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

Hello, and welcome to the Pets at Home FY '24 Interim Results. I will now hand over to Lyssa McGowan to begin.

Good morning, everyone, and thank you for joining us for our interim results call. I'm Lyssa McGowan, the CEO, and I'm here with Mike Iddon, our CFO. I hope you all had a chance to listen to our recorded presentation, which includes our thoughts on what's been an incredibly busy, but important period for the business. So before we move to taking your questions, I just wanted to share a few key takeaways with you. The first half has been a critical period for the business, laying the foundations for our new Pet care platform as we set out at our strategic update in May. And as we stand today, we have a single DC supporting 100% of stores. We're on track to launch our new digital platform this financial year. And we've made great progress refreshing and opening new space and winning the talent. The U.K. pet care market has remained in resilient growth supported by long established structural growth trends. And against this backdrop, we were pleased with growth in consumer revenues of 8.6% across H1, with 5.2% growth in retail and 19% growth in vets. In fact, our vets business is firing on all cylinders, supported by a unique joint venture model. High-quality growth was supported by increased visits, strong consumer acquisition and growth in average transaction value. Vet talent remains a key area of focus, and we're seeing improvements in recruitment and in retention with the new partner pipeline, the healthiest it's been in some time. Our retail performance was a tale of 2 halves. Q1 was very strong at 7.1% like-for-like growth, but Q2 slowed to 2.7% growth as we experienced some availability challenges as our DC ramped. This dragged on our like-for-like growth during that period by around 3%. This issue was quickly addressed by our team and has availability returned to normal levels by the end of Q2 as sales growth normalized with the early weeks of Q3 showing a 4% retail like-for-like growth. Underlying PBT of GBP 47.8 million was down from GBP 59 million last year. This was broadly the shape we expected as H1 bore the cost of heavy investment we have been making. We did see some extra costs associated with our DC disruption, but this has been managed within the scope of our current guidance, helped in particular by strong outperformance from the Vet Group. This means we make no change to our view for underlying PBT this year of around GBP 136 million. Lastly, a key development in the industry's first half has been the announcement by the CMA that it was opening a review of the Vet sector. We shared our views of the U.K. Vet industry and where our business fits today with the CMA. And the key point being that we see our vets business as highly differentiated in the industry, thanks to our unique joint venture model, which frees practice owners to deliver the best possible clinical care for pets and pet owners. We see our great strategy as pro-competitive and do not expect the review to impact our ambitions. So while the first half has not been without challenges, it's been an important period for the business, and we've made progress against the medium-term strategy we set out earlier this year to build the world's best pet care platform. We plan to do in the second half as we launch our new digital platform and begin to transition our online business into the new DC, but we do so with confidence. We are now past the point of peak execution risk. And with that, we're ready to take your questions.

[Operator Instructions] The first question comes from the line of Jonathan Pritchard from Peel Hunt.

A couple for me. Just on expectations in the second half like-for-like. Are you expecting Accessories. I know in the presentation, you talked about preparing Accessories to return to growth. Are you expecting Accessories to bounce back from a like-for-like perspective in the second half? Or is that food that's going to have to do all the sort of heavy lifting in terms of like-for-like progress? And then secondly, you talk about the pipeline of JV partners. I think you've got about 50 -- mid-50s of company owned vets. Would we expect that number, therefore, to come down quite quickly? And if it did, does that actually have a particularly profound effect on the profitability of the vets side?

Mike, do you want to take this one? I'll take the JV one.

Yes. Jonathan, you asked a question about Accessories in the second half. You may remember quarter 3 last year, our Accessories business was in growth, and Christmas is a very strong period for trade of Accessories. In our Pet Care centers today, we've got some great ranges of Christmas and the sell-throughs are going really well. So naturally, we expect to see a stronger Accessories performance in the second half of the year. But you are right, we'll continue to see a really strong Food performance. I mean food in the first half was 10%. Accessories in the first half was minus 3%. We expect Accessories to be stronger in the second, but Food continuing to be very strong.

I would also add that we're launching our new consumer website and app in the new year. And that will give us significant enhanced ability to cross-sell, to promote Accessories and a significantly better consumer experience. So that's something that our current website doesn't really allow us to do, and which will be a tailwind in the second half. On the JVs, we have about 55 company-owned practices. And we do account for them slightly differently. We are fully committed to the joint venture model. It's unique. It's differentiated, it drives higher productivity as the Vets. We have an owner operator in there with clinical, operational, commercial freedom, driving the productivity and the outcomes to those practices is really hard. And we've definitely seen that come through in our performance 19% like-for-like growth. And also in the 18,000 new pet registrations that we've had in the first half every week. That isn't just puppies and kittens, that is us seeing consumers come from other vets with older puppies or with older dogs and older cats. So we're definitely winning share there. It is our preference, the JV model. We're never going to get that 55% down to 0. We're always going to have a few where we take on practices for various reasons, but we've been able to flip actually 5 of those practices to JV ownership in the first half, and we will continue that. I don't think it will be a material driver of profit, but it's certainly our preferred model, and we'll continue to do that.

Your next question comes from the line of Matthew Abraham from Berenberg.

So just first, queries in reference to H2, obviously, guidance has been held steady. Just looking to unpack the various levers that you'd be pulling to make up some of the loss grounding in H1 and fee guidance, that -- specifically, I understand that there a cost element, energy costs that are to drive a lot of improvement in the second half. What energy costs are those? So if you could provide some color on that one? The only other query I'd have is in reference to the operational disruption that as you said has been resolved. Are there any implications to a potential longer-term growth ambition given the disruption that's been observed in Q2?

Thanks for those questions, Matthew. I'll talk about the operational disruption and then Mike can unpack our confidence in the underlying health of the business and why we're holding guidance. In terms of the operational disruption, it was confined to a few weeks of Q2. We ripped it quickly. And actually, as we've come through that and announce delivering 100% of retail stores from that new facility, we actually have availability in our stores better than it's ever been. So structurally lower gaps that we went into. And that was partly the reason to consolidate from the 3 older DCs into our new state-of-the-art facility. So we've already got better availability out of that. Some of the rest of the upside is still to come. We've got more automation in there where we move online in there. Clearly, having one distribution center, a Modern, fresh with one place for suppliers to come in and place for suppliers to go out, that will help us take more efficiencies out of our supply chain. And in the future, it opens up opportunities like cold chain as frozen and fresh become bigger and potentially more medical distribution. So the business case for Stafford very much still intact, benefits to flow in the coming years, and the disruption that we experienced with short term and fully boxed away. Mike, do you want to give some more color on why we're confident in reaffirming guidance?

Yes. Matthew, you're asking about our second half shape, and just to build on Lyssa's comments, from a revenue point of view, we're really well set up, both in pet care centers and in Vets. But you think about the numbers, first half profit was GBP 48 million. Second half, we need to do that 1 million more in effect to get to GBP 136 million full year, which we're confident of we're confirming guidance. Four steps to that. First of all, Vets' performance is really strong, GBP 4.4 million profit-wise year-on-year in the first half. We'd expect that to continue, that revenues are very predictable. And the way the model works, that profit is predictable. Second part of that will be energy. Energy costs are lower year-on-year, and we'll get about GBP 3 million benefit out of energy, with half and half in the second half. The third is we've got a really good handle on our operational cost base. We've got a really well-established productivity program. We expect that to yield benefits generally second half weighted, so a couple of million out of that year-on-year. And the final element of that, that makes it the level is our SaaS costs. At the start of the year, we planned a level of SaaS costs as we're working into the detail now of some of those projects, we've probably got GBP 1 million to GBP 2 million saving there as well. So we're pretty confident on that plan. And as you say, today, we are reconfirming full year profit guidance of GBP 136 million.

The next question comes from the line of Manjari Dhar from RBC.

I have 2, if I may as well, please. The first one, how reflective do you think the early part of Q3 trading will be for the rest of the period. Did you guys see any pent-up demand coming through as availability improved following that disruption? And then secondly, I was just wondering if you could give some color on how we should think about the major moving parts for gross margin in the second half, please?

No problem. I'll take the first of those and then Mike will pick up on the second. So as we said in the RNS early Q3 upto yesterday, 4% like-for-like, a bit of a turn of 2 halves there actually as we bounce back from Stafford that was over 5.5% like-for-like, so really fully normalized trading. The last couple of weeks have been slightly choppier. We're not a big Black Friday business. Christmas is much busier for us. So we have seen slightly choppier trading in the last couple of weeks. But as we head into Christmas, we're well set up. Our availability, as I said, is better than ever. Our price position is really strong, and we have some great ranges. We've already sold over 200,000 doggy advent calendars by the first of December and 0.5 million Christmas Dog Toys. So Christmas trading and Christmas sell-through is exactly where we would have expected it to be. And as we've said a number of times, the vets are firing on all cylinders. So current training in decent shape and absolutely no hangover from the period of disruption in Q2. Mike, do you want to unpack the roadmap?

Yes. Manjari, you're asking about gross margin in H2. Let me give a little bit of color on H1 because that will help understand the H2 shape a bit better. So in H1, we are down group level gross margin percent 158 basis points. That's really all about our retail performance. There's 2 parts to that. The first is we fly back in -- when we did the update in May, ForEx this year will be a GBP 13 million impact. That's broadly split half and half, say, GBP 7 million H1 versus H2. So that's about 70 basis points of impact on gross margin. Should expect that to come through in the second half. The other big part of the gross margin down in the first half is mix. Food growth at 10%, Accessories declined at 3%. We've already been talking about Accessories this morning. We'd expect a stronger performance of Accessories in the second half. So some of that mix element, the 90 basis points should ease in the second half, although we should still see Food outperforming Accessories. The final point -- part of that gross margin question is the vets' gross margin did dip slightly in the first half. That's all about the charge we put into gross margin for the brand advertising we did. That's very much a one-off structurally, we always expect our net gross margin to grow because we've got a strong growing revenue on a pretty fixed cost base. So we would see our Vet gross margin step up a bit year-on-year in the second half, and we'll see the retail margin slightly get better than the 166 basis points of decline we saw in the first half.

Your next question comes from the line of Andrew Wade from Jefferies.

A couple of quick questions from me. I guess, first one, what are you seeing in terms of benefit of the brand relaunch, how are customers reacting to it and what are you seeing there? And the second one, early you said that the 5.5% when you bounce back from the disruption, the 5.5% like-for-like you were running at, you saw that sort of a fully normalized run rate in the retail business. Should we -- last year it was plus 7%, Q1 was sort of plus 7%. Should we be looking at a sort of slightly lower like-for-like outlook run rate than we've been seeing? That's the second question. And then the third one, we feel sort of, I don't know, a bit of frustration or pent-up excitement maybe a better way of thinking about it as you're ahead of being able to launch a sort of full integrated across grooming, that the improved user in space, all that sort of stuff. I mean you've talked about it being critical to driving engagement and share of wallet. So is that something you're really looking forward to driving the next leg of like-for-like, I suppose?

Yes. So I'll take the first and third around the platform of the brand because they're somewhat connected and then Mike will pick up on like-for-like run rate. So -- and yes, the brand relaunch has been really successful, but it was never sort of an overnight thing. Actually, what we did is we've relaunched the brand to bring together Vets4Pets, Pet at Home, the Pets Foundation, Pets Grooming under a new modern look and feel and indicates consumers start that journey of us being the one-stop shop for their pet care, so in the future, they will be able to do everything from a paid surgical remote consult, [indiscernible] to changing in nutrition subscription to booking a kind of [indiscernible] in store or just ordering a toy. And all of that will be under the Pet brand. So it was really important we brought those elements together. Having said that, our launched campaign was hugely successful in terms of how much consumers loved it. We found out as doing research for that campaign that we are the most trusted brand for pet care, 7x more trusted than the nearest competitor, and that runs free to the bench as well. So as we bring that platform together, our new brand gives us a platform to launch that one too. And certainly, our marketing and advertising under that new brand has really stepped on and been successful. So early days, but delighted and that really sets the scene for your last question, which is disintegrated platform. Am I frustrated? No, actually, it's a big undertaking, and there's a lot to do, and I'm actually really pleased with progress. I'm particularly delighted that we're launching our new app on website in the new year. That's going to be a real step on. It's going to have much better UX and UI, much better merchandising, much better integration of offers, VIP, the Pets Cloud vouchers and really importantly, it's going to be a big step for subscription. So you're going to be able to order a box of everything you need for your pet, whether that be food, pet litter, puppy pads, a toy, dental sticks, all in 1 box or with 1 discount across the piece. And that's going to be really competitive to consumers. We've tested the platform quite a lot with consumers and got really good feedback. So I'm really excited about that. And then when we've cut over to that, we then start integrating the best of grooming, rolling out our PMS into the rest of the vets' [ estate ]. So we always knew it was going to be sort of a 2-year journey, and I'm actually really delighted that we're on track with that. It's not easy stuff. If it was easy, everyone would do it, but we do have the skills and capability to get it done. So excitement rather than frustration, I would say. Mike, do you want to talk about run rate?

Yes. Andrew, you asked about run rates and like-for-like. I think if I just take us back actually to what we said back in May, and we said our medium-term customer revenue growth plan is 7%. And if you think [indiscernible] breaks down into 9% consumer revenue growth in vet and 6% consumer revenue growth in our retail business. Against that, even with the disruption we saw in our staffing transition, we had like-for-like retail revenues in the first half of over 5%. So against that [ 6 millions ] of target. And by the way, that was 19% and the overall total was 18.6%. So we ran ahead of those targets in the first half. So in the first 4 weeks of Q3, so that's the 4 weeks up to the 9th of November, we did see our retail like-for-like being at 5.5%. That was a big pickup and where we've been with all the disruption we saw in the second quarter of 2.7%. If anything on that show, we see an easing of inflation actually as we came out of Q2. So the inflation in our food business has been running sort of 8%, 9% and they're estimated a volume growth. Actually, inflation is sort of eased down sort from 7% to 6% over the last few weeks. so that's something we have been seeing in there. But yes, we expect -- we had a couple of weeks where I think consumers are naturally distracted by everything going on in the environment around promotion, high innovational environment through Black Friday, but we'd expect our retail life like to get back up towards 5%, 6%, which is our target to when we get through the rest of Q3 into Q4.

Your next question comes from the line of Simon Bowler from Numis.

Two areas I just wanted to touch on if okay. One was just if you can share any volume numbers and kind of give any kind of further commentary around your kind of perception of the outlook for inflation within the retail part of the business, in particular? And then the second one, can you just kind of talk around the process timing and risk or like thereof for the online transition part of the warehousing project.

Yes. for the warehousing project?

Yes. Yes. Yes.

I'll take the second and then Mike, you want to take the first. So we are 85% through our transition. We've got 100% of retail being delivered out of the DC. And we are now going to step into the goods to person, which is the online part transition. It's only 15% of our volume. And obviously, we've learned some lessons for the transition of our retail part of the business. So the period of peak risk is behind us. I wouldn't want to minimize what we still got to do. We do have to still transfer online. But we are now doing that with a team who is operating in Stafford with goods in and goods out, all operating well. So this is incremented to work, but we are much clearer on how to do it with a team that is now much more experienced. So I'm feeling confident and we should be through that transition by the summer. We're not going to rush it for obvious reasons. Mike, do you want to talk out?

Yes. You asked about volume inflation split out, Simon. So not really going to get into the nitty gritty of category by category. But you remember, we have seen across the year, volume growth in our Food business. In fact, we still had volume growth across the first half, even though we had that disruption in Q2. We've sort of seen volume growth in Food 3% to 4% and the rest is inflation. And likewise, very similar shape in our Accessories business that's consumable. That's about 1/3 of our accessories business, we've seen volume growth there at 3% across the year. I commented on that previous question. We have seen inflation easing over the last 2 or 3 weeks from those elevated levels down to about 6%, 7%. And I think we expect that to really continue through balance of the year. And as we head into next year, it's a [ great person that predicts inflation ] but our planning assumption will be much more normalized inflation in Food. So 3%, 4%. And obviously, as we get closer, we'll be making an assessment of that inflation during the time. But yes, we are seeing inflation ease, particularly in Food.

Okay. Great. And actually just 1 more, if not a follow-on with apologies, but 1 other topic. Just in terms of the Vet ATV progress, I guess a lot of aspects to that in terms of the additional stuff you're able to sell through your vet business as well as a bit of inflation running through there. Do you think you can kind of maintain that double-digit growth in ATVs across your vet practices?

So the great invest has been envisaged as well as ATV and about 4% of our growth has been underpinned by visits, and that's because of more clinical talent, better recruitment, better retention. There is a portion of that, which is ATV, but that's not all inflation actually. Some of it's inflation, some of it's pricing -- and I should point out that those decisions of pricing are made at a local level by our joint ventures, by our practice owners, in response to local conditions. So they have a choice of how much pricing to put through, and they've been doing that. The balance of it, of course, is vet plans, which are seeing growth still. And the shift into more advanced procedures in curative care. And that's a bit of an in-built tailwind for us because we have young practices, which have been signing up more puppies and kittens that are now aging over time. So the balance of all their animals that need more care is continuing. And actually, as our vets become more established, they are taking certificates and they're getting into more advanced procedures such as ophthalmic, orthopedic. We're putting in extensions with CT scanners. And so the mix, not just of preventive and securitive, but the quality and price actually or securities side of things is increasing as well. So those elements will sustain us. And when we think about the plan that we set out in May that underpins the vet growth, new space, more clinical talent, extensions and advanced procedures. Those are all elements that will fill the Vet business going forward. So we're confident in the growth that we laid out in May, and all of those growth drivers remain intact.

[Operator Instructions] The next question comes from the line of Adam Tomlinson from Liberum.

Two questions from me, please. The first question is on -- if you could just talk a little bit about store standards, please? That would be helpful. And really there, I'm interested in how you monitor store standards, perhaps how often they get visited a week? And how store managers held accountable for those. And anything you can say about just how you think store standards have trended over the last couple of years, that would be interesting, please. . And the second question is, you've been pretty explicit, I think, in terms of guidance for FY '24. If we look FY '25, I think consensus is about GBP 155 million of PBT there. So close to 15% growth. I'm just wondering how comfortable you are with that? And anything you can comment around that in an environment where potentially inflation is easing, you've got some costs still increasing quite significantly. I'm thinking of wages, others perhaps more helpful in terms of where they're trending, but useful just to get your thoughts around that as well, please.

Yes. Thanks for the question, Adam. On store standards, I think we're in really good shape, actually. We have a really strong field team with area managers, regional directors that are in store all the time with really clear standards. We've recently launched something called One Best Way, which is being very clear on standards around cleaning or around phasing of, giving space to customers like very clear standards, which is, I think, have been really positive. We also monitor, of course, customer satisfaction, which is really strong, took a little bit with availability and that short period of stuff availability but bounced back and significantly above most retailers. Our colleague turnover is significantly down over the last couple of years, and our colleagues, of course, are the lifeblood of our stores. And in fact, we recently voted for by our colleagues as one of the best retail employer. So we've got happy colleagues, happy customers, good store standards. And of course, I think as a pet care retailer, one really important thing is how we look after the animals in our care. And on that, we have a very significant program of audits, which is done by a completely separate team that will go into the store regularly and grade the store against very specific standards, particularly on [indiscernible] to make sure that we're taking care of pets in our care to very, very high standards. So actually, I think probably -- and I go in stores every week, we're looking in great shape, availability is good. Our colleagues are at really good place. Our price position is strong, so we set up really well. In terms of FY '25, we've got ongoing structural growth, a resilient consumer, macro seems to be improving. And actually, a number of our business investments which we've been investing in are coming on stream. So we've got the launch of our new digital platform in the New Year. And the new DC as well as the benefit of the rollout, the physical rollout we've done. So we look forward with confidence, and Mike will just unpack some of the trends there.

Yes. Yes, then you asked about FY '25. Again, it take you to the financial framework we set out last May, 7% consumer revenue growth, 10% profit growth and a market growing at 4%, and to Lyssa's point, we've seen nothing to suggest the Pet Care customer isn't very resilient. The market continues to be underpinned by humanization and premiumization. So we're well set up to create value out of that market. So Lyssa pointed out the benefits of the new DC that will start to flow. That's a big investment and the period of maximum risk all behind us. The benefits of the digital platform are launching post-Christmas, again, will all flow, and that will help customers shop a broader range of products and services. The vet business is well set up. And we've got a clear plan we're executing to put more space in and retain and recruit the vets and nurses we need. Second thing I would say really is some of the headwinds we've seen over the last couple of years actually now become tailwinds. This year, I apologized earlier that we've been held back by about GBP [ 13 ] million of FX year-on-year. We're hedging forward now FY '25, we've hedged about 40% of our requirement, $1.24. So that becomes a tailwind after a couple of years. We're certainly on a headwind. Energy costs come down year-on-year. So that's a tailwind and freight costs have normalized. So what has been holding our profit back starts to become more helpful. I think the one thing we wouldn't look at, though, there is a change from when we did our update back in May is National Living Wage. And we talked there about 10% profit growth. Our assumption on wage growth was sort of 4% to 5%. The autumn statement last week set National Living Wage for next year at 9.7%. For us, that's about total cost of about GBP 15 million, GBP 16 million, so GBP 8 million more than we'd expect before any mitigation. So we're working through that now. We have a lot of productivity levers we can pull, but we're still figuring out what that will be, what that will mean for next year's profits. So that's one thing to consider that is new since we set out our financial framework last May.

Next question that comes from the line of [indiscernible] Kanes from Numis.

Just a quick one. On your vets visits, the 4%. Could you just remind me how that compares to prior periods through the cycle, maybe with a reference to pre and post pandemic. And you mentioned retention and recruitment of vets is going particularly well. Just would you be able to share your growth in the Vets employment?

Yes, no problem. So yes, we have -- our turnover of vets is actually 10 full percentage points down year-on-year. It's gone down from 37% to 27%, which is sort of getting signals again which is a really big part of it. But also we've made great strides in recruitment. So Mike, can you share the numbers of absolute numbers of vets...

Yes. We've got 113 vets more year-on-year this time now compared to this time last year and 190 more nurses. So all the efforts that we put into both recruitment and retention is really paying off. And that gives us more capacity and we're now straight away that more capacity, because there's demand out there, we grow revenue. And it's a big contributor to our 19% growth in the revenues we've seen in the Vets business. So that's going to continue to be our focus. And I think our model, Lyssa has been talking about our joint venture model, I think, is particularly attractive. Some of the merits of that model are really now shining through and it's helping us attract a lot more Vets in those professionals.

Sorry, just -- I don't know if you had any sort of comment on sort of prior visit growth?

Yes. This year is the 4% is a significant increase on last year and the year before. We can follow up with those numbers, but it's definitely an increase. [indiscernible] and that is due to the talent improvements.

Your next questions comes from the line of Paul Rossington from HSBC.

Just a quick one for me. It's on the new vets and the new stores that you're rolling out. You didn't open that many new stores or that many new vets in the first half. I can see you did some extensions and resets, there is quite a lot of activity there. But are you still on track to hit those medium-term targets in terms of the actual new store and new vets rollouts as well?

Yes. Thanks for that question. So we did 3 new store openings, 24 resets, 5 vet extensions, opened 2 new vet re-practices, and flipped 5 vets from company-owned to joint venture ownership, which was in line with our plan. We've got new openings in the second half, both the vets and for stores. But you will see that accelerate through the plan, just like you've seen visits accelerate in the first half due to better retention and recruitment. Our joint unique joint venture model is gaining a lot of traction. Our new partner pipeline is better than it's ever been. And we are not constrained by location. So we have 150 stores that don't have a vet. We've got many greenfield. We've got a very strong stand-alone model, and we've got a lot of opportunity within the M25. We're planning at [indiscernible] in the second half having opened [indiscernible] in the first half. So the constraint, of course, is about talent. Finally the right joint venture partner, we've learned the lessons over the last few years will only go for the right joint venture partners, the ones that have really good clinical expertise, the ability to run a business, the ability to lead a team. But we only need say, a few tens of those every year or not even tens, but like 10 or 15 every year to manage our growth ambition. So we're definitely got a lot more resource in that space around recruitment retention. We were just at the London Vet show, relaunching our model to the world, and that was very well received around practice ownership. So we're absolutely confident that, that will start to grow now over the coming years, and we're in good shape to achieve our long-term ambitions.

The next question comes from the line of Andrew Whitney from Investec.

Just 2 for me. One was on advanced capabilities in the Vet. I know you flag it up as potential to introduce competition against secondary hospitals and improved competition. Is there any limitation to what you can do in, I guess, what is probably an expanded vet facility versus what you can do at a secondary hospital? Do you get -- do you actually -- is there anything that can't be done in your broader clinics that can be done in the hospital. That's question one. And then just on the second question is on divisional free cash flow. I know it looks like there's some one-offs in the half. I remember last year, I think the vet business generated about 46% of free cash the last year, tipping point coming up where the vet business will sustainably generate more than half of the cash for the group? And how soon might that be?

Okay. Well, I'm going to let Mike take that second question on free cash flow. But on advanced capabilities, I mean there is a huge space between kind of general practice as it's sort of traditionally seen and the very advanced stuff that's going on in specialist hospitals. And it's that gray space that we're opening up into. I think we've got a long way to go before we hit the limitations of what can be done in general practice. For example, we've added a couple of CT scanners into our 24-hour hospitals. In fact, we put 1 MRI scanner in, and we're able to do pretty advanced orthopedics in a number of our advance practice there. We can do ophthalmic, soft tissue, quite a lot of our vets and this is the benefit of the joint venture model really is that they are with us for a career for life, for the life of their veterinary career. And once they've got to the point of what we used to call maturity, well, they pay down their loans. They've got a stable practice. They don't want to spend the next 15 years doing [ space ]. They want to advance themselves. A lot of them are doing certificates. We're actually setting up a clinical academy. So we've selected some of our top vets to the clinical centers of excellence. So Haley, for example, in Cambridge is a laparoscopy certificate holder. She has camera now in her operating desk so other vets can benefit from seeing her technique. So right from the very top end through down to the graduate and nurse schemes we're investing in clinical development. So there is obviously a kind of a higher order of things you really can't do in general practice, but it's moving over further away, and we've got a long, long way to go and a lot of space to grow into before we get there. I would just say as well that quite often it is a bit cheaper to do it in general practice and certainly better for the pet because they're not going and having to travel all distance and stay away overnight. We can do quite a lot of things as a day case that would otherwise require a long distance. So I just don't think it is pro-consumer, it is pro-choice, pro-competition, but it's actually pro-pet as well.

Andrew, just following up on your question on cash flow. I mean, you're right. We're quite proud -- we're incredibly proud actually of that performance in the half. And the cash flow is generated too, is in the RNS, GBP 57 million of cash flow in the half. And I think you're making the comparison there to our retail business, which clearly, we've had some one-off impacts on in the retail business. So I don't think you can judge the cash performance of the retail based on its first half performance. We've always said that vet business on maturity would generate at least GBP 60 million of free cash flow. As you can see from the numbers, we're more than well on our way to achieving that. So in the future, there may be a time that the vet business generates more than the retail business. I think that actually is underlying in some way off yet, but there could be a time because the growth in our vet business -- as we are just pointing out, it isn't constrained by location, it is constrained by the availability of vets. I guess the other point I have made when we're talking about cash flow is we have come out of a peak period of investment. If you look back to last year, we invested GBP 75 million of CapEx. This year, we're investing GBP 60 million of CapEx. And as we sort of trailed and we did our update in May we'd expect CapEx to sort of normalize at GBP 50 million a year. And all that business, as you know, from the model is incredibly capital light in terms of growth. So we will go into a period in the next couple of years of lower capital investment and we'll start to see some of the embedded benefits. We talked briefly about the DC, talked briefly about the digital platform. But a lot of the OpEx to grow and the CapEx to grow that business is already [Technical Difficulty]. So I think as we look ahead, we're going to see our free cash flow across both Vet and retail step forward.

There are no further questions in the queue. I'll now turn the call back over to your host for some closing remarks.

All right. Well, thank you very much for joining this morning. We're very confident and excited about the future of the business and we look forward to seeing you at the end of the year.