TIDMPETS
RNS Number : 3753O
Pets At Home Group Plc
10 June 2022
FOR IMMEDIATE RELEASE, 10 JUNE 2022
Pets at Home Group Plc: Posting of Annual Report & Accounts
and Notice of AGM
Pets at Home Group Plc (LSE: PETS) ("Company") today announces
that its Annual Report and Accounts for the year ended 31 March
2022 ("Annual Report"), Notice ("Notice") of the 2022 Annual
General Meeting ("AGM") and Form of Proxy for the 2022 AGM have
been sent to shareholders and the Annual Report and Notice are
available on the Company's website at
https://investors.petsathome.com .
In compliance with LR9.6.1, the Company has today submitted
electronic copies of the following documents to the National
Storage Mechanism appointed by the Financial Conduct Authority and
these will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism:
-- Annual Report and Accounts for the year ended 31 March 2022;
-- Notice of the 2022 AGM; and
-- Form of Proxy for the 2022 AGM.
The Company's AGM will be held at 11.00 am on 7 July 2022 at
Pets at Home, Chester House, Stanley Green Trading Estate,
Handforth, Cheshire, SK9 3RN .
The directors of the Company have determined that all of the
resolutions to be put to a vote at the AGM will be decided on a
poll.
The Company's preliminary results announcement on 25 May 2022
included, in addition to the preliminary financial results for the
year ended 31 March 2022, information on important events that
occurred during the year and their impact on those financial
statements. That information, together with the information set out
in the Appendix below is provided in compliance with the
requirements of DTR6.3.5(2) (b). This information is not a
substitute for reading the full Annual Report and Accounts for the
year ended 31 March 2022.
S
Enquiries
Pets at Home Group Plc: +44 (0) 161 486 6688
Lucy Williams, Company Secretary
About Pets At Home
Pets at Home Group Plc is the UK's leading pet care business;
our commitment is to make sure pets and their owners get the very
best advice, products and care. Pet products are available online
or from our 457 stores, many of which also have vet practices and
grooming salons. Pets at Home also operates a UK leading small
animal veterinary business, with 443 First Opinion practices
located both in our stores and in standalone locations. For more
information visit: http://investors.petsathome.com
Appendix
Directors Responsibility Statement
The responsibility statement below has been prepared in
connection with the Company's Annual Report and Accounts for the
year ended 31 March 2022.
The Directors of Pets At Home Group Plc confirm that to the best
of their knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the strategic report/directors' report includes a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
The Directors of Pets at Home Group Plc consider the annual
report and accounts taken as a whole, is fair, balanced and
understandable and provides the necessary information for
shareholders to assess the Group's position and performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 19 May 2022 and signed on its behalf by Peter
Pritchard, Group Chief Executive Officer.
Principal Risks and Uncertainties
A risk management framework is in place allowing risks to be
identified, assessed and managed within appetite, whilst taking
advantage of opportunities. This allows the strategy to be
effectively delivered and protects value for shareholders.
Risk Management Framework
The responsibility for risk management operates at all levels
throughout the Group.
Board of Directors
Sets the tone from the top. The Board of Directors has overall
responsibility for the Group's risk and internal control
frameworks. It determines the nature and level of principal risks
and sets risk appetite. Undertakes a robust assessment of the
Group's current and emerging principal risks that have the
potential to threaten our reputation, business model, future
performance, solvency or liquidity.
Audit and Risk Committee
Assists the Board in fulfilling its corporate governance
responsibilities and oversees responsibilities in relation to
financial reporting, internal controls, ethics and the risk
management framework. Provides oversight and challenge to the
assessment of principal risks. Reviews internal financial controls
and the risk management framework and assesses their effectiveness
in mitigating Group level risks and advises the Executive
Management Team on risk appetite. Reviews and oversees the Group
risk register and watch list. Reviews detailed risk reports and
conducts regular deep dives into key risk areas with relevant
Directors to understand the nature of the risks and adequacy of the
controls and mitigation plans to bring the risk within
tolerance.
Executive Management Team
Collectively responsible for identifying and managing risk. Each
principal and emerging risk is allocated to an Executive Management
Team member for oversight and ultimate ownership. Gathers assurance
and risk updates from across the three lines of defence.
Internal Audit
Gives objective assurance to the Board and Audit and Risk
Committee on the effectiveness of the risk management framework.
Holds meetings with risk owners across the business four times per
year. Updates the individual risk registers with risk owners,
including actions and progress made, assesses risk ratings and
controls in place that help mitigate each risk. Recommends
improvements and corrective actions.
Operational Management
Owns and manages operational and project risks and implement
mitigating actions. Ensures Group policies and procedures are
implemented and complied with. Communicates significant risks and
threats via reporting processes to the senior management team.
Key Risks
The key risks identified by the Board are summarised below.
Brand and reputation
Description and impact
Protecting our strong brand and reputation is essential and it
is every colleague's responsibility to safeguard and indeed enhance
the reputation of the Group. Pet welfare remains our highest
priority. Underpinning this is our vision to become the best pet
care business in the world. To attract new customers and build
customer loyalty we must maintain stakeholder trust and confidence
in the Group and its brands.
Mitigation
Advancing pet welfare will always be a priority in line with our
purpose - We're better with pets. It is at the heart of everything
we do and supports our strategy. As a retailer of small pets and as
a veterinary group, the highest possible welfare and clinical
standards must always be maintained. The Group's pet welfare and
clinical standards are overseen by the ESG Committee (environment,
social and governance), whose remit includes maintaining and
improving our exacting standards. Reporting into this committee is
the Pet Welfare Committee, which oversees the assurance and
governance of pet welfare (including our breeders and supply
chains), quality and welfare considerations of products, services
and events, and the Group's position on pet welfare and pets in
society. Regular meetings with stakeholders from across the Group
allow us to be agile with communications and improvements to
procedures should they be needed. We have rigorous processes in
place to ensure welfare standards across our stores, in-store
adoption centres, grooming salons, and our breeders. All are
regularly assessed against a comprehensive set of welfare standards
both by internal and independent external assessors. We also have a
highly visible field operations team that are focused on
maintaining the highest pet welfare standards. We have recently
implemented an improved internal audit system that allows us to
identify areas where additional colleague training or new
procedures are required. And, despite the challenges associated
with COVID-19, we have continued to implement our pet welfare audit
programme with virtual assessments during the first quarter,
followed by a return to in-person visits for the remainder of the
year. We also operate a confidential 'Pet Promise Line' where
colleagues can raise concerns about pet care directly with our Head
of Pets, who is a qualified veterinary surgeon. Any call to this
line results in appropriate action to address the concerns raised.
We know that, despite our best efforts, customers are often unaware
of the complexity or commitment required of pet ownership. Every
store colleague is empowered to refuse to sell a pet if they have
any doubts about the suitability of its forever home. In addition,
as part of a wider project to improve rabbit welfare, we constantly
evaluate how we talk about and sell pets, and rabbits are now only
sold in stores that have veterinary practices on site. We
continually review the price of rabbits to make them more of a
considered purchase and we also discontinue the sale and adoption
of rabbits over the Easter period. In addition, we have recently
completed a comprehensive review of our small animal food and treat
range with the aim of improving the health and welfare of both
store and customer owned pets. The Group also interacts with
customers' pets through its First Opinion veterinary practices. All
our veterinary surgeons and nurses are subject to the Royal College
of Veterinary Surgeons' (RCVS) Code of Conduct. In addition, 330
practices are accredited under the RCVS Practice Standards Scheme
(PSS), with a further 19 currently enrolled to become accredited.
This is a voluntary scheme, which
through setting standards and carrying out regular assessments,
aims to promote and maintain the highest standards of veterinary
care. To become accredited, practices volunteer for rigorous
assessment every four years and must meet a range of standards.
Practices are also subject to independent spot-checks between
assessments. The accreditation process has been suspended for part
of the financial year due to the pandemic, but we will continue to
drive and support PSS accreditation when it has fully resumed. To
support our colleagues further our clinical development team, who
are all veterinary surgeons, audit to our internally developed
'Aspiring to Clinical Excellence' (ACE) audit programme which has
helped improve clinical standards and processes across the Group.
The support has been further enhanced by our quality improvement
programme which has provided granular detail, as well as clear
direction and prioritisation for our future support activities. In
conjunction with the VetCompass research team at the Royal
Veterinary College we are conducting research into antibiotic
prescribing behaviours, which will advance the profession's
knowledge of this critical subject that has implications for both
human and animal health. We have strong relationships with several
large animal and pet rescue charities in the UK and engage with
them regularly on pet ownership and welfare issues. We are the
biggest grant giver to the UK rescue sector through the Pets at
Home Foundation and our VIP Lifelines scheme. This year we have
supported both the UK and international rescue sector with an
emergency grant scheme to help them to cover essential costs during
the pandemic or another crisis. The rescue sector has not reported
a significant increase in relinquishment of pets over the past
year. However, we will be monitoring the situation closely with the
sector and ensuring that our help is placed where it will have most
impact. We are aware that an overall increase in the pet population
may result in more pet relinquishments, but not an overall
percentage increase in the total number of pets versus volume of
relinquishments. We are also aware that as restrictions continue to
ease more support may be needed to help pets and owners adapt to
changing lifestyles and we will work to ensure our pet care
ecosystem is here to support our customers during their pet
ownership journey.
Outlook
As we continue to increase the size and scale of our pet care
service offering, we must ensure that pet welfare and clinical
standards continue to be maintained at the mandated high level
across the Group. We continually monitor and improve our standards
across the Group to ensure they remain robust and best in class.
Throughout the pandemic our First Opinion practices have followed
both Government and the RCVS guidance and remained open to deliver
essential care. We trust our veterinary surgeons as professionals
to take each case on its own merit and continue to undertake what
is essential for the pet's health and welfare needs.
Key emerging risks
Disruption caused by material changes in customer behaviour and
needs, driven by concerns around affordability, sustainability, and
the environment. New and emerging animal diseases. Climate change
may have a significant impact on pet welfare.
Risk profile: High
Risk appetite: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers,
Set our people free to serve, 50% of sales from pet
services.
Competition and customers
Description and impact
The Group competes with a wide variety of retailers, including
other pet specialists, pure play online competitors, direct to
customer businesses, supermarkets, discounters, online pet
healthcare platforms, veterinary groups, and independent practices.
There is increased online competition as large well-known internet
businesses continue to expand into pet products and established pet
product sites improve and expand their offer. There is also a high
level of new start-ups into the subscription market. We must
continue to offer an attractive model for our future Joint Venture
Partners while keeping ahead of, and responding to, developments by
our competitors around price, range, quality, clinical care, and
customer service. Failing to do so could have an adverse impact on
the Group's financial performance and opportunities for growth.
Mitigation
We offer pet owners a complete pet care experience, something
our competitors cannot. We differentiate ourselves through our
expanding pet care ecosystem, combining product, services, and
expert advice from a trusted, well-known brand. In FY22, we
welcomed over 1m customers into our pet care ecosystem. Market
research is carried out to review the pet market worldwide to
understand what our competitors are doing. We also undertake an
annual survey with c5,000 UK pet owners, both customers and
non-customers. Both help identify initiatives that we can implement
to help keep Pets at Home a leader in the UK market. We also
constantly review expansion opportunities into new adjacencies that
would contribute to our pet care ecosystem. Our people are at the
heart of our business. Our passionate and skilled team of
veterinarians, vet nurses, grooming stylists, and store colleagues
share their knowledge and expertise with our customers every single
day. This a key element of our proposition and we continue to
invest to ensure our service standards are continually improved.
Our stores play a strategic role in delivering pet care to our
customers as key points of acquisition, fulfilment, and advice. We
introduce services within stores (Vets, Grooming, Self-Wash etc.)
where possible. We are also leveraging our stores as mini
distribution centres which will allow us to further improve our
delivery options with the introduction of same day delivery. All
stores are profit generating and as we open new stores, we see a
good return on investment indicating that we have not yet reached
maturity on our store estate. We maintain competitive prices across
Advanced Nutrition own label foods as well as branded food lines
and pet essentials. While we know that our customers are
characteristically loyal, we are conscious of increasing
inflationary challenges and are committed to affordable pet care
for all. We continue to hone our pricing and promotional
strategies, to ensure that we will be targeting price investment
across product areas that customers will really notice and care
about, supported by compelling promotional activity to ensure that
our value message really resonates with our customers. There has
been continued growth in our membership across our VIP, and Puppy
and Kitten clubs with increasing spend across our pet care
platform. The clubs help introduce customers to all parts of the
business where members typically spend more than non-members.
Acquiring customers at the very start of their pet journey helps
create loyalty and lock in lifetime value. Our VIP loyalty club
provides almost 10 years' worth of proprietary pet and customer
data. We are integrating analytics into our extensive pet dataset
to generate unparalleled insights, enabling us to understand more
accurately our customers and their pets, and predict their future
pet care requirements. Beyond our CRM activities, we are
increasingly using intelligent data to optimise decision-making
across the wider business. By leveraging our data insights, we can
offer more personalised, targeted solutions, driving customer
loyalty, retention, and lifetime value. Our omnichannel
participation of retail sales continues to grow. Our approach
extends beyond traditional online shopping, with new fulfilment
options such as a one-hour Click & Collect service across all
our stores and the contactless Deliver to Car service across much
of the estate. Subscription platforms allow us to offer greater
convenience, choice, and flexibility to our customers. We have
continued to enhance and grow our deliver to home service for the
supply of preventive and therapeutic veterinary medicines to our
veterinary customers. The Group now has approximately 1.5m pet care
plans across the Group, offering customers a convenient way to shop
with us, and increasing the quality and visibility of our sales
profile. We operate the largest branded veterinary business in the
UK, with practices located in two-thirds of stores plus 138
standalone locations and continue to have a differentiated strategy
versus our scale UK competitors, which all employ variations of a
'buy and build' model. The JV model, and the relationship with our
retail stores and VIP club, plus our ability to advertise at
national scale under a single brand are key aspects of a strategy
that remain difficult for any competitor to replicate - in part or
in whole. Practice maturity represents a significant future profit
and cash flow opportunity, with further potential upside from
rollout of new practices. We are also continuing to introduce an
innovative format for our veterinary practices, enhancing, and
modernising the customer's experience through our 'Pathfinder'
initiative which combines design innovation, the latest
client-facing technology and our new 'Pet Care Advisor' role, to
optimise allocation of clinical resource, enhance client
engagement, and improve practice economics. Our telehealth
business, The Vet Connection, broadens our digital capabilities in
providing trusted advice and pet care solutions. It enables us to
provide customers with round-the-clock veterinary telehealth
advice, triage, and ancillary services, meaning pet owners can
remotely access quality care for their pet whenever they need to.
We continue to build our digital capability with the first elements
of 'Polestar,' our transformational digital initiative, launched in
the year, which will create a joined up and personalised pet care
experience across the Group. Our vision is to make pet care easier
and even more convenient for our customers from Day 1, however they
wish to shop, with our entire ecosystem of products and services in
one place. Single
sign on was successfully launched for PetsatHome.com customers
in February 2022 and we will have regular launches of new digital
products and customer services through to the end of 2023.
Outlook
Whilst the ongoing presence of COVID-19, current geopolitical
tensions, and inflationary pressures represent near term headwinds,
the business is well positioned to manage such challenges and we
have a clear and well-invested plan. The wider economic challenges
will remain a key focus for next year. The Group is in a strong
position in a large, resilient market which has seen continued
structural growth over the past 12 months with a second wave of new
pet ownership increasing our customer base to over 7m VIPs. We
expect to see continued strong growth both in our Puppy and Kitten
clubs, online and demand for digital services, which will be
supported through the new digital platform and increased delivery
choices. Key investments across our digital platforms and
distribution centres keep us in a strong position to offer these
newly acquired customers a complete pet care experience. As we
emerge out of COVID-19 we will also start to reintroduce more
experiential activities to our stores with a focus on supporting
newly acquired Puppy and Kitten customers. Over half of the small
animal veterinary market in the UK is corporately owned. We can
benefit from our strong strategic footing as the only corporate vet
Joint Venture business in the UK that provides the opportunity for
entrepreneurial vets to own their own business. This Joint Venture
arrangement offers clinical freedom and operational independence to
veterinary surgeons, supported by our business expertise.
Key emerging risks
Disruption from new competitors taking advantage of new market
dynamics. Continued macroeconomic uncertainty post-pandemic and
adjustment to new processes set out in the EU-UK Trade and
Cooperation Agreement. Disruption caused by material changes in
customer behaviour and needs, driven by concerns around
affordability, sustainability, and the environment. Sustainability
and climate change concerns make pet ownership less attractive.
Risk profile: Medium
Risk appetite: Moderate to high
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers,
50% of sales from pet services
Supply Chain and Sourcing
Description and impact
As we source our products and raw materials globally, we are
exposed to the risks associated with international trade, such as
supplier failure or disruption, inflation, changing regulatory
frameworks and currency exposure. We must ensure that our suppliers
share and uphold our approach to business ethics, human rights
(including safety and modern slavery) and the environment. We are
also exposed to the risks associated with the quality and safety of
products produced locally and globally on behalf of the Group, many
of which are own brand or exclusive private labels. We have three
distribution centres covering the UK. A disaster at one of these
may result in a significant disruption to the supply of stock for
many stores and in the fulfilment of internet orders. Failing to
manage this risk could lead to significant reputational damage.
Mitigation
The strength of our long-standing relationships with key
suppliers and freight partners is crucial to preserving our supply
chain. Global supply chain challenges continued to lead our
engagement with suppliers as we all focused on ensuring continuity
of supply of products for our customers and their pets.
Availability remained a challenge across the year with Asia supply
impacted by further challenges due to COVID-19 and the Suez Canal
shipment lanes blockage. We were able to minimise disruption to
customers through forward buys supported by increased distribution
capacity. The Product and Supply Chain Committee is responsible for
developing our Responsible Sourcing strategy. Its scope covers the
full value chain impact of products including packaging, raw
materials, and the environmental impacts of manufacture, Human
Rights, and product sustainability innovation. During the year, the
Committee has developed a roadmap to deliver the relevant targets
for our Better World Pledge. More details can be found on page 42
of the Annual Report. Over 80% of our cost of goods sold is sourced
domestically, limiting our direct exposure to container rate
volatility. We continue to work closely with our broad base of
suppliers to mitigate as much inflation as possible across the
supply chain to support our competitive price index. For our own
label and private label food products we have identified
alternative suppliers where appropriate and have developed
contingency plans. We assessed the impact of the crisis in Ukraine
for the Group and our stakeholders. For our supply chain the impact
of any material changes to the GBP/USD rate would have a financial
impact. For our product ranges the main impact is the availability
of sunflower seeds. We have assurance from our suppliers around the
security of their supply, and we have mitigated this further
through redevelopment of the few affected products in our wild bird
range. Having Pets at Home colleagues in Asia and the UK working
collaboratively with suppliers enables us to monitor compliance
with the Group's Code of Ethics and Business Conduct policy, and
our Supplier Quality Manual. We use a combination of independent
third-party ethical audits and audits completed by our own
colleagues to monitor supplier compliance. Our Legal team ensure we
have the necessary contractual rights to carry out these
activities. Suppliers are then supported to remediate any
non-conformance. We continue to invest in our quality assurance and
control processes and to ensure the effectiveness of our Far East
sourcing office in mitigating our sourcing risks in the region. We
have recruited a Responsible Sourcing Specialist who is embedded
operationally within our Technical Team while working closely with
the Group Head of Social Value and the Company Secretary on our
Group wide human rights strategy and approach. In the Vet Group we
have worked closely with all suppliers to understand and mitigate
any potential risks to manufacture and supply of critical
pharmaceutical and consumable clinical products due to national or
international instability. We have continued with our intended
programme of contract renewals during the year and have improved
our provision of ring-fenced stock holdings with both wholesalers
and manufacturers which has proved successful in mitigating risk to
security of supply. Business continuity plans are in place for the
distribution centres. They help us mitigate the impact of a
disaster by enabling us to service all stores and orders for a
priority range of SKUs from a single distribution centre whilst we
source a second facility and recover full product supply. We have
sufficient storage capacity to support business growth. Exposure to
foreign currency movements and freight rate increases is a risk
that is mitigated through our hedging strategy; see the Treasury
and finance risk.
Outlook
We recognise that exposure to inflationary pressures, rising
energy costs, foreign currency movements and freight market
fluctuations will be a heightened risk. Freight market impacts are
expected to continue through to 2024 which we are mitigating
through our hedging strategy. We are in a positive position,
building in more flexibility and resilience. Availability
challenges have stabilised however, we continue to actively monitor
developments due to COVID-19 especially in the Far East where local
policy is resulting in further lockdowns and the new processes set
out in the EU-UK Trade and Cooperation Agreement. We are aligning
our 2030 strategy to the UN Sustainable Goals, recognising that our
actions can impact issues globally and locally and both are
important. There is a real consciousness and accelerating trend for
ecologically sustainable products. We have ambitions across our key
brand strategies to bring sustainability into our innovation plans
and range architecture going forward.
Key emerging risks
Geopolitical uncertainty and disruption. Continued macroeconomic
uncertainty post-pandemic and adjustment to new processes set out
in the EU-UK Trade and Cooperation Agreement. Changes in regulatory
environment - including UK Government consideration of wide-ranging
changes to product safety regulation. Increased recruitment
competition impacting UK manufacturing.
Risk profile: Medium
Risk appetite: Moderate
Change on prior year : Up
Links to strategy : Bring the pet experience to life
Services and stores expansion
Description and impact
A key part of the Group's growth strategy is to deliver 50% of
sales from pet care services, by having a complete pet care
strategy aligned across the Group. If we fail to deliver our
strategic initiatives our expected growth and financial performance
could be adversely impacted.
Mitigation
Our business model has pet care at its heart and our core focus
is providing our customers with affordable, convenient, and
flexible pet care solutions through our growing online platform and
estate of 443 First Opinion veterinary practices, 337 Groom Rooms
and 457 stores. There has been continued growth in our pet care
subscription customers. We have approximately 1.5m customers across
the Group on our subscription platform, from which we build
loyalty, increase customer lifetime value, and generate a
predictable annuity revenue stream. In addition, new client
registrations across our First Opinion veterinary practices have
increased. We welcomed over 473,000 new clients this year. To take
advantage of this opportunity the Propositions Team, are working
across the Group to introduce new and unique bundles of products
and services aimed at providing complete pet care, with significant
potential to personalise and tailor packages to customers. Our
telehealth business, The Vet Connection, broadens our digital
capabilities in providing trusted advice and pet care solutions. We
will continue
to incorporate their capabilities into our existing customer
offer - across product, services, and subscriptions - to enhance
the overall customer experience, and help drive customer
acquisition, retention, and lifetime value. Our store estate
provides further operating leverage versus online pure plays. This
year we have launched one new pet care centre taking us to 19
stores in this format, in addition to two smaller next generation
stores. The performance of these two stores will inform our
decision-making on a wider rollout. We have also opened four
in-stores practices whilst completing four conversions of company
owned first opinion practices to Joint Venture partnerships.
Returns generated from recent store openings and transformations
remain ahead of initial expectations, and we plan to open five new
stores and transform 40-50 stores each year over the medium term to
improve both the physical shopping experience and the integration
with our digital platform. Having a range of store format models
that correlate with our customer and business needs enables us to
optimise returns, and by taking a blended approach we will also be
able to refurbish more stores, faster. We have taken learnings from
the initial cohort of pet care centres which will shape how we
develop the format going forwards, focusing on range, store
selection and disruption as opportunities to improve. We remain
agile so that we can quickly adapt our formats to maximise the
potential from our estate and ensure that we have the right number
of stores and practices in the appropriate format and location. We
are accelerating our refurbishment plan which allows us to
refurbish our oldest stores and by refining the format models we
will make our stores more relevant to our customers through the
introduction of new elements whilst maintaining our stores in a
good state of repair from the renewal capital. We will continue to
invest in infrastructure across our veterinary practices and plan
to open new practices each year over the medium term. Our
Pathfinder initiative is proving pivotal in improving practice
revenues and efficiencies, and is generating a better client
experience, and we plan to extend this to all company managed and
select Joint Venture practices over the coming year. Our store
estate is also entirely leased which gives us great flexibility. As
leases come up for expiry or contain a break, we will assess our
portfolio on a case-by-case basis before deciding whether to renew
the lease, to close or relocate a unit. We continue to monitor and
plan to mitigate the risk of landlords redeveloping sites for
alternative uses at lease expiry. Further capacity will be added
when our new distribution hub comes online from 2023. This
purpose-built and highly automated facility will support our future
growth ambitions through improved capacity while lowering our cost
to sell through better inventory management and availability, and
faster delivery.
Outlook
The Group is in a strong competitive position through our unique
omnichannel pet care model. Whilst the ongoing presence of
COVID-19, current geopolitical tensions, and inflationary pressures
represent near term headwinds, we remain confident in our long-term
strategic plan to deliver 50% of sales from pet care services. We
expect to see participation in subscriptions and services continue
to grow led by our ability to extend, and increasingly personalise
our offering whilst taking advantage of the significant increase in
pet ownership.
Key emerging risks
Material changes in customer behaviour and needs, driven by
concerns around affordability, sustainability, and the environment.
Speed of change in innovation and advances in pet care and clinical
technology.
Risk profile: Medium
Risk appetite: Moderate to high
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Set our
people free to serve, 50% of sales from pet services
Our People and culture
Description and impact
Our Group and People strategy recognises that our 15,000+
colleagues and Partners are fundamental to the success of our
business and key to us achieving our vision of becoming 'The Best
Pet Care Business in the World'. We must keep our unique culture
alive through our shared values and behaviours to safeguard the
long-term sustainability of our business. A loss of trust at any
level will negatively impact our culture and our ability to retain
and attract talent. It is essential for the Group to attract,
develop, reward, and retain talented, engaged colleagues and
Partners who will deliver quality service and clinical care to our
customers and their pets. If we are unable to achieve this our
ability to deliver our strategic aims will be significantly
impacted.
Mitigation
During the last year, a primary focus was to continue to keep
our colleagues safe and minimise the impact of the pandemic on them
and across our Group. The strength of our culture and values has
never been more important. They are the anchor from which every
decision is made and will continue to be made. As our business
evolves it was natural that our values need to as well, and this
year, we undertook a cross-business approach to redefine our values
to better reflect our people and our vision. This helps us to
connect our colleagues to our purpose and vision whilst doing all
we can to drive loyalty and trust. We continue to listen closely to
colleagues and look for more ways to engage with them. Our annual
engagement survey had a specific focus on wellbeing, as we know it
is closely connected with attracting, engaging, and retaining great
talent. Our listening groups 'Tune In' and COO email addresses
'ask' to provide additional channels to tap into how colleagues
feel and what we can do to support. Insights from all channels
continually shape our People strategy and associated wellbeing,
Learning and Development and Inclusion, Diversity and Equity (IDE)
strategies. Our capability framework articulates what great looks
like for all colleagues. This framework has been used to create
development programmes for all levels. Our training and development
programmes support the development of pet care expertise in our
ecosystem which in turn creates a competitive differentiator and
enables us to attract and retain talent. We continue to develop
bespoke critical talent group strategies and to invest in these
(e.g. data, IT, grooming) alongside developing short, medium and
long-term strategic mitigations to the global veterinary workforce
shortage both internally and in partnership with the wider
industry. We have a targeted international recruitment strategy for
veterinary talent which focuses on key markets where clinical
education meets UK standards. We have invested in a head to
continue to work on our mitigations to the IR35 legislation which
impacted some locum vets and nurses. We continue to invest in
apprenticeships and other employability programmes across the Group
(e.g., Kickstarter) to provide opportunities to those who face
barriers. We have apprentices at all levels of our business, and
across critical talent areas in addition to our colleague and
leadership development programmes, which both focus on 'growing our
own', building our own talent pipeline as well as attracting new
talent. We launched a profession wide listening project to address
the systemic issues within the veterinary workforce. The insights
led to an evidence-based action plan which was communicated to the
profession. We have committed to and invested in the BVA Good place
to Work Code and are rolling this out to all our practices. Our
leading vet graduate programme recruits over 90 newly qualified
vets per annum and was a finalist in Personnel Today awards. We
continue with our EMS bursaries, and we launched ten new vet school
scholarships in partnership with Nottingham vet school. We are
partnering with Timewise to launch new flexible working practices.
To support our colleagues' wellbeing, we continued to focus on
maintaining the sense of belonging that was challenged by remote
working whilst at the same time developing our wellbeing strategy
to reflect life post-pandemic. Our strategy received external
recognition when we won the best workplace wellbeing strategy at
the National Workplace wellbeing awards. Our 'modern ways of
working group' is focused on how we support our colleagues, and
attract new talent, as we transition out of the restrictions that
we have been living and working under over the past two years. We
launched a colleague wellbeing handbook and invested in Mental
Health First Aid training. We have trained over 620 mental health
first aiders across the Group. All First Opinion practices now have
a trained Mental Health First Aider (MHFA). By FY24 we will train
one colleague for every site in our Group, and we are focused on
developing our MHFA alumni community. Enhanced counselling was also
launched to colleagues through the Retail Trust, and this included
up to six sessions for colleague's children. We continue to support
colleagues and Partners who have been dealing with challenging
situations with customers through additional training and mental
health resources. From a reward perspective, total reward
statements have been developed and will launch in FY23 as we work
to show colleagues the overall value of their reward package. We
continue to review our remuneration and benefits packages to remain
competitive to current and future colleagues. This year, for
example, we enhanced our maternity and shared parental leave. Free
shares were issued to eligible colleagues in summer again. Our
second sharesave scheme matured where colleague's shares gained
over GBP11.8m in value from their initial investment in 2018. We
invested in formal ways for colleagues to receive instant
recognition through our new reward platform. Over GBP100,000 of
awards were sent this year. Colleague appreciation day was also
recognised with every colleague and team sent tokens of gratitude
from the Executive Management team.
Outlook
We continue to make great progress with our People strategy
across the Group and remain in a strong position to attract,
retain, reward, and develop our colleagues. We continue to seek new
opportunities to further enhance our colleague experience as we
emerge from COVID-19. This is especially so for our critical talent
groups. The current headwinds facing the business from an
operational cost perspective will mean we need to keep innovating
in a heavily candidate led market. External awards recognising our
wellbeing strategies and as a place to work have provided further
external credibility to our approach and will serve to build
further trust with colleagues.
Key emerging risks
Continuing restriction in critical talent markets. Continued
macroeconomic uncertainty post-pandemic. Adaptation to new
technologies and work environments.
Risk profile: Medium
Risk appetite: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Set our
people free to serve, 50% of sales from pet services.
Information Security and Business Systems
Description and impact
Cyber-attacks continue to grow in frequency and complexity,
increasing the risk to Pets at Home and our ability to continue to
safely operate and protect our customer and colleague data. As we
continue to adapt to these new challenges there is an associated
increase in cost, resources, and time to ensure we remain
secure.
Mitigation
Pets at Home are investing heavily in our cyber security
position both from a personnel and technology standpoint, this
includes engaging industry leading specialist consultants to help
deliver our strategy based around the NIST cyber security
framework, an industry standard for measuring technical and
organisational maturity. We remain committed to delivering secure
high-performance resilient systems that underpin our strategic
plan. Scalable, secure, cloud-based solutions are adopted where
they support our strategy. Awareness, training, and testing
campaigns continue, educating colleagues about the risks associated
with protecting data and physical security.
Outlook
To deliver our vision to become 'The Best Pet Care Business in
the World' we include the need to protect our customers and
colleagues from the ever-increasing threat of cyber-attacks,
investing in both technology and our people, to deliver our
comprehensive risk reduction programme and adopt a continuous
service improvement cycle to monitor and adapt to the constantly
evolving threat landscape.
Key emerging risks
Geopolitical uncertainty and disruption. The increasing
technology capability and complexity of organised cyber-crime
gangs. Disruption through technology advances and adoption.
Risk profile: High
Risk appetite: Low
Change on prior year : Up
Links to strategy : Use data and VIP to better serve customers,
Set our people free to serve
Liquidity and Credit
Description and impact
The business requires adequate cash resources to enable it to
fund its growth plans through its capital projects and working
capital requirement. Without adequate cash resources, the Group may
be unable to deliver its growth plans, with a consequent impact on
future financial performance.
Mitigation
The Group's finances are continually monitored in the context of
its growth plans and of the wider economic landscape. The Group's
core financing facilities are in place until March 2027. The Group
maintains close working relationships with its banking partners to
ensure sufficient liquidity and credit is available. The Group
monitors a range of potential cash flow sensitivities to ensure the
banking facilities in place remain sufficient and adequate
considering evolving macro- and micro-economic factors. As a
result, the Group is confident that it has adequate facilities in
place, with a broad syndicate of banks. The Group's growth plans in
respect of Joint Venture veterinary practices are predicated on the
availability of finance for new Joint Venture veterinary Partners
to fund both the capital cost and working capital requirement for
each new practice opening. The Group also provides additional
financial support to First Opinion practices to underpin their
working capital requirements and growth in clinical capacity. This
investment is a particular feature of the Joint Venture operating
model and in making this investment the Group considers its total
returns across all practices on a portfolio basis. The Group has
from time to time bought out and consolidated a number of Joint
Venture veterinary practices. As part of these acquisitions, the
Group settles any liabilities for third party bank loans and leases
within these practices on behalf of the Joint Venture Partner, with
all such liabilities being written off. For the practices which the
Group continues to operate under a Joint Venture Agreement, the
Group has established a credit impairment provision to reflect the
assessment of extended loans and investments being repaid over
different lengths of time, with different risks of return, to
provide for any potential shortfall. The Group has facilities in
place with recognised lenders that give us confidence that our
medium-term growth plans are financed adequately. The Group ensures
that all cash surpluses are invested with banks that have credit
ratings and investment criteria that meet the requirements set out
in the Group Treasury Policy, which has been approved by the Board.
The Group's key suppliers are exposed to credit risk and as part of
the Group's overall risk management programme, the business has
identified alternative suppliers where appropriate and developed
contingency plans in respect of own label and private label food
products.
Outlook
The increase in the Group's liquidity headroom in the financial
year, and the amendment and extension of the Group's core financing
facilities, supported by the strength of trading throughout the
period, has led to the liquidity risk profile remaining low. The
evolving political and macro-economic situation has created
increased uncertainty in relation to forecast cash flows,
liquidity, and credit requirements. We continue to monitor our
finances and build relationships with our finance providers to
ensure that the business is well positioned to manage its cash
flows effectively and ensure sufficient liquidity is available.
Mindful of these prevailing circumstances, we recognise the
potential need to support some of our Joint Venture veterinary
practices with additional funding during the year ahead. Such
funding will be available for those businesses that remain viable
over the longer term, considering resilience evidenced within the
sector throughout the last financial year.
Key emerging risks
The continued development of the UK's relationship with the EU.
The evolving supply chain and inflationary factors.
Risk profile: Low
Risk appetite: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services
Treasury and Finance
Description and impact
The Group has an exposure to exchange rate risk in respect of
the US dollar, which is the principal purchase currency for goods
sourced from Asia. The political and macro-economic environment has
increased currency pressures and we may see this continue for some
time. The Group also faces risks from changes to interest rates and
compliance with taxation legislation. If we do not manage this
exposure there could be an impact on the Group's financial
performance with a consequential impact on operational and growth
plans.
Mitigation
This exposure to exchange rate fluctuation is managed via
forward foreign currency contracts that are designated as cash flow
hedges. The Group has borrowings with floating interest rates
linked to SONIA, thereby exposing the Group to fluctuations in
SONIA and the consequential impact on interest cost. To manage this
risk the Group has interest rate swaps in place that fix the
interest rate on a considerable proportion of the Group borrowing.
Further details can be found on page 171 of the Annual Report. All
hedging activity is undertaken by the Group Treasury function in
accordance with the Group Treasury Policy that sets out the
criteria for counterparties with whom the Group can transact, which
states that all hedging activities are undertaken in the context of
known and forecast cash flows, with speculative transactions
specifically prohibited.
Outlook
Ongoing currency movements between the US dollar and GBP may
result in further exchange risk, particularly considering the
evolving position in relation to COVID-19, the political and
macro-economic environment, and the UK's developing relationship
with the EU. We will continue to monitor this and adjust our
approach to hedging where necessary. We do not expect any increased
threat from other significant macro-economic changes in the short
to medium term.
Key emerging risks
Geopolitical uncertainty and disruption. Continued macroeconomic
uncertainty post-pandemic and adjustment to new processes set out
in the EU-UK Trade and Cooperation Agreement.
Risk profile: Low
Risk appetite: Low
Change on prior year : Down
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services
Regulatory and Compliance
Description and impact
Many of the Group's activities are regulated by national and
international legislation, applicable industry regulations and
standards including, but not limited to, consumer and competition
laws, trading, advertising, packaging, product quality, health and
safety legislation and guidance, pet shop licensing, National
Minimum Wage and National Living Wage, Equality Act, modern
slavery, Anti-Bribery, data protection, environmental regulations,
the Corporate Governance Code, the RCVS Code of Professional
Conduct for Veterinary Surgeons, and the off-payroll regulations
(IR35). Failure to comply with the obligations set out in this and
other applicable legislation may lead to financial penalties and
reputational damage and other consequences for the business and its
Directors.
Mitigation
We actively monitor regulatory developments in the UK and Europe
(as applicable) and our existing obligations where we have internal
policies and standards to ensure compliance where appropriate. We
also provide training for colleagues where needed and operate a
confidential whistleblowing hotline for colleagues, Partners,
suppliers, and people working within our supply chain to raise
concerns regarding any potential breach of legal or regulatory
obligations in confidence. Our suppliers commit to comply with all
relevant business regulations for the territories in which they
operate and to meet international labour standards which are laid
out in our Supplier Code of Conduct. We reinforce this by placing
contractual obligations on our suppliers and support where
necessary. The Group's Data Protection Officer, and executive
sponsored steering committee, monitors Group compliance with legal
requirements relating to personal data, ensuring relevant policies
are up to date and works with our Information Security Steering
Committee which monitors data security. Health and safety is a key
priority for the Board and senior management. The Group has a
dedicated Health and Safety team covering all areas of the
business. The Health and Safety Committee, chaired by the Group
Legal Director and Company Secretary, is responsible for the Group
health and safety framework, policy, and performance. Health and
safety performance is also reviewed by the Board and the Audit and
Risk Committee on a regular basis.
Outlook
We continue to monitor legal and regulatory developments across
the UK and Europe and will plan accordingly. We anticipate
regulatory changes following Brexit to start to take shape within
the next 12 months. FY23 will see an increased focus on human
rights and environmental standards in our supply chain and
international sanctions.
Key emerging risks
New and amended regulations, including further amendments to the
law resulting from Brexit, and significant strengthening of UK
consumer laws, and increasingly stringent environmental
regulation.
Risk profile: Low
Risk appetite: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers,
50% of sales from pet services, Set our people free to serve
Sustainability and Climate Change
Description and impact
The success of our business over the long term will depend on
the social and environmental sustainability of our operations, the
resilience of our supply chain and our ability to manage the impact
of any potential climate change on our business model and
performance. Our investors, colleagues and customers need to be
assured that we are acting responsibly across our business and
supply chains. If we do not meet these expectations the Group's
reputation and license to operate could be threatened. More
stringent environmental regulation could affect the cost of
production and operational flexibility.
Mitigation
The ESG Committee meets at least three times a year to approve
and review the implementation of the approved social value
strategy, Our Better World Pledge. The Group executive board
reports to the ESG Committee and is supported by management
committees that oversee different areas of the agenda.
The Climate Change and Waste Committee and the Product and
Supply Chain Committee, both established in 2019, continue to
implement our strategy and actions regarding the sustainability of
our operations and our supply chains.
At the Product and Supply chain meeting, during the year
policies have been developed on raw materials and packaging
outlining environmental considerations like deforestation and
plastics use. The supplier code of conduct has been updated and
this forms part of our terms and conditions of trade. We have
developed a product sustainability framework to support the
implementation of our environmental and social requirements across
our product developments and selections.
The climate change and waste committee has been overseeing our
operational climate change strategy, particularly focusing on
opportunities to reduce carbon usage. An environment policy has
also been developed.
In line with the Task Force on Climate-related Financial
Disclosures (TCFD) requirements, we conducted a climate change
scenario analysis that built on the previous year's risk
assessment. Details of this and our overall approach to TCFD can be
found on page 42 of the Annual Report and in our Social Value
Report. We have now submitted both our near term 2030, 42% scope 3
reduction target and our 2040 net zero target to the science-based
targets initiative (SBTi) for approval and work is underway to
develop the programmes that support the delivery of these targets.
Extreme weather events form part of our TCFD scenario analysis
presenting both risks and opportunities which we are actively
monitoring. In the short term we can adapt our planned and tactical
promotional activity to decide whether strengthening this would
support pet welfare through sales of appropriate products and
providing advice.
Outlook
The social value strategy, Our Better World Pledge, can be found
on page 42 of the Annual Report, and in our separate Social Value
Report. This includes a summary of our targets relating to
sustainability and climate change and our performance over the last
year and our latest TCFD disclosure. We are committed to achieving
these ambitions but recognise the challenges and complexities
involved with tackling global issues, such as climate change.
Further improvements to our subscription and omnichannel services
offering will continue to improve our resilience to reduced store
footfall during periods of extreme weather.
Key emerging risks
Decarbonisation - inability to transition our products and
services to low carbon models. Physical risks of extreme weather
events affecting demand, sales, our operations, and supply
chains.
Risk profile: Medium
Risk appetite: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services
Related Party Transactions
Veterinary practice transactions
The Group has entered into a number of arrangements with third
parties in respect of veterinary practices. These veterinary
practices are deemed to be related parties due to the factors
explained in note 1.4 of the financial statements.
Commitments relating to these veterinary practices are included
within notes 25 to 27 of the financial statements.
The transactions entered into during the period, and the
balances outstanding at the end of the period are contained in note
27 to the financial statements.
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END
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