TIDMPETS
RNS Number : 7471B
Pets At Home Group Plc
11 June 2019
FOR IMMEDIATE RELEASE, 11 JUNE 2019
Pets at Home Group Plc: Posting of Annual Report & Accounts
and Notice of Annual General Meeting
Pets at Home Group Plc (LSE: PETS) ("Company") today announces
that its Annual Report and Accounts for the year ended 28 March
2019 ("Annual Report"), Notice ("Notice") of the 2019 Annual
General Meeting ("AGM") and Form of Proxy for the 2019 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 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 28 March 2019
-- Notice of the 2019 AGM
-- Form of Proxy for the 2019 AGM
The Company's AGM will be held at 11.00 am on 11 July 2019 at
the Hallmark Hotel, Stanley Road, Handforth, Wilmslow, Cheshire,
SK9 3LD.
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 22 May 2019
included, in addition to the preliminary financial results for the
year ended 28 March 2019, 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 28 March 2019.
S
Enquiries
Pets at Home Group Plc: +44 (0)161 486 6688
Louise Stonier, 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 452 stores, many of which also have vet practices and
grooming salons. Pets at Home also operates a UK leading small
animal veterinary business, with 470 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 28 March 2019.
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 22 May 2019 and signed on its behalf by Peter
Pritchard, Group Chief Executive Officer.
Principal Risks and Uncertainties
An effective risk management framework is in place allowing a
robust assessment of the principal risks that may impact the
achievement of our strategic objectives and delivering long term
success.
Board and Executive Management Team
The Board and the Executive Management Team are collectively
responsible for managing risk across the Group.
Key risks are allocated to an Executive Management Team member
for oversight and ultimate ownership. The full Executive Management
Team supported by key members of the Retail and Vet Group Executive
Board's are responsible for closely managing the most significant
risks. The Executive Management Team receives regular risk updates
and reports from Board committees, internal audit, assurance teams
and external advisers.
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.
Internal Audit
Gives objective assurance to the Board and Audit and Risk
Committee on the effectiveness of the risk management
framework.
Co-ordinates the risk management process and holds meetings with
all risk owners across the business four times per year following
which the individual risk registers are updated including actions
and progess made. Assesses risk ratings and documents the controls
in place that help mitigate each risk. Shares risk management
information and best practice across the Group. Recommends
improvements and corrective actions.
Corporate Social Responsibilty and Pets Come First Committee and
Health and Safety Committee
Assists the Executive Management Team in managing the risks of
pet welfare, health, safety and security. Ensures robust risk
management procedures in their area of responsibility are
implemented and complied with. Assesses the measurement of risk and
compliance with Group policies and applicable regulations.
Recommends appropriate policies and procedures to the Executive
Management Team. Ensures that appropriate insurance is in place
over property and other assets. Hold meetings quarterly with
stakeholders from across the Group. Updates the Executive
Management Team on key performance indicators across the Group.
The key risks identified by the Board are summarised below.
Brexit
The Board has reviewed the risks and opportunities that may
arise as a result of Brexit and has implemented appropriate and
balanced mitigation plans where it is expecting to see an impact.
Whilst the longer term effects remain unclear, we continue to
monitor developments closely and will continue to plan accordingly.
Brexit has the potential to affect the following principal
risks:
-- Our people
-- Supply chain and sourcing
-- 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 by both customers and
colleagues.
Mitigation
Pet welfare across the Group is overseen by the Corporate Social
Responsibility and Pets Come First Committee which meets three
times a year. 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. Advancing pet
welfare continues to be a priority.
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 where trained colleagues are focused
on maintaining the highest pet welfare standards in stores and
grooming salons.
Examples of where we prioritise pet welfare include our decision
to suspend the sale and adoption of rabbits over 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.
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. Any calls to this line result in appropriate action to
address the concerns raised.
The Group also deals with customers' pets on a daily basis
through its veterinary practices and specialist hospitals. All
veterinary surgeons and nurses are subject to the Royal College of
Veterinary Surgeon's (RCVS) Code of Conduct. 76% of practices are
now also accredited under the Practice Standards Scheme (PSS). This
is a voluntary scheme run by the RCVS, which aims to promote and
maintain the highest standards of veterinary care. To support the
practices we have a clinical development team who are all
veterinary surgeons. They conduct clinical excellence audits
focusing on the quality of care to ensure a high standard of
clinical practice is maintained, and will continue to drive and
support PSS accreditation.
Outlook
As we continue to increase our 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.
Risk appetite: Low
Change on prior year: Stable
Links to strategy: Bring the pet experience to life, Set our
people free to serve, Use data and VIP to better serve customers,
50% of sales from pet services
Competition
Description and impact
The Group competes with a wide variety of retailers and
veterinary groups and practices, including other pet specialists,
supermarkets, discounters and vet groups. 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
Market research is carried out to review the pet market both at
home and abroad to understand what our competitors are doing
worldwide. This helps identify further changes or initiatives that
need to be implemented to help keep Pets at Home ahead of the
competition and remain a leader in the UK market.
In response to a change in shopping habits of our customers we
initiated targeted pricing changes with private label Advanced
Nutrition foods and branded food lines and pet essentials. 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.
We have a clear pricing strategy and we are executing the plan to
keep our prices competitive, and to deliver everyday low prices for
our most loyal customers. 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 and the regular introduction of new and
exclusive products into our food and accessory ranges.
As a specialist retailer, the delivery of friendly expertise
through our highly engaged and trained store colleagues is a key
element of our proposition and we continue to invest to ensure our
service standards are continually improved.
At the same time we appreciate that in this digital, omnichannel
era, customer buying behaviour is rapidly changing and in an
increasingly challenging and competitive retail landscape,
consumers have greater demands around price, convenience, service
and experience. As part of our continued investment in the digital
shopping experience we have completed a full site user experience
redesign across mobile, tablet and desktop customer experiences.
The redesign brings together our amazing pet care proposition and
is easier for customers to find great information, advice and
recommendations, product solutions and services from our vets,
groomers, insurance and much more.
Our veterinary business 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. Whilst we continued to leverage these
competitive advantages during the past year to drive above market
customer sales growth across our estate, we also took important
action to recalibrate our veterinary business to create a more
sustainable cash return profile for our Group and for our Joint
Venture Partners.
The VIP (Very Important Pet) club, launched in November 2012,
has now attracted 4.4m active members at financial year-end. This
customer and pet database enables more targeted marketing, which
helps drive up basket values and enables us to build a stronger
sense of engagement with our customers and their pets.
Outlook
The increase in the number of pure play online competitors and
other retailers moving into services is not expected to have a
significant impact on our business. We have also seen an expansion
of the pet offer among discounters.
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.
By 2022, it is expected that 75% of the small animal veterinary
market in the UK will be corporately owned. We can benefit from our
strong strategic footing as the only corporate vet business in the
UK focusing on a shared ownership model, offering the opportunity
for our partners to own their own business.
Risk appetite: Medium
Change on prior year: Stable
Links to strategy: Bring the pet experience to life, Set our
people free to serve, 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 store proposition and portfolio to
maximise the potential from our retail estate to ensure that our
brand remains relevant, maintains its position as a UK pet market
leader and crucially, that our stores are still fulfilling our
customers' needs. Our approach is to build on the foundations of
the current Pets at Home store format, reviewing all aspects of the
store model, service provision and all customer touch points. As
our store proposition is much more than the standard supermarket or
pure online offering, securing those points of difference within
our store environment is vital, giving customers compelling and
tangible reasons to return whilst building long term brand loyalty.
An exciting milestone in the year was the launch of our new pet
care centre format at two existing stores where we have invested in
a truly experiential destination for customers, with an emphasis on
putting pet care centre stage with a more digital shopping
experience. This trial represents our response to the changing
needs and expectations of the modern customer, and we expect to
learn a lot as we monitor performance of these stores throughout
FY20, with a view to refining the design and rolling out to further
stores in the years ahead.
We 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.
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.
We have extended our subscription expertise into pet care plans,
offering combination packages of products, vet care and grooming.
In October 2018 we launched pet care plan recommendations, which
brings together all of our different subscription plans and allows
our colleagues to find the best pet care plan based on a pet's
individual needs. It also allows us to recommend and introduce
customers in our retail stores to the wide range of services
available from our vets and groomers. After nearly three successful
years of our VIP Subscribe & Save flea service we have
broadened the proposition with the addition of a new cat worming
proposition and great value bundles of flea and worm treatments.
Our "Easy Repeat" delivery service was launched in May 2018 to help
customers buy the products they need on a regular basis. This new
service enables customers to schedule deliveries for their selected
products at a special easy-repeat price.
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 FY19. In our First Opinion vet
business, we announced 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
capacity and to achieve national coverage of Specialist Referral
centres. We remain active in looking at locational opportunities in
this sector as well as completing extensive expansion programmes at
three out of four of our existing sites, the last of which will
come on stream in April 2020.
Outlook
We are confident in our plans to deliver 50% of sales from pet
care services in the long run, given both the shift we expect in
consumer spending toward services and the strong competitive
position of our Group to capture this opportunity with our
differentiated pet care offering and well-developed plans to
further develop our services offering over the coming years.
We will continue to optimise our store network with services,
developing our stores of tomorrow, whilst growing the estate in
priority locations, relocating or closing a small number of stores,
accommodated by lease breaks or expiry.
We will continue to monitor market developments and dynamically
adjust our plans as necessary.
Risk appetite: Medium
Change on prior year: Stable
Links to strategy: Bring the pet experience to life, Set our
people free to serve, Use data and VIP to better serve customers,
50% of sales from pet services
Our People
Description and impact
As a pet care business, attracting and retaining highly trained
and engaged colleagues is fundamental to delivering outstanding
clinical care and customer service. This is a key element of our
proposition and drives our continued success and the delivery of
our future growth. Our growth plans and future success are also at
risk if we cannot attract, recruit and retain high calibre,
talented leaders.
Mitigation
Our colleagues across the Group are the foundations on which we
have built our success. We recognise that their knowledge and
passion are at the heart of the relationships we build with our
customers and their pets. We ensure that we are attracting diverse
talent by staying ahead of future workforce trends, by offering
flexibility, career choices and relevant benefits to meet the needs
of our diverse pool of candidates. We continue to invest in our
progressive training and learning programmes across the Group to
develop and retain our talent, whilst building teams with the
capability and skills to meet the changing needs of our customers
and help deliver our strategic plan.
A key part of our people strategy is to continue to grow our own
capabilities through our exclusive Vet Group Learning Academy,
leadership development programmes and our apprenticeship offering.
Currently we offer various apprenticeships across the Group
including our vet nurse academy and grooming apprenticeships to
draw talent into these critical roles. We will continue to map more
training programmes to apprenticeships over the next year including
key leadership development programmes and believe this will not
only support our attraction strategy but drive retention of key
colleagues across the Group.
To mitigate the risk of clinical talent shortages we have
initiated our talent strategy which includes bursaries for vet
students, talent ambassadors in universities, increasing our
presence at vet schools, international attraction campaigns, and
lobbying the government. We have re-launched our veterinary
graduate programme to make sure we are early to market. The
programme is proving very successful having increased our intake
numbers by 175% in two years. This financial year we have recruited
110 graduates.
Our Remuneration Policy, as set out on pages 93 to 100 of the
Annual Report and Accounts, is designed to ensure executives of the
necessary calibre are attracted and retained and that through our
Restricted Share Plan, colleagues across the business can share in
our success. Similarly, we continually review the remuneration and
benefits packages for our colleagues to make sure they are
appropriately rewarded for the substantial contribution they make
to our growth and success. We continue to communicate these
benefits and the value they bring to colleagues to ensure they are
taking advantage of them.
Listening to our colleagues is critical to our business and last
year we launched our new listening survey in Retail which gave us
in-depth colleague engagement data and helps us continue to embed
our culture, values and behaviours, whilst providing benchmarking
data with other companies in our sector. This year, we will extend
the weCARE survey across the whole Group to obtain feedback from
all colleagues and partners to better assess our engagement levels
and to understand culturally how the business is feeling. In
addition "Pulse" surveys are conducted throughout the year on key
themes, such as colleague benefits, to gain a detailed view from
which plans are actioned.
We are very proud to partner with Mind and Vet Mind Matters as
part of the Group's wellbeing strategy.
An Audience with the Executive Management Team has been
introduced which is a twice yearly listening group hosted by senior
management and one of our Non-Executive Directors. The sessions are
attended by colleagues from all parts of the Group to ensure the
culture of our business is heard and understood by the Board.
Talent reviews and succession plans are in place for key roles
which are regularly reviewed by the Board and senior management.
This will be enhanced further this year by a refresh of our review
cycle with updated training and records to gain consistency across
the Group and also ensure all colleagues, regardless of role, are
having regular, quality reviews and career conversations.
We continue to review the impact of Brexit and any change to UK
immigration policy which may impact the availability, recruitment
and retention of colleagues across the Group. We have employed long
term strategies to mitigate the expected impact, including
operating flexible recruitment and retention initiatives across the
Group, launching international experienced and graduate recruitment
programmes for veterinary surgeons, whilst reviewing opportunities
in non-EU vet recruitment markets.
We are working closely with professional bodies including the
Royal College of Veterinary Surgeons and the British Veterinary
Association and support them in their calls on Government to
formally recognise the shortages of veterinary surgeons across all
disciplines. As the outline of EU citizens right of settlement
'indefinite leave to remain' is now known, we have initiated a
communication plan with our JVPs and all affected colleagues to
clarify an EU citizen's right of settlement.
Outlook
We need to ensure that the Group continues to be an attractive
place to work, meeting the changing needs of our workforce,
particularly if employment levels continue to increase nationally
and there is more competition in the job market.
Risk appetite: Medium
Change on prior year: Stable
Links to strategy: Bring the pet experience to life, Set our
people free to serve, Use data and VIP to better serve customers,
50% of sales from pet services
Business Systems and Information Security
Description and impact
The need to maintain core business systems and mitigate against
security risks whilst supporting our strategy remains paramount
again this year. In complying with GDPR, there comes a significant
increase in the level of scrutiny organisations are being placed
under regarding the management and use of personal data. With this
comes additional cost linked to the remediation of associated risks
(data, people and infrastructure). Our ability to balance these
challenging demands is key to ensuring that the business is able to
deliver our strategy, maintain target growth levels and be secure
from data security breach and legal challenge.
Mitigation
To deliver our data strategy and improve data governance, the
Group Executive Management Team has appointed a Chief Data Officer
and a Chief Information Officer, both roles are new to the Group.
We remain committed to delivering secure high performance systems
that underpin our strategic plan. We continue to move to managed
services and scalable, secure, cloud based solutions where they
support our strategy. The information security programme is now
well progressed with new automated security solutions, improved
processes and strengthened controls to manage our systems and data.
Projects are in place to further improve our disaster recovery
capability by moving to cloud based backups to enable a faster
recovery time. Last year we completed a full revision of the
information security policies for the Group. We continue awareness
campaigns to educate colleagues to the risks associated with data
and physical security.
Outlook
In order to deliver our vision to become the best pet care
business in the world we will be utilising cloud based data and
analytics platforms, new digital solutions and automation
technologies. Whilst delivering the strategy we will ensure that
data security is built in and compliance is maintained. The
information security programme and education of colleagues will
continue through the year as we work to reduce the risk
further.
Risk appetite: Low
Change on prior year: Down
Links to strategy: Bring the pet experience to life, Set our
people free to serve, Use data and VIP to better serve
customers
Supply Chain/Sourcing
Description and impact
During the financial year, approximately US$72m of the Group's
merchandise cost of goods 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 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.
The impact of Brexit on our domestic and overseas supply chains
still remains largely unknown but may be significant, particularly
in view of probable changes to the UK's trading terms with the EU
and the rest of the world. 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. A failure to manage this risk adequately
could lead to reputational damage, reflected in a lack of
confidence by customers and colleagues in the Group brands.
Mitigation
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.
Business continuity plans are in place for the Distribution
Centres which have been tested. 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 continue to monitor Brexit developments closely 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. We have also invested in our stock
protection by building a prudent stock position covering our top
cash sale product lines from UK and EU suppliers, in addition to
key suppliers confirming that they are also building their own
stock levels. To support this stock build we have secured access to
additional storage in a third party warehouse. The Vet Group has
also secured the provision of critical medicines by contractually
ring fencing stock with our suppliers and has built relationships
with manufacturers should we encounter any difficulties in our
supply chain.
Exposure to foreign currency movements is mitigated through our
hedging strategy; see the Treasury and finance risk.
Outlook
We continue to monitor Brexit developments and manage our
mitigation plan accordingly. We are also continuing 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.
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
Liquidity and Credit Risk
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. The Group's financing facilities were reviewed in
September 2018 and are in place until September 2023. 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 engaged in a project to buy out and
consolidate a number of Joint Venture veterinary practices, as part
of which, the Group will settle any liabilities for third party
bank loans and leases within these practices on behalf of the Joint
Venture Partner, with all such liabilities being fully provided
against. For the practices which the Group does not intend to offer
to buy out, the Group has established a provision to reflect the
assessment of extended 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
We will continue to monitor our finances and build relationships
with our finance providers. We do not anticipate any 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 appetite: Low
Change on prior year: Stable
Links to strategy: Bring the pet experience to life, 50% of
sales from pet services
Treasury and Financial Risk
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 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.
Further details can be found on page 160 of the Annual Report and
Accounts. 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
Ongoing currency movements between the US dollar and GBP may
result in further exchange risk, particularly in light of the
ongoing Brexit process. We will continue to monitor this and adjust
our approach to hedging where necessary.
Risk appetite: Low
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, modern slavery,
bribery, data protection, environment and the RCVS Code of
Professional Conduct for Veterinary Surgeons. 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). In response to GDPR the Group has
appointed a Data Protection Officer and has a steering committee
with executive sponsorship which monitors Group compliance with
legal requirements and supports the work of our Information
Security Steering Committee which monitors data security. The Group
supported the introduction of the Animal Welfare (Licensing of
Activities Involving Animals) (England) Regulations 2018 which was
implemented in October 2018. The licensing process across the Group
is ongoing and will continue for much of 2019 as the local
authorities require time to familiarise themselves with the new
regulations. DEFRA (the Department for Environment, Food and Rural
Affairs) is planning to review the regulations again in late 2019.
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
has continued to monitor the potential changes to law and
regulation which could be brought about by Brexit or any proposed
withdrawal agreement with the EU. Continued political uncertainty
has however made it difficult to assess the full impact on the
regulatory and compliance landscape.
Outlook
We continue to monitor legal and regulatory developments across
the UK and Europe and will plan accordingly.
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
Extreme Weather
Description and impact
Prolonged extreme or unseasonal weather conditions may reduce
footfall in our stores, First Opinion practices and specialist
hospitals, resulting in weak sales, leading to adverse impacts on
profit and inventory.
Mitigation
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
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 appetite: Medium
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
MSCBBLLFKQFLBBK
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June 11, 2019 02:01 ET (06:01 GMT)
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