less. The Group recognises
the lease payments associated with these leases as an expense on a
straight-line basis over the term of the lease. The total value of
leases where the Group has taken a recognition exemption is
disclosed in note 9.
ii) Leases in which the Group is a lessor
Lessor accounting remains similar to current accounting under
IAS 17. At lease inception, lessors will determine whether each
lease is a finance lease or an operating lease. To classify each
lease, the Group makes an overall assessment of whether the lease
transfers substantially all of the risks and rewards incidental to
ownership of the underlying asset. If this is considered to be the
case, then the lease is recognised as a finance lease, if not then
it is recognised as an operating lease. As part of this assessment,
the Group considers certain factors such as whether the lease is
for the major part of the economic life of the asset.
The Group has a small number of leases where it is an
intermediate lessor. For these leases, it accounts for its interest
in the head lease and sub-lease separately. It assesses the lease
classification of the sub-lease with reference to the right-of-use
asset arising from the head lease, not with reference to the
underlying asset.
The Group has reassessed the classification of sub-leases in
which the Group is a lessor. Under IAS 17, the subleases were
classified with reference to the underlying asset which resulted in
all subleases being classified as operating leases. The Group will
reclassify a small number of sub-leases as a finance lease,
resulting in recognition of a finance lease receivable of GBP2.4m
as at 29 March 2019. Under IFRS 16, the finance lease is assessed
by reference to the right-of-use asset under the head lease rather
than the underlying asset. There will be no change to the
accounting for the remaining subleases which continue to be
accounted for as an operating lease, and income from these leases
will continue to be recognised on a straight-line basis over the
term of the lease, as disclosed in note 3.
The Group currently receives rental income from related Joint
Venture veterinary practices which are located within the Group's
retail stores. These rental incomes are disclosed in note 3. Under
IFRS 16, the lease classification of sub-leases is assessed by
reference to the right-of-use asset under the head lease rather
than the underlying asset. Therefore there will be no change in
accounting for this rental income, which will continue to be
accounted for within operating expenses.
iii) Transition
The Group has adopted IFRS 16 on 29 March 2019 using the
modified retrospective approach. The cumulative effect of adopting
IFRS 16 has been recognised as an adjustment to the opening balance
sheet as at 29 March 2019 with no restatement of comparable
information. There is no impact to the statement of changes in
equity. Further details and the impact of changes are disclosed in
note 15.
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 IAS 34 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 on-going basis and revisions to accounting estimates
are recognised in the period in which the estimates are revised and
in any future periods affected.
The estimates and assumptions that have significant risk of
causing a material adjustment to the carrying value of assets and
liabilities are discussed below.
Impairment of goodwill and other intangibles (significant
estimate)
Determining whether goodwill and other intangibles are impaired
requires an estimation of the value in use of the cash-generating
units to which goodwill and other intangible assets have been
allocated. The value in use calculation requires estimation of
future cash flows expected to arise from the cash-generating unit
(CGU) and a suitable discount rate in order to calculate present
value.
Joint Venture receivables (significant estimate)
The Group provides operating loans and other loans to a number
of Joint Venture veterinary practices to cover their cash flow
requirements and support their longer term growth. The loans
advanced to the practices are interest free and either repayable on
demand or repayable within 90 days of demand. As detailed in these
notes, provisions for expected credit losses are held in respect of
operating and other loans to Joint Venture veterinary practices. In
line with IFRS 9, judgement is applied in determining both the
definition of default and the qualitative and quantitative
risk-related criteria used to allocate loans into bands based on
the probability of default, and in estimating an appropriate
provision to apply to each loan by applying the expected credit
loss criteria including the effective interest rate. In assessing
the qualitative and quantitative information the Group takes into
account factors including current performance against business plan
and change in customer numbers. The revenue and profit expectations
of the practices are taken into account in determining the length
of time that the practice is expected to take in order to repay the
loans. This is also the period over which losses are estimated
should default occur within the contractual period. The provision
is based on forward-looking information, taking into account
expected credit losses giving due consideration to the Joint
Venture's business plan, as well as macro-economic factors such as
growth in the size of the veterinary market, availability of
veterinary practitioners and cost inflation within the industry.
These judgements are made by management based on their experience
and knowledge of the practices. The quantum of Joint Venture
receivables and the provision made against these receivables is
disclosed in notes 15, 16 and 27 in the annual consolidated
financial statements.
Assessment of control with regard to Joint Ventures (significant
judgement)
The Group has assessed, and continually assesses whether the
level of an individual Joint Venture veterinary practices'
indebtedness to the Group, particularly those with high levels of
indebtedness, implies that the Group has the practical ability to
control the Joint Venture, which would result in the requirement to
consolidate. In making this judgement, the Group reviewed the terms
of the Joint Venture agreement and the question of practical
ability as a provider of working capital to control the activities
of the practice. This included consideration of barriers to the
Group's ability to exercise such practical or other control, which
include difficulty in replacing Joint Venture Partners due to the
shortage of veterinarians in the UK and reputational damage within
the veterinary network should the Group attempt to exercise
control, as well as potential barriers to the Joint Venture Partner
exercising their own power over the activities of the practice. We
note that under the terms of the Joint Venture agreement, our
partners run their practices with complete clinical freedom. The
Group is satisfied that on the balance of evidence from the Group's
experience as shareholder and provider of working capital support
to the practices, it does not have the current ability to exercise
control over those practices to which operating loans are advanced
and therefore non consolidation is appropriate.
Put and call options (significant estimate)
The Group recognises put and call options over non-controlling
interests (NCI) in its subsidiary undertakings as a liability in
the consolidated balance sheet. The nature of the Group's option
agreements are such that there is an element that is a minimum
amount, and a growth element to reward and retain key individuals
employed by the acquired business, who are also non-controlling
shareholders, and which is linked to improvements in the results of
the acquired business. The growth element would be forfeited under
certain conditions by the NCI, including if they ceased to be
employed by the Group.
Upon initial recognition, the minimum amount is recognised as a
liability at fair value, which is estimated as the present value of
the future exercise price based upon the fair value of the business
at acquisition. For the growth element, the expected amount is
charged to the income statement as employment costs over the option
period within non-underlying items. The financial liability is
valued based on management's best estimate of the future pay out,
which is based on the estimated future earnings. The charge is
spread over the financial years before the put and call can be
exercised for the first time.
The Group consider that no reasonably possible change in
assumptions underlying the carrying value of the put and call
options would result in a material range of estimation uncertainty
in the next 12 months. Therefore, the carrying value of the options
is not considered a significant estimate as at 10 October 2019.
Carrying value of inventory (significant estimate)
A provision is made for those items of inventory where the net
realisable value is estimated to be lower than cost. Net realisable
value is based on both historical experience and assumptions
regarding future selling values and disposal channels, and is
consequently a source of estimation uncertainty. At 10 October 2019
the inventory provision amounted to GBP2.6m (11 October 2018:
GBP2.5m). The value of inventory against which an ageing provision
is held is GBP1.9m (11 October 2018: GBP1.6m). Management consider
the range of reasonably possible estimation uncertainty to be
immaterial given the value of the provision, the value of inventory
against which the provision is held, and the degree of historical
accuracy in the provisioning policy. Therefore, the carrying value
of inventory is not considered a significant estimate as at 10
October 2019.
IFRS 16 Leases (significant judgement)
Under IFRS 16, the Group recognises a right-of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments. The
lease liability is initially measured at the present value of the
remaining lease payments, discounted using the Group's incremental
borrowing rate, adjusted to take into account the risk associated
with the length of the lease which ranges between 1 and 27 years.
The Group have therefore made a judgement to determine the
incremental borrowing rate used. As a result of the significant
impact the transition to IFRS 16 has had on the Group's opening
balance sheet (GBP473.2m right of use asset and GBP506.1m lease
liability recognised as at 29 March 2019), the discount rate is
considered to be a significant judgement. The discount rate applies
ranges between 2.3% and 3.3% dependent on the length of the lease
term.
2 Segmental reporting
The Group has two reportable segments, Retail and Vet Group,
which are the Group's strategic business units. The Group's
operating segments are based on the internal management structure
and internal management reports, which are reviewed by the
Executive Directors on a periodic basis. The Executive Directors
are considered to be the Chief Operating Decision Makers.
The Group is a pet care business with the strategic advantage of
being able to provide products, services and advice, addressing all
pet owners' needs. Within this strategic umbrella, the Group has
two reportable segments, Retail and Vet Group, which are the
Group's strategic business units, and a central support function.
The strategic business units offer different products and services,
are managed separately and require different operational and
marketing strategies.
The operations of the Retail reporting segment comprise the
retailing of pet products purchased online and in-store, pet sales,
grooming services and insurance products. The operations of the Vet
Group reporting segment comprise First Opinion practices and
specialist referral centres. Central includes Group costs and
finance expenses. Revenue and costs are allocated to a segment
where reasonably possible.
The following summary describes the operations in each of the
Group's reportable segments. Performance is measured based on
segment operating profit, as included in the management reports
that are reviewed by the Executive Directors. These internal
reports are prepared in accordance with IFRS accounting policies
consistent with these interim financial statements. All material
operations of the reportable segments are carried out in the UK and
all revenue is from external customers.
28 week period ended 10
October 2019
----------------------------------- --------------------------------------------
Retail Vet Group Central Total
Income Statement GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- ----------- ------------- -------
Revenue 479,842 66,496 - 546,338
Gross profit 239,428 28,453 - 267,881
------------------------------------- ------- ----------- ------------- -------
Underlying operating profit/(loss) 38,128 17,581 (4,011) 51,698
Non-underlying items - (7,711) - (7,711)
------------------------------------- ------- ----------- ------------- -------
Segment operating profit/(loss) 38,128 9,870 (4,011) 43,987
Net financing expenses (7,260) (287) (2,433) (9,980)
------------------------------------- ------- ----------- ------------- -------
Profit/(loss) before tax 30,868 9,583 (6,444) 34,007
------------------------------------- ------- ----------- ------------- -------
IFRS 16 has been adopted during the 28 week period ended 10 October
2019 and has had a significant impact on the Group's income statement.
Further details of the impact of transition to IFRS 16 'Leasing'
has been disclosed in note 15.
28 week period ended 11
October 2018
----------------------------------- ---------------------------------------------
Retail Vet Group Central Total
Income Statement GBP000 GBP000 GBP000 GBP000
----------------------------------- ------- ----------- ------------- --------
Revenue 443,731 55,614 - 499,345
Gross profit 226,121 25,289 - 251,410
Underlying operating profit/(loss) 29,352 13,651 (3,181) 39,822
Non-underlying items - (29,910) - (29,910)
------------------------------------- ------- ----------- ------------- --------
Segment operating profit/(loss) 29,352 (16,259) (3,181) 9,912
Net financing expenses - - (1,952) (1,952)
Profit/(loss) before tax 29,352 (16,259) (5,133) 7,960
------------------------------------- ------- ----------- ------------- --------
Non-underlying items are
explained in note 3.
28 week period ended 10 October
2019
------------------------------------ ------- ----------------------------------------
Reconciliation of EBITDA before Retail Vet Group Central Total
non-underlying items GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- -------- ----------- ------- --------
Underlying operating profit/(loss) 38,128 17,581 (4,011) 51,698
Depreciation of property,
plant and equipment 13,599 1,368 - 14,967
Depreciation of right-of-use
assets 36,978 1,207 - 38,185
Amortisation of intangible
assets 4,736 242 - 4,978
------------------------------------ ------- -------- ----------- ------- --------
Underlying EBITDA 93,441 20,398 (4,011) 109,828
------------------------------------ ------- -------- ----------- ------- --------
28 week period ended 11 October
2018
------------------------------------ ------- ----------------------------------------
Reconciliation of EBITDA before Retail Vet Group Central Total
non-underlying items GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- -------- ----------- ------- --------
Underlying operating profit/(loss) 29,352 13,651 (3,181) 39,822
Depreciation of property,
plant and equipment 14,390 1,174 - 15,564
Depreciation of right-of-use - - - -
assets
Amortisation of intangible
assets 3,790 41 - 3,831
------------------------------------ ------- -------- ----------- ------- --------
Underlying EBITDA 47,532 14,866 (3,181) 59,217
------------------------------------ ------- -------- ----------- ------- --------
EBITDA before non-underlying items is defined on page 19.
28 week period ended 10 October 2019
---------------------------- ---- ----------------------------------------------
Segmental revenue analysis Retail Vet Group Central Total
by revenue stream GBP000 GBP000 GBP000 GBP000
---------------------------- ---- --------------- ----------- ------- -------
Retail - Food 261,092 - - 261,092
Retail - Accessories 193,883 - - 193,883
Retail - Services 24,867 - - 24,867
Vet Group - First Opinion
fee income - 29,662 - 29,662
Vet Group - Company managed
practices - 11,646 - 11,646
Vet Group - Other income - 3,888 - 3,888
Vet Group - Specialist - 21,300 - 21,300
----------------------------------- --------------- ----------- ------- -------
Total 479,842 66,496 - 546,338
----------------------------------- --------------- ----------- ------- -------
28 week period ended 11 October
2018
---------------------------- ------------ --------------------------------------
Segmental revenue analysis Retail Vet Group Central Total
by revenue stream GBP000 GBP000 GBP000 GBP000
---------------------------- ------------ ------- ----------- ------- -------
Retail - Food 237,854 - - 237,854
Retail - Accessories 183,628 - - 183,628
Retail - Services 22,249 - - 22,249
Vet Group - First Opinion
fee income - 28,867 - 28,867
Vet Group - Company managed
practices - 3,350 - 3,350
Vet Group - Other income - 3,744 - 3,744
Vet Group - Specialist - 19,653 - 19,653
----------------------------------- ------ ------- ----------- ------- -------
Total 443,731 55,614 - 499,345
----------------------------------- ------ ------- ----------- ------- -------
3 Expenses
Included in operating profit are the following:
28 week period 28 week period
ended ended
10 October 2019 11 October 2018
GBP000 GBP000
---------------------------------------------- ---------------- ----------------
Non-underlying items
Write off and provisions for operating
loans, initial set-up loans, and trading
balances with Joint Venture veterinary
practices (305) 16,230
Other costs associated with the purchase
of Joint Venture veterinary practices 3,920 12,800
Impairment of right-of-use assets following
acquisition of Joint Venture veterinary
practices 2,209 -
Impairment of property, plant & equipment
and intangible assets relating to the
review and recalibration exercise of
the First Opinion veterinary practices 1,796 -
Increase in fair value of put and call
liability 91 880
Total non-underlying items 7,711 29,910
Underlying items
Impairment losses on receivables 600 -
Depreciation of property, plant and equipment 14,967 15,564
Amortisation of intangible assets 4,978 3,831
Depreciation of right-of-use assets 38,185 -
Interest on lease liability 7,798 -
Rentals under operating leases:
Hire of plant and machinery - 2,809
Property 39 41,297
Operating lease income from third party
sublets (142) (524)
Rental income from related parties (3,939) (4,088)
Share based payment charges 2,380 1,951
---------------------------------------------- ---------------- ----------------
Non-underlying items
During the 28 week period ended 10 October 2019 and the 52 week
period ended 28 March 2019 the Group completed a review and
recalibration exercise of the First Opinion veterinary practices.
As part of this review, the Group has completed a buy out of the
'A' shares from the Joint Venture Partners in a total of 51 Joint
Venture veterinary practices, with 24 of these occurring in the 28
week period ending 10 October 2019. In addition the Group acquired
a total of 8 further practices which did not form part of this
review, with 3 of these occurring in the 28 week period ending 10
October 2019.
The non-underlying operating expenses in the period ended 10
October 2019 of GBP7.7m relate to:
- (GBP0.3m) in relation to the release of allowances for
expected credit losses for operating loans, initial set-up loans,
and trading balances to Joint Venture veterinary practices (made by
the Group in the 52 week period ended 28 March 2019), which are no
longer expected to be recoverable, and therefore were provided for
under IFRS 9. At 10 October 2019, all of the outstanding loans with
these practices have been written off resulting in a balance of
GBPnil on the balance sheet.
- GBP3.9m in relation to exit and closure costs (provided for
under IAS 37) payable in relation to Joint Venture veterinary
practices which the Group has acquired. The release of negative
goodwill and impairment of goodwill arising on the acquisition of
the Joint Venture veterinary practices, as detailed in note 10, has
been included within these costs. This balance includes GBP0.1m in
relation to the profit from the disposal of assets acquired in the
52 week period ended 28 March 2019.
- GBP2.2m in relation to the write down of right of use assets
to their expected recoverable amount, relating to First Opinion
veterinary practices acquired in the period with the intention of
being closed. Further details are disclosed in note 9.
- GBP1.8m relating to the impairment of property, plant and
equipment and intangible assets relating to the review and
recalibration exercise of the First Opinion veterinary practices.
Further details are disclosed in notes 8 and 10.
- GBP0.1m of non-underlying operating expenses relate to an
increase in the financial liability for put and call options over
shares held by clinicians in Dick White Referrals Limited. The
charge represents an increase in the equity 'option' value held by
those clinicians based on the Board's best estimate of the future
settlement on exercise of the put and call. The charge is
classified within operating expenses as a clinician is required to
remain an employee of the Group in order to access the full equity
value of the option at the time of the exercise.
Income or costs considered by the Directors to be non-underlying
are disclosed separately to facilitate year on year comparison of
the underlying trade of the business. The Directors consider that
changes to the fair value of the put and call liabilities warrant
separate disclosure due to the nature of these arrangements as they
do not relate to the underlying trade of the business.
The non-underlying operating expenses in the period ended 11
October 2018 of GBP29.9m relate to:
- GBP16.2m of additional expected credit losses for operating
loans, initial set-up loans, and trading balances (made by the
Group) to Joint Venture veterinary practices, which were no longer
expected to be recoverable, and therefore which were provided for
under IFRS 9;
- GBP10.3m of additional expected credit losses for guarantees
to third parties on bank loans, overdrafts and lease obligations
payable by Joint Venture veterinary practices which the Group
intended to offer to buy out from Joint Venture Partners after 11
October 2018, and therefore which were provided for under IFRS
9;
- GBP2.5m of additional provisions for operating cash outflows
forecast to be incurred by the Group from 12 October 2018 until the
date at which A shares in those Joint Venture veterinary practices
which the Group intended to offer to buy out from Joint Venture
Partners after 11 October 2018 are acquired, and therefore which
were provided for under IAS 37;
- GBP0.9m of non-underlying operating expenses relate to an
increase in the financial liability for put/call options over
shares held by clinicians in three specialist referral centres.
Underlying items
The rentals under operating leases disclosed in relation to the
28 week period ended 10 October 2019 relate to leases under short
term agreements. These fall under the short-term exemption so are
excluded from the requirements of IFRS 16 Leases on the basis that
the lease terms are 12 months or less.
In the 28 week period ended 11 October 2018 rentals under
operating leases were included within underlying operating
expenses. In the 28 week period ended 10 October 2019 rental costs
of GBP42.7m relating to plant and machinery and property, offset by
income from sublets, have been replaced by depreciation of the
right-of-use assets of GBP38.2m and interest on the lease
liabilities of GBP7.8m.
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 28 week period
ended ended
10 October 2019 11 October 2018(1)
------------------------------------------- --------------------------- ---------------------------
After After
Underlying non-underlying Underlying non-underlying
trading items trading items
------------------------------------------- ---------- --------------- ---------- ---------------
Profit attributable to equity shareholders
of the parent (GBP000s) 33,287 25,576 30,616 6,222
------------------------------------------- ---------- --------------- ---------- ---------------
Basic weighted average number of
shares (000s) 500,000 500,000 500,000 500,000
Dilutive potential ordinary shares
(000s) 3,887 3,887 2,496 2,496
------------------------------------------- ---------- --------------- ---------- ---------------
Diluted weighted average number of
shares 503,887 503,887 502,496 502,496
------------------------------------------- ---------- --------------- ---------- ---------------
Basic earnings per share 6.7p 5.1p 6.1p 1.2p
Diluted earnings per share 6.6p 5.1p 6.1p 1.2p
------------------------------------------- ---------- --------------- ---------- ---------------
(1) The comparative period's dilutive potential ordinary shares
have been restated to exclude the number of shares held by the EBT,
as disclosed in note 6.
5 Taxation
Recognised in the income statement
28 week period
28 week period ended
ended 11 October
10 October 2019 2018
GBP000 GBP000
---------------------------------------- ---------------- --------------
Current tax expense
Current period 9,762 2,134
Adjustments in respect of prior periods - (45)
---------------------------------------- ---------------- --------------
Current tax expense 9,762 2,089
---------------------------------------- ---------------- --------------
Deferred tax expense
Origination and reversal of temporary
differences (1,395) (371)
Impact of difference between deferred
and current tax rates 64 20
Deferred tax expense (1,331) (351)
---------------------------------------- ---------------- --------------
Total tax expense 8,431 1,738
---------------------------------------- ---------------- --------------
The UK corporation tax standard rate for the period was 19%
(2018: 19%). The March 2016 budget announced a further reduction in
the corporation tax rate to 17% from 1 April 2020. Deferred tax at
10 October 2019 has been calculated based on the rate of 17% which
is the blended rate at which the majority of items are expected to
reverse.
Deferred tax recognised in comprehensive income
28 week period
28 week period ended
ended 11 October
10 October 2019 2018
GBP000 GBP000
------------------------------------- ---------------- --------------
Effective portion of changes in fair
value of cash flow hedges (97) 586
------------------------------------- ---------------- --------------
Reconciliation of effective tax rate
28 week period ended 28 week period ended
10 October 2019 11 October 2018
----------------------------------- -----------------------------------
Underlying Non-underlying Underlying Non-underlying
trading items Total trading items Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ---------- -------------- ------- ---------- -------------- -------
Profit for the period 33,287 (7,711) 25,576 30,616 (24,394) 6,222
Total tax expense 8,431 - 8,431 7,254 (5,516) 1,738
------------------------------- ---------- -------------- ------- ---------- -------------- -------
Profit excluding taxation 41,718 (7,711) 34,007 37,870 (29,910) 7,960
------------------------------- ---------- -------------- ------- ---------- -------------- -------
Tax using the UK corporation
tax rate for the period
of 19% (28 week period
ended 11 October 2018:19%) 7,926 (1,465) 6,461 7,195 (5,683) 1,512
Impact of change in tax
rate on deferred tax balances 64 - 64 20 - 20
Expenditure not eligible
for tax relief 441 1,465 1,906 84 167 251
Adjustments in respect
of prior periods - - - (45) - (45)
------------------------------- ---------- -------------- ------- ---------- -------------- -------
Total tax expense 8,431 - 8,431 7,254 (5,516) 1,738
------------------------------- ---------- -------------- ------- ---------- -------------- -------
6 Dividends paid and proposed
28 week period
ended
28 week period ended 11 October
10 October 2019 2018
GBP000 GBP000
-------------------------------------- -------------------- --------------
Declared and paid during the period
Final dividend of 5.0p per share
(2018: 5.0p per share) 24,771 24,807
Proposed for approval by shareholders
at the AGM
Interim dividend of 2.5p per share
(2018: 2.5p per share) 12,353 12,385
-------------------------------------- -------------------- --------------
The trustees of the following holdings of Pets at Home Group Plc
shares under the Pets at Home Group Employee Benefit Trusts have
waived or otherwise foregone any and all dividends paid in relation
to the period ended 10 October 2019 and to be paid at any time in
the future (subject to the exceptions in the relevant trust deed)
on its respective shares for the time being comprised in the trust
funds:
Computershare Nominees (Channel Islands) Limited (holding at 10
October 2019: 5,887,997 shares, holding at 11 October 2018:
4,601,947 shares).
7 Business combinations
Acquisition of Joint Venture veterinary practices
In the 28 week period ended 10 October 2019, the Group has
acquired 100% of the 'A' shares of 27 veterinary practices, which
were previously accounted for as Joint Venture veterinary
practices. These practices were previously accounted for as Joint
Venture veterinary practices as the Group only held 100% of the
non-participatory 'B' ordinary shares equating to 50% of the total
shares. Acquisition of the 'A' shares has led to the control and
consolidation of these practices. A detailed explanation for the
basis of consolidation can be found in note 1.4 of the annual
consolidated financial statements for the 52 week period ended 28
March 2019.
In the 28 week period ended 10 October 2019, GBP7.1m operating
loans, GBP1.1m initial loans and GBP0.7m other loans relating to
these practices were written off in advance of the acquisitions. In
addition GBP5.9m of bank loans owed by these Joint Venture
veterinary practices were repaid by the Group in advance of the
acquisitions.
The practices have been categorised into the following
groups:
-- Joint Venture veterinary practices acquired with the exchange
of significant cash consideration, with the intention of trading as
a going concern
-- Joint Venture veterinary practices acquired without the
exchange of significant cash consideration, with the intention of
trading as a going concern
-- Joint Venture veterinary practices acquired without the
exchange of significant cash consideration, with the intention of
being closed
Joint Venture veterinary practices acquired with the exchange of
significant cash consideration, with the intention of trading as a
going concern
In the 52 week period ended 28 March 2019, the entities listed
below were all accounted for as a Joint Venture veterinary practice
where the Group held 100% of the non-participatory 'B' ordinary
shares. On the dates listed below, the Group acquired 100% of the
'A' shares of the practices, leading to control and
consolidation.
Subsidiaries acquired
Total proportion
Proportion of voting
of voting equity instruments Cash consideration
Principal equity instruments owned following transferred
activity Date of acquisition acquired the acquisition GBP000
-------------------- ----------- -------------------- ------------------- -------------------- ------------------
Market Harborough Veterinary 14 August
Vets4Pets Limited practice 2019 50% 100% 1
Leicester St Georges Veterinary 14 August
Vets4Pets Limited practice 2019 50% 100% 1
Doncaster Vets4Pets Veterinary 5 September
Limited practice 2019 50% 100% 248
-------------------- ----------- -------------------- ------------------- -------------------- ------------------
Assets acquired and liabilities recognised at the date of
acquisition
The provisional amounts recognised in respect of identifiable
assets and liabilities relating to the acquisitions are as follows.
The acquisition disclosures have been combined as each acquisition
is considered to be individually immaterial to the Group.
Fair value
Book value of assets Adjustments of assets
and on acquisition and liabilities
liabilities acquired GBP000 acquired
GBP000 GBP000
---------------------------- ------------------------ ---------------- -----------------
Current assets
Cash and cash equivalents 2 - 2
Trade and other receivables 398 - 398
Inventories 63 - 63
Non-current assets
Tangible fixed assets 643 (340) 303
Current liabilities
Bank loans and overdrafts (100) - (100)
Trade and other payables (267) - (267)
Net assets 739 (340) 399
------------------------------- --------------------- ---------------- -----------------
Goodwill arising on acquisition
GBP000
------------------------------ -------
Consideration 250
Less: Fair value of assets
acquired (399)
------------------------------ -------
Negative goodwill arising
on acquisition (149)
------------------------------ -------
Release of negative goodwill 149
------------------------------ -------
Carrying value of goodwill -
------------------------------ -------
Joint Venture veterinary practices acquired without the exchange
of significant cash consideration, with the intention of trading as
a going concern
In the 28 week period ended 10 October 2019 the Group has
acquired the following veterinary practices, which were previously
accounted for as Joint Venture veterinary practices, with the
intention of trading as company managed practices.
Subsidiaries acquired
Total
proportion
of voting Cash
Proportion equity consideration
of voting instruments transferred
Principal equity instruments owned following for shares
activity Date of acquisition acquired the acquisition GBP000
------------------ -------------- ----------------------- ---------------------- --------------- ----------------
Companion Care (Perth) Veterinary 15 April
Limited practice 2019 50% 100% -
Companion Care
(Stevenage) Veterinary 15 April
Limited practice 2019 50% 100% -
Barnwood Vets4Pets Veterinary 23 April
Limited practice 2019 50% 100% -
Pentland Vets4Pets Veterinary 24 April
Limited practice 2019 50% 100% -
Prescot Vets4Pets Veterinary 2 September
Limited practice 2019 50% 100% -
Leeds Kirkstall
Vets4Pets Veterinary 4 October
Limited practice 2019 50% 100% -
Bearsden Vets4Pets Veterinary 9 October
Limited practice 2019 50% 100% -
------------------------ ------------------- ------------------------ ---------- --------------- ----------------
Assets acquired and liabilities recognised at the date of
acquisition
The provisional amounts recognised in respect of identifiable
assets and liabilities relating to the acquisition are as follows.
The acquisition disclosures have been combined as each acquisition
is considered to be individually immaterial to the Group.
Fair value
Book value of assets Adjustments of assets
and on acquisition and liabilities
liabilities acquired GBP000 acquired
GBP000 GBP000
---------------------------- ------------------------ ---------------- -----------------
Current assets
Cash and cash equivalents 3 - 3
Trade and other receivables 308 - 308
Inventories 73 - 73
Non-current assets
Tangible fixed assets 617 (128) 489
Right of use assets 515 - 515
Non-current liabilities
Lease liabilities (515) - (515)
Current liabilities
Bank loans and overdrafts (388) - (388)
Trade and other payables (427) - (427)
Net assets 186 (128) 58
------------------------------- --------------------- ---------------- -----------------
Goodwill arising on acquisition
GBP000
--------------------------------- -------
Consideration 150
Less: Fair value of assets
acquired (58)
--------------------------------- -------
Goodwill arising on acquisition 92
--------------------------------- -------
Impairment of goodwill (92)
--------------------------------- -------
Carrying value of goodwill -
--------------------------------- -------
The consideration shown within the table above relates to the
cash settlement of 'A' shareholder Joint Venture Partner loans,
which were repaid to the 'A' shareholder at the point of
acquisition.
Joint Venture veterinary practices acquired without the exchange
of significant cash consideration, with the intention of being
closed
In the 28 week period ended 10 October 2019 the Group has
acquired the following veterinary practices, which were previously
accounted for as Joint Venture veterinary practices. The Group's
intention is to close these practices.
Subsidiaries acquired
Total proportion
Proportion of voting Cash consideration
of voting equity instruments transferred
Principal Date of equity instruments owned following for shares
activity acquisition acquired the acquisition GBP000
-------------------------- ----------- ------------- ------------------- ------------------- ------------------
Companion Care (Newport) Veterinary 15 April
Limited practice 2019 50% 100% -
Davidsons Mains Vets4Pets Veterinary 15 April
Limited practice 2019 50% 100% -
Marlborough Vets4Pets Veterinary 15 April
Limited practice 2019 50% 100% -
Sheldon Vets4Pets Veterinary 15 April
Limited practice 2019 50% 100% -
Thamesmead Vets4Pets Veterinary 15 April
Limited practice 2019 50% 100% -
Wokingham Vets4Pets Veterinary 15 April
Limited practice 2019 50% 100% -
Wellingborough Vets4Pets Veterinary 17 April
Limited practice 2019 50% 100% -
Andover Vets4Pets Veterinary 23 April
Limited practice 2019 50% 100% -
Bonnyrigg Vets4Pets Veterinary 24 April
Limited practice 2019 50% 100% -
Musselburgh Vets4Pets Veterinary 24 April
Limited practice 2019 50% 100% -
Haverfordwest Vets4Pets Veterinary 29 April
Limited practice 2019 50% 100% -
Linlithgow Vets4Pets Veterinary
Limited practice 28 May 2019 50% 100% -
East Kilbride (South) Veterinary 24 June
Vets4Pets Limited practice 2019 50% 100% -
Clitheroe Vets4Pets Veterinary 11 July
Limited practice 2019 50% 100% -
Carmarthen Vets4Pets Veterinary 15 July
Limited practice 2019 50% 100% -
Inverurie Vets4Pets Veterinary 24 July
Limited practice 2019 50% 100% -
Uttoxeter Vets4Pets Veterinary 19 August
Limited practice 2019 50% 100% -
-------------------------- ----------- ------------- ------------------- ------------------- ------------------
Assets acquired and liabilities recognised at the date of
acquisition
The provisional amounts recognised in respect of identifiable
assets and liabilities relating to the acquisition are as follows.
The acquisition disclosures have been combined as each acquisition
is considered to be individually immaterial to the Group.
Fair value
Book value of assets Adjustments of assets
and on acquisition and liabilities
liabilities acquired GBP000 acquired
GBP000 GBP000
---------------------------- ------------------------ ---------------- -----------------
Current assets
Cash and cash equivalents 19 - 19
Trade and other receivables 357 - 357
Inventories 166 - 166
Non-current assets
Tangible fixed assets 2,610 (2,610) -
Right of use assets 2,209 - 2,209
Non-current liabilities
Lease liabilities (2,209) - (2,209)
Current liabilities
Bank loans and overdrafts (305) - (305)
Trade and other payables (691) - (691)
Net liabilities 2,156 (2,610) (454)
------------------------------- --------------------- ---------------- -----------------
Goodwill arising on acquisition
GBP000
--------------------------------- -------
Consideration 466
Less: Fair value of liabilities
acquired 454
--------------------------------- -------
Goodwill arising on acquisition 920
--------------------------------- -------
Impairment of goodwill (920)
--------------------------------- -------
Carrying value of goodwill -
--------------------------------- -------
The tangible assets have been written down to their expected
recoverable amount.
The consideration shown within the table above relates to the
cash settlement of 'A' shareholder Joint Venture Partner loans,
which were repaid to the 'A' shareholder at the point of
acquisition.
In line with IFRS 3, the right of use asset has been brought on
at a value equal to the lease liability, adjusted for any
unfavourable market conditions. These leases relate to standalone
veterinary practices. Subsequent to the acquisition, the
right-of-use assets have been fully impaired as the Group does not
expect to receive any benefit from these assets. This is disclosed
in note 9.
Other acquisitions
On 26 July 2019 the Group acquired the 25% minority interest in
Anderson Moores Veterinary Specialists Limited for a consideration
of GBP4.0m leading to 100% of the share capital now being
owned.
On 10 September 2019 the Group also acquired a further 15%
minority interest in Dick White Referrals Limited for a
consideration of GBP2.4m leading to 91% of the share capital now
being owned.
These acquisitions have not impacted goodwill.
Other investments
On 26 June 2019, the Group acquired a 12% minority interest in
Tailster.com for a consideration of GBP1.0m. This has been
accounted for as an investment, measured at fair value through
other comprehensive income.
8 Property, plant and equipment
Fixtures,
Freehold Short leasehold fittings, Total
Property property tools and
equipment
GBP000 GBP000 GBP000 GBP000
---------------------- --------- --------------- ---------- -------
Cost
Balance at 28 March
2019 2,517 59,402 222,850 284,769
Additions - 2,679 9,568 12,247
Assets acquired on
acquisition - 465 327 792
Disposals (150) (401) (467) (1,018)
---------------------- --------- --------------- ---------- -------
Balance at 10 October
2019 2,367 62,145 232,278 296,790
---------------------- --------- --------------- ---------- -------
Depreciation
Balance at 28 March
2019 275 22,541 138,269 161,085
Depreciation charge
for the period 21 2,253 12,693 14,967
Impairment of assets
(non-underlying) - 1,277 413 1,690
Disposals (23) (350) (518) (891)
---------------------- --------- --------------- ---------- -------
Balance at 10 October
2019 273 25,721 150,857 176,851
---------------------- --------- --------------- ---------- -------
Net book value
At 28 March 2019 2,242 36,861 84,581 123,684
---------------------- --------- --------------- ---------- -------
At 10 October 2019 2,094 36,424 81,421 119,939
---------------------- --------- --------------- ---------- -------
Fixtures,
Freehold Short leasehold fittings, Total
Property property tools and
equipment
GBP000 GBP000 GBP000 GBP000
---------------------- --------- --------------- ---------- -------
Cost
Balance at 29 March
2018 2,517 53,715 206,868 263,100
Additions 7 2,341 10,379 12,727
Assets acquired on
acquisition - 57 58 115
Disposals - (314) (187) (501)
---------------------- --------- --------------- ---------- -------
Balance at 11 October
2018 2,524 55,799 217,118 275,441
---------------------- --------- --------------- ---------- -------
Depreciation
Balance at 29 March
2018 238 18,717 114,241 133,196
Depreciation charge
for the period 31 2,121 13,412 15,564
Disposals - (15) (45) (60)
---------------------- --------- --------------- ---------- -------
Balance at 11 October
2018 269 20,823 127,608 148,700
---------------------- --------- --------------- ---------- -------
Net book value
At 29 March 2018 2,279 34,998 92,627 129,904
---------------------- --------- --------------- ---------- -------
At 11 October 2018 2,255 34,976 89,510 126,741
---------------------- --------- --------------- ---------- -------
9 Leases
As Lessee
Property, plant and equipment comprise owned and leased assets
that do not meet the definition of investment property.
The majority of the Group's trading stores, standalone
veterinary practices, specialist referral centres, distribution
centres and support offices are leased under operating leases, with
remaining lease terms of between 1 and 27 years. The Group also has
a number of non-property operating leases relating to vehicle,
equipment and material handling equipment, with remaining lease
terms of between 1 and 6 years.
Information about leases for which the Group is a lessee is
presented below.
Right-of-use assets
Property Equipment Total
GBP000 GBP000 GBP000
----------------------------------- -------- --------- -------
Cost
Balance at 29 March 2019 463,029 10,090 473,119
Additions 14,294 2,593 16,887
On acquisition 2,724 - 2,724
Disposals - - -
----------------------------------- -------- --------- -------
Balance at 10 October 2019 480,047 12,683 492,730
----------------------------------- -------- --------- -------
Depreciation
Balance at 29 March 2019 - - -
Depreciation charge for the period 35,861 2,324 38,185
Impairment (non-underlying) 2,209 - 2,209
Disposals - - -
----------------------------------- -------- --------- -------
Balance at 10 October 2019 38,070 2,324 40,394
----------------------------------- -------- --------- -------
Net book value
At 29 March 2019 463,029 10,090 473,119
----------------------------------- -------- --------- -------
At 10 October 2019 441,977 10,359 452,336
----------------------------------- -------- --------- -------
The costs relating to leases for which the Group applied the
practical expedient describes in paragraph 5a of IFRS 16 (leases
with a contract term of less than 12 months) amounted to GBP0.4m in
the 28 week period ended 10 October 2019.
The following table sets out the maturity analysis of lease
payments, showing the undiscounted lease payments to be received
after the reporting date:
Maturity analysis - contractual undiscounted cash flows
At 10 October At 29 March
2019 2019
GBP000 GBP000
--------------------------------------------- ------------- ------------
Less than one year 84,106 82,654
Between one and five years 276,255 282,578
More than 5 years 194,974 208,278
Total undiscounted lease liabilities 555,335 573,510
--------------------------------------------- ------------- ------------
Carrying value of lease liabilities included
in the statement of financial position 488,674 506,130
Current 84,106 82,654
Non-current 404,568 423,476
--------------------------------------------- ------------- ------------
Surplus leases
The Group has a small number of leases on properties from which
it no longer trades. A small number of these properties are
currently vacant or the sublet is not for the full term of the
lease and there is deemed to be a risk on the sublet.
On transition to IFRS 16, the Group has elected to apply the
relief option which allows it to adjust the right-of-use asset by
the amount of any provision for an onerous lease. GBP2.7m of the
onerous lease provision has been offset against the opening
right-of-use asset as at 29 March 2019. The remaining onerous lease
provision relates to rates, service charge and other costs and will
remain classified within provisions. In the 28 week period ended 10
October 2019, the Group has charged a further GBP2.2m within
non-underlying costs in relation to expected lease obligations
(under IFRS 16). This provision has been offset against the
right-of-use assets.
The non-underlying impairment loss recognised in the period
relates to the veterinary practices acquired in the period with the
intention of being closed. In line with IAS 36, the carrying value
of these right-of-use assets was assessed for indicators of
impairment and the planned closure was considered to be an
indicator of impairment. The right-of-use asset has been written
down to its expected recoverable value and costs of GBP2.2m have
been charged in the year within non-underlying costs.
Operating leases
The Group has a small number of leases on properties from which
it no longer trades, or a subsection of a trading retail store.
These properties are sublet to third parties at contracted rates.
The Group has classified these leases as operating leases, because
they do not transfer substantially all the risks and rewards
incidental to ownership of the right-of-use asset.
In line with IAS 36, the carrying value of the right-of-use
asset will be assessed for indicators of impairment and an
impairment charge will be recognised if necessary. Under IAS 17 an
onerous lease provision was recognised where management believed
there was a risk of default or where the property remained vacant
for a period of time. As part of this review the Group has assessed
the ability to sub-lease the property and the right-of-use asset
has been written down to GBPnil where the Group does not consider a
sublease likely.
10 Intangible assets
Customer
Goodwill list Software Total
GBP000 GBP000 GBP000 GBP000
-------------------------------------- -------- -------- -------- ---------
Cost
Balance at 28 March 2019 981,322 1,664 47,515 1,030,501
Additions - - 5,593 5,593
Balance at 10 October
2019 981,322 1,664 53,108 1,036,094
-------------------------------------- -------- -------- -------- ---------
Amortisation
Balance at 28 March 2019 - 300 29,475 29,775
Amortisation charge for
the period - 77 4,901 4,978
Impairment of assets (non-underlying) 40 66 - 106
Balance at 10 October
2019 40 443 34,376 34,859
-------------------------------------- -------- -------- -------- ---------
Net book value
At 28 March 2019 981,322 1,364 18,040 1,000,726
-------------------------------------- -------- -------- -------- ---------
At 10 October 2019 981,282 1,221 18,732 1,001,235
-------------------------------------- -------- -------- -------- ---------
Customer
Goodwill list Software Total
GBP000 GBP000 GBP000 GBP000
------------------------------- -------- -------- -------- ---------
Cost
Balance at 29 March 2018 979,845 771 33,766 1,014,382
Additions - - 4,661 4,661
Assets acquired on acquisition 1,860 - - 1,860
Balance at 11 October
2018 981,705 771 38,427 1,020,903
------------------------------- -------- -------- -------- ---------
Amortisation
Balance at 29 March 2018 - 148 21,305 21,453
Amortisation charge for
the period - 41 3,790 3,831
Balance at 11 October
2018 - 189 25,095 25,284
------------------------------- -------- -------- -------- ---------
Net book value
At 29 March 2018 979,845 623 12,461 992,929
------------------------------- -------- -------- -------- ---------
At 11 October 2018 981,705 582 13,332 995,619
------------------------------- -------- -------- -------- ---------
Amortisation and impairment charge
The amortisation charge is recognised in total in operating
expenses within the income statement.
Impairment testing
The group of cash generating units (CGUs) are considered to be
aligned to the two operating segments as disclosed in note 2.
Within the Retail reporting segment, these groups comprise the
stores, company website, grooming operations and insurance
operations. Within the Vet Group, the groups comprise the First
Opinion practices and specialist referral centres.
As at 10 October 2019 and 11 October 2018, the Group is deemed
to have two overall groups of CGUs as follows:
Goodwill
---------- ----------------------------
At 10 October At 11 October
2019 2018
GBP000 GBP000
---------- ------------- -------------
Retail 586,088 586,088
Vet Group 395,194 395,617
---------- ------------- -------------
Total 981,282 981,705
---------- ------------- -------------
The recoverable amount of the CGU group has been calculated with
reference to its value in use. The key assumptions of this
calculation are shown below:
28 week period
ended
28 week period ended 11 October
10 October 2019 2018
--------------------------------- ------------------------------ -----------------
Retail Vet Group Retail Vet Group
--------------------------------- ------------------- --------- ------ ---------
Period on which management approved
forecasts are based (years) 5 5 5 5
Growth rate applied beyond approved
forecast period 2.0% 3.5% 2.0% 3.5%
Discount rate (pre-tax) 10.9% 10.4% 12.0% 11.0%
Like-for-like sales growth 3.7% 10.7% 4.0% 9.0%
Gross profit margin 47.8% 49.4% 49.0% 51.0%
--------------------------------------- ------------- --------- ------ ---------
The goodwill is considered to have an indefinite useful economic
life and the recoverable amount is determined based on
'value-in-use' calculations. These calculations use a post-tax cash
flow projection based on a five-year plan approved by the Board.
For the purposes of intangible asset impairment testing, the model
removes all cash flows associated with business units (for example
stores or practices yet to open, but within the planning horizon)
which the Group has a strategic intention to invest capital in, but
has not yet done so, thus ensuring that the future cash flows used
in modelling for impairment exclude any cash flows where the
investment is yet to take place, in accordance with the
requirements of IAS 36 to exclude capital expenditure to improve
asset performance. Contributions from and costs associated with new
stores and veterinary practices which are already operational at
the impairment test date are included in the cash flows. This
approach is consistent with impairment reviews carried out in the
2019 financial statements.
The discount rate was estimated based on past experience and a
market participant weighted average cost of capital. A post tax
discount rate was used within the value in use calculation. The
related pre-tax discount rate is disclosed above in line with IAS
36 requirements.
The key assumptions in the business plans for both the Retail
and Vet Group CGUs are like-for-like sales growth and gross profit
margin. The Retail forecast assumptions reflect continual
innovation and our deep understanding of our customers,
incorporating assumptions based on past experience of the industry,
products and markets in which the CGU operates, in order to
generate the detailed assumptions used in the annual budget setting
process, and five year strategic planning process. The Vet Group
forecast assumptions are based on a deep understanding of the
maturity profile of the practices and their performance,
incorporating assumptions based on past experience of the industry,
services and markets in which the CGU operates, in order to
generate the detailed assumptions used in the annual budget setting
process, and five year strategic planning process. The projections
are based on all available information and growth rates do not
exceed growth rates experienced in prior periods. A different set
of assumptions may be more appropriate in future years depending on
changes in the macro-economic environment and the industry in which
each CGU operates.
The Directors have assumed a growth rate projection beyond the
five-year period based on market growth rates based on past
experience within the Group taking into account the economic growth
forecasts within the relevant industries.
The total recoverable amount in respect of goodwill for the CGU
group as assessed by the Directors using the above assumptions is
greater than the carrying amount and therefore no impairment charge
has been recorded in each period, with the exception of the
goodwill impaired immediately following the acquisition of certain
First Opinion veterinary practices as part of the recalibration
exercise (see note 7).
Within the Retail CGU, a number of sensitivities have been
applied to the assumptions in reaching this conclusion
including:
- Reduction in growth rate applied beyond forecast period by 100
bps
- Increasing the discount rate by 100 bps
- Reduction in gross margin percentage of 100 bps
None of the above, considered reasonably possible changes in
assumptions, would result in impairment when applied either
individually or collectively.
Within the Vet Group CGU, a number of sensitivities have been
applied to the assumptions in reaching this conclusion
including:
- Reduction in growth rate applied beyond forecast period by 100
bps
- Increasing the discount rate by 100 bps
- Reduction in gross margin percentage of 100 bps
The directors consider that it is not reasonably possible for
the assumptions to change so significantly as to eliminate the
excess of the recoverable amount over the carrying value.
11 Other interest-bearing loans and borrowings
At 11 October At 28 March
At 10 October 2019 2018 2019
GBP000 GBP000 GBP000
------------------------
Non-current liabilities
Unsecured bank loans 179,044 192,614 178,778
Terms and debt repayment schedule
At 10 October
2019
-----------------
Face Carrying
Nominal interest Year of value amount
Currency rate maturity GBP000 GBP000
--------- ---------- ------- --------
Revolving credit
facility GBP LIBOR +1.15% 2023 181,000 179,044
--------
At 11 October
2018
-----------------
Face Carrying
Nominal interest Year of value amount
Currency rate maturity GBP000 GBP000
--------- --------- ------- --------
Revolving credit
facility GBP LIBOR +1.40% 2023 195,086 192,614
--------
The Group has a revolving facility of GBP248.0m, which expires
in 2023.
The drawn amount was GBP181.0m (GBP195.1m at 11 October 2018)
and this amount is reviewed each month. Interest is charged at
LIBOR plus a margin based on leverage (net debt: EBITDA). Face
value represents the principal value of the revolving credit
facility. The facility is unsecured.
Interest-bearing borrowings are recognised initially at fair
value, being the principal value of the loan net of attributable
transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at a carrying value, which
represents the amortised cost of the loans using the effective
interest method.
The analysis of repayments on the loans is as follows:
At 10 October At 11 October At 28 March
2019 2018 2019
GBP000 GBP000 GBP000
------------- -----------
Within one year or repayable on demand - - -
Between one and two years - - -
Between two and five years 181,000 195,086 181,000
------------- -----------
181,000 195,086 181,000
------------- -----------
Pets at Home Group's policy with regard to interest rate risk is
to hedge the appropriate level of borrowings by entering into fixed
rate agreements. The Group has entered into one fixed rate interest
rate swap agreement over a total of GBP167.5m of the senior
facility borrowings at the balance sheet date at a fixed rate of
0.814%, which expires on 30 March 2020. The Group has a further
fixed interest rate swap agreement over a total of GBP137.6m of the
senior facility borrowings at the balance sheet date at a fixed
rate of 0.918% which commences on 31 March 2020 and expires on 31
March 2021.
The hedges are structured to hedge at least 70% of the forecast
outstanding debt for the next 12 months.
12 Financial instruments
Fair value hierarchy
The table below shows the carrying amounts and fair values of
financial assets and financial liabilities, including their levels
in the fair value hierarchy.
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e., as prices) or indirectly (i.e., derived from prices)
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs)
At 10 October 2019
Carrying amount Fair value FVOCI Financial Other Total
- hedging - equity assets financial carrying
instruments instruments at amortised liabilities amount
cost
GBP000 GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - 1,040 - - 1,040
Forward exchange contracts
used for hedging 1,794 - - - 1,794
1,794 1,040 - - 2,834
Financial assets not measured
at fair value
Current trade and other receivables - - 29,412 - 29,412
Amounts owed by Joint Venture
veterinary practices - funding,
trading and operating loans - - 27,623 - 27,623
Cash and cash equivalents - - 44,747 - 44,747
Loans to Joint Venture veterinary
practices - initial set up
loans - - 13,165 - 13,165
Loans to Joint Venture veterinary
practices - other loans - - 4,045 - 4,045
Other receivables - - 870 - 870
- - 119,862 - 119,862
Financial liabilities measured
at fair value
Fuel forward contract used
for hedging (40) - - - (40)
Forward exchange contracts
used for hedging (485) - - - (485)
Interest rate swaps used for
hedging (747) - - - (747)
(1,272) - - - (1,272)
Financial liabilities not
measured at fair value
Finance lease liability - - - (146) (146)
Trade payables - - - (109,671) (109,671)
Amounts owed to Joint Venture
veterinary practices - - - (1,836) (1,836)
Put and call liability - - - (2,603) (2,603)
Other interest-bearing loans
and borrowings (note 11) - - - (179,044) (179,044)
- - - (293,300) (293,300)
At 10 October 2019
Fair value Level 1 Level Level Total
2 3
GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - - 1,040 1,040
Forward exchange contracts
used for hedging - 1,794 - 1,794
Financial assets not measured
at fair value
Amounts owed by Joint Venture
veterinary practices - funding,
trading and operating loans - - 27,623 27,623
Loans to Joint Venture veterinary
practices - initial set
up loans - - 13,165 13,165
Loans to Joint Venture veterinary
practices - other loans - - 4,045 4,045
Other receivables - - 870 870
Financial liabilities measured
at fair value
Fuel forward contract used
for hedging - (40) - (40)
Forward exchange contracts
used for hedging - (485) - (485)
Interest rate swaps used
for hedging - (747) - (747)
Financial liabilities not
measured at fair value
Put and call liability - - (2,603) (2,603)
Other interest-bearing loans
and borrowings (note 11) - (181,000) - (181,000)
At 11 October 2018
Carrying amount Fair value FVOCI Financial Other Total
- hedging - equity assets financial carrying
instruments instruments at amortised liabilities amount
cost
GBP000 GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - 112 - - 112
Fuel forward contract used
for hedging 29 - - - 29
Forward exchange contracts
used for hedging 1,802 - - - 1,802
Interest rate swaps used for
hedging 423 - - - 423
2,254 112 - - 2,366
Financial assets not measured
at fair value
Current trade and other receivables - - 18,139 - 18,139
Amounts owed by Joint Venture
veterinary practices - funding,
trading and operating loans - - 25,077 - 25,077
Cash and cash equivalents - - 60,295 - 60,295
Loans to Joint Venture veterinary
practices - initial set up
loans - - 12,700 - 12,700
Loans to Joint Venture veterinary
practices - other loans - - 5,458 - 5,458
Other receivables - - 910 - 910
- - 122,579 - 122,579
Financial liabilities measured
at fair value
Forward exchange contracts
used for hedging (312) - - - (312)
(312) - - - (312)
Financial liabilities not
measured at fair value
Current other financial liability - - - (1,134) (1,134)
Finance lease liability - - - (41) (41)
Trade payables - - - (87,743) (87,743)
Amounts owed to Joint Venture
veterinary practices - - - (9,620) (9,620)
Put and call liability - - - (8,448) (8,448)
Other interest-bearing loans
and borrowings (note 11) - - - (192,614) (192,614)
- - - (299,600) (299,600)
At 11 October 2018
Fair value Level 1 Level Level Total
2 3
GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - - 112 112
Fuel forward contract used
for hedging - 29 - 29
Forward exchange contracts
used for hedging - 1,802 - 1,802
Interest rate swaps used
for hedging - 423 - 423
Financial assets not measured
at fair value
Amounts owed by Joint Venture
veterinary practices - funding,
trading and operating loans - - 25,077 25,077
Loans to Joint Venture veterinary
practices - initial set
up loans - - 12,700 12,700
Loans to Joint Venture veterinary
practices - other loans - - 5,458 5,458
Other receivables - - 910 910
Financial liabilities measured
at fair value
Forward exchange contracts
used for hedging - (312) - (312)
Financial liabilities not
measured at fair value
Current other financial
liability - - (1,134) (1,134)
Put and call liability - - (8,448) (8,448)
Other interest-bearing loans
and borrowings (note 11) - (195,086) - (195,086)
At 28 March 2019
Carrying amount Fair value FVOCI Financial Other Total
- hedging - equity assets financial carrying
instruments instruments at amortised liabilities amount
cost
GBP000 GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - 112 - - 112
Fuel forward contract used
for hedging 6 - - - 6
Forward exchange contracts
used for hedging 1,604 - - - 1,604
1,610 112 - - 1,722
Financial assets not measured
at fair value
Current trade and other
receivables - - 22,935 - 22,935
Amounts owed by Joint Venture
veterinary practices -
funding,
trading and operating loans - - 28,229 - 28,229
Cash and cash equivalents - - 60,534 - 60,534
Loans to Joint Venture
veterinary
practices - initial set up
loans - - 13,265 - 13,265
Loans to Joint Venture
veterinary
practices - other loans - - 3,923 - 3,923
Other receivables - - 948 - 948
- - 129,834 - 129,834
Financial liabilities measured
at fair value
Forward exchange contracts
used for hedging (451) - - - (451)
Interest rate swaps used for
hedging (124) - - - (124)
(575) - - - (575)
Financial liabilities not
measured at fair value
Current other financial
liability - - - (6,638) (6,638)
Current finance lease
liabilities - - - (120) (120)
Trade payables - - - (108,827) (108,827)
Amounts owed to Joint Venture
veterinary practices - - - (3,971) (3,971)
Put and call liability - - - (2,263) (2,263)
Other interest-bearing loans
and borrowings (note 11) - - - (178,778) (178,778)
- - - (300,597) (300,597)
At 28 March 2019
Fair value Level 1 Level Level Total
2 3
GBP000 GBP000 GBP000 GBP000
Financial assets measured
at fair value
Other investments - - 112 112
Fuel forward contract used
for hedging - 6 - 6
Forward exchange contracts
used for hedging - 1,604 - 1,604
Financial assets measured
at fair value
Amounts owed by Joint Venture
veterinary practices -
funding,
trading and operating loans - - 28,229 28,229
Loans to Joint Venture
veterinary
practices - initial set up
loans - - 13,265 13,265
Loans to Joint Venture
veterinary
practices - other loans - - 3,923 3,923
Other receivables - - 948 948
Financial liabilities measured
at fair value
Forward exchange contracts
used for hedging - (451) - (451)
Interest rate swaps used for
hedging - (124) - (124)
Financial liabilities not
measured at fair value
Current other financial
liability - - (6,638) (6,638)
Put and call liability - - (2,263) (2,263)
Other interest-bearing loans
and borrowings (note 11) - (181,000) - (181,000)
Measurement of fair values
The following table shows the valuation techniques used in
measuring Level 2 and Level 3 fair values at the balance sheet
dates, as well as the significant unobservable inputs used.
Type Valuation technique Significant Inter-relationship
unobservable between significant
inputs unobservable
inputs and fair
value measurement
Investment The fair value of investments Not applicable Not applicable
in equity in unlisted equity securities
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.
Forward exchange Market comparison technique Not applicable Not applicable
contracts - the fair values are
and interest based on broker quotes.
rate swaps Similar contracts are
traded in an active market
and the quotes reflect
the actual transactions
on similar instruments.
Other financial Other financial liabilities Future earnings Fair value linked
liabilities include the fair values performance to increase or
of the put and call options decrease in the
over the non-controlling best estimate
interests of subsidiary of the future
undertakings and contingent earnings performance
consideration in relation
to acquisitions. The
fair values represent
the best estimate of
amounts payable based
on future earnings performance
discounted to present
value.
Hedge accounting
Cash flow hedges
At 10 October 2019 and 11 October 2018, the Group held the
following instruments to hedge exposures to changes in foreign
currency and interest rates.
Maturity
1-6 months 6-12 More 1-6 months 6-12 More
months than months than
1 year 1 year
2019 2019 2019 2018 2018 2018
Foreign currency risk
Forward exchange contracts
Net exposure (GBP000) 31,050 19,049 - 35,450 31,500 17,900
Average GBP-USD forward
contract rate 1.32 1.25 - 1.38 1.38 1.32
Average GBP-EUR forward
contract rate 1.11 1.12 - 1.12 - -
Interest rate risk
Interest rate swaps
Net exposure (GBP000) 167,500 - 137,600 142,100 - -
Average fixed interest
rate 0.814% - 0.918% 0.183% - -
13 Seasonality of operations
The Group's sales can be sensitive to periods of extreme weather
conditions. The Group sometimes sees a reduction in sales during
periods of hot weather in the UK, due to reduced customer footfall
and reduced demand as pets eat less and generally spend more time
outdoors, reducing the need for essentials such as food and cat
litter. If temperatures are extremely high for a prolonged period,
declines in sales can be material. The number of customers visiting
Pets at Home's stores also declines during periods of snow or
extreme weather conditions affecting the local catchment area. In
addition, the sales of certain products and services designed to
address pet health needs, such as flea and tick problems, can also
be seasonal, increasing in times of warm and wet weather.
Traditionally the financial performance of the Group in the
four-week period to the end of December is marginally stronger than
in the other periods, due to Christmas purchasing. Purchasing of
Accessories is also more prevalent during this season. Timing of
the holiday season and any adverse weather conditions that may
occur during that season impacting delivery may adversely affect
sales in our stores.
14 Related parties
Veterinary practice transactions
The Group has entered into a number of arrangements with third
parties in respect of veterinary practices.
The transactions entered into during the period, and the
balances outstanding at the end of the period are as follows:
10 October 28 March
2019 11 October 2019
GBP000 2018 GBP000 GBP000
--------------------------------------------- ------------ ---------
Transactions
- Fees for services provided to Joint
Venture veterinary practices 30,632 30,039 55,071
- Rental and other occupancy charges
to Joint Venture veterinary practices 6,613 6,819 12,671
Total income from veterinary practices 37,245 36,858 67,742
Acquisitions
- Consideration for Joint Venture veterinary
practices acquired (note 7) 866 - 3,149
Balances
Included within trade and other receivables:
- Funding for new practices 735 1,236 291
- Operating loans
- Gross value of operating loans 34,588 46,876 42,207
- Allowance for expected credit losses
held for operating loans (7,700) (23,035) (14,269)
- Net operating loans 26,888 23,841 27,938
Included within other financial assets
and liabilities:
- Loans to Joint Venture veterinary
practices - initial set up loans
- Gross value of initial set up loans 13,165 15,190 14,345
- Allowance for expected credit losses
for loans to Joint Venture veterinary
practices - (2,490) (1,080)
- Net initial set up loans 13,165 12,700 13,265
- Loans to other related parties (other
loans)
- Gross value of other loans 4,045 5,458 5,002
- Allowance for expected credit losses
held for other loans - - (1,079)
---------- ------------ ---------
- Net other loans 4,045 5,458 3,923
Included within trade and other payables:
- Trading balances (1,836) (9,620) (3,971)
- Total amounts receivable from veterinary
practices (before provisions) 50,697 59,140 57,874
Fees for services provided to related party veterinary practices
are included within revenue and relate to charges for support
services offered in such areas as clinical development, promotion
and methods of operation as well as service activities including
accountancy, legal and property. In accordance with IFRS 15,
revenue in the 28 week period ended 10 October 2019, the 52 week
period ended 28 March 2019 and the 28 week period ended 11 October
2018 excludes irrecoverable fee income from Joint Venture
veterinary practices.
Funding for new practices represents the amounts advanced by the
Group to support veterinary practice opening costs. The funding is
short term and the related party Joint Venture veterinary practice
draws down their own bank funding to settle these amounts
outstanding with the Group shortly after opening.
Trading balances represent costs incurred/income received by the
Group in relation to the services provided to the veterinary
practices that have yet to be recharged.
Operating loans represent amounts advanced to related party
Joint Venture veterinary practices to cover working capital
requirements and support their longer term growth. The loans
advanced to the practices are interest free and either repayable on
demand or repayable within 90 days of demand. No facility exists
and the levels of loans are monitored in relation to review of the
practices performance against business plan. Based on the projected
cash flow forecast on a practice by practice basis, the funding is
often expected to be required for a number of years. As practices
generate cash on a monthly basis it is applied to the repayment of
brought forward operating loans. For immature practices, loan
balances may increase due to operating requirements. Based on a
projected cash flow forecast on a practice by practice basis, the
funding is expected to be required for a number of years. The
balances above are shown net of allowances for expected credit
losses held for operating loans of GBP7.7m (28 March 2019:
GBP14.3m, 11 October 2018: GBP23.0m).
In the 28 week period ended 10 October 2019, the value
impairment losses recognised in the income statement amounted to
GBP8.9m, which relates to operating loans (GBP7.1m), initial set up
loans (GBP1.1m) and other loans (GBP0.7m). In the 52 week period
ended 28 March 2019 the value of impairment losses recognised in
the income statement amounted to GBP12.6m, which relates to
operating loans (GBP10.7m), initial set up loans (GBP1.5m) and
other loans (GBP0.4m).
At 10 October 2019, the Group has committed to provide funding
to related party Joint Venture companies of GBPnil (28 March 2019:
GBPnil).
The Group is a guarantor for the leases for veterinary practices
that are not located within Pets at Home stores.
15 IFRS 16 transition note
The Group has adopted IFRS 16 Leases on 29 March 2019 using the
modified retrospective approach. The cumulative effect of adopting
IFRS 16 has been recognised as an adjustment to the opening balance
sheet as at 29 March 2019, with no restatement of comparable
information and no impact on retained earnings.
Under the modified retrospective approach the opening
right-of-use asset can be measured one of two ways;
a) as if the Group had applied IFRS 16 since the commencement
date using its incremental borrowing rate at the date of initial
application.
b) measured at an amount equal to the lease liability at the date of initial application.
The Group elects to measure the right-of-use asset at an amount
equal to the lease liability at the date of initial application.
The opening right-of-use asset is adjusted for remaining deferred
income relating to landlord incentives and rent free periods, in
addition to any outstanding prepayments in relation to the
leases.
As part of the initial transition, the Group has elected to
apply the relief option which allows it to adjust the right-of-use
asset by the amount of any provision for onerous leases recognised
in the balance sheet, immediately before the date of initial
application.
The Group applies the practical expedient, not to reassess
whether a contract is or contains a lease at the date of initial
application. This means the Group applies IFRS 16 to all contracts
entered into before 29 March 2019 and identified as leases in
accordance with IAS 17 and IFRIC 4.
The Group has elected to use the exemptions proposed by the
standard on lease contracts for which the lease term ends within 12
months as of the date of initial application, except for leases
which are expected to be renewed or replaced by a lease with a term
greater than 12 months. These leases are accounted for as
short-term leases and the lease payments associated with them are
recognised as an expense.
The impact on the consolidated income statement in the 28 week
period ended 10 October 2019 is as follows:
28 week period ended 28 week period ended
10 October 2019 (excluding 10 October 2019 (including
IFRS 16 adjustments) IFRS 16 adjustments)
Non-underlying Non-underlying
items items
Underlying (note IFRS Underlying (note
trading 3) Total 16 adjustment trading 3) Total
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------- -------------- ---------- -------------- ---------
Revenue 2 546,338 - 546,338 - 546,338 - 546,338
Cost of sales (277,857) (7,925) (285,782) - (277,857) (7,925) (285,782)
Impairment losses
on receivables 3 (600) 305 (295) - (600) 305 (295)
------------------ ----------
Gross profit 267,881 (7,620) 260,261 - 267,881 (7,620) 260,261
Selling and
distribution
expenses (170,287) - (170,287) 4,493 (165,794) - (165,794)
Administrative
expenses (50,389) (91) (50,480) - (50,389) (91) (50,480)
------------------ ---------- -------------- --------- -------------- ---------- -------------- ---------
Operating profit 3 47,205 (7,711) 39,494 4,493 51,698 (7,711) 43,987
Financial income 220 - 220 33 253 - 253
Financial expense (2,402) - (2,402) (7,831) (10,233) - (10,233)
------------------ ---------- -------------- --------- -------------- ---------- -------------- ---------
Net financing
expense (2,182) - (2,182) (7,798) (9,980) - (9,980)
------------------ ---------- -------------- --------- -------------- ---------- -------------- ---------
Profit before tax 45,023 (7,711) 37,312 (3,305) 41,718 (7,711) 34,007
Taxation 5 (9,059) - (9,059) 628 (8,431) - (8,431)
Profit for the
period (i) 35,964 (7,711) 28,253 (2,677) 33,287 (7,711) 25,576
----------
The impact on the statement of financial position as at 29 March
2019 is as follows:
At 29 March
At 28 March 2019 2019
GBP000 IFRS 16 adjustment GBP000
Non-current assets
Property, plant and
equipment 123,684 - 123,684
Right-of-use assets (ii) - 473,119 473,119
Intangible assets 1,000,726 - 1,000,726
Other non-current
assets (iii) 18,653 1,738 20,391
------------------ -----------
1,143,063 474,857 1,617,920
Current assets
Inventories 68,209 - 68,209
Other financial assets (iii) 1,610 675 2,285
Trade and other receivables (v) 68,886 (9,385) 59,501
Cash and cash equivalents 60,534 - 60,534
------------------ -----------
199,239 (8,710) 190,529
------------------ -----------
Total assets 1,342,302 466,147 1,808,449
-----------
Current liabilities
Trade and other payables (v) (185,833) 4,946 (180,887)
Corporation tax (10,238) - (10,238)
Lease liabilities (iv) - (82,654) (82,654)
Provisions (v) (15,353) 1,929 (13,424)
Other financial liabilities (7,333) - (7,333)
(218,757) (75,779) (294,536)
------------------
Non-current liabilities
Other interest-bearing
loans and borrowings (178,778) - (178,778)
Other payables (v) (33,579) 32,335 (1,244)
Lease liabilities (iv) - (423,476) (423,476)
Provisions (v) (1,687) 773 (914)
Other financial liabilities (2,497) - (2,497)
Deferred tax liabilities (4,028) - (4,028)
------------------ -----------
(220,569) (390,368) (610,937)
Total liabilities (439,326) (466,147) (905,473)
Net assets 902,976 - 902,976
Equity attributable
to equity holders
of the parent
Ordinary share capital 5,000 - 5,000
Consolidation reserve (372,026) - (372,026)
Merger reserve 113,321 - 113,321
Translation reserve (36) - (36)
Cash flow hedging
reserve 837 - 837
Retained earnings 1,155,880 - 1,155,880
------------------ -----------
Total equity 902,976 - 902,976
(i) Income statement
Under previous lease accounting standards (IAS 17), lease costs
were recognised on a straight line basis over the term of the
lease. The Group recognised these costs within operating expenses
and costs of GBP43.8m would have been recognised in the 28 week
period ended 10 October 2019 if IAS 17 had still been applied.
Under IFRS 16 these costs have been removed and replaced with
depreciation of the right-of-use assets, which has resulted in a
depreciation charge of GBP38.2m and a net impact to profit before
tax of GBP3.3m for the 28 week period ended 10 October 2019.
The impact on net financing expense in the 28 week period ended
10 October 2019 was GBP7.8m.
The net impact of applying IFRS 16 to the profit for the period
in the 28 week period ended 10 October 2019 was a reduction of
GBP2.7m after tax.
This difference to profit for the period represents a timing
difference in the recognition of costs under IFRS 16 compared to
IAS 17. IAS 17 recognises costs on a straight line basis, whereas
under IFRS 16, finance charges are recognised in relation to the
value of the lease liability and costs will therefore reduce as the
liability reduces.
(ii) Right-of-use assets
A right-of-use asset is recognised under IFRS 16, representing
the Group's contractual right to access an identified asset under
the terms of the lease contract.
(iii) Other non-current assets
Sublease assets have been recognised in respect of finance
leases under IFRS 16 for a number of the properties which are
subleased to third parties. The finance lease is assessed by
reference to the right-of-use asset under the head lease rather
than the underlying asset. A number of subleases continue to be
accounted for as operating leases which has resulted in no change
to their accounting treatment under IFRS16.
(iv) Lease liabilities
A lease liability is recognised under IFRS 16, representing the
Group's contractual obligation to minimum lease payments during the
lease term. The lease liability is initially measured at the
present value of the remaining lease payments, discounted using the
rates based on the Group's incremental borrowing rate. The weighted
average discount rate used to discount the lease liability as at 10
October 2019 was 2.8%. The element of the liability payable in the
next 12 months is shown within current liabilities, with the
balance shown in non-current liabilities.
(v) Working capital
Under IAS 17, balances relating to lease incentives, rent
prepayments, accruals, onerous leases and similar balances were
held within other receivables, other payables and provisions. Under
IFRS 16 these balances are reflected in either the right-of-use
asset or the lease liability. On transition to IFRS 16, the Group
has elected to apply the relief option which allows it to adjust
the right-of-use asset by the amount of any provisions for onerous
leases. At 29 March 2019, GBP2.7m of the onerous lease provision
has been offset against the opening right-of-use asset. The Group
has used the C10(b) practical expedient for onerous leases.
The following table details the reconciliation between the
operating lease obligations as at 28 March 2019 and the opening
lease liability balance at 29 March 2019:
Maturity analysis - contractual undiscounted cash flows
Land and buildings Other Total
GBP000 GBP000 GBP000
Operating lease obligations as at 28 March
2019 571,897 9,910 581,807
Working capital movements (8,989) - (8,989)
Relief option for leases of low value - - -
Other - 692 692
Gross lease liabilities at 29 March 2019 562,908 10,602 573,510
Discounting (66,727) (653) (67,380)
Total lease liabilities at 29 March 2019 496,181 9,949 506,130
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR CKPDPCBDDADB
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November 26, 2019 02:01 ET (07:01 GMT)
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