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

All right. Good morning, everyone, and welcome to our Full-Year Results Presentation, where Mike and I are going to take you through how far we've progressed this year in building our great platform for the future. You'll remember that this time last year, we shared our refreshed vision for the business. And 1 year on, that strategy remains clear and unchanged. We are a truly purpose-led business. Creating a better world for pets and the people who love them drives everything we do every day and unites every one of our 17,000 colleagues. Now, the first part of that purpose, creating a better world, reflects our commitment to making pet care environmentally sustainable through, for example, our focus on lower carbon proteins, reducing packaging waste, lower flow anesthesia or renewable energy. Now the second part of our purpose for pets and the people who love them, encompasses our mission to improve the life of every pet in the U.K. by delivering the highest clinical, service and product standards for the pets that we care for, by being a leading advocate for pet welfare and by being the biggest grant maker to pet charities across the U.K. And that is why 7x more customers trust us to care for their pets than anyone else. It also reflects our commitment as the U.K.'s largest employer of pet care talent to providing inclusive opportunities and developing rewarding careers across our sector. Now this purpose underpins our vision to build the world's best pet care platform. Our platform will be integrated, omnichannel and consumer-centric. Integrated means bringing together our unique brand of products, services and advice across nutrition, accessories, preventative and curative healthcare, grooming and wellbeing. So consumers can access everything they need to care for their pet through our platform. Omnichannel means allowing consumers to seamlessly move between the physical and the digital. Our face-to-face access, pet care centers, practices, Groom Rooms remain the bedrock, but around that we'll wrap virtual consultations, telemedicine, digital advice and support, and seamless Click & Collect and e-commerce, so that customers can access the best care for their pet through whatever channel works best for them. And consumer-centric means using our data and scale to give customers an unrivaled experience, anticipating their pet care needs to serve up exactly what they require when they need it. And as we build this world-leading pet care platform, we will deliver differentiated economics over the long term. First, by being integrated, by delivering product, services and advice on a single platform, we deliver significant economies of scope. We can do business better and cheaper because we do more than one. For example, by sharing category expertise, speeding up time-to-market for innovation or amortizing our digital investment over a larger revenue base. Just give you an example of that in our Groom Rooms. They're often located on a mezzanine in-store, benefiting from shared building costs and 0 incremental rent. Our customers are largely acquired at no incremental cost through our Puppy and Kitten Club. Our colleagues in those Groom Rooms are often drawn from our pet care centers, with no incremental cost of recruitment and providing career development opportunities for our people. Having vets on site means consumers are much more comfortable leaving their pet in a Groom Room, which no one else can match. And when the pet groom is done, the consumer will often buy a little treat for their pet on the way out, driving our retail business. So you can see why we can offer that business better and cheaper than anyone else. And that's true, of course, for our retail business, our vet business, e-commerce. By having them all together, we drive significant economies of scope. Second, being omnichannel gives us significant economies of scale. Savings from leveraging our physical estate for Click & Collect or the cost synergies we generate by aggregating our veterinary support services are clear, but we also have a different mix of skills and talent, which means we're able to give the right task to the right colleague at the right cost, driving productivity. For example, our vet nurses referring nutrition consultations to one of our highly trained retail colleagues means they can provide that service better and at lower cost, and it frees up our clinical talent to do more curative and surgical procedures. Third, using our data, coupled with our insight into the pet owner bond means we can provide an unrivaled experience fueling consumer and revenue growth, particularly through share of wallet. By making things easy and seamless, we will drive cross-sell, we will drive upsell, we will drive subscriptions and we'll drive lifetime value. Our national pets branding gives us significant marketing efficiency and effectiveness with a halo right across our services. Our recent All for Pets campaign, which I'm sure you've all seen, encompass grooming, vets, retail, products and services, all in a single 30-second spot. So you can see how our integrated omnichannel consumer-centric platform will leverage our scale, our assets, our data, our capabilities and our intimate understanding of the pet owner bond to deliver a service that no one else can. And in doing so, create sustainable competitive advantage. So let's now move to look at 2024. 2024 was a pivotal year for the business, as we delivered the key projects to support our strategy. We launched our new DC in Stafford, an enterprise-grade DC that will support our growth ambitions for the next decade. It is now supporting all deliveries to store with structurally improved record availability, and we'll move the final element, our online business in the coming year. We fully migrated to our new digital platform, including a new website, an app to join the colleague device. This is the culmination of a multiyear project built on best-in-class open source components, integrated in-house, which will enable us to iterate and improve in the future to meet the inevitably changing needs of the consumer and the rapid advances we're currently seeing in technology. We continue to invest in our physical assets as we committed to do. We opened 5 new pet care centers, 3 new vet practices. We refitted 41 of our locations and extended 26 of our vet practices. And we made great strides in winning clinical talent as the attractiveness of our JV model continues to gain traction. We reduced the number of clinical vacancies by over 40%. We doubled our grad scheme. We attracted new experienced talent. And importantly, we retained and grew the highly skilled vets and nurses that we already have. We relaunched our brand, bringing together all of our services under one clear consumer brand, and we've already rebranded 55 of our locations. This has been really well received by consumers, by colleagues and by partners, and we've seen a positive trajectory on all of our brand metrics. Innovation is critical to driving premiumization, humanization and industry growth. And as the market leader, we set the agenda. In FY '24, we started to drive an exciting pipeline across food and accessories through exclusive partnerships and range expansion and our own super brands led the way. We've responded confidently to the CMA review of the sector, taking the opportunity to highlight the uniqueness of our model and the importance of our growth strategy in bringing new sources of capacity and competition to the vet sector. And we've made significant progress on our sustainability agenda, almost doubling our diversity participation, continuing to reduce our carbon intensity and remaining the biggest supporter of vet-related charities across the U.K., donating almost GBP 10 million this year alone. Now strategic progress of this magnitude is not easy. But businesses that do hard things thrive because they are difficult to follow or beat. And I'm really proud of how our people came together to deliver multiple complex projects against a challenging and volatile consumer backdrop. So as we exit 2024, we have delivered the key building blocks of our strategy. We're beyond the point of peak investment. We're beyond the point of peak execution risk, and we're well positioned to deliver our growth ambitions. And we delivered a resilient financial performance. We are now a GBP 1.9 billion consumer revenue business, having grown sales in the last year by 7%. And we carefully managed our business to deliver underlying PBT of GBP 132 million, not quite the flat performance we originally targeted, but down just 3% against a challenging backdrop. And we made significant progress on our strategic KPIs. We grew our active Pets Club membership to 7.8 million. We increased average consumer spend to GBP 178. That's a key share of wallet indicator for us. And we grew our subscriptions business by 1/3 and clinical talent by 10%. So, we've delivered successfully year 1 of our strategy, building the foundations for long-term growth. This year, FY '25, we'll see a return to profit growth as we begin to benefit from the significant investments that we've made. We continue to leverage our volume and growth and scale, and we remain laser-focused on managing our cost base. And in the medium term, we're positioned to deliver attractive growth through sharing the benefits of our investments and scale with consumers to continue to win share in a structurally growing market. Our medium-term framework is unchanged. With the market and structural growth of 4% over the medium term, we will outperform, gaining share to deliver an expected revenue growth of 7%. And this will translate to PBT growth of 10% with improving cash generation as our CapEx normalizes as has already begun to do in future years. Over the past year, we've returned over GBP 100 million to shareholders through dividends and buybacks, and our future growth will underpin continued rewards. So as we look forward to FY '25 and beyond, we're very well positioned to deliver against our ambitious strategy, with a clear market leader with a unique business operating in a very attractive, structurally growing market. And that market growth is underpinned by 3 trends; premiumization, humanization and higher penetration where we've now stabilized at a significantly larger population of pets in the U.K. with 23 million cats and dogs versus 18 million pre-pandemic. And we have a unique business with scale and credibility across all key verticals and plenty of headroom to grow. We have a leading position in premium food with close to half the premium market and we're the key partner for brands in the sector as our expertise and service grow the market and support innovation. With a 30% market share in accessories, we're the leading player, but we've got plenty of headroom to grow as we bring new innovation to bear and benefit from our new digital platform to grow online participation. And thanks to the stellar growth we've seen over the past year in vets, winning significant share, we are now the clear #2 in the market with consumer sales exceeding GBP 575 million. Our customers remain sticky. Their behavior is very predictable and resilient. Pre and post-pandemic cohorts demonstrate highly similar behavior. And once we win customers, their behaviors become embedded and established, giving us important visibility of lifetime value. So we can hone and effectively tailor our investment in consumer acquisition and retention, supporting by the leading analytical data capability that we've built in recent years. Now, our success over recent years, taking advantage of the U.K. pet boom through successfully recruiting so many new pet owners means we have a huge embedded potential in our customer base. In the chart on the left-hand side, you see that bulge cohort of new customers that we've won. And that will track right over time and will benefit from the lifetime value of those customers for many years to come. Now while the replacement rates on the far left of the chart isn't right at those peak levels, it's also much higher than pre-pandemic as those new puppy and kitten cohorts are sustaining a population of 23 million, a new stable high. This also explains why we're seeing more muted levels of market demand at the moment. In the graph on the right, you can see how the large pandemic cohorts are dropping down that smile in early years spend into that year 2 and 3 trough and being replaced by relatively smaller new cohorts at the top of that smile. Now this market normalization is a temporary impact. We should be through it in the coming quarters, and we expect growth to then return to more historical levels, with obviously, though, a significant opportunity to come as we serve those bulge cohorts later in life when vet spend increases. Growing share of wallet remains our greatest opportunity over and above the already embedded lifetime value of the consumers we have. And given our market leadership and scale across multiple areas of consumer spend, we have the best view of what consumers spend on their pets, and we know how to drive engagement. We know that as customers engage with more of our products and services, we win more of their share of wallet. For example, being a vet client, buying our own brand food, using our digital channels, using the Groom Room, buying accessories, all of these help win spend from other providers and consolidate it onto our platform. So while the average customer spends GBP 178 a year with us, up from GBP 160 2 years ago, the most engaged customers spend closer to GBP 1,000. Every element of our integrated omnichannel consumer-centric platform is specifically designed to make it easier, more enjoyable and more rewarding for customers to spend their pet care wallet with us. Now of course, we're focused on winning new customers so they can benefit from that offer, but our opportunity is underpinned by deepening our relationship with the customers that we already have. And, of course, deepening those customer relationships and the key to winning their share of wallet is our digital and data platform. Our digital and data investments touch every part of our business. We're connecting our colleagues in store through the ACE device, our customers through the app and website and our vets through the practice management system to a single digital platform. And that will enable us to connect the physical, the hybrid, the virtual and the digital worlds, so we can leverage our insight and personalize every single interaction with our customers and our clients. In 2024, we made a significant leap forward with the launch of our digital platform to consumers. And today, we have 100% of retail shopping transactions now through the new app and website. And we started to leverage our data in real time. For example, our recommendations and personalized marketing are now being powered by insight from the 85% of transactions that happened in store, not just the 15% that happened digitally. We've also selected Provet for our practice management system partner, which will represent a significant improvement in the efficiency and effectiveness of day-to-day work in practice for our clinical teams. Importantly, it also moves us to a cloud-based architecture, allowing us to connect vets into that single digital platform. We'll deliver the rest of this roadmap over the next couple of years, using the internal capability we've built to launch our single booking engine, roll out our new practice management system and eventually offer a completely integrated pet care experience to our pet owners. The new consumer app that we've just launched is a major step forward. It starts to showcase the promise of what our full platform will deliver. It brings a much improved user experience, better navigation, more personalization, enhanced subscriptions capability and tailored offers and advice. It's early days, but so far, the results are encouraging with a 25% uplift in sales via the app and higher conversion on our new website. And for those of you that haven't got pets in your homes, this is what it looks like. You can see there the relevant content offers and product recommendations, all shown to a customer right at the top, new and featured, powered by our data and special offers and vouchers right there front and center. We've also got simplified navigation and filters and enhanced product attributes running off our new product database. So it's much easier for customers to find and buy what they want, and we've made it much easier to join the Pets Club. The club identity and the customer identity are now as one. We've linked all of our data and made it much easier. So as you can see, it's really exciting to have landed such a big building block of our strategy, delivering clear improvements for our customers today and setting us up for the future. Now on to our differentiated sector-leading vet group, underpinned by our JV model, which is at the heart of our strategy. Our vets delivered an excellent performance in FY '24. Our Vets Group consumer revenues grew 14% to GBP 576 million, making us the clear #2 in the vet sector. We attracted new customers. We grew visits and improved the mix of our business, which, when combined with industry-wide inflation, powered our practice revenue growth. The unique benefits of our JV model, driven by skilled and passionate practice owners translated to an average practice EBITDA growth of 16%. Today, we have more successful, debt-free and profitable vets than ever before, creating increased advocacy for our model, which will help us grow in the future. And the Vet Group PBT easily cleared the GBP 60 million potential we outlined a few years ago with plenty of growth still to come. The CMA market investigation into the veterinary sector is ongoing, and we will, of course, continue to actively engage with the CMA over the coming months. We believe, however, that our unique JV model insulates us from many of the potential areas of concern. We already have a national brand. Our practices clearly display locally determined price list and reception areas, and we encourage best practice sharing in areas such as providing estimates to help customers get adequate information to make an informed choice. Our JV practices are independently owned and sometimes, in fact, compete with each other in local markets. We only operate in the primary care market, having sold our Specialist Hospital Division years ago. And so our vets have complete clinical freedom to refer anywhere or retain the work in-house whatever they think is in the best interest of the and the pet owner. The CMA's concern on charging for medicines and prescriptions is the only area where we think there could be some limited potential impact, but this should be manageable at a practice level. And lastly, there's a question around the way the sector is regulated, given the current regulatory framework is almost 60 years old. And so we welcome the opportunity to sit around the table and help frame the new legislative and regulatory framework for vets. Of course, the main risk with any investigation is that the business will get distracted. And I want to reassure you that we will give this all the attention it requires without losing sight of the long term of growth opportunity we have in front of us by supporting the growth of our practice owners. The welfare of our clinical teams and those across the industry is also a key concern. And we'll do everything we can to preserve their well-being in the face of the stress, uncertainty and unwanted public profile that a market investigation inevitably brings. So, our vet strategy is pro-competitive and we'll introduce new capacity to the U.K. primary care sector and increased choice for consumers. The key pillars of our growth vets strategy are intact, and we've made great progress against the plans we set out a year ago. We plan to grow our consumer sales at 9% a year over the medium term, supported by 4 pillars. First, the embedded maturity of our existing practices, with our average practice now doing GBP 1.3 million of revenue a year, but our established debt-free practices doing GBP 1.5 million. So plenty of embedded growth there. Second, we plan to open 5 to 15 new greenfield practices a year. This year, we've been a bit behind that due to some timing impacts, but we have a very healthy pipeline of new practices to come. And with 120 stores still without a vet and a thriving standalone model, we can tailor our opening program to wherever new practice owners want to be. Third, we plan to extend practices as many mature practices operate on the same footprint they opened with, and we've successfully extended 26 practices in the past year. And fourth, we'll support practices of adding advanced capabilities such as imaging, cardiology, orthopedics and laparoscopy, which provide opportunities for clinical talent to grow and the ability to retain high-value work in practice. So with a great year behind us and a clear and compelling growth plan, we and our practice owners look forward to the future with confidence. And so on to our Retail division, which remains an unrivaled industry leader, well positioned with investments behind us and opportunity ahead despite exiting a more challenging year. Our Retail business is anchored by food, driving frequency and loyalty, and that has led our growth over the last year. And where we win in food, we see a 4x higher frequency from customers, and it has a halo onto non-food spend as well. We're the clear market leaders in the premium food sector, which is expected to grow faster than the overall market, and we remain at the forefront of innovation with our recent expansion into frozen, into freeze-dried and fresh. And our performance in feed has been driven by the strength and growth of our category-leading private labels. These are now super brands and include Wainwright's and AVA, some of the biggest advanced nutrition brands in the industry in their own right. In fact, such has been the growth of AVA that it's now overtaken the branded leader in the dog category. These brands drive frequency. They provide savings for the consumer, alongside equivalent or better quality and deliver significantly improved margin through our bottom line, supported by long-term supply deals such as with Cranswick. As you know, accessories has had a much tougher time over the last couple of years, holding back our gross margin. Pressure on discretionary spend, cost headwinds and the impact of that trough in the smile of consumer spend have provided a difficult backdrop. But we're determined to get accessories back into growth through innovation, premiumization and online channel growth. We know that when we get the product and price right and when we merchandise it well, we win consumer spend. And in the year to come, we've got a really compelling pipeline of innovation centered on range extensions, exclusive product launches and enhanced own brand. We'll be able to use our new digital capabilities to cross and upsell, to target consumer recommendations and to add accessories to food and health subscriptions, driving participation in this rapidly growing channel. We will continue to invest in our stores to offering engaging and rewarding experience for consumers. Our well-located national footprint of pet care centers, bringing together a unique range of products and services in one place together with our convenient standalone vet practices are the leading asset in the industry. We've opened 5 new locations in the past year and refitted 41. We've also rebranded 55 of our stores and vet practices with really positive consumer partner and colleague reaction. And the capital is committed in our plan to continue this level of investment in our current estate alongside expanding to another 40 or so locations in the year ahead. So, I'll now hand over to our CFO, Mike Iddon to take you through a financial review.

Thank you, Lyssa. Good morning, everybody. It's been a solid year. I'm going to give you an update on that and on the financial results we achieved last year. It was really a pivotal year for the business. We delivered a really resilient performance. And as Lyssa has just been saying, we implemented some really important parts of the strategy. Consumer revenue grew by close to 7% to GBP 1.9 billion. Underlying profit was GBP 132 million. That was in line with our January guidance and, of course, includes the impact of the transition to the distribution center last summer. Free cash flow was robust at GBP 69 million, and we now have 7.8 million members in our Pets Club, and that's a growth year-on-year of nearly 2%. More of our revenue than ever is from subscriptions. That's up 330 basis points year-on-year to 10%. And as Lyssa was saying, the average annual consumer value has grown close to 6% to GBP 178. And we've really successfully managed to recruit more clinical professionals, being a big driver of the growth we've seen in our veterinary business. 3,300 vets and nurses now work in our business. That's up 10% year-on-year. Turning now to our consumer revenue growth. As I said, it was in line with our medium-term ambition. We grew 6.9%. And within that, group like-for-like growth, as you can see from the chart, was just over 5%. Retail like-for-like growth was just over 4%. And Vet Group like-for-like growth was 16.5%. Within that retail number, food benefited from strong growth all the way through the year, and that was underpinned by volume growth. And within accessories, that did decline, as you can see in the chart, by 4.3%. But splitting that out, consumer accessories, so items like cat litter, they actually grew by 7%. So it's those discretionary accessories, things like dog toys -- dog collars and leads, dog toys, they declined by 8%. And we've already taken action, as Lyssa was saying. We're determined to turn that around and the growth plan in the year ahead is a key component of that growth plan. Within other, as you can see on the chart, that's grooming sales mainly in there. They grew in the year by around 10%, and that was really helped by the successful retention of our grooming colleagues. The vet business had a terrific year, firing on all cylinders, supported by that increased clinical capacity, growing like-for-like revenue by 16.5%. And within that, we've got good visits growth of around 3%. In the Vet Group, of course, we have a number of proven growth levers. We opened 3 new practices, extended 26 and we converted 10 group managed practices to what is our preferred format, which is the joint venture model. Average practice revenue lifted to GBP 1.3 million per practice, and we have a significant amount of embedded maturity still to come. Half of our practices still less than 10 years old. Turning now to the profit results. GBP 132 million, in line with expectations, but held back by the headwinds we've previously flagged. And those headwinds, of course, include GBP 9 million of additional costs and the impact of lower sales as we did the short -- as we suffered that short-term disruption last summer in Q2 as we transition all our stores to our Stafford distribution center. That's all behind us. I mean, that peak operational risk, all behind us. Stafford is operating an ever-improving productivity, and availability in our stores is stronger than ever. Group gross margin declined by 123 basis points, mainly due to Retail. And in there, there's 2 factors. One is the mix effect of that really strong growing food business at more than 9%, and the decline we saw in discretionary accessories. The other part of it is foreign exchange. We bought our dollars last year at $1.19, and that compares to $1.34 the previous year, and that weighed down on the gross margin. As we look into FY '25, we bought 80% of our dollars now at $1.25. So that will be a tailwind coming into the new financial year. We kept a really good grip on our operating costs. Those grew only 4% to GBP 558 million. And here, we've got a number of really well-proven efficiency and productivity levers to pull. And that helps offset some of the known headwinds, the biggest one of which is 9.8% increase in the National Living Wage. We treated GBP 26.3 million of costs in the year as non-underlying, mainly across 2 areas. One is the distribution transition we talked about. And the other was the closure of our Swindon support office, and that's now complete. And in the year ahead, we are planning for GBP 7 million -- a further GBP 7 million non-underlying costs with 2 drivers of that. One is another restructuring we're doing, another office restructuring at Handforth this time, taking out 120 roles. And we're going to complete the online transition moving up our online picking from Northampton up to Stafford, and that will be a further GBP 3 million, but significantly lower year-on-year. PBT margin dropped, as you can see in the chart, to 8.9%. Within that, and as expected, Vet Group margin stepped up by over 100 basis points. But retail margin, that did decline held back by the factors I've been talking about. That did drag on our retail profit, which declined to just over GBP 87 million. But Vet Group profit lifted by 20% to just over GBP 61 million. Turning now to cash flow. Strong free cash flow and the robust balance sheet. GBP 69 million of cash flow in the year, and that's after cash CapEx of GBP 48.5 million, and we closed with net cash of GBP 9 million. The Vet Group produced GBP 58 million of cash flow, and that's consistent with a target of GBP 60 million of cash flow we've been talking about for a number of years. And there's plenty more to come on the Vet Group cash flow. Retail cash flow was held back by those one-off costs. They are non-recurring -- non-underlying costs, mainly related to the Stafford DC. We'll pay a final dividend in the year, 8.3p, that maintains our dividend flat, represents payout of 61%, slightly ahead of the 50% payout in the capital allocation guidelines. We also successfully completed our share buyback program, taking our total buyback now to GBP 100 million over 2 years, GBP 50 million last year. And we bought back in total 15.3 million shares last year. And as you can see on the slide, we finished the year with lease-adjusted leverage maintained at 1.5x. We've got a robust balance sheet, and we will generate surplus cash flow in the year ahead, and that's after fully funding our growth plan. So turning now to our capital investment. We invested close to GBP 46 million in the year, and we continue to have a really disciplined approach, fully aligned to strategy. As Lyssa was saying, we did complete a full development program, 41 pet care centers, 26 extensions, but we spent less than our planned budgeted investment because we focused on lighter capital refits. And many of those vet extensions were actually chosen to be funded by the practice owners. We opened 5 stores, and that was consistent with the medium-term target to open 40. All are trading well in line with the business plan, and we'll continue to open new stores, particularly in urban areas. And we see quite an opportunity there. And since the year-end, we've opened a further 2 stores, 1 in Sutton and 1 in Whetstone. The balance of the investment is in digitizing the business. Much of that, of course, is expensed through the P&L through the SaaS charge. And last year, that was just short of GBP 28 million. As Lyssa was outlining, we've now completed the build phase of our new website app. All customer transactions are now on the new platform. It's a significant step forward in our digital capability. And of course, we've built along the way, the in-house capability and skills to continue to enhance and develop that platform for customers. Looking ahead into this year, we'll invest around GBP 60 million of capital. That will be across 3 key areas; new stores, the development of existing stores, enhancing that digital platform and supporting those proven growth drivers in the vet business. And over the medium term, we'd expect that GBP 60 million to taper down to around GBP 50 million a year. As we look into this coming year, we have a clear plan to grow profits. We do expect a slightly weaker pet care market than the 4% medium-term growth assumption. That's driven by the normalization of the pet population and the number of new pets sort of stabilizes at a new normal level. We planned our profit growth off this lower market growth expectation, and there are a number of drivers that give us confidence. And the first is that the one-off factors that held retail profit back this year, mainly that GBP 9 million of additional distribution costs, they will fall away in the year ahead. We've also been through a period over the last 2 years of peak investment, heightened operational risk. The cost of those investments in our digital have all been expensed and they are mostly behind us, but the benefit is still ahead of us and they'll now start to deliver. We also have a really tight grip on the cost base, really disciplined approach to capital investment. With that well-established program, we've got a rent reductions, 10% of our leases a year and better procurement of goods and services, that will continue. And we've already implemented a headcount reduction in our Handforth support office that will reshape the costs and simplify the work. We've got a strong retail trading plan. That includes turning around that key core accessories performance. We've reenergized our stores on 4 Cs of customer, colleague, cash and core, and we planned quite a significant step-up in marketing investment in the year ahead. Finally, we'll continue to see and support the proven growth drivers in the vet business and deliver that embedded growth as we drive out the maturity of the practice portfolio. So when you take all that together, we've got a comprehensive fully resourced plan to grow profits in the year ahead. So turning now to capital allocation, remains unchanged and closely aligned to our strategic priorities. First and foremost, to invest to grow the business. That's where we've got a very disciplined approach and very clear on where we're going to invest. Secondly, the commitment to the ordinary dividend, to pay a progressive dividend, around 50% of earnings. And we've got a really consistent and reliable track record of doing so. Third, where it makes strategic sense, so the good example is the buying The Vet Connection. We'll invest in bolt-on M&A. And finally, where we've got surplus cash, we'll return that to shareholders via buybacks or special dividends. And if you look back over the last 5 years, we returned GBP 300 million to shareholders and at the same time, maintained a robust balance sheet and not constrained the growth of the business. And today, we're announcing a further buyback of GBP 25 million in the year ahead. And finally, last May, we did set out our medium-term financial framework that will reward shareholders with compounding growth and strong cash flow. We plan to grow our sales 7% over the medium term. That was based on the pet care market growing at 7%. That market growth, as Lyssa was saying, underpinned by strong structural growth drivers. And then we've got our proven drivers, omnichannel strategy, our digital capabilities, our unique model, product and services, enables us to grow faster than the market. Profits will grow ahead of sales, 10% a year. That's driven off the back of productivity gains, efficiency benefits and operational leverage. And in turn, that drives strong improving cash flow to 70% of PBT. That will allow us to reward our shareholders through a progressive dividend and returns of any surplus cash, as I mentioned. So in conclusion, a really pivotal year of strategic progress. We delivered a resilient financial performance, landed some big strategic projects and importantly, have a clear path to improved profitability. Strategy remains clear. And importantly, our capital allocation and medium-term financial framework are unchanged. Thank you for listening. I'll now hand back to Lyssa.

Okay. So in summary, 1 year into our strategy, our vision is unchanged, and we successfully delivered the key building blocks of our platform alongside, as Mike outlined, a really resilient financial performance. Our strategy is clear. It's underpinned by that purpose to create a better world for pets and the people who love them. And I'm more excited than ever by the future for this business as we build the world's best pet care platform. So, now Mike and I are happy to take your questions.

First question is just on revenue growth in retail. I appreciate were only a small part through the year-to-date, just 6 weeks, the data you provided this morning, revenues down 2%. Just wondering if you could run through the building blocks that you think sees revenue accelerate to the 4.7% that consensus has. That's the first question.

So the minus 2% we believe is still better than the market. So we're still gaining share. We're still gaining customers. And if you recall the slide that I talked about in terms of that smile and that -- and those cohorts -- those COVID cohorts, we are now lapping pretty much the final quarter of those boom cohorts with the normalization cohort. So next quarter, our comparables come down quite a lot and continue to stay much lower. So that's why when we look at all of our data and analytics and look as we plan the cohorts out, we can see that, that will progressively return to growth and that's what gives us confidence. Alongside, of course, the fact that we have this new digital platform, which is showing initial signs of working really well, but we've got loads and loads that we can now start to drive through that. We actually held back a little bit on marketing this quarter digitally because we were going through that transition. So we've got plenty now that we can start to drive volume through that platform. So those are the 2 really big key factors that give us confidence. I don't know if you've got anything to add.

Yes. Couple of -- just to add to all those points Lyssa has described. Balance sheet, of course, got much weaker comparables. That last 6 weeks, the first 6 weeks of the year, the comp for the quarter was 7.1%, but the comp for that 6-week period is more than 10%. If you look into Q2, our like-for-like, there was 2.8%. Some of that was the GBP 20 million of sales we attribute to the lost sales impacted by poor availability when we transitioned all the stores into Stafford. And then into the balance of the year, we're lapping much gentler comps. That GBP 20 million, by the way, is probably worth 1.5% like-for-like on a full-year basis. And on top of that, of course, we put a bigger marketing investment in. We've got a plan to turn around what's been in decline, which is our core accessories. They've been down by, as we're saying, 8%. So we've got all the building blocks of that plan. So that growth we're putting in, we've got every reason to be confident we're going to get there. And by the way, we plan for that minus 2%. So the data we've got enables us to predict more accurately the shape of demand. And we did build into our plan. So our GBP 144 million full-year target assume we're going to have that minus 2 in the first 6 weeks of the year.

Next question, just on the vet segment. You called out the increase in headcount. What shape should we expect revenue growth to be in vets in FY '25 in terms of the price volume mix? Will it be more volume dominant, given there has been that headcount reduction or the inverse?

You'll probably see something similar to this year. So price and inflation in line with the broader sector. But again, that curative mix, those advanced procedures, that new space that we've laid down last year coming through and some visit growth as well as we start to -- as we continue to win that war for talent. So not a materially different shape than this year.

Okay. One more, if I may. Just on the expansion of the veterinary network. There were 3 added the financial year just gone. What should we expect going forward? Will it revert back to that longer-term target that you've outlined previously?

Yes. So our long-term target is 5 to 15, and we've got lots and lots of opportunity. The limiting factor is not locations. We've got 120 stores without a vet where we would love to put one in. We've got a standalone model that works really, really well, which we can pretty much put on any high street. In the U.K., the issue is finding the right partners. And the business has learned the hard way, I suppose, with many years ago now, the reset, that getting those right JV partners is critical. They need to be really good clinicians. They need to have decent customer service skills because, actually, a lot of what you're dealing with is clients at a particularly stressful point in their lives. They need to be able to run a team. I mean, some of our vet practices now are up to 70 clinical teams in those vet practices. And they need to have some business skills. Obviously, we take the bulk of that off of them with our model, but they do need to have business now. So we're looking for those 4 things. We don't need loads of them, maybe 50 a year to kind of keep going the ACE share sale succession pipeline going and open those new practices. And we've got a fuller pipeline than we've ever had before because, as the JV model becomes more widely understood, it's the best of both. It's the best of having your own independent practice with all of the support of a corporate. So we've got a fuller pipeline than ever. We've got loads of locations to go after. We'd like to get back to the 5% to 15% a year, and that would be kind of our target for this year.

And just to add to that, alongside that, of course, we've got the extension program. So many of those in-store practices are still on the same footprint as they first opened, and their revenues have grown. Average today is GBP 1.3 million. We sometimes talk about maturity. Actually, that sort of implies or infers that there's a limit to growth. But if you take some of our bigger practices, while the average of our 10-year-old practices is GBP 1.5 million, our biggest practices like Stockport, which have extended now 3x, that turns over more than GBP 4.5 million a year, and it's not our biggest. So those are outliers, but just shows what's possible. And extensions are really -- in our gist really, very capital light, mostly the partners are funding those and it uses a better utilization of the space in the store. And that actually might look like 2 more consult rooms and the new operating theater, but it will really generate really strong revenue growth in the years ahead.

Jonathan Pritchard at Peel Hunt. A question on pricing, relative pricing. Grocery, food, where are you on your main competitors versus your main competitors on that? Are you bang in line? Or is there a little bit of a bit of a tolerance? And can I ask the same question on vet pricing as well?

Yes. So on grocery pricing, which is actually quite a small part of our mix, obviously, AN is where we really compete and that's where our own brands offer really excellent value versus the branded competitors. But on grocery, we're exactly where we want to be, which is in line, or even on promotion below the sector. And we are winning share in grocery still on that basis. Vet pricing is set locally by our vets. We don't determine it centrally. So it will be very much tailored to the local market. And if I can give an example of, say, Hull, where we've got 2 vets in very close proximity, one serving Hull Junction, which is one of the most deprived council estates in Europe, actually, and one serving Hull Anlaby, which is a very affluent suburb. Hull Junction would be providing consults 15 minutes GBP 20 or GBP 30. Hull Anlaby would be providing 30 minutes consults at GBP 60 or GBP 70. So the pricing is very variable, very much determined locally and very much tailored to the local market. Stepping all the way back from that, we believe our price position in vets is competitive, very competitive.

Ruben from Peel Hunt. Just one from me. So how much of the vets revenue mix is medicine and prescriptions?

20% to 25% is what the CMA thinks nationally. We've got no reason to believe we're any different than that. So any impact of that, and that is the only element of the CMA, which is why I think you're asking the question that we believe may affect us. It's pretty small. We always encourage vets to charge appropriately for their time, which is 75%. That's where we're investing, actually, behind that 75% with advanced capabilities. And so if there is a small rebalancing, which there may be, it's at the margin on 20%, 25%, and we've got 75% of the rest to absorb that. It's also worth noting that having now opened Stafford with the capability we've got there and the digital capability, if online pharmacies really were to gain traction, that's something that we could do and that would insulate us again by keeping that revenue in-house.

Just to build on that, another feature of vet revenues, of course, are the care plans we sell, which are -- it affects subscriptions. And we know they are very competitively priced versus the rest of the vet sector. And we've seen really good growth there, and that's a way of giving value to customers, but also the reliability of a regular direct debit coming into our bank account. So those subscriptions are really important in terms of creating annuity lifetime value out of our vet business.

It's Kane from Deutsche Numis. Just maybe following up on that question on the pricing -- the medicine. Do you not think that vets are just going to look to rebalance the fees, the 80-20 split? And further to that, I mean, is it not going to just completely obliterate the independents, assuming they don't have the bargaining power at all when it comes to the medicine side? Then just on accessories piece. I don't know if we could push you for a little bit of guidance as to sort of that core piece, how that evolves through the course of this year? And given the normalization trends you've spoken about, are you seeing increased competition in the space, which would perhaps maybe impair or lower the sort of typically high margins you would have otherwise got in that segment? And then just finally, your sort of Trustpilot scores have sort of gathered a little bit of momentum recently. Just wondering if you have any response to that. I assume there has been some short-term disruption, given all the bits and pieces you're working on. Yes. Anything you can give us there.

3 great questions. Thank you. So listen, the pricing of drugs and medicines and service is set locally by our owner operator vets. So if there's a small adjustment in the market, I imagine they'll adapt very well to that. One of the benefits of our model, obviously, and the reason that our vet practices are so much more productive and profitable than either independents or corporates is that owner operator mentality, but also the benefit of everything that we provide, and a large piece of that or one piece of that is the fact that we consolidate our buying power, not just in terms of pricing, but also in terms of supply. So when things like vaccines and things are in short supply, we're able to negotiate with our suppliers to make sure that our vets have them. So it's not just pricing, it's availability. And that's clearly a key feature of our model. I can't really speculate on independence, but I know that that's making one of the reasons that our model, this best of both, the best of independent and best of corporate is increasingly attractive. So I think that's the first question. Do you want to take accessories?

Yes. I mean, as I was saying in the update, accessories, these are discretionary core type accessories, 2 years of decline. But those are 60% margin items. And I think the first base camp is to stop the decline, actually. And our plan assumes it can stop that decline in the year ahead. It's not going to be an instant fix. It's not suddenly going to return to growth. But the digital platform we're building is a real way of enabling customers to spend more on and buy more accessories from us. Today, you look to the mix of our digital sales, less than 10% is accessories compared with our overall 35%, 40%. So that's a great opportunity. So, we do actually see turning around accessories as an opportunity from the base we're starting from. And we've got some really good plans as you look ahead. And in terms of how to fix it, we're pretty clear. You've got good product, innovative, well merchandised, well priced, colleagues are getting behind it. Christmas is a great example. We had a great Christmas offer. We didn't put it on a 3 for 2, and we sold everything out completely. So next year, we'll get even more confidence on the Christmas buy. So we know how to fix it. Our task now is to get on and get that done.

And on your third question about Trustpilot scores, I mean, we track, obviously, customer satisfaction and experience on a number of metrics. And since we had the lows of the transition of Stafford back in the summer, that's been tracking up and up and up every single month. We're now at a position where we've got between 90% and 95% of customers reporting that they are either very satisfied or satisfied with their experience. It's actually higher than it's ever been and going up. I actually think our stores, as we've rallied around these 4 Cs that Mike talked about, are in better shape than ever before with great availability and our colleagues, obviously, as highly trained and passionate as ever. So overall customer satisfaction really high and continuing to increase. The Trustpilot scores you talk to are those one-star reviews that increased over the past few weeks. And not surprisingly, actually, because as we transitioned from one digital platform to the other, no launch I've ever done -- digital launch I've ever done has gone smoothly. And in this case, it was the subscriptions that didn't cut across cleanly and the data didn't transfer cleanly from one platform to the other. And that's a frustrating experience when something has been turning up every month and then suddenly it doesn't turn up. So I'm actually -- we never want to disappoint customers. And I'm not surprised they responded with one-star Trustpilot scores. But we are through the back of that now. All of our subscriptions are running off the new platform, and we should start to see those Trustpilot scores return to the 5-star reviews that we like to get and that we're more used to.

It's Manjari Dhar, RBC. I just had a couple of questions, if I may. I appreciate that you guys aren't seeing anywhere near the same level of inflation that you were last year. But I was wondering, are you starting to see any deflation in any categories? Or are you expecting that this year? And then secondly, maybe building off the previous question on accessories. It looks like sort of there's been a big uplift in the market -- the actual value of the market, but market share has dropped back this year versus last year. Is that anything to do with sort of competitive landscape [indiscernible] or the like? And maybe linked to that, could you give us any color on what you've seen in terms of the uplift you see when you introduce a more premium range in the accessories business?

Yes. Do you want to take the first one?

Yes. Just remind me what the first question was.

Just on deflation, whether you're seeing...

Yes. Okay. Yes, deflation. So the way to look at that, just to add a bit of color, would be Q1 last year inflation in food. And that's probably the best category to look at. It was 11%. By the way, we were competitive then on pricing and taking market share. Inflation in Q4 was 1.5%. And if you look at the latest ONS data that came out last week, there's no inflation in pet product at all at the moment, but there's no deflation. When the suppliers are coming to us, they're not putting their cost prices down. And back to Lyssa's point, the most important thing for us is to remain competitive on pricing. That's what we're determined to do. So like-for-like growth, competitive on pricing and managing our percentage margin in food. That is sort of 3 critical KPIs the commercial team will track to. So as we look into the year ahead, we'll probably see a little bit of inflation coming back, but it's not going to come back to, I want to say, a little normalized levels, 1.5%, 2%. But we're lapping this period now of really high inflation.