TIDMPETS
RNS Number : 4565P
Pets At Home Group Plc
10 June 2020
FOR IMMEDIATE RELEASE, 10 JUNE 2020
Pets at Home Group Plc: Posting of Annual Report & Accounts
and Notice of AGM
Pets at Home Group Plc (LSE: PETS) ("Company") today announces
that its Annual Report and Accounts for the year ended 26 March
2020 ("Annual Report"), Notice ("Notice") of the 2020 Annual
General Meeting ("AGM") and Form of Proxy for the 2020 AGM have
been sent to shareholders and the Annual Report and Notice are
available on the Company's website at
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
http://www.morningstar.co.uk/uk/NSM :
-- Annual Report and Accounts for the year ended 26 March 2020;
-- Notice of the 2020 AGM; and
-- Form of Proxy for the 2020 AGM.
The Company's AGM will be held at 11.00 am on 9 July 2020 at
Pets at Home, Chester House, Stanley Green Trading Estate,
Handforth, Cheshire, SK9 3RN .
As noted in the Notice of the 2020 AGM, in light of the COVID-19
pandemic, new laws have been introduced to prevent non-essential
travel and public gatherings, save for limited purposes.The new
laws mean that this year's AGM is expected to be held in a
different format to previous years and the Board has decided, in
the interests of public safety, that shareholders will not be
permitted to attend this year's AGM in person.
As detailed in the Notice of the 2020 AGM, shareholders are able
to ensure their votes are counted by submitting proxies in advance,
either online or by post. The Board is also inviting shareholders
to submit questions in advance of the AGM and answers to questions
on key themes will be made available on the Company's website,
https://investors.petsathome.com , as soon as practically possible
after the AGM. Further details on how to vote and submit questions
in advance of the AGM can be found in the Notice of the 2020
AGM.
The Company's preliminary results announcement on 21 May 2020
included, in addition to the preliminary financial results for the
year ended 26 March 2020, information on important events that
occurred during the year and their impact on those financial
statements. That information, together with the information set out
in the Appendix below is provided in compliance with the
requirements of DTR6.3.5(2) (b). This information is not a
substitute for reading the full Annual Report and Accounts for the
year ended 26 March 2020.
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 453 stores, many of which also have vet practices and
grooming salons. Pets at Home also operates a UK leading small
animal veterinary business, with 441 First Opinion practices
located both in our stores and in standalone locations, as well as
four Specialist Referral centres. For more information visit:
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 26 March 2020.
The Directors of Pets At Home Group Plc confirm that to the best
of their knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the strategic report/directors' report includes a fair review
of the development and performance of the business and the position
of the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face.
The Directors of Pets at Home Group Plc consider the annual
report and accounts taken as a whole, is fair, balanced and
understandable and provides the necessary information for
shareholders to assess the Group's position and performance,
business model and strategy.
This responsibility statement was approved by the Board of
Directors on 21 May 2020 and signed on its behalf by Peter
Pritchard, Group Chief Executive Officer.
Principal Risks and Uncertainties
A risk management framework is in place allowing risks to be
identified, assessed and managed within appetite, whilst taking
advantage of opportunities. This allows the strategy to be
effectively delivered and protects value for shareholders.
Risk Management Framework
The responsibility for risk management operates at all levels
throughout the Group.
Board of Directors
The Board of Directors has overall responsibility for the
Group's risk and internal control frameworks. It determines the
nature and level of principal risks and sets risk appetite.
Undertakes a robust assessment of the Group's principal risks.
Audit and Risk Committee
Assists the Board fulfil its corporate governance and oversees
responsibilities in relation to financial reporting, internal
controls and the risk management framework. Provides oversight and
challenge to the assessment of principal risks. Reviews internal
financial controls and the risk management framework and assesses
their effectiveness in mitigating Group level risks and advises the
Executive Management Team on risk appetite. Reviews and oversees
the Group risk register - reviews detailed risk reports at each
sitting with supplementary reporting from the management team on
specific key risks. Conducts regular deep dives into key risk areas
with relevant Directors to understand the nature of the risks and
adequacy of the mitigations and controls that are in place.
Executive Management Team
Collectively responsible for managing risk. Key risks are
allocated to an Executive Management Team member for oversight and
ultimate ownership. Receives regular risk updates and reports from
Board committees, internal audit, assurance teams and external
advisors.
Internal Audit
Gives objective assurance to the Board and Audit and Risk
Committee on the effectiveness of the risk management framework.
Holds meetings with risk owners across the business four times per
year. Updates the individual risk registers, including actions and
progess made, assesses risk ratings and documents the controls in
place that help mitigate each risk. Recommends improvements and
corrective actions.
Operational Management
Owns and manages operational and project risk. Ensures Group
policies and procedures are implemented and complied with and
implements mitigating actions. Communicates significant risks via
reporting processes to the senior management team.
Key Risks
The key risks identified by the Board are summarised below.
COVID-19 pandemic and Brexit
The Board has reviewed the risks and opportunities that may
arise as a result of both the COVID-19 pandemic and Brexit.
Uncertainty around Brexit remains, therefore we are preparing
for a scenario that has the most potential for disruption.
In response to the unprecedented challenges presented by
COVID-19, we have clearly set out our priorities and have
appropriate, balanced and calibrated mitigation plans for our
people, our customers and their pets, supply chain, operating model
and liquidity.
Our priorities are first and foremost to safeguard the wellbeing
and safety of our colleagues, Partners, customers and pets, and
suppliers as well as ensuring the continuity of customer service in
our stores.
Whilst the longer term effects remain unclear, we continue to
monitor the risks and the ongoing impacts closely.
Based on our scenario planning and latest view from government
we have assessed that our risk profiles, other than liquidity,
remain stable.
We will remain vigilant, continue to plan, stay agile, and
communicate with our colleagues and stakeholders accordingly to put
our business in the strongest position possible for the future.
Both have the potential to affect the following principal
risks:
-- Competition
-- Our people
-- Supply chain and sourcing
-- Services and stores expansion
-- Liquidity and credit
-- Treasury and finance
-- Regulatory and compliance
Brand and reputation
Description and impact
Our vision is to be the best pet care business in the world. Our
number one value is "We put pets first" and pet welfare remains our
highest priority.Protecting our strong brand, reputation and
customer loyalty is essential to our business. Failure to do so
could result in loss of trust and confidence in the Group brands by
customers, colleagues and other stakeholders.
Mitigation
Advancing pet welfare continues to be a priority. Pet welfare
across the Group is overseen by the Corporate Social Responsibility
and Pets Come First Committee. Its remit is to review pet welfare
and clinical standards, and check that appropriate processes are in
place to ensure we maintain our high welfare standards.
As a retailer of small pets the highest possible welfare
standards must be maintained at all times. We have rigorous
processes in place to ensure this across all our stores, including
in-store adoption centres, and with our breeders. All are assessed
regularly against a comprehensive set of welfare standards both by
internal and external independent assessors. We also have a highly
visible field operations team that are focused on maintaining the
highest pet welfare standards in stores and grooming salons.
Every store colleague is also empowered to refuse to sell a pet
if they have any doubts about the suitability of its forever
home.
We operate a confidential 'Pet Promise Line' where colleagues
are able to raise concerns about pet care directly with our Head of
Pets, who is a qualified veterinary surgeon. Any call to this line
results in appropriate action to address the concerns raised.
Examples of where we prioritise pet welfare include our decision
to suspend the sale and adoption of rabbits at Easter and instead
provide workshops to educate about the responsibilities of pet
ownership. Over Christmas we encourage customers to buy the
relevant housing, accessories and food and to take gift vouchers
home rather than pets. This allows new owners the chance to visit
one of our stores after Christmas to learn about the welfare needs
of their pet before taking it home.
The Group also interacts with customers' pets on a daily basis
through its First Opinion veterinary practices and Specialist
Referral centres. All veterinary surgeons and nurses are subject to
the Royal College of Veterinary Surgeons' (RCVS) Code of
Conduct.
283 practices are accredited under the RCVS Practice Standards
Scheme (PSS), with a further 66 currently enrolled to become
accredited. This is a voluntary scheme, which through setting
standards and carrying out regular assessments, aims to promote and
maintain the highest standards of veterinary care. To become
accredited, practices volunteer for rigorous assessment every four
years and will have met a range of standards. Practices are also
subject to independent spot-checks between assessments. We will
continue to drive and support PSS accreditation. To support our
colleagues further our clinical development team, who are all
veterinary surgeons, audit to our internally developed "Aspiring to
Clinical Excellence" audit programme which has helped improve
clinical standards and processes across the Group. We are also
leading the way in First Opinion clinical practice with
ground-breaking initiatives. A new quality improvement system
(Q12020) has been launched which gathers granular detail about
practice clinical standards to enable clinical services support to
be tailored and targeted to provide maximum benefits.
Our STAR (Stop and Think, are Antibiotics Required?) programme
has been developed with extensive input from our practice teams,
and includes unique and innovative assets to educate clients,
challenge and change established prescribing behaviours, and
encourage the responsible use of antibiotics. The result of
antibiotic usage auditing was shared and demonstrate a positive
reduction in antibiotic use across the Group, over time.
Outlook
As we continue to increase the size and scale of our pet care
services offering, we must ensure that pet welfare standards
continue to be maintained at a high level across the Group. We will
continue to monitor welfare standards closely, taking appropriate
steps where required to maintain them whilst continually looking
for ways to improve.
Following Government requirements for COVID-19 and RCVS guidance
our First Opinion practices and Specialist Referral centres remain
open to deliver emergency care. As professionals we are taking each
case on its own merit and continue to undertake what is essential
for the pet's health and welfare needs.
Risk profile: High
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers,
Set our people free to serve
Competition
Description and impact
The Group competes with a wide variety of retailers, including
other pet specialists, pure play online competitors, supermarkets,
discounters, veterinary groups and independent practices. Online
competition is also a risk, as large well-known internet businesses
expand into pet products and established pet product sites improve
and expand their offer.
Failure to offer an attractive model to our future Joint Venture
Partners whilst keeping abreast of, and responding to, developments
by all our competition in the areas of price, range, quality,
clinical care and customer service could have an adverse impact on
the Group's financial performance and impact opportunities for
growth.
Mitigation
We offer pet owners the complete pet care experience, something
our competitors cannot. Through our combination of pet products and
related services, which we make affordable, convenient and
rewarding, we are able to differentiate ourselves and take share
across all market segments.
As a specialist retailer, the delivery of friendly expertise
through our highly engaged and trained colleagues is a key element
of our proposition and we continue to invest to ensure our service
standards are continually improved.
Market research is carried out to review the pet market to
understand what our competitors are doing worldwide. This helps
identify further changes or initiatives that can be implemented to
help keep Pets at Home a leader in the UK market. In addition we
are constantly reviewing expansion opportunities into new
adjacencies that would contribute to our ecosystem.
We have a competitive pricing strategy across private label
Advanced Nutrition foods, branded food lines and pet essentials. We
are executing the plan to keep our prices competitive, and to
deliver everyday low prices for our most loyal customers. Overall,
we have seen strong results, particularly in food and Advanced
Nutrition, where increased sales volumes offset the price
reductions, leading to overall revenue growth in those categories
and have maintained competitiveness against pure online
competitors.
We will continue to target price investment into product areas
that we believe drive shopper frequency and loyalty, not simply
reducing prices across the entire range.
We continue to evolve our proposition through the addition of
vets and groomers into our existing store estate whilst continuing
to innovate our superstore format - with the intention of making
our stores more experiential destinations for our current and
prospective customers with the regular introduction of new and
exclusive products into our food and accessory ranges.
COVID-19 has created a significant shift towards online, home
delivery and contactless delivery options with our omnichannel
participation of Retail sales almost doubling. We are expecting
more customers to use online as part of their new shopping
repertoire as it has been the life line for many pet owners over
the past few weeks. Customer buying behaviour was already rapidly
changing in an increasingly challenging and competitive retail
landscape. Consumers have greater demands around price,
convenience, service and experience. In response our online range
of food and accessories has been extended and online shopping is
available 24/7 for our customers, whilst offering a choice of
delivery options.
As part of our continued investment in the digital shopping
experience we have upgraded our website functionality and content
to bring together our unique combination of products and services.
The recent capital investment in automating the picking and packing
process at our Northampton Distribution Centre means we are well
positioned to meet the continued growth we expect to see in our
omnichannel business. We are attracting and retaining even more of
the UK's pet lovers, building lifetime relationships with over 5.6m
VIP (Very Important Pet) club members whose purchases of products
and services has grown 24% year-on-year.
We are uniquely positioned with our VIP data; it is the key
driver for one of our strategic pillars' "using data to better
serve customers". Our strategy is to establish "Pet Care Analytics
for All" where analytics will become the lifeblood of our pet care
ambitions across the Group. We are focusing on creating an internal
analytics capability that will drive strategic decision making,
enables an increasingly personalised customer experience and
optimises the working life of our colleagues and partners.
Our veterinary business is the largest branded veterinary
business in the UK and continues to have a differentiated strategy
versus its scale UK competitors, which all employ variations of a
'buy and build' model. The relationship with our Retail stores and
VIP club, Joint Venture model, and ability to advertise at national
scale under a single brand are key aspects of a strategy that
remain difficult for any competitor to replicate - in part or in
whole. We continued to leverage these competitive advantages during
the past year to drive above market customer sales growth across
our estate, and also took important action to recalibrate our First
Opinion veterinary business to create a foundation to return a
sustainable profit and cash return profile for our Group and our
Joint Venture Partners.
Outlook
We are in a strong position in a large, resilient market that is
both in structural growth and largely defensive.
However, the impact of COVID-19 response both in terms of
society and consumer behaviour means the outlook for next year is
inherently uncertain, with the longer term effects largely unknown.
Our designation by the UK Government as an "essential retailer"
means we continue to trade and provide pet products and health care
services that are deemed essential to the nation's pet owners.
We are expecting to see a different competitive landscape due to
COVID-19 driving shifts in customer behaviours to online, which is
expected to continue, and some bricks and mortar retailers not
surviving an extended period of reduced trading.
As the flow of goods from the Far East was not severely impacted
we are expecting to see over availability of goods, which may
increase the levels of deals for customers when unrestricted
trading commences.
We will use our unique strengths to attract new pet owners,
through our brand, cross-Group offers, and our VIP club and will
keep our prices competitive for our most loyal customers. We
continue to invest in our online capabilities to maximise this
route to market.
Circa 75% of the small animal veterinary market in the UK is
corporately owned. We can benefit from our strong strategic footing
as the only corporate vet business in the UK that provides an
owner-operator model that gives entrepreneurial First Opinion vets
the ability to own their own business and operate with complete
clinical freedom.
Risk profile: Medium
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers, 50% of sales from pet
services
Services and stores expansion
Description and impact
A key part of the Group's growth strategy is to deliver 50% of
sales from pet care services, by having a complete pet care
strategy aligned across the Group. If we are unable to deliver the
initiatives laid out in our strategy our expected financial
performance could be adversely impacted.
Mitigation
We regularly review our offer, store proposition and portfolio
to maximise the potential from our retail estate and are continuing
to evolve our network with our stores of tomorrow format that bring
pet care services and experiences to customers. We have launched 18
pet care centre format stores, including the in-store Groom Rooms
and First Opinion veterinary practices, and one standalone First
Opinion veterinary practice.
As we move through the roll out programme, our customers'
experience and store performance is monitored, and where required
we are refining the concept and design. Our colleagues remain our
biggest asset and are fundamental to the success of the new store
concept.
We also have the ability, with smaller footprint stores, to
utilise mezzanine space to deploy vet and Groom Room services,
maximising the opportunity to offer a full range of services in our
retail stores. Any proposed new veterinary practice, grooming salon
or store investment has to deliver an appropriate financial return
after taking into account any financial impact on the existing
store portfolio. We will ensure we have the right number of stores
as we respond to continued channel shift to online.
Our store estate is also entirely leased which gives us great
flexibility. As leases come up for expiry or contain a break, we
will assess our portfolio on a case by case basis before deciding
whether to renew the lease, to close or relocate a unit. We
continue to monitor and plan to mitigate the risk of landlords
redeveloping sites for alternative uses at lease expiry.
In response to COVID-19 all our stores will be subject to a 12
months business rates holiday, which will also apply to the
in-store vet practices. For those stores where we still pay rents
quarterly, we are in the process of negotiating a temporary move
from quarterly to monthly rent payments which may affect circa 250
stores.
There has been continued growth in subscription customers across
our three subscription schemes. There are now over 850k
subscription customers across the Group from which we build loyalty
and a predictable revenue stream.
Our VIP Subscribe and Save monthly flea and worm offering has
been extended to include cat treatments. Our food subscription
service "Easy Repeat" allows customers to customise their home
delivery of their pet food, rewarded with our best prices. Whilst
our First Opinion healthcare plans are designed to provide peace of
mind for the predictable elements of pet care. Our flagship
healthcare plan "Complete Care" helps to spread the cost of routine
treatments.
The continued growth of our veterinary business, both First
Opinion and Specialist Referrals, is a key building block for
achieving our growth strategy. We made meaningful progress to
increase the long term sustainability and competitive position of
both of these businesses in FY20. In our First Opinion vet
business, we completed a recalibration, to realise free cashflow
growth by accelerating maturity in existing practices. The plan
remains on-track and throughout the process we have worked closely
with our Joint Venture Partners to reach decisions about their
businesses in a collaborative manner.
A key priority for our specialist division is to expand our
capabilities and capacity and to achieve national coverage of
Specialist Referral centres. We are completing an extensive
expansion programme at one of our existing sites, plus opening a
new Specialist Hospital in Scotland, with state-of-the-art
facilities and a highly-experienced team which will come on stream
later in the year. We remain active in looking for opportunities
for growth.
Following Government requirements for COVID-19 we are
maintaining social distancing protocols in our stores, Distribution
Centres and practices. We have ceased any operation where the
health and safety of our colleagues and customers may be
compromised, meaning we have temporarily closed our grooming
salons. Furthermore, to comply with requirements and RCVS guidance
our First Opinion practices and Specialist Referral centres remain
open to deliver emergency care.
Outlook
In light of the unprecedented uncertainty shaped by the on going
pandemic, we remain confident in our long term strategic plan to
deliver 50% of sales from pet care services, given the strong
competitive position of our Group to capture this opportunity
through our differentiated pet care offering and plan to further
develop our services offering over the coming years.
We expect to see services and subscription participation to
increase, especially as customers take advantage of our
subscription packages.
As we continue to monitor developments, there is a high
likelihood however that our strategic plans are re-evaluated as we
progress through the year.
Risk profile: Medium
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Set our
people free to serve, 50% of sales from pet services
Our People
Description and impact
Our People Strategy recognises that our colleagues are
fundamental to the success of our business and key to us achieving
our objective of becoming 'The Best Pet Care Business in the
World'. We must attract, develop and retain talented, engaged
colleagues that will deliver quality service and clinical care to
our customers and their pets if we are to achieve our Group
strategic ambitions.
Mitigation
This year we have taken the opportunity to focus on the
alignment of key people activities across the Group. We are
currently shaping our colleague and leadership capability framework
which will clearly articulate our expectations of what great looks
like for colleagues and leaders. Our reward and grading schemes
will be embedded within this framework which will also support
career pathways and all future learning and development
programmes.
All our learning and development programmes will be underpinned
by our new capability framework. Our leader programmes are under
review and will focus on leading and mobilising our business
strategy, and strengthening our change leadership. We will also be
reviewing our colleague development programmes at store level to
ensure our colleagues are able to bring the pet experience to life
and supporting our customers with regards to their pet care needs.
We will continue to map more training programmes to apprenticeships
over the coming year, focusing on the development of critical
clinical, customer facing and leadership talent groups to shape the
future of the Group by attracting, growing and retaining best in
class next generation talent that inspires us to discover new ways
of wowing our pet care customers.
This year will also see us launch programmes targeted at those
who face barriers to employment to ensure we are utilising all
available talent pools whilst also enabling better social mobility
and creating a lasting impact on people and society.
We continue to develop a healthy pipeline of talented veterinary
graduates through our Graduate Programme and in the last three
years we have recruited over 300 graduates. This year we will be
launching our Graduate Next Steps Alumni fund to support long term
professional and personal development and increase retention of our
graduates once they have completed the programme.
We have run our first Group wide listening survey and we have
robust action plans to support the importance of improving our
colleague experience, differentiating our culture, and our people
proposition. We recognise the importance of articulating our people
proposition internally and externally and work is now underway to
develop our story and find effective ways to communicate our unique
culture.
We continue to review the impact of Brexit and any future
changes to UK immigration policy which may impact the availability,
recruitment and retention of talented colleagues across the Group.
We have employed long term strategies to mitigate the expected
impact, including operating flexible recruitment and retention
initiatives, launching graduate recruitment programmes for
veterinary surgeons, whilst reviewing opportunities in non-EU vet
recruitment markets and identifying key targets.
We are working closely with professional bodies including the
Royal College of Veterinary Surgeons and the British Veterinary
Association to continue to ensure the veterinary voice is heard
during the transition period as the draft immigration bill evolves.
Now the 'settled status' process for EU citizens' right of
settlement 'indefinite leave to remain' is known, we have an on
going communication strategy with our Joint Venture Partners and
all affected colleagues to clarify an EU citizen's right of
settlement and to provide support to all our EU colleagues.
We are committed to developing a culture of inclusivity across
the Group. We are at the start of our journey, and with the
implementation of Success Factors this year, we will capture the
data to provide us with our starting position. This will help set
out our ambition, starting with our policy and process reviews, to
shaping an inclusive leadership approach. Diversity and inclusion
is already called out as significant within our values and
behaviours which run through our Group. This will be embedded
further within our leadership capability framework which launches
later this year.
We continue to monitor and review Government advice with regards
to the COVID-19, to ensure the safety and wellbeing of all our
colleagues and customers at this difficult time. We have provided
detailed protocols; daily podcasts followed by written
communications with commonly asked Q&As' to ensure our
colleagues are kept fully informed and reassured by the measures we
have taken to safeguard our business.
Outlook
We continue to make great progress with our People Strategy
across the Group this year and remain in a strong position to
attract, retain and develop our colleagues.
We continue to seek new opportunities to further enhance our
colleague experience; however uncertainties associated with
COVID-19 will need a careful and considered approach.
Risk profile: Medium
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Set our
people free to serve
Information Security and Business Systems
Description and impact
The need to maintain core business systems and mitigate security
risks whilst supporting our strategy remain paramount again this
year.
Protecting customer and colleague data against increasingly
sophisticated attacks comes with additional cost linked to the
remediation of associated risks (data, people, and infrastructure).
Our ability to balance these challenging demands is vital to
delivering our strategy, maintaining target growth levels and be
secure from data security breaches and legal challenges.
Mitigation
We remain committed to delivering secure high-performance
systems that underpin our strategic plan. We continue to move to
scalable, secure, cloud-based solutions where they support our
strategy.
We maintain a risk-based information security management system,
designed to protect the confidentiality, integrity, and
availability of business-critical information. The management
system ensures that information security controls are reviewed and
improved on a continual basis. A risk-based methodology allows us
to identify, assess and react to the ever-changing threat
landscape, including vulnerabilities exploited at other
organisations.
Our established information security training and awareness
programme ensures colleagues understand the risks and threats
associated with protecting data.
In response to the challenges raised by COVID-19 our Information
Security Policies covering people, process and technology continue
to be followed and monitored. Risks are being continually assessed
and managed as business processes evolve. Home working and social
isolating ensures we have sufficient resource to maintain our core
functions and information security management system, whilst
continuing to identify opportunities for improvement.
Outlook
To deliver our vision to become the best pet care business in
the world we will continue to monitor the threat landscape, utilise
a risk management methodology that will allow us to balance risk
versus investment and ensure appropriate controls are
implemented.
We continue awareness campaigns to educate colleagues about the
risks associated with data and physical security.
Cloud-based solutions will continue to be our go-to platform
where the technology aligns to our security, strategic and
operational goals.
Risk profile: Medium
Change on prior year : Stable
Links to strategy : Use data and VIP to better serve customers,
Set our people free to serve
Supply Chain and Sourcing
Description and impact
During the financial year, approximately US$85m of the Group's
merchandise cost of goods and GBP110m of the Vet Group
pharmaceutical purchases was globally sourced, and therefore we are
exposed to the risks associated with international trade, such as
inflation, changing regulatory frameworks and currency
exposure.
We are also exposed to the risks associated with the quality and
safety of products produced locally and globally on behalf of the
Group, many of which are own brand or exclusive private labels.
We must also ensure that our suppliers share and uphold our
approach to business ethics, human rights (including safety and
modern slavery) and the environment.
A failure to manage this risk adequately could lead to
significant reputational damage. We have two national Distribution
Centres covering the north and south of the UK respectively. A
disaster at one of these may result in a significant interruption
to the supply of stock for a large number of stores and in the
fulfilment of internet orders.
As the Brexit transition starts, the impact to our domestic and
overseas supply chains may still be significant, particularly in
view of probable changes to the UK's trading terms with the EU and
the rest of the world.
The impact of COVID-19 is dependent on the supply chain and the
risk to overseas manufacturing and shipping plus the priority of
the vet channel versus the NHS.
Mitigation
During such a challenging period, the strength of our
long-standing relationships with key suppliers is crucial to
preserving our supply chain. Across third party brands, private
label food manufacturers in the UK and accessory suppliers in the
Far East, we were able to minimise disruption to customers and
continue meeting their pet care needs. Our previous investments in
omnichannel capacity, new customer acquisition channels and
subscription services had equipped us to meet above-trend levels of
demand and, with disruption in Far East supply stabilising
relatively quickly, our product availability held up well.
Having Pets at Home colleagues on the ground in the Far East
working collaboratively with suppliers enables us to monitor
closely compliance with the Group's Code of Ethics and Business
Conduct policy, and our Supplier Quality Manual. In addition, an
independent third party undertakes visits to further monitor
compliance with Group policies.
We continue to invest in our quality assurance processes and to
ensure the effectiveness of our Far East sourcing office in
mitigating our sourcing risks in the region.
In the Vet Group we continue to work closely with all suppliers.
Key contract renewals will be due during the financial year which
may be postponed due to COVID-19. However contract extensions are
in place to ensure supply and other contractual obligations are
met. We are also working closely with the NHS in the requisition of
ventilators and personal protective equipment from our Specialist
Hospitals.
Five management teams have been established to develop and
deliver our CSR strategy. One of these, the Product and Supply
Chain Management team, is responsible for developing the
Responsible Sourcing strategy in relation to all products sourced
for the Group. The scope of this covers the full value chain impact
of products including packaging, raw materials, and the
environmental impacts of manufacture, Human Rights and product
sustainability innovation. During the year the team has focused on
evaluating all own brand product packaging to establish the
recyclability of materials and creating plans to change packaging
where necessary.
Exposure to foreign currency movements is an increased risk that
is mitigated through our hedging strategy; see the Treasury and
finance risk.
Business continuity plans are in place for the Distribution
Centres. They help us mitigate the impact of a disaster by enabling
us to service all stores and orders for a priority range of SKUs
from a single Distribution Centre whilst we source a second
facility and recover full product supply.
We will continue to actively monitor COVID-19 and Brexit
developments and will respond to any impact on our supply chain
proportionately. We have performed a detailed operational risk
assessment of our supply chain. For our own label and private label
food products we have identified alternative suppliers where
appropriate and have developed contingency plans. The Vet Group has
also secured the provision of critical stock lines, including
medicines, by contractually ring fencing stock with our wholesaler
and suppliers and has built relationships with manufacturers should
we encounter any difficulties in our supply chain.
Outlook
The longer term effects of COVID-19 are still largely unknown,
however we have plans in place and continue to monitor daily.
Exposure to foreign currency movements will be a heightened
risk.
By bringing forward stock orders scheduled for later in the
year, we were also able to send a confident signal to our suppliers
that we expect the pet care market to remain resilient.
We are aligning our 2030 strategy to the UN Sustainable Goals,
recognising that our actions can impact issues globally and locally
and both are important. There is a real consciousness and
accelerating trend for ecologically sustainable products. We have
ambitions across our key brand strategies to be a fully British
brand whilst bringing sustainability into our innovation plans and
range architecture going forward.
For the Vet Group, we are expecting to see an impact in the
availability of a few critical supply lines in the near future as
priority is given to NHS rather than veterinary channels.
We continue to monitor the Brexit transition and manage our
mitigation plan accordingly.
Risk profile: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life
Liquidity and Credit
Description and impact
The business requires adequate cash resources to enable it to
fund its growth plans through its capital projects and working
capital requirement. Without adequate cash resources, the Group may
be unable to deliver its growth plans, with a consequent impact on
future financial performance.
Mitigation
The Group's finances are continually monitored in the context of
its growth plans and of the wider economic landscape. The Group's
financing facilities were reviewed in September 2018 and are in
place until September 2023. The Group maintains close working
relationships with its banking partners to ensure sufficient
liquidity and credit is available. The Group monitors a range of
potential cash flow sensitivities to ensure the banking facilities
in place remain sufficient and adequate in light of evolving macro
and micro-economic factors. As a result, the Group is confident
that it has adequate revolving facilities in place, with a broad
syndicate of seven banks.
The Group's growth plans in respect of Joint Venture veterinary
practices is predicated on the availability of finance for new
Joint Venture veterinary partners to fund both the capital cost and
working capital requirement for each new practice opening. The
Group also provides additional financial support to First Opinion
practices to underpin their working capital requirements and growth
in clinical capacity. This investment is a particular feature of
the Joint Venture operating model and in making this investment the
Group considers its total returns across all practices on a
portfolio basis. The Group has completed a project to buy out and
consolidate a number of Joint Venture veterinary practices, as part
of which, the Group settled any liabilities for third party bank
loans and leases within these practices on behalf of the Joint
Venture Partner, with all such liabilities being written off. For
the practices which the Group continues to operate under a Joint
Venture Agreement, the Group has established a credit impairment
provision to reflect the assessment of extended loans and
investments being repaid over different lengths of time, with
different risks of return, to provide for any potential
shortfall.
The Group has facilities in place with recognised lenders that
give us confidence that our medium term growth plans are financed
adequately. The Group ensures that all cash surpluses are invested
with banks that have credit ratings and investment criteria that
meet the requirements set out in the Group Treasury policy, which
has been approved by the Board. The Group's key suppliers are
exposed to credit risk and as part of the Group's overall risk
management programme, the business has identified alternative
suppliers where appropriate and developed contingency plans in
respect of own label and private label food products.
Outlook
The evolving position in relation to COVID-19 has created
increased uncertainty in relation to forecast cash flows, liquidity
and credit requirements. We continue to monitor our finances and
build relationships with our finance providers to ensure that the
business is well positioned to manage its cash flows effectively
and ensure sufficient liquidity is available.
Mindful of these prevailing circumstances, we recognise the
potential need to support some of our Joint Venture veterinary
practices with additional funding during the year ahead. Such
funding will be available for those businesses that remain viable
over the longer term, taking into account the near term benefit of
the third party loan repayments secured.
We do not anticipate any other significant macro-economic
changes in the short to medium term that may affect this risk area
although the outcome of the evolving relationship that the United
Kingdom has with the EU may have some bearing.
Risk profile: High
Change on prior year : Increase
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services, Use data and VIP to better serve
customers
Treasury and Financial
Description and impact
The Group has an exposure to exchange rate risk in respect of
the US dollar that is the principal purchase currency for goods
sourced from the Far East. The political and macro-economic
environment has increased currency pressures and we may see this
continue for some time. The Group also faces risks from changes to
interest rates and compliance with taxation legislation. If we do
not adequately manage this exposure there could be an impact on the
Group's financial performance with a consequential impact on
operational and growth plans.
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 LIBOR, thereby exposing the Group to fluctuations in
LIBOR and uncertainty regarding the expected cessation of LIBOR by
the FCA as the interest rate benchmark by the end of 2021, and the
consequent impact on interest cost. To manage this risk the Group
has interest rate swaps in place that fix the interest rate on a
significant proportion of the Group borrowings, and continues to
monitor and engage in the determinant of an alternative benchmark
to LIBOR. All hedging activity is undertaken by the Group Treasury
function in accordance with the Group Treasury policy that sets out
the criteria for counterparties with whom the Group can transact
and clearly states that all hedging activities are undertaken in
the context of known and forecast cash flows, with speculative
transactions specifically prohibited.
Outlook
On-going currency movements between the US dollar and GBP may
result in further exchange risk, particularly in light of the
evolving position in relation to coronavirus, and the Brexit
process. We will continue to monitor this and adjust our approach
to hedging where necessary.
Risk profile: Medium
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services
Regulatory and Compliance
Description and impact
Many of the Group's activities are regulated by legislation and
standards including, but not limited to, trading, advertising,
packaging, product quality, health and safety, pet shop licensing,
National Minimum Wage, National Living Wage, Equality Act, modern
slavery, bribery, data protection, environment, the RCVS Code of
Professional Conduct for Veterinary Surgeons and what will be the
implementation of the off-payroll regulations (IR35). Failure to
comply with these obligations may result in financial or
reputational damage.
Mitigation
We actively monitor both regulatory developments in the UK and
Europe and compliance with our existing obligations where we have
internal policies and standards to ensure compliance where
appropriate. We also provide training for colleagues where required
and operate a confidential whistleblowing hotline for colleagues to
raise concerns regarding any potential breach of legal or
regulatory obligations in confidence.
Our suppliers commit to and are audited against adhering to
relevant regulations, such as the Modern Slavery Act 2015, the
Bribery Act 2010 and the General Data Protection Regulation
(implemented in the UK by means of the Data Protection Act 2018)
(GDPR). The Group's Data Protection Officer, and executive
sponsored steering committee, monitors Group compliance with legal
requirements, ensuring relevant policies are up to date and works
with our Information Security Steering Committee which monitors
data security.
The Animal Welfare (Licensing of Activities Involving Animals)
(England) Regulations 2018 was implemented in October 2018. The
licensing process across the Group was dealt with as a priority but
has been delayed by Councils. It is therefore ongoing and will
continue into 2020, with all stores expecting to receiving a
licence. DEFRA (the Department for Environment, Food and Rural
Affairs) is planning to review the regulations again and as a key
stakeholder we will actively engage in the consultation process to
ensure the licensing requirements are clear and consistent, driving
an update if required to the statutory guidance.
The Group continues to monitor any potential changes to law and
regulations which could be brought about by, for example, the
withdrawal from the EU and any longer term implications of
COVID-19. We have already seen the introduction of the Coronavirus
Act 2020 and the Job Retention Scheme by the UK Government and we
continue to assess their impact on the Group.
We have also refreshed all relevant agreements in light of the
HMRC's off-payroll regulations (IR35) in readiness for the changes
which will come into force from April 2021. The Group will continue
to monitor any impact on the regulatory and compliance landscape
that this and other issues bring
Outlook
We continue to monitor legal and regulatory developments across
the UK and Europe and will plan accordingly.
Risk profile: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, Use data
and VIP to better serve customers, 50% of sales from pet services,
Set our people free to serve
Sustainability and Climate Change
Description and impact
The success of our business over the long term will depend on
the social and environmental sustainability of our operations, the
resilience of our supply chain and our ability to manage the impact
of any potential climate change on our business model and
performance. The key risk to the Group relates to assessing and
reducing the environmental impact of the direct operations and
across the value chain. This could result in an impact to the
Group's reputation and strategic plan. Examples of risk include
extreme weather events affecting demand, sales, our operations and
supply chains and more stringent environmental regulation could
affect the cost of production and operational flexibility.
Mitigation
The Corporate Social Responsibility and Pets Come First
Committee meet three times a year to approve and review the impact
of CSR strategy. During the year the new role of Group Chief People
and Culture Officer was created to take overall responsibility for
the agenda. As part of the process a detailed materiality
assessment was carried out and five management groups, each
sponsored by a member of the Executive Management Team, were
established to develop and deliver the strategy for: Climate Change
& Waste; Product & Supply Chain; People; Charity &
Community; and Pet Welfare.
For extreme weather we actively monitor and forecast demand and,
should this risk occur, we would review planned and tactical
promotional activity to determine whether
strengthening this would drive sales.
Outlook
The updated 2030 environment and sustainability strategy will be
finalised and launched during FY 2020/21. This will include an
assessment of scope 3 carbon impact and the development of a long
term carbon reduction target.
Further improvements to our subscription and omnichannel
services offering will continue to improve our resilience to
reduced store footfall during periods of extreme weather.
Risk profile: Low
Change on prior year : Stable
Links to strategy : Bring the pet experience to life, 50% of
sales from pet services
Related Party Transactions
Veterinary practice transactions
The Group has entered into a number of arrangements with third
parties in respect of veterinary practices. These veterinary
practices are deemed to be related parties due to the factors
explained in note 1.4 of the financial statements.
Commitments relating to these veterinary practices are included
within notes 25 to 27 of the financial statements.
The transactions entered into during the period, and the
balances outstanding at the end of the period are contained in note
27 to the financial statements.
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
NOAEAXKNEAKEEFA
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June 10, 2020 02:00 ET (06:00 GMT)
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