Pets at Home Group Plc (PETS) Earnings Call Transcript & Summary

Good morning, everybody. Sorry for the slight delay. We had quite a late flurry of people wanting to join the call. I certainly hope that you're all safe and well. We're very sorry that we can't do our presentation in person today. Obviously, the crisis meaning that we're doing it remotely. But being pleased to say that Mike Iddon and I are here to answer your questions. We are, of course, socially distanced, in case you're worried about that. Hopefully, we'll have a chance to see our audio webcast and our full presentation is on our website. Before we open up for Q&A, I'd just like to give a very brief summary of our results for last year. So FY '20 was an outstanding year for Pets at Home, and we feel that the results speak for themselves. It demonstrates our Pet Care strategy is working, with revenue being above GBP 1 billion for the first time, with revenue being up 10% year-on-year. In retail, we experienced like-for-like growth of 9.4%, and vectors for revenue was up 13.5% and PBT growing as [ already ] said, was ahead of our revenue growth. We saw a strong growth in our subscriptions business with 155,000 subscriptions of 23%. And more importantly, we saw more new customers, and we saw growth in all channels and all categories. The timing of the crisis fell at the end of our financial year, which meant we entered the crisis in the strongest place we could have possibly been in. We've traded all the way through the crisis, and we focused our business on providing essential products and health care services and chose to temporarily pause our Grooming and our Live Pet business. And we've had to adjust our business to make it COVID-safe, which has meant that we've also taken a whole host of associated costs and making sure our business was safe for our colleagues and our customers and their pets. We've done the right thing by all our stakeholders. We thank our colleagues for their hard work with a GBP 1.9 million bonus, we initiated a GBP 1 million hardship fund to help the families of our colleagues. We donated GBP 1 million to pet charities. And we supported the NHS workers both with flexible shopping and 10% off their shopping. Impacts on our business are primarily driven by the restrictions placed on us are the ones that we've placed on ourselves in areas like grooming. We have a strong team, and we've executed our way through this strategy with enormous agility, having to implement new policies and procedures in hours, a thing that would normally would have taken us months to be able to do, and we did it at such a high standard. But we are as positive as ever about pet care. We are in an uncertain environment, but while pets have not been impacted through this crisis, humans have. And therefore, we need to adjust our business to adjust to the pet owners needs, but the needs of pets are still the same. They still need to be fed. They still need to be loved. The market is robust, GBP 6.5 billion worth of revenue, and indications are that pet ownership through the crisis has probably increased, not decreased. As more people stay at their home, the role of pets and the value they bring to their lives is probably now more important now more than it's ever been. So as a consequence, we'll be choosing to accelerate our pet care strategy, certainly focused on the areas of driving more digital capability, as we respond to a new normal once we return out of this crisis. So now, I'd like to open this up for questions. So thank you very much. I'll pass it back to Casey, and we'll take the first question.

[Operator Instructions] And we'll take our first question from Andrew Porteous with HSBC.

Thanks for all the extra color today. Really, really helpful in that respect. Obviously, a few questions given the sort of uncertainties we're seeing at the moment. The first of those was on online. Online is obviously growing very quickly, and you've sort of hit your plans very early in terms of the 20% sales participation. I'm just wondering about online capacity. Do you think there's sort of demand for more? Are you capacity constrained at the moment? And is there sort of anything you can do around that? Then on the pet ownership side. Yes, certainly something I'd sort of subscribed to now. But can you give us any sort of stats around maybe puppy cover-up registrations in recent weeks? Are you seeing a tick up in pet ownership there? It does feel like it's something that could come through. And then lastly, really around cash flow. Could you give us an idea on how you're thinking about CapEx? And any sort of cash impacts from the holiday, on sort of vet paying, vet loans and et cetera? Any impacts around that?

Okay, Andrew. Thanks very much. I'll take the first 2 on online and pet ownership. Last year, you remember that we invested GBP 6 million in our facility in Northampton to increase our capacity in online to drive more automation. And that gave us significant headroom, and that was fortuitous in terms of the demand we saw from customers. So that demand has doubled. We initially had to elongate delivery time to customers, but they've now all been pulled back in, so you can have an order placed today and delivered to store tomorrow. You have a delivery to home tomorrow or typically within 2 days. So that demand has been very robust. So we have enough capacity in our online changes, although we've probably chewed through that capacity a bit faster than we thought because that investment activity was designed to last for 3 years. And we will be going back to review our further capacity. But one of the ways we will think about it is we have 453 stores, and that gives us an enormous opportunity to use the capacity of those stores, too. And that's how we're thinking about knitting the 2 together allows us to use the investments we've already made, but also probably gives us a distinct advantage that our stores are significantly closer to people's homes, and therefore, solving that last 5 miles conundrum is probably the advantage to it. And just to give you a flavor, one of the things we launched through the crisis, we launched a brand-new service, which is you can call the store, place your order, pay for it, and within an hour, arrive to the store in your -- in the car park and never even getting out of the car, and we'll deliver it to your boot. And I think actually, that's only something you can do if you got online/offline capability. So that's something we're going to continue to focus our energies on. In terms of pet ownership, it's obviously only 8 weeks in. So it's very hard for us to give you any firm evidence. The things that I've been looking at, particularly sales of puppy and kitten food and accessories, and what I can tell you is the participation of our total business through the crisis has increased quite notably. So it's very early days. We're doing a lot of work looking at all the market stats. I suspect as more people are at home, having a pet now is probably easier for many people. And I think as we forecast the future where more people may well be working from home now. I sort of can't help thinking of the name of our company, Pets at Home, has probably never been more apt than it is right now. So we're very encouraged by the signs that we see, and we think that leads to long-term opportunity, which is why we're very much focused on accelerating some of our investments to make sure we can be there to service that demand. So I'll hand over to Mike to talk about cash flow.

Yes. Andrew, so your question on cash flow. I mean, we've always had a really strong focus on cash flow. And actually, the crisis has probably sharpened that focus even further. You asked the specific question around CapEx. And clearly, we set up this year with a ton on CapEx of around GBP 45 million. We're confident that GBP 45 million all gives good returns and will grow the business. But clearly, we want to manage that through in terms of total preserving cash and liquidity. So for the time being, we've ring-fenced GBP 15 million of that GBP 45 million, and we'll keep a watching brief on that. That GBP 15 million of ring-fenced will be more around the store redevelopment program. You'll have seen a couple of the refurbishments are already done. Depending on what -- how we get on and how quickly business -- the temporary restrictions we've got on the business are lifted, we'd like to spend the capital because we know it's going to grow our business, and that's our focus. But temporarily, we put a ring-fence around GBP 15 million. And then you asked a question around the repayment holiday in the vet practices. This will help our vet partners with their third-party bank debt. It's effectively a 6-month repayment holiday extension on the period in which they have to repay back their bank loans. And that will take quite a bit of cash. That will give quite a bit of cash benefit this year to individual partners.

We'll take our next question from Jonathan Pritchard with Peel Hunt.

Question from me. Three, if I may. Firstly, without blinding us with too much technical stuff, could you just tell us about data and the improved use of data and how that's helping? Secondly, looking at -- for the vets, how is that going to evolve? You talked about telemedicine, et cetera, but just how is being a vet is going to change over the next sort of 3 years? And just an update on the refits. I know you've got through that, probably some variation of '20 while they -- by the time the crisis hit.

Well, look, I'll take the question on data and on vets. As you're aware, we've been building our capability in terms of team, and we've been in-sourcing our data from our provider to ourselves, and that project will complete this year. The -- what actually -- with the benefit -- the main benefit we've had through this is giving those significantly improved visibility of customer behavior. So our data team and the data scientists we have brought on board have allowed us to look at our customer base in a very granular detail to understand their behavior, and then help us predict how they're going to respond. And I have to say it's been incredibly valuable as we look both through the customer lens and at a local store lens. And it's allowed us to make really informed decisions around which stores do we shrink opening hours, which stores do we extend opening hours and how we actually respond better to customer needs. So it's been invaluable, I have to say, to get to a level of detail that we've never been able to get to before. And I think the most important thing, we've been able to be unbelievably agile and hyper-local in our decision-making, and that is a capability which is really transforming our decision-making. On vets, you're absolutely right. The vast majority of the services that our vets need to deliver still today are through person-to-person in terms of the procedures. The thing that we've seen in our vet business is a massive acceleration for digital connectivity in the form of telemedicine. That -- I've got to say, without this crisis, I think it would have been very slow coming because in the main, it's driven by the RCVS guidelines, and that has transformed in the last 8 weeks. So we think telemedicine is here to stay, particularly as a way of connecting with vets for that initial consult. We don't think, in any way, it's going to take away from the procedural aspect of vets. And we really welcome this because I think it gives us an opportunity, with our reach and our connectivity with customers, to welcome more customers into our vet business. And this -- whilst on vets, because we have remained open throughout and with many of our competitors have been forced to close, because we have the benefit of being inside a store environment, we have seen good new client registrations throughout this entire period, which we're very positive about. I'll hand over to Mike to talk about refits.

Yes. Jonathan, we've done -- actually, we've done 16 store refits so far into the new pet care format, starting first with Stockport, then Chesterfield and rolled out a further 14 to make 60, so up to that. We're really pleased with the results. If you think what we're trying to achieve there, that we see our stores is a really important point of customer acquisition. So we're improving the experience of customers in those stores. There's a switch of space out of retail into more services. And we're seeing good feedback from customers. I think the contextual point is, in last year, we saw overall like-for-like in retail grow by 9.4%. Even if you take out the boost of sales we had in March, retail like-for-like was still 7.2%. These -- take out multi-channel, you'll see that stores are still in really strong growth, over 5% like-for-like growth. So we're opening those new formats. In our Retail business, it's growing really strongly. But we still see -- saw good numbers coming out of those new refits. Looking ahead, now we plan to do more this year, in FY '21. But that's part of that GBP 15 million I just said we'd ring-fenced. And clearly, as soon as we get -- as soon as we see some of the temporary restrictions lifted on some of our revenue streams, and then we can think about re-spending that capital, we'd do more this year.

And we'll take our next question from Simon Bowler with Numis.

Apologies, there's quite a lot of noise in the background, but I hope you can hear me okay. Three questions, if it would be okay. Firstly, you've spoken to an increase in vet customers. So revenue is obviously compromised by what services they can access. I was just wondering if you can talk kind of similarly around the retail side of the business. What are you seeing in terms of customer numbers? Do you think you're kind of winning or losing customers during this period? Second question then being, I appreciate recent weeks sort of seeing the reverse of some of the pent-up demand which may have made the read on this harder, but can you talk about what you're seeing in terms of revenue trends by category, particularly kind of between food and accessories on the retail side of the business? And then third and final question, you've, obviously, outlined some kind of incremental costs being incurred by a function of kind of social distancing through stores. Can you just perhaps share a little bit of color on the nature of those costs?

Sure. Well, thank you, Simon. You're very clear to hear. It's all very well. So I'll talk about customers and retail, and I'll ask Mike to talk about our cost position. You're absolutely right, we've seen our new client registrations continue to be good actually through this period of time. Bearing in mind that there's quite a long lag from seeing a new client registration, to actually seeing their full revenue flow over time. So typically, they show up in the form of when you have a puppy or kitten. We also have to contextualize that actually, with restrictions from the RCVS, means there has been -- we are restricting a number of customers actually physically into our practices. As they're easing their position, and that will continually change, we've seen vet revenues continue to build. So for us, the real indicator is looking at the strength of your client base, which looks strong and has been growing for us. So we feel relatively confident that as the restrictions lift from the RCVS that we should see a good return in our vet business, bearing in mind that the vast majority of times you go to vet, it can fall in 2 reasons: either preventative, which has been actively dialed down with the restrictions; or emergency, which of course, you've got to go regardless. So what we'd expect to see is more of a preventative elective work start to come back as those restrictions lift. Within retail, obviously, very, very early days. What I can tell you is in the pre-lockdown phase, we saw significant growth, particularly in the food and particularly within grocery food. And we have seen the market share for that 4-week period prior to lockdown. If I look at our market share of the grocery sector, so that's us competing with the likes of Sainsbury's and Tesco, which is a smaller part of our business, so much more dominated than advanced nutrition. We typically occupy #3 position in that market. In the 4 weeks prior to lockdown, we saw an acceleration of 300 basis points of market share to becoming #1 in the market, overtaking Tesco. That, for us, is really encouraging because we know that the grocers have been focused on feeding the nation. We're focused on feeding the nation's pets. And the bulk nature of our business, bigger pack sizes, I think has fitted well there. And it's very early days yet, but we would like to focus our energies on trying to retain those customers as we come out of the crisis. When we look at category, undoubtedly, in the early days, people will bother out filling cupboards with consumable items. So we saw a big uptick in areas like food, cat litter, sawdust, the things that you need every day, irrespective of this crisis. We saw a bit of a reversal of that. If we look through and as every day passes, we're seeing a more normal return of category performances between food and accessories. So we're quiet -- we're sort of quietly encouraged by what we've seen in customers, albeit it's very, very early days. But as I mentioned before, the one area that we have seen a significant shift in is in puppy and kitten categories. That has been very robust and stronger than we would have expected through this crisis. And I think that leads us to a good assumption that, that will probably continue coming out and is a good indicator of the future. So early days, but pleasantly encouraged by the strength in our merchandise business. Mike, do you want to just add?

Yes, just -- so to your question, Simon, on costs. So Peter has initially described about a GBP 5 million of one-off costs we incurred in the first few weeks of tapping the COVID crisis. So we're also incurring, in addition to that, ongoing operational costs relating to us implementing social distancing or adhering to the social distancing rules in our stores. And primarily, those costs related to us safeguarding our colleagues and protecting customers. But they -- in terms of contextually, amount to 1 extra colleague per store per week. But you can imagine, with -- which is extra 40 hours per store per week. You can imagine, with 450 stores, you quickly start -- that's quite a significant extra weekly incremental cost. In our planning scenario, we're assuming that social distancing will be here all year. So in our planning scenario, those additional costs we're planning for the full year. But obviously, as soon as there's any changes in social distancing, those costs would fall away.

We'll take our next question from Greg Lawless with Shore Capital.

And just following up with Simon's question about the additional operating costs. Are there any opportunities to kind of mitigate those through any kind of cost savings opportunity, please?

Yes. Thanks, Greg. Yes. Of course, we're still continuing with the program we've always had to make the business more efficient, more effective. So areas around simplification, automation and processes, removing needless tasks that doesn't touch the customer and getting our supply chain more efficient. That is continuing in the background, as it always has done. And you'll know that cumulatively, we've achieved some big savings in that area. It's enabled us to increase sales per hour in terms of stores and improve efficiency in the business. But we're not planning a big cut in the overheads of the business because we see the restrictions placed upon us is quite temporary. We think holding that cost base in place, when soon as those revenues return, we'll be getting back on to profit growth. And we want to emerge out of this stronger than when we came in, and we see FY '22 as a year when we want to get back on it. So what we don't want to do are take short-term cost savings out of the business that then make it more difficult for us to grow back into FY '22. But the efficiency program we've all had is continuing in the background.

And our next question comes from Owen Shirley with Berenberg.

Just 3 questions, if that's okay. The first was on the First Opinion vets. You mentioned the type of work they've lost, a lot of it is preventative, things like vaccines. I just wondered if you could quantify of the revenues that you've sort of forgone in recent weeks. What proportion do you think you can recoup in the future, i.e., they're not lost forever? Secondly, on the vet, you also touched on the take-up of telemedicine. Wondered if you could perhaps give us a better idea on the percentage of kind of revenues that might become for vets. And also how economics might differ for JVPs, if at all, under that model? And then thirdly, also on the kind of telemedicine point, where you mentioned you think you can take advantage of that shift online. Just wondered, exactly how have your vets been participating at the moment. And where do you see yourselves kind of coming into that value chain, if you like?

Sure. Look, I'll try and put those -- you can probably group some of those bits together. So you're absolutely right. In the first instance, the guidelines on the RCVS was to focus on emergency treatment only, which is what happened, and that started to relax. That resulted in things like vaccinations and second stage vaccinations, repeat vaccinations, being extended out by up to 2 months by the RCVS. We're now able to start to redo those. And we would expect all of those to come back in time because you have to provide vaccinations every year to your pet to keep them safe. So we would expect, in time, there's no reason why they wouldn't come back to normality. Clearly, the emergency part of the workload, we expect to come as and when that happens. And as surgery starts to reopen and you start to consult more, what actually happens is you identify more underlying problems as a consequence of consulting. So we have no reason to believe why that wouldn't change at all. And we purely put it down to the restrictions placed upon us will restrict our ability. As those restrictions ease, we fully expect that to come back to sense of normality. Telemedicine is a really interesting one because in the first instance, we have used telemedicine as a way of replacing the initial consult with clients. So the consumer still pays the same level of consult fee online for the telemedicine as they would be going into a practice. And it's been a very efficient way for our practices to be able to connect with their clients, especially for more of the inquisitive work. So we expect -- it has no -- it's a revenue mitigation in some respects. So the fact that we've been able to do it online means actually we've been able to keep revenue flowing through each practices. And the fact to that we are open probably means we've probably been in a better position than many of the corporate-sized vets who have had to close practices down. So I think what it does shift is it shifts in, I think, in both the vets mind and the consumers' mind that you can connect with your vet in more than the physicality. And we -- the reason why we see this as a big advantage is we have 5.6 million active VIPs who are predominantly retail shoppers, and it's really making us think about how we connect our big customer base with our vet business in a differentiated way. And so we now have telemedicine capability in all of our vets, whether that be telephone or indeed, video. And that's something that we think will be part of everyday behaviors moving forward. And leveraging our broader customer base and introducing us to the reasons why our vets are not only more modern, more accessible in terms of open more hours and now telemedicine on top, we think gives us a distinct advantage. And we plan to move very fast in our ability to move on that as we move through this crisis.

Could I ask just one follow-up on telemedicine? Are you able to give us any sense of participation into whether it be percentage of revenues in recent weeks or number of consults?

It's far too early. But it's something we are -- we know it's being -- we can see it by the adoption of our partners, that it's been a very useful tool. So it's something we're going to watch very carefully. But we don't think -- this is not going to replace first consults. I think we're very clear about that. It's going to be a really helpful -- additional, helpful tool, particularly at encouraging more people connect with their vet maybe before they come into the practice. I anticipate moving forward, actually, what this becomes is a really important acquisition tool that they connect with the vet and first -- have a first chat, and then actually, the vet encourages them to come into practice for a more detailed consultation. I think that's how it's going to play out in the future.

We'll take our next question from Matthew Garland with Citi.

My first one was just, obviously, looking slightly further beyond the crisis and, obviously, I know that you've talked about increased online penetration, things like that. How are you kind of see the growth rates of the overall market changing? So I know historically, you kind of talked around 3% to 4% for the Retail business and around 5% for the vets. So I was wondering if in your kind of longer-term thinking, whether that had changed. In addition to that, obviously, with a greater proportion of sales maybe going online, can you give us an indication of how you see longer-term gross margins trending? And then just in terms of my final question, I assume that you've seen probably a greater shift towards maybe home delivery over Click & Collect in store. Can you give us some indication? I assume that, obviously, the gross margin difference is probably more towards the mix -- more to do with the mix, but in terms of the, I suppose, relative difference in operating cost, can you give us some indication as to how the difference in profitability between those 2 channels?

Okay. Look, I'll talk about overall online penetration, actually, our view on the growth of the market, and I'll ask Mike to talk about the channel shift and what that means for us. I guess there is a very stark balance all the way through this. This crisis has had a catastrophic effect on humans. This completely bypassed the pet population, and this hasn't changed the needs of those pets at all. What has changed is the way that us humans need to be able to buy and secure the services to look after those pets. And we're feeling very encouraged about the pet population moving forward, that we think it's really robust. And if anything, if -- I think it's looking very positive, actually, in terms of that market. So the -- all the essences of what made that market stronger, I don't think it changed. Premiumization, I think, is still going to be -- it's going to be the order of the day as people are really bothered about their pets, and they want to take care and look after them. And interesting enough, we did a consumer survey only last week. We asked 1,000 pet owners about their likelihood of changing their spend profiles, and 88% of pet owners said they would cut back on other things before they cut back on pet care spend. So I think that tells you an awful lot about the role that pet plays in the family. And I think it's going to play an even more important role. So I think our focus, therefore, needs to be on how we serve the pet owner. And I think the days of us thinking about it being an online or an offline play, actually, is just really quite outdated. What we see is that the customer will choose how and where they order and how and where they collect. And our job is to join all along, to be able to meet their needs in the speed and the cost that they want. So for us -- and I can come back to that, that earlier sales we've created which is pull and collect. It's a new service. But increasingly, we've got to join up the whole of the business to satisfy that order as fast and as cheap as we can. In some cases, that will be doing it from a store and solving the last-mile logistics rather than picking in a distribution center and then putting in with a courier. And that's the way that we're thinking about it, receive the order, deliver the order how the customer wants and knit of the background make it really efficient, really cost effective and really fast. And I think that gives us enormous capability that others just don't have. Because if you've got a single DC in the U.K., which many do, you're a couple of days away from the customer. And in many cases, we can be minutes away from the customer or hours, not days, and that's how we're going to play it through. So Mike, do you want to talk about...

Yes. So how that sort of plays through in terms of the numbers? I think Peter's point is spot-on, that you can't look at just online store-based sales and try to attribute costs. Because customers shop, as Peter is just saying, right across the business, some days they'll shop online, some days will come into store. But a couple of things we had already put in place enable us to manage those sales quite efficiently. So we've already automated or put significant investment in the automation in our Northampton DC. We've spent GBP 5 million over the last 2 years. And that's enabled us to be more efficient in fulfillment, not just in terms of total capacity, where we've actually seen a 2 years future growth happen in 1 month, but actually, the efficiency per order. Unsurprisingly, we've also seen the average order value increase because customers are ordering from home and increasing their numbers of items per order. And obviously, that improves our profitability as they do so. And the other feature, obviously, we've seen is that with customer movements restricted and the stay-at-home message, we are doing more delivered to home. So you may remember that the splits of our online sales is broadly 60% was Click & Collect and picked up in-store, 40% delivered to home. That's pretty much switched around, and you can probably understand why. You got to remember, the reasons why people came to store to collect was it's convenient. They can pick up when they choose. We've got a great store network, 450-plus stores, well positioned or with free car parking. So we probably would see that return to Click & Collect in-store once the restrictions on customer movements are changed. And of course, traffic in the store gives us the opportunity to add on incremental sales onto their purchases. The other point in online, which nobody has touched on yet, is that actually, on subscriptions, which are also part of our online business, increased 23% year-on-year. And this is a really important financial dynamic, of course, because what we're effectively doing is creating a future annuity of the customer subscriptions. Anyhow, we've got 865,000 subscriptions now, and those continue to grow. And that will be a big focus for us as we go into the new financial year.

Great. I just had one quick follow-up, if that was all right. In terms of the -- obviously, I know that you've talked quite a lot around the data capabilities and things like that. Do you have any, I suppose, firm milestones that you're looking towards, where we might start to see a significant increase in terms of sales or profitability metrics that we can kind of look towards?

Yes, it's a great question, actually. So Matthew, our first priority was to build the team. So we brought a 35-strong team of analysts, scientists. There have been quite a ramp-up phase. They're on there, recruited and on board. That has enabled us to start to in-source all the data back into the organization. We expect that to be done at the end of the summer, and we're on progress to do that, but then gives us a single view of our customers across the entire operation, which is the most important thing that we needed to establish. And the way that this will start to materialize is as we start to do marketing to our customers, it allows us to get into a micro level of detail based upon the behavior of shoppers previously, making predictions around their behavior and then, therefore, being able to activate them. And as we come out the summer and we take control of that, we expect to start -- to really start to see the ability for us to target those customers really well. Where I'd expect to see that materialize, in seeing more of our customers sign up to things like subscriptions is a big focus area for us, seeing more of our customers in puppy and kitten, engage in more parts of the pet care ecosystem that we're building. Another big thing we'd be looking at is the indicators because we know the best way for us to shift customers into the broader ecosystem is at the point of acquisition. And this is where data really helps us, to introduce those services at the right time in the life cycle of our pet. So those would be the areas that I'd be looking at, and I expect as we move through the year and obviously get back to a sense of normality, there will be the indicators, I will say, whether our investment into data is delivering the fruits that we expected.

[Operator Instructions] We'll take our next question from Adam Tomlinson with Liberum.

Most of my questions have actually been covered now, but I just had one in terms of the vets practices. And you've given the comments in the statement around the improvement in the operating metrics, the 3 key ones you look at in terms of the number of loss-making practices, the cumulative EBIT and then the total indebtedness there. So I was wondering if you could -- just from our point of view, looking externally into the business, if you could provide some color around those, are there any numbers you can give to help sort of quantify that and help us assess those points. And then, I appreciate you're not giving guidance for the year ahead. But just any commentary you've got around -- to sort of manage expectations around those metrics in terms of the vet practices as well would be very helpful.

Yes. Okay. Thanks, Adam. I'll take that one up. So you're quite right to point out that we've got a clear focus on improving some of the key underlying metrics of our vet practices. I mean, remember that [ Project Lights ] which was around again getting a stronger portfolio and a big focus on cash, we've now completely implemented successfully. All the adjustments that we need to make are now in place, and the practices have responded really positively. So we highlight that the customer revenue growth, which probably is the most important financial measure in the year has grown by over 13% growth in customer revenues. At the same time, we put in place steps to improve the pricing, the way the gross margins work in those practices. So gross margins steps up and then becoming more cost efficient. So the operating margins of the practices at practice level have also improved. So EBIT has really stepped on at practice level, combination of 13% growth, practices going up that maturity curve being run more efficiently. So total revenues out of our JV practices we highlight in the RNS, GBP 329 million. That's a 13% up year-on-year. But the numbers of practices that've gone from being -- remember, we expect practices to be loss-making in the first 4 years. But the numbers of practices, the switch loss-making to profit-making is plus 100 year-on-year, 100 more profitable practices. And even the practices that are 10 years and older, within that 13%, 13.5% overall growth, they still break their revenues by more than 7%. So we've got growth right across all cohorts underlying with regards to improvement in profitability. And the indebtedness of those practices has also improved year-on-year, i.e., it's lower. And as we look forward, we'd expect pretty much up to the temporary restrictions of it, customer revenues to continue at that level and practices to continue to [ go up ] the maturity curves and for them to be repaying their operating loans, which is always in our plan. And the focus on the cash performance was always what we wanted out of Project Lights.

We'll take our next question from Simon Bowler with Numis.

Yes. Sorry, just 2 quick follow-ups. First one, can you just comment on the kind of current pricing environment? Have you seen, I guess, in particular, any of your kind of online pure-play competition kind of step up their aggression in any way during this period? And then kind of secondly, if you can just talk about kind of the attachment rates of accessories to online orders. I know you won't necessarily give a number on that, but how have you seen that trending? Have you got any kind of plans in that area?

Okay. Simon, I'll deal with both those. The current pricing environment, actually, I would just say is unchanged. So we haven't seen anybody increase their aggressiveness. I suspect some of the underlying guys have probably faced increased costs, too. So I will say if the environment is as it was, our pricing position has marginally improved actually through that period of time. And in terms of attachment rates, our basket spend online is slightly up. And I think that probably more reflects people still continuing to buy bigger amounts of things, i.e., bigger packs. So we've seen a general up-trade where people may have bought, let's say, a 10-kilo pack a food, they bought 15. So we haven't seen any change in our attachment rates in our online transactions, apart from basket sizes getting slightly bigger.

And we'll take our final question from Andrew Porteous with HSBC.

Guys, a couple of follow-ups from me as well, sort of along similar lines, really. Just thinking about some of the trends you've highlighted as people shift online, more grocery, more food. How are you thinking about the ways that you help customers build baskets? I mean, are you thinking about people getting -- people to trade up from grocery into advanced nutrition and, as I say, sort of build baskets in other areas? And then sort of linked to that, really, can you give us a bit more color on the subscriptions business? Are you developing new lines there? Is it an expansion of the offer or simply growth within the sort of existing sort of Flea & Worms business?

Yes. Okay. Two great questions, actually, Andrew. I think I've got to say, I absolutely welcome with open arms of all our grocery shoppers. So whilst the margin is not the most exciting in the world, it gives us the most amazing opportunity to move what we call it through our food ladder, which is trading people up to the next best choice. So that, for us, is probably in one of the best forms of customer acquisition we could ever welcome, albeit it gives you a bit of short-term pain. And any growth in food, as far as I'm concerned, is always amazing because it's the one repetitive part of people's repertoire and it gives you the best opportunity to build baskets thereafter, so of course, absolutely. And it's one of the areas that we do use our data team to identify and then really start to talk to them about making better choices on nutrition, not a lot more money. So I'm really excited about that opportunity as that builds. On subscriptions, what is quite interesting, we'd already planned to significantly improve our customer experience online, particularly on fleet subscriptions. You remember last year, we talked an awful lot about how 95% of all the subscriptions we sold, we sold through store. We've actually built a brand-new journey, and actually, it launched just as the crisis landed. And what I can tell you is, whilst -- for a period of time we stopped doing subscriptions in-store because of the person-to-person contact, but our online journey actually replicated the volume that we were doing in-store, which we were really pleased about. We just started switching subscriptions back on in-store, and we'll do that in a very slow and gradual way because we've had to redefine the process in-store to maintain social distancing. So as Mike said, it's one of those areas that we are really focused in on. I'm very excited about the new journey online. It worked really well and made a significant shift in volume. And as we switch that back on in-store, for me, subscription is one of those areas, we understand it, there is an enormous opportunity, particularly around flea. So whilst -- I mean, there's a great temptation to want to go and develop new products, which we will, by the way, and we are. There are 18 million cats and dogs in the country, which means there are 18 million subscription opportunities amongst, and I'm really excited about just going after something that works really well in building it as well as, in time, building new propositions. So watch this space on this one. That's one of the areas that we will be very aggressive on coming out.

I'll now turn it back to today's speakers for closing remarks.

Thank you, everybody. I really appreciate your time for today, some really great questions there. Most importantly, I hope you're all safe and well, and we look forward to seeing you in person very soon. Thanks very much.

Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect your phone lines.