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

Pets at Home full year 2021 results. I will now hand you over to Peter Pritchard, CEO, to begin. Please go ahead, sir.

Thanks, Tracy. Good morning, everybody. I hope you're safe and well, and thank you for joining our financial year 2021 results. I'm Peter Pritchard, the Group CEO; and with me today is Mike Iddon, our Group CFO. This last year has been one of the most challenging environments in living memory. COVID has been disruptive, destructive and has brought lasting change to our everyday lives, not at least on how we live and how we work. But whenever a change impacts our lives, it normally spills over into pets, too. We've always known that the U.K. is a nation of pet lovers. And in this last year, many more people have become pet owners. As such, our market has fundamentally changed, not just during COVID, but for many years to come. Any increase in pet population leads to an increase in our addressable market for the duration of a pet's life. Our results for 2021 reflect the initial impact of this growth in pet ownership as well as the benefits of our unique omnichannel pet care model. We've increased our share across all key segments in which we operate, resulting in growth which is well ahead of the underlying market. The headlines of this growth are: our total group revenue increased by 7.9% with group like-for-like growth of 8.7% or 17% on a 2-year like-for-like basis. This reflects an acceleration in our momentum across all channels as the year progressed, with our group like-for-like revenue increasing by 12.4% in the second half. Our retail business delivered like-for-like revenue growth of 8.8% and saw revenue exceed GBP 1 billion for the first time, notwithstanding COVID impacts, including our grooming business which experienced a 29% decline in revenues. Our growth is fueled by new customers with retail revenue growth of 17.3% on a 2-year like-for-like basis. Our Vet Group full year like-for-like growth was 7.9%, notwithstanding the impact of restrictions on vet procedures, especially in the first quarter. But the second half growth was an impressive 17.2% like-for-like. We delivered PBT of GBP 87.5 million, exceeding market expectations, and we built strong momentum in our sales growth during the year. We delivered these results without taking any government support and voluntary repaying GBP 29 million of business rates relief. Over the last year, we've gained a significant number of new customers, and we've grown our market share from 20% to 23%. We've benefited from a step change in the growth of the market, with overall pet numbers increasing by about 8%. And our unique pet care ecosystem means we're very well placed to benefit from this in coming years. As we exit this year with our strongest-ever balance sheet, it gives us both the confidence and the capacity to set up our investment across our strategic growth areas. I am so proud of these results. We achieved them whilst treating all stakeholders respectfully and fairly through the crisis. And I want to say a huge thank you and pay tribute to our amazing colleagues and partners across the group who worked tirelessly to provide essential pet care through this crisis often in adverse circumstances. This performance demonstrates that our pet care strategy is working, and we aspire to be the best pet care business in the world by meeting all pet owners' needs. And we are really excited by the opportunity ahead. So there's 4 key messages I would take from today's announcement. First, the pet care market has grown. It's been driven by the growth in pets and pet owners. The market was strong pre-COVID, and we now believe market growth will accelerate to around about 4.5% CAGR for the foreseeable. Second, we have a plan that will drive a further GBP 600 million of customer revenues over the medium term, continuing to grow our share of the growing pet care market. Third, we are cementing our position as the U.K.'s leading omnichannel pet care business, executing our transformational plan. We're investing and transforming our shops into pet care centers. We're investing GBP 20 million into project Polestar, our 18-month plan to create our pet care digital platform. And as previously announced, we'll also deliver our brand-new, state-of-the-art, single distribution center in 2023. This will increase our capacity, speed and efficiency to serve our growing business. And finally, we will continue to leverage our data capabilities as we build our pet care subscription volumes and continue to personalize our customer experience. We've made really good progress in building our pet care ecosystem, and the plans we are laying out are exciting. We believe the best of pets is yet to come. Thanks for listening. I'll now hand you back to Tracy for your questions.

[Operator Instructions] We will now take our first question from Jonathan Pritchard from Peel Hunt.

Well done. Great year. Great set of numbers. Two for me. First, how robust a discussion did you have about a special dividend? I understand that CapEx is rising the need to tap into all that growth. But you've got cash on the balance sheet. As I said, how robust was the discussion? And if you did come in, let's say, at the top of the range, would that discussion become pretty pressing, with the cash on the balance sheet be pretty pressing to give back to investors? That's the first one. And secondly, just in a couple of charts with you guys. You've talked about a propositions team sort of building to help memberships. Obviously, that's going well and proactively made in lapsed customers. Can you just give us a few bits of anecdotal evidence of that working?

Yes, sure. Look, I'll deal the second question first, Jonathan, and I'll hand over to Mike to talk about dividend. So the propositions team is a 15 strong team of people that we've recruited in the last year, and their primary focus is to work right across the business. And they're building out our pet care plans proposition, so things like flea and worm, health care plans. Their first project is already launched, and that was our health plan -- junior health plan for puppies and kittens, which incorporates our telehealth service for the first time. So if you remember, we bought The Vet Connection. That's now bundled into that plan. And they're going to continue to build out those propositions. In terms of the work we've been doing around data, there's a -- we pointed to, in our half year, the work we've been doing around personalizing vouchers and incentives for customers. That continues, and we continue to see really strong performance. But one of the areas I'd point to most recently, we've done a piece of work focusing on lapsed customers and bringing them back into Pets at Home. And you'll see in the deck, we're really pleased with that piece of work. What we saw we were able to do is bring customers back. And those who shop the first time, we've seen 50% of them come back for the second time. So we continue to build on that piece of work and that will become and always on piece of work. And there's loads more examples throughout the organization, particularly around the work we're doing in puppy and kitten, as we're helping people navigate their way through the first 12 or 18 months by having the right triggers at the right time based upon their pet and their breed. That continues. So the -- it's still relatively early days for us actually as a team, but we're really pleased with these results. And given the fact that we've seen growth in the number of customers, we're encouraged. And there's a great slide actually, I forgot the slide number now, which I think for the first time we lay out the cohort of customers. And you'll see the work we did last year on puppy and kitten and how that cohort is spending 15% more year-on-year than our previous cohorts. And that, I think, that really started to lay down some of the results we're seeing from having that dedicated team of both the propositions team, which is very customer-focused; and our data team, which support the insight. Mike, do you want to take the question on special?

Yes. Thanks, Jonathan. So yes, today, we're doing 2 things, actually. We are announcing an increase in our ordinary dividend of 10% for the year, and we're also reconfirming our -- refreshing our capital allocation policy and reconfirming our commitment to an ordinary dividend of 50% -- at least 50% of earnings ongoing. But when we talk to shareholders about our capital allocation, the one thing that's clear from them is our #1 priority has to be to invest in the business, to take advantage of the opportunity we've got ahead of us. So we know the market we're in now is in a structural growth, and as Peter has just been pointing out, that's actually stepped on. So putting money into the market to grow our business is our #1 priority. That doesn't rule out specials, nor does it rule out buybacks. But in the short term, at least, we're going to get after the market opportunity as #1 priority. But we are going to commit to paying 50% of earnings out as an ordinary dividend.

We will now take our next question from Andrew Porteous from HSBC.

Congrats on a great set of results. Three from me, if I may. You've talked a lot about digitization in the update this morning, and I know you've got some big plans there. Can you just talk about which areas of the customer proposition you think you do well at the moment? But also, where are the -- what are the big changes we're going to see from that customer perspective? Where can you really sort of improve and move the dial on that one? I think secondly, you've made -- I think you talked a little bit about it already, but you made the big investments in data a couple of years ago now. Are we starting to see the benefits of those coming through? And again, is there a long way to go on that? And sort of what are the early thoughts there? And then really, a last one for me in terms of the overall -- you've talked about the GBP 600 million incremental sales opportunity. Just thinking about how we should think about that. I mean, medium term, it looks like you're basically talking about 5%-plus revenue growth. How does that flow down into sort of profit growth and then into cash flow? Can you just sort of help us a bit piecing that one together?

Great. Thanks, Andrew. Great questions. So let me -- I'll take the first 2, and then I'll ask Mike to talk to the GBP 600 million. So on digitization, you're aware, over the last couple of years, we've made some good inroads, and we've been joining the proposition. We've been joining the offer together well. So we recognize that what we've been doing is doing that within the channel. So within retail, for example, we've launched a whole series in services like Click and Collect, the ability to have it ordered anywhere, delivered anywhere. But the businesses effectively have been separate silos. Our vet business is quite independent of our retail business. The big announcement really in project Polestar is to truly bring all together for the customer. So they don't have to go to different websites. They don't have to go to different platforms. They'll have one single sign-on, where everything they want to do for their pet is in the palm of their hand. That is a massive piece of work for us because effectively, we have to rebuild our back-end systems for them. And that's why we've announced this investment called project Polestar of GBP 20 million, also includes 100 people who are going to be building it because we're building it both with best-in-class software that's out there, plus also building the own -- our own front end. And what it means for a customer is, if I go on, I've got a cat called Oscar, everything I need to do for Oscar will be in the palm of my hand. So I can shop. I can manage my subscriptions. I can see his vet records. I can see everything relating to Oscar. I can arrange an appointment. I can -- I'll be able to speak to a vet at 3:00 in the morning, if I need to, through telehealth, everything. So this is really unique, and we think it's the first of its kind in terms of truly building the front end around the need of that customer for our business and making navigating the whole of the business really easy. And we know our big strategy really is about driving revenue across the whole of our ecosystem. And the best way to do that is break down all the barriers and make it really easy for customers. So that's the big investment we're making. And you're going to see improvements over the next 18 months. This is not a big bang. This is a series of improvements that lead to a final product, which actually is a complete refresh of what we've got, but we'll be landing lots of things throughout this year. If we move on to the second point, you're absolutely right, in data, we invested over 2 years ago. We've -- there's a lot of heavy lifting we have to do. We have to recruit 45 people. We have to go all our back-end systems, a single data lake, that's all in and all in play. And the great thing, a lot of the benefits we're starting to see flow. It's because it's now in part of our everyday business. So our personalization increasingly is getting more and more personalized. Clearly, you can't do a great digital front end unless you've got a great digital back end. So that's going to feed project Polestar to make the front end of our experience really personal. It's feeding all the work in subscriptions. So that's allowing us to target customers who we believe are the right customers based on profiles of customers who currently have subscriptions [ to introduce the 2 ], and that's fueling our subscription revenue. And you'll see in our announcement, our subscription customer revenues are now at GBP 19 million and up to growth and now over 1 million subscribers. And it will fuel our new plans that we start to build. And so for example, our junior health care plan, we've obviously seen a significant step-up in our puppy and kitten registrations. Being able to introduce that through recognizing them through our data program really helps drive those programs. But I still have to say, I'm really proud of the work we've got. So I think the benefits are ahead of us. And as we look at our GBP 600 million opportunity that we lay out, which I'll hand over to Mike to talk about in a second, one of the big components of that is increasingly growing our share of our customers' wallet through digitization of our experience and through connecting the whole of the experience together. And data really is the bedrock that you build from. So Mike, do you want to talk about the GBP 600 million?

Yes. Thanks, Andrew. So your question is, of the GBP 600 million opportunity, how do we see that coming through into profits and cash? Well, first of all, I think the GBP 600 million opportunity is customer revenues. We see that coming through actually both our vet business and our retail business. Turning first thinking about our vet business. If you think of the progress we made over the last year, the vet business gave us cash GBP 38 million. And actually, even in a year with disruption in the first quarter, we grew profits out of our vet business in the year just gone. Profits grew by GBP 5 million to GBP 36 million. So we know we get really good flow-through of profitability in our vet business. And actually, we still got the benefit of maturity still to come. 20% of our practices still less than 4 years old. And we know our practice doesn't really mature until it's 9 years and older. And even then, we're getting growth of 6%, 6.5%. So our vet business will transfer sales growth into profit growth really very well. We'll see margins expand there. And the goal of getting to GBP 60 million of cash, which we always said is the -- our maturity, is looking closer and closer, having done GBP 38 million in the year just gone. We are going into the new year with really good momentum in our sales. And if you think of the GBP 600 million, we are updating our guidance today. We're putting new guidance into the market to say our profits for the year ahead will be GBP 120 million to GBP 130 million. So we're not -- nobody is going to have to wait long to see how that converts into profit compared to the GBP 87.5 million in the year just gone. When you get a chance, we put a chart in the deck today on Page 10 that just gives a bit more detail of how that GBP 600 million will come through. And you'll see it's going to come through retail and our vet business. And in our retail business, a big source of that growth will obviously be the subscriptions that Peter has just been talking about. We know they help create the lifetime value for customers. So we've got confidence that, that GBP 600 million will be strongly accretive on both cash and strongly accretive in terms of profit growth.

We will now take our next question from Adam Tomlinson from Liberum.

A lot of my questions have actually been answered. But just a couple, if I can, just on a few points of detail. Just on the CapEx spend of GBP 70 million this year, and I know that new project of GBP 20 million is coming in, but can you maybe just give a little bit more breakdown of where the balance of the -- GBP 50 million or so balance of that CapEx is going? And then just a second question on subscriptions. And I haven't had a chance to look at the slide you just mentioned, so it might be in there. But just obviously, subscriptions is growing from a very strong base, still, I guess, under 10% of revenue. So just wondering, sort of medium term, where you think that could potentially get to, given all the initiatives there in terms of percentage of total sales or just how much it could improve by.

Yes. Adam, I'll deal the question on subscriptions first. When you get a chance, there's a couple of really helpful slides, I think, 20 and 21. One shows the proportion of licensed medicine revenue on subscription today, and the other shows the proportion of our food sales online that are on a revenue subscription, which paints part of the picture, which actually really good progress. But I think Slide 21 really points out the big opportunity, which is there are 18 million -- actually more now, probably nearly 20 million cats and dogs in the U.K. And we've got hundreds of thousands of plans on flea. So I think our opportunity there is still very, very, very much ahead of us. And we've got 1/3 of our clients in our vet business on a health plan, and again, so there's more opportunity ahead than there is behind. So for us, we are still -- I think we have to always remind ourselves, we're still relatively in early days. We're 2, 3 years into our subscriptions journey, and obviously, 1 million customers and clients and GBP 90 million of revenue, good progress. But in order to really make that step change, we always recognize 2 things have to happen. One was the work we've done around data and actually understanding our customers and mining those opportunities. And connecting the business together, hence, the propositions team to create things which are really compelling for people to want to invest in. And I think as we look forward, we recognize that subscriptions, to become really compelling for customers, have to be more than just a product because I think we need to be able to offer customers benefits that you just couldn't get elsewhere. So whilst we just sell today -- sell a flea product, I think once we start bundle in services, for example, access to a vet 24 hours a day, we make the proposition even more compelling for people to want to be part of. So it's still relatively early days as far as I'm concerned, but I think you can see from those 2 slides, the runway ahead is still very considerable. Mike, do you want to talk to the CapEx?

Yes. So yes, we are picking up on the CapEx. It's going to pick up to GBP 70 million. But that's for us to get after the opportunities we see in the market, now the GBP 600 million and the structural growth that's now in the even stronger structural growth for the medium term, at least, in the pet care market. That GBP 70 million will broadly be deployed in 3 areas. The first is we'll build out the DC we announced last summer, and that DC will open in the summer of 2023. So the next 18 months, we're going to be investing to build out that DC. The second sort of use of that capital will be project Polestar, the digitization of the business. Peter has just been talking to that. We're announcing that today. And the third use of that capital will be to step back on our store regeneration program, which over the last 12 months, for understandable reasons, we've paused. But we've got a plan to touch about 30 stores in the year ahead as part of our store regeneration program. And I guess the fourth use would just be the normal ongoing maintenance capital we need to keep the business in good shape. So those 4 elements add up to the GBP 70 million.

Okay. And just while I'm on, one follow-up if that's okay. You've always given that very helpful chart of -- that shows customer cohorts, the -- on the left-hand side, those that only shop in stores. And then moving to the right-hand side, those that shop in stores, online and across all your products and services. Are you able to just -- I think historically, you said about 17% of your VIPs sit in that right-hand column, shopping across stores, online and all the other services. Are you able to give an update on where that number is now?

Yes. There's a helpful slide, Slide 17. And what we're seeing, you can see the growth in the channels. And about 26% of our VIPs now use stores and at least one other channel, and that's an increase of 10% year-on-year. But you can -- on that slide, you can see the progression through. So if you've got any other questions, just give us a shout, we'll pick it up.

Okay. And does that 26% mean they all sit in that far right-hand column? Or...

No, it doesn't actually. They use -- that 26% means they're using the store base and at least one other channel, so that could be a service. I mean, it depends on what their pet is.

We will now take our next question from Xavier Le Mené from Bank of America.

So two, if I may. The first one is on online. So I know it's difficult for you to provide us with the profitability. But at least, can you give us a sense of how dilutive or accretive online is on your sales and profit? And if you see going forward a risk of cannibalization between online and on the store? So that will be the first question. The second one on the M&A side, actually. Would you consider acquiring more first opinion vet practices? Or are you more in the -- in a way of looking at strengthening your ecosystem, so adding more new services rather than just strengthening what you've got already?

Okay. They are 2 great questions. So let me talk about online first. I think the first thing is often when people think about online, they think that sales will transfer from retail to online. Actually not the case. When a retail customer shops online with us, their spend typically doubles. So actually it becomes a bigger part. And that reflects the fact and the opportunity we still have around share of wallet. If we think about the profitability of the customer, that's how we think about it, we can actually increase our overall profitability to business. If you wanted to really break it down into its minutia, the least profitable way a customer could shop would be pure online. They order online, they have it delivered to their home. It's the least profitable because you have a courier cost. But we still make money. And the way that we set up our basket threshold, our own label participation means it's still accretive to the business. Of course, we have this wonderful thing -- I'm sorry, by the way, the most profitable way you can shop is go to the store. But we have this wonderful hybrid now, which means customers are shopping online. And they're collecting in the store because they were picking the items in the store. And that allows us to negate courier costs. So it's allowed us to shift to customers who previously wanted the convenience of online shopping but actually wanted the convenience of being able to pick up quickly within an hour from when they place the order. So our Click and Collect has really helped transform our online operations over the last year because what we're now able to offer those customers is you choose what you want, how fast you want it. We'll deliver it to your house. We can deliver it to the store. We'll pick it in the store, and you can collect it within an hour, or actually, you can get it yourself. And if we look across the whole of that, the key thing is the customer spends more, and actually, the profit pool from the customer goes up. And that's how we think and how we manage it. On the M&A side, and Mike, jump in if there's anything else you want to add. On the M&A side, you're absolutely right. We are very conscious that we have an ecosystem, and we've been making very thoughtful additions. I obviously point most recently to The Vet Connection, which has been a really lovely addition to our business because it's brought a capability in that we didn't otherwise have. And it's allowing us to connect things together for the customers. So The Vet Connection provide 24-hour a day telehealth coverage. They actually also provide for many other insurance companies as well. And this allows us to connect our service for our customers when they most want it, but also, it can become an extension of our practices. And we are continuing to look for those opportunities which are real sweet spot to help us build out our ecosystem. And I think there will be -- I obviously can't say what they are, but there will be opportunities as we move forward to make sensible bolt-ons to actually enhance value for the customer and for our business.

Yes. I mean, just to add to those comments from Peter, the online profitability versus store profitability is obviously a question that everybody gets asked who runs an online business. But it's not the way, as Peter was saying, that customers are shopping. More and more, we should stop thinking about channel profitability, and we should talk about customer profitability because very rarely, there's a customer just shop online or just shop in store. If you were to look at the sales growth we've seen in the last year in our retail business, our sales went up by just over GBP 80 million. And proportionately, you can see our online business was a major contribution to that sales growth. But we've broken out on one of our charts in the deck on Page 37, actually, we've broken out a PBT bridge. And you can see that as you remove the impacts of COVID, actually, our retail business steps on with GBP 19.5 million of profit growth last year of that sales growth of GBP 81 million. That's a conversion of about 24%. So we are still getting operational leverage on our growth regardless of which channel it's going through. But really importantly, I do think we should start to talk more and more about customer profitability rather than channel because that's just the way it is, and that's just the way customers are shopping.

We will now take our next question from Simon Bowler from Numis.

A few kind of questions [indiscernible] if it's okay. First one, I guess, I'm just kind of conscious around this kind of barbell distribution of spend, which you kind of again referenced in your slides in terms of -- to what extent that kind of early part of the barbell has boosted kind of the current sales trends and, therefore, will reflect kind of a tough comparative period as we move into a world where there's less kind of new puppies and kittens or a more normalized number of new puppies and kittens coming through, albeit that world maybe some way away? And then second question was just, can you talk about whether there's any kind of ongoing kind of COVID impact or costs captured in your guidance for the year ahead? And then third question was -- it's notwithstanding my question on the barbell, it's probably not impossible to kind of build to a continuation of some quite strong like-for-like trends in your business. And as you mentioned, there's kind of decent operational gearing coming through. Are there any areas, whether it be kind of pricing, delivery, proposition or maybe some of the investments into subscriptions which mean you would look to kind of hold margins down because you think there's sufficient areas to invest back into the business?

Okay. Thank you, Simon, some great questions. I'll take the first one, and I'll ask Mike to pick up the next two. I think the standpoint, and forgive me, this is probably the most obvious statement I'll ever make, but it's probably the most important one, which is our whole market, the pet market is determined by the number of pets that are in it. And that 8% shift we've seen in the number of pet owners really does have a material and lasting impact because we know the lifespan of a cat or dog is typically anywhere between 10 and 15 years. So that boost in the population, which, by the way, is so unusual. I mean, I've been in the pet market for a long time. I've never seen a step-up like that ever. It's always been very static. So it means the addressable market is now just bigger. And for us, that really lays down the basis of our GBP 600 million opportunity. Because even if we just held our share in that growing market, there'll be a couple of hundred million pounds worth of revenue opportunity. But clearly, we're not thinking like that because our objective is to capture more share of wallet. And therefore, for us, when we still have -- I think we saw relatively lower levels of share of wallet than we actually think we could get. We think there's a big opportunity there. There lies that opportunity ahead. Because don't forget, the 2 trends that we saw coming into COVID, [ wage for code ] premiumization and humanization still present, not changed. The difference is a lot more pets, a lot more pet owners. And I think what's really interesting in this last year is seeing the types of people coming into this market. We're seeing a lot of younger people who are choosing to get a pet before they settle down another house and they have a family. And the sizable spenders, so the people see incoming gain, are spending as much, if not slightly more than our previous cohorts. So I don't think we're going to see this sort of drop off at the end of COVID, which I think other markets may well see because ours has structurally changed actually for the foreseeable. And therefore, when we think and bring it back to our plan, I think our GBP 600 million plan is a ballsy plan. I mean, we're supporting that with a strong investment. But I'm so convinced that we're in the driving seat on this one now because we've got all that capability. We take all the top decisions before COVID. Now is our time to really be able to benefit from that, continue to grow our share of wallet, you've seen a shift we've made in the last year, and build on top of it. Because really simple few things, those who know their customers the best will win. On data, we know 6.2 million VIP customers are better than anybody else. A simple joined-up proposition that allows you to access a GBP 1,200 spend, not GBP 200 or GBP 300 retail spend, that's where we're focused. And removing all the barriers to make it dead simple and dead convenient in the way that the customer wants to access it, we're on with it, and that's what Polestar is all about. So I don't think we're going to see this sort of -- this slowdown. I think what we're now going to see is a step-up. And that's why we're being quite ballsy about the future growth. And I think we are just so well positioned now to take advantage from it.

And the other 2 questions, Simon, I think the next one was on COVID costs. And COVID costs in the last year in terms of total impact we've highlighted is GBP 30 million in total on the business. The year ahead, we have planned for costs of GBP 9 million, and we've referenced those in the RNS as well. And those costs are largely incurred in the operation in terms of the inefficiencies we naturally get because of social distancing. We've obviously got to clean, sanitize, provide PPE. So we've got GBP 9 million. And the guidance we're giving today of GBP 120 million to GBP 130 million assumes we'll incur that GBP 9 million. But obviously, we'll monitor that as we go carefully. Your second question was around margin and margin percents. And yes, you're right that naturally, as we grow our revenue and grow the GBP 600 million, our margin, that will be accretive to our margin percent. That's certainly true in the vet business, where we'll naturally see margin expansion with strong revenue growth on a relatively fixed cost base. But it's also true in retail, as we've just been talking about. However, we are not going to set an operating margin percent target. I think businesses that have done that can quickly find themselves constrained by it. Our priority really is to continue to grow our like-for-like and grow our sales and build our lifetime value of customers. So what we're mindful of is always being price competitive and also investing to improve the offer for customers. If we can do that at the same time as growing the margin percent, we will. But our first priority is to keep our like-for-like growth going.

Great. And 2 other very quick ones, if that's okay, and one just being Polestar. Is that 18 months to go live, i.e., this will be a proposition I can get my hands on in time for Christmas '23 -- Christmas '22, sorry. And secondly, of that GBP 600 million, can you give a rough sense of how much of that is coming from vet and therefore, how we could think about it relative to reported revenue?

Yes. That's a great questions, Simon. So Polestar, 18 months is when we're going to be done with the first product, i.e., the first ambitions we set out will be delivered. So it's not going to be a big reveal. In essence, what we'll be doing between now and then is actually as we make changes, for example, single sign-on across our network, that will be one of the first things that you see. So it's going to be a gradual reveal of things across the year or the 18 months until finally, obviously, we do a final reveal of everything. And then actually, we don't build on top of it. So it's a start. And actually, we're already, and have been on this for a couple of months in the background, building the teams. We've got really clearly laid out route map. We're actually starting to build a lot of there. We've chosen all our providers. They're all contracted. We're on with it. So I'm really pleased to see that actually our customers will feel the benefits that as we go. And therefore, we're also not reliant on a big bang switch on. We'll be managing this slowly and carefully through releasing those benefits as and when they land.

Yes. Your second question on customer revenue, Simon, really good question. And I think it's really important to draw the distinction between customer revenue and statutory revenue. So today, we're announcing full year statutory revenues of just over GBP 1.1 billion. But in terms of customer revenues, that's GBP 1.4 billion. Because, of course, in the customer revenues, we include all the revenue of all the practices, which is about GBP 385 million in the year just gone. But of course, in the statutory revenue, we just include the fee income on that, which is about GBP 57 million last year. So there is a really important distinction between statutory and customer. Clearly, our focus is on customer revenue. Growing customer revenue is the primary revenue number. But from a statutory point of view, we clearly just reflect the fee income we make out of our Vet Group. But of course, that fee we get, obviously, is growing. It will grow in line with sales growth as we go forward. And the costs we incurred to earn that fee are relatively fixed. How does the GBP 600 million split down? Well, that's obviously a multiyear target. And clearly, we're going to get that growth across our vet and our retail business. And in part, a lot of the growth out of our vet will become -- the market is very strong. But of course, it's still got a very immature business. 20% of our vet practices still less than 4 years old. But for modeling purposes, I can understand why you're asking the question. So 2/3 of that GBP 600 million from retail, 1/3 of the customer revenue out of our Vet Group would be a good proxy for how we see that developing over the next several years. But clearly, we'll update as we go. But from a starting point, that's a really good proxy for how it's going to come through.

We will now take our next question from Owen Shirley from Berenberg.

Yes. Three questions from me please, if that's okay. The first was, do you think the pet population is still growing? And linked to that, if I could push you for some further color on recent trading. Perhaps you could comment if it's been better, worse or roughly the same on a 2-year basis as Q4. Secondly, on online, would you be able to just give us an update on what proportion of online sales are Click and Collect now? And also whether you've trialed same-day delivery yet? And then the third question was on CapEx. Obviously, you've guided to GBP 70 million for this year. But looking beyond that, do we stay at GBP 70 million? Do we go back to GBP 40-ish million? Or do you think something in between is most likely?

Okay. Thank you, Owen. Thanks for those 3 questions. So let me take the first one about the pet population. So a bit of a nightmare question actually because there isn't a national body that records it. So we've had to take a combination of different factors, our own VIP database and then crunch it with some very big brains. And our conclusion which we came out with was 8%, which actually is not dissimilar to what the sources have reported. Has that stopped? Great question. Well, it started about May last year, and it continued. So if we look at our puppy and kitten registrations, they've been incredibly consistent day in, day out. And obviously, we haven't yet revealed our quarter 1 numbers. But as a thematic, we haven't yet seen a slowdown in registrations within puppy and kitten. Last night, we started a multimillion pound TV campaign as we are repositioning our brand. And we know it's one of those areas that we're going to continue to talk even more to customers from because we recognize our Puppy and Kitten Club really does have quite a unique position for customers. Your second question was around Click and Collect. Now this has been a bit of a game changer for us in our business because what it's allowed us to do is pick from the store our customer order and offer customers the ability to have their product ready to collect within an hour. They obviously pay for it online, and it allows us to remove any courier costs. And we're seeing a good chunk of our sales transfer over from what would have been probably a pure-play online order to being a pick-in-store order. I think the capability that we put into the stores to be able to pick an order, we're actually doing the next release of software on now which would allow us to then integrate that into a delivery network, whether it be an Uber, a Deliveroo or a DPD, to allow us then to facilitate a delivery from an order picked in store and then send out from store to a customer nearby. And you get a benefit there because actually, generally what you do is you reduce your miles, and you're normally taking out 1 or 2 hubs within the courier network. So generally, it's cheaper than doing a pick from a DC and trying to send to a home. So our capability is coming on stream as we speak. We'll go very slowly on that because we're very conscious of when you're managing a store estate stock, it's far more challenging when you're managing a single point. But because we have a real-time stock flow, we are able to see that in our world. And therefore, actually, as we do with Click and Collect, we stress test it and make sure it works before we roll it out. Mike, do you want to take the question on CapEx?

Yes. So Owen, on CapEx, GBP 70 million the year ahead, we've just talked about. And the driver of that are 2 things really is the DC that opens in 2023 and Polestar that Peter has been talking about that we referred to in the RNS, and that's GBP 20 million. So we're going to see a heightened level of capital for 2 years really. They're one-off projects, after which we'll see the benefits. Well, already started actually from Polestar shortly. So a heightened level of capital for the next 2 years, but then dropping down back to sort of in the range of GBP 45 million, GBP 50 million ongoing after that. So that far more to historic levels, with 2 years of heightened capital as we build out the DC and we complete Polestar.

Sorry, there's one that I didn't actually answer. You asked me what proportion of orders have switched. So as a rule of thumb, roughly 1 in 5 orders placed on our website will be for a Click and Collect rather than a delivered to home.

Brilliant. And have you given any kind of anecdotes around -- or color on the proportion that you've seen shift to Click and Collect since you switched on same-day Click and Collect?

Yes. Well, as I've said, so we obviously went from a standing start to roughly 1 in 5 orders are now Click and Collect. And some of that is incremental and some of it is actually people just choosing a different service because we've made it available to them. If you look at our online penetration, we've seen obviously in the last year a significant step is just under 16% of orders have a digital part to it. You can't just say online anymore. It could actually involves pick in store, et cetera, et cetera. But roughly about 16% participation now is somehow digital. Obviously, as we come out of the pandemic and things will open up and will be open all the way through, we're all seeing some further shifts. We've actually seen strong traffic back in stores again. I mean, we obviously were in growth through the pandemic. But we've seen online volumes soften a little bit but in favor of in-store, which, of course, we really like. That's really good for us. And it's obviously how customers want to shop because they're, I think, frankly, bored of being at home and want to get out and see people again. So that's been a recent trend we've seen in the last few weeks.

There appears to be no further questions. At this time, I would like to turn the conference back to the host for any additional or closing remarks.

Thank you, Tracy. Thank you, everybody, for dialing in. I really appreciate those questions. They're really helpful. Thanks for your continued support, and have a great day.