Earnings Call: H2 2021

May 27, 2021

Good morning. I hope you're all 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 Iden, our group CFO. I'm sure I'm not alone in characterizing the past year as one of the most challenging environment in living memory. I can clearly recall standing here one year ago early into a new financial year with the world looking a very unfamiliar place. COVID has been disruptive, disruptive and for some life changing. For even in tough times positive things happen. This last year has seen the role pets have played in our lives. More people than ever have become pet owners and are experiencing the highs and the lows of being a pet owner. It's a life enriching experience which as many pet owners will testify has provided comfort and companionship in such challenging times. The UK has always been a nation of pet lovers and this last year more people than ever have enjoyed this uniquely rewarding experience. As such, our market has fundamentally changed, not just through COVID, but for many, many years to come. And we're looking to the future. And as we look forward, we are optimistic about our plans and ambitions for our business. Our strategy is really simple, to grow our share of the pet care wallet by meeting all of the pet owners' needs. We aspire to be the best pet care business in the world. There are four messages to take away from today's announcement and they underpin the opportunity for pets at home. First, the pet care market has grown, driven by the growth in pets and owners and the market was strong pre COVID and we now believe the market will accelerate around 4.5% CAGR for the placebo. Second, we have a plan that will drive a 600,000,000 customer revenue opportunity over the medium term, continuing to grow our share of the growing pet care market Third, we are cementing our position as The UK's leading omni channel pet care business, executing our transformational plan. We are investing and transforming our shops into pet care centers, investing £20,000,000 into Project Polestar, our eighteen month plan to create our pet care digital platform. And as previously announced, we'll also deliver our new single distribution center in 2023. That will increase our capacity, our speed and our efficiency to serve our growing business. And finally, we will continue to leverage our investment into our data capabilities as we build our pet care subscriptions volumes and continue to personalize our customer experience. Our track record shows great progress and the latest results are further evidence of the achievements that we've made despite the incredibly difficult backdrop. Now speaking of results, I'll hand you over to Mike, who will run you through the headlines for FY 2021. Thanks, Peter. We are very pleased with our full year results, especially in the context of a year dominated by the COVID pandemic. And these really positive results demonstrate the resilience of the pet care market, the strength of our business model and the relevance of our strategy. And just before I run through our headline numbers, it's worth pulling out four standout highlights from our results. We delivered GBP 87,500,000.0 of profit before tax. That exceeds market expectations. And we've built strong momentum in our sales with second half group like for like growth of over 12%. Secondly, over the last twelve months, we've gained a significant number of new customers and we've grown our market share from 20% to 23%. We benefited from a step change in the growth of the market, with the overall number of pets increasing by about 8%. And our unique pet care ecosystem means we are really well placed to benefit from this in the coming years. And finally, we exit the year with our strongest ever balance sheet. And that gives us both the confidence and the capacity to step up our investment across our strategic growth areas. So turning now to the full year numbers and looking first at our strong revenue performance. Total group revenue increased by 7.9% with like for like growth of 8.7%, that's 17% on a two year like for like basis. And this reflects the acceleration in our momentum across all channels as the year progressed, with our group like for like increasing by 12.4% in the second half. In our Retail business, like for like revenues grew by 8.8%, and our total revenue exceeded £1,000,000,000 for the first time, and that was despite a 29% decline in revenue from our grooming operations, which were impacted by COVID restrictions for much of the year. Within the overall retail performance, omnichannel revenues grew by almost 72% year on year, and its participation in total retail revenue increased from 10% to 15.8%. Our stores also benefited from strong growth, with second half like for like of 4.9%. And this clearly demonstrates the key role our stores play within our pet care ecosystem. Category wise, food revenue grew by just under seven percent in the year, well in excess of the underlying market. And we saw strong growth in new customers. And accessories revenues, including consumables such as litter and bedding grew 15% as more pets came into the market and into our stores. In our Vet Group, full year like for like revenue growth was 7.9%, and that was despite the impact of restrictions placed on veterinary procedures, especially in our first half. And like for like growth in second half was an impressive 17.2% as those onerous restrictions began to lift and growth in pet ownership led to strong levels of new client registrations across our practices. Turning now to our full year profit results. Group underlying pretax profit was GBP 87,500,000.0, and that was driven by strong revenue growth, stable gross margin and robust underlying cost control. That result is slightly ahead of guidance. And although profit declined 6% year on year, it was after We business see business business a positive positive voluntary repayment of GBP 28,900,000.0 in business rates relief. Adjusting for the timing of the rates repayment, underlying pretax profit in our second half was up 22% year on year. Group statutory profit was GBP116.4 million and that includes GBP30 million profit on the disposal of our specialist referral hospitals, which we sold at the December. The cash and deferred consideration were up to GBP100 million. We continue to be good cash generative. Group underlying free cash flow was GBP 67,400,000.0. That includes a year on year increase in working capital of about GBP 6,000,000 as inventory levels were rebuilt following customer stockpiling at the end of last year. That was partly offset by a 10,800,000.0 reduction in the gross value of operating loans to our joint venture practices as the profitability and the cash generation stepped up across our veterinary estate. Cash capital expenditure was £35,000,000 and that reflects the investment in our strategically important areas including our distribution network, our store transformation program and data analytics and systems. We ended the year with a net cash position of GBP 1,400,000.0, including GBP 80,000,000 of the initial proceeds from the disposal of our hospitals. And that gives us significant capacity to invest both organically and inorganically to drive future profitable growth. And our net debt on a post IFRS 16 basis reduced by over GBP 140,000,000 to GBP $4.00 8,000,000, giving us leverage of 1.9x, and that's down from 2.5x in the prior year. The strong cash generation in the year has enabled us to increase our final dividend by 10% to 5.5p or 8p for the full year. And going forward, as part of a refreshed framework for capital allocation, we intend, after any organic investment, to pay a progressive dividend each year, which equals about 50% of our earnings. Our strong liquidity and robust cash flow gives us the confidence to invest to grow the business, and we plan to step up capital investment to about GBP 70,000,000 in the year ahead to take full benefit from the step change we've seen in market growth. In summary, Pets at Home continues to go from strength to strength. We've seen a step change in the growth rate of the pet care market. And our unique business model and the investments we are making to further improve it will enable us to continue to grow our market share. I'll now hand back to Peter. Thank you. Thanks Mike. I'm incredibly proud. Proud of our business and proud in the collective efforts of our colleagues and partners from across the group who have helped adapt our business to provide essential pet care through the pandemic and they've worked tirelessly to serve our customers' needs often in adverse circumstances. I'm also proud of the way we continue to treat all our stakeholders respectfully and fairly through the crisis from supporting our colleagues' emotional and financial well-being, increasing our support to nominated pet charities and continue to pay our suppliers and landlords throughout. We're a far stronger pet care business emerging from the pandemic without government support, and voluntary repaying £29,000,000 worth of business rates relief. This year, we celebrate our thirtieth birthday, starting with a single pet shop in Chester, growing into the pet care provider we are today. Our business has always been successful at adapting and responding to the needs of pet owners. Over the last five years, we've proactively repositioned our business from a pet shop to an omni channel complete pet care provider. We've increased our share of high growth segments such as the first opinion veterinary services, online pet care and subscription product services. Our rate of growth has consistently outperformed the underlying market in all the segments in which we operate. Our business is unique in its capabilities and in a unique appeal to pet owners by providing everything they need easily and conveniently. The plans we're laying out for our next five years are equally as exciting because we believe in life we're better with pets. We believe the best of pets is yet to come. Thanks for watching. Stay safe and take care. We will now take our first question from Jonathan Pritchard from Peel Hunt. Please go ahead. Hi there. Yeah. Morning, all. Well done. Great, great year. Great, great set numbers. Two for me first. How robust the discussion did you have about a special dividend? I understand, the CapEx is rising, the need to to tap into all that growth, but they've got cash on the balance sheet. As I say, how robust was the discussion? And if you did come in, let's say, at the the top of the range, would that discussion become pretty pressing? Would the cash on the balance sheet be be pretty pressing to give back to investors? That's the first one. And secondly, just in a couple of chats with you guys, you've talked about a a propositions team sort of building to to help memberships. Obviously, that's going well and and proactively mainly 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 healthcare plans. The first product is already launched and that was our junior health plan for puppies and kittens, which incorporates our telehealth service for the first time. So if you remember, we bought the VetConnection, 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, 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 PetSafe 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 an 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 twelve or eighteen 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 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've got a slide number now, which I think for the first time we lay out the cohorts of customers. And you'll see the work we did last year on puppy and kitten and how that cohort is spending 15 percent more year on year than our previous cohort. And that I think they really start to lay down some of the results we're seeing from having dedicated team of both the propositions team, which is very customer focused and our data team, which support the insight. Mike, do want to take up the question on special? Yes. Thanks, Jonathan. So yes, today, we're doing two 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 number one 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 structural growth. And as Pete has just been pointing out, that's actually stepped on. So putting money into the market to grow our business is our number one 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 up to the market opportunity as number one priority. But we are going to commit to paying 50% of earnings out as an ordinary dividend. Okay. Thanks a lot guys. We will now take our next question from Andrew Portis from HSBC. Please go ahead. Hi. Yeah. Hi. Morning, team, and, obviously, congrats on a a a great set of results. Three from me, if I if I may. You've you've talked a lot about digitization in the update this morning, and, I know you've got some 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 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 know, you've made I think you talked a little bit about it already, but, you know, you made the big investments in data a couple of years ago now. We started to see the benefits of those coming through, and, again, is is there a long way to go on that and and sort of what are the early thoughts there? And and then really, you know, a last one for me in terms of the overall, you know, you talked about the 600,000,000 incremental sales opportunity. Just thinking about how we should think about that. I mean, you know, medium term 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 question. So let me I'll take the first two and then I'll ask Mike to talk to the $600,000,000 So on digitalization, 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. But we recognize that what we've been doing is doing that within channels. 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 separate silos. Our vet business is quite independent of our retail business. The big announcement really in Project Polestar is to truly bring it 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. And 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 $20,000,000 also includes 100 people who are going be building it because we're building it both with best in class software that's out there plus also building 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 03:00 in the morning if I need you 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 needs 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 eighteen 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. Moving on to the second point, actually right in data that we invested over two years ago. We've and there's a lot of heavy lifting we have to We have to recruit 45 people. We have to get 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 is because it's now 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 interest them to, and that's fueling our subscription revenue. And you'll see in our announcements, our subscription customer revenues are now at $90,000,000 and up to growth and now over 1,000,000 subscribers. And it will fuel our new plans if we start to build them. So for example, our junior healthcare plan, we obviously have seen a significant step up in our PP 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. I still think the benefits are ahead of us. And as we look at our $600,000,000 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 want to talk about the $600,000,000 Yes. Thanks, Andrew. So your question is, of the $600,000,000 opportunity, how do we see that coming through into profits and cash? Well, first of all, think the £600,000,000 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, we think of the progress we made over the last year, the vet business gave us cash $38,000,000 And actually, even disruption in the first quarter, we grew profits out of our Vet business in the year just gone. Profits grew by $5,000,000 to $36,000,000 So we know we get really good flow through of profitability in our vet business. And actually, we still got the benefit to maturity still to come. 20% of our practices still less than four years old. And we know our practice doesn't really mature until it's nine years and older. And even then, we're getting growth of 66.5%. So our vet business will transfer profit sales growth into profit growth really very well. We'll see margins expand there. And the goal of getting to £60,000,000 of cash, which we always said is the our maturity is looking closer and closer, having done £38,000,000 the year just gone. We are going into the New Year with really good momentum in our sales. And think of the $600,000,000 we are updating our guidance today or putting new guidance into the market to say our profits for the year ahead will be 120,000,000 to $130,000,000 So we're not nobody's going to have to wait long to see how that converts into profit compared to the 87.5% in the year just gone. When you get chance, we put a chart in the deck today on Page 10 that just gives a bit more detail of how that $600,000,000 will come through. 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 be 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 600,000,000 will be strongly accretive on both cash and strongly accretive in terms of profit growth. Thanks for the detail guys. Very clear. We will now take our next question from Adam Tomlinson from Liberum. Please go ahead. Good morning, everyone. 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 $70,000,000 this year, and I know that new project of $20,000,000 is coming in, but can you maybe just give a little bit more breakdown of where the balance of the $50,000,000 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 for 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. Hi, Adam. I'll deal the question When on subscription you get a chance, there's a couple of really helpful slides, I think 2020 2021. One shows the proportion of licensed medicine revenue on subscription today and the other shows 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 18,000,000 actually more now, probably near 20,000,000 cats and dogs in The UK. And we've got hundreds of thousands of plans on fleet. So I think our opportunity there is still very, very, very much ahead of us. And we've got a third of our clients in our 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 only two, three years into our subscriptions journey. And obviously, a million customers and clients and £90,000,000 of the revenue, good progress. But in order to really make that step change, we always recognize two 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 to bundle in services, for example, access to a vet twenty four hours a day, we make the propositions 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 two slides, the runway ahead is still very considerable. Mike, do want to talk to the CapEx? Yes. So yes, we are picking up on the CapEx. It's going to pick up to £70,000,000 But that's for us to get out to the opportunities we see in the market, the £600,000,000 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 $70,000,000 will broadly be deployed in three areas. The first is we'll build out the DC we announced last summer, and that DC will open in the summer of twenty twenty three. So the next eighteen months, we're going to be investing to build out that DC. The second sort 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 twelve 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 four elements add up to the GBP 70,000,000. Okay. Thanks very much. 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 at the on the left hand side, those that only shop in stores, and then moving right 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've 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? Yeah. There's there's a helpful slide, slide 17. And from what we're seeing, you can see you can see the growth in per channel. About 26% of our VIPs now you saw at least one other channel, and that's an increase of 10% year on year. But you can on that side, you can see the progression through. So you have any other questions, just give us a shout and we'll pick up. Okay. And does that sorry. Does that so does that 26% mean they all sit in that far right hand column? Or No. It doesn't actually. No. They use that 26% means they they're using the store base in at least one of the channel. So that could be a service. It depends on what their pet is. We will now take our next question from Xavier Leleme from Bank of America. Please go ahead. Yes. Good morning, gentlemen. Thank you for taking my question. 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 the store? So that will be the first question. The the second one on the M and A side, actually, would you consider acquiring more first opinion of that practices, or are you more in the the way of looking at strengthening your ecosystem, so adding more new services rather than just strengthening what you've got already? Okay. That's a great question. 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 a customer, that's how we think about it, we can actually increase their overall profitability to business. If you wanted to really break it down into as money shy, the least profitable way a customer could shop would be pure online. They order online, they have to deliver it to home. It's the least profitable because you have a courier cost, but we still make money. The way that we set our basket thresholds, our own level participation means it's still accretive to the business. Of course, we have this wonderful thing. I'm sorry, by the way, the most proper 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 store because we're picking the items in store and that allows us to negate career costs. So it's allowed us to shift customers who have previously wanted the convenience of online shopping, but actually wanted the convenience to 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 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, but actually you can go yourself. And we look across the whole of that, the key thing is the customer spends more and actually the proper pool from the customer goes up. And that's how we think and how we manage it. On the M and A side, I might jump in if there's anything else you want to add. On the M and A side, you're absolutely right. We are very conscious that we have an ecosystem and we'll be making very thoughtful additions, obviously point most recently to the VetConnection, which has been a really lovely addition to our business because it's brought a capability in that we didn't otherwise have and is allowing us to connect things together for the customer. So the VetConnection provide twenty four hour a day telehealth coverage. They actually also provide many other insurance companies as well. And this allows us to connect a service for our customers when they most want to, but also it could become an extension of our practices. And we continue 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 does 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 80,000,000. 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 PBIT bridge. And you can see that after you remove the impacts of COVID, actually our retail business stepped on with GBP 19,500,000.0 of profit growth last year after that sales growth of £81,000,000 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. Thank you. We will now take our next question from Simon Bowler from Numis. Please go ahead. Hi. Thank you. I have a few kind of questions, it's okay. First one, I guess I'm just kinda 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 current sales trends and therefore will reflect kind of a tough comparative period as we move into a world where there's there's less kind of new puppies and and kittens or more normalized number of new puppies and kittens coming through, albeit that world may be some way away? And then second question was just, can you talk about whether there's any kind of ongoing kind of COVID impacts or costs captured in your in your guidance for for the year ahead? And and then third question was it notwithstanding my question on the barbell, it's probably not impossible to kind of build to a, you know, 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 then I'll ask Mike to pick up the next two. I think the starting point and forgive me, this is probably the most obvious statement I ever made, but it's probably the most important one, which is our whole market and the pet market is determined by the number of pets that are in it. And that eight percent shift we've seen in the number of pet owners really does have material and lasting impact because we know the lifespan of a cat or adult is typically anywhere between ten and fifteen years. So that boost in the population, which is by the way 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 $600,000,000 opportunity because even if we just held our share in that growing market, there'll be a couple of £100,000,000 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, some relative 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 two trends that we saw coming into COVID, way before COVID, premiumization and humanization, still presence, 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 are 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 have a family. And the sizable spenders, so the people seeing coming in 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 is structurally changed actually for the foreseeable. And therefore, when we think and bring it back to our plan, you know, I think our 600,000,000 plan is a ballsy plan. I mean, we're we're supporting that with a 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 tough 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 are 6.2% of the IP and is better than anybody else. A simple joined up proposition that allows you to access a £1,200 spend, not a 200 or £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 pulsar 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 step up. That's why we're being quite bold about the future growth. And I think we are just so well positioned now to take advantage from it. And the other two 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 this GBP 30,000,000 in total on the business. Year ahead, we have planned for costs of GBP 9,000,000, and we referenced those in the R and S 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 9,000,000 and the guidance we're giving today of GBP 120,000,000 to £130 assumes we'll incur that £9,000,000 But obviously, we'll monitor that as we go carefully. Your second question was around margin percents. And you're right that naturally, as we grow our revenue and grow the $600,000,000 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. Thanks. Two other very quick ones, if that's okay. One one just being cold start. Is is that eighteen months to go live, I. E, this will be a proposition I could get my hands on in time for Christmas twenty three Christmas twenty two. Sorry. And secondly, of that 600,000,000, can you give a rough sense of how much of that is coming from vets and therefore how we could think about it relative to reported revenue? Yes. Actually, there are two great questions. This is Simon. So on Polestar, 18 is when we're going to be done with the first product, I. 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 one of the first things that you see. So it's going be a gradual reveal of things across the year or the eighteen months until finally, obviously, we do our final reveal of everything. And then actually, we then build on top of it. So it's a start. And actually, we're already and have been on this a couple of months in the background building the teams. We've got a really clearly laid out map. We're actually starting to build a lot of it. We've chosen a lot of 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 will 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 revenues. So today, we're announcing full year statutory revenues of just over 1,100,000,000.0 But in terms of customer revenues, that's $1,400,000,000 because, of course, in the customer revenues, we include all the revenue of all the practices, which is about GBP $385,000,000 in the year just gone. But of course, in the statutory revenue, we just include the fee income on that, which is about £57,000,000 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 $600,000,000 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, we still got a very immature business. 20% of our vet practices still less than four years old. But for modeling purposes, I can understand why you're asking the question. So two thirds of that 600 from retail, one third of the customer revenue out of our VAC 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. Great. Thank you. We will now take our next question from Owen Shirley from Berenberg. Please go ahead. Morning, guys. Yeah. Three questions for 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 two year basis as as q four. 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 £70,000,000 for this year. But looking beyond that, do we stay at 70,000,000 Do we go back to 40,000,000 ish? Or do you think something in between is most likely? Thanks. Okay. Thank you, Owen. Thanks for those three questions. So let me take the first one about the pet population. So a bit of a nightmare question actually because there isn't national body that records this. 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 eight percent, which actually is not dissimilar to what other sources have reported. Has that stopped? Great question. Well, it started about May and it continued. So if we look at our puppy and kitchen registrations, they've been incredibly consistent day in, day out. And obviously, we haven't yet revealed our quarter one 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's allowed us to do is pick from store a customer order and offer customers the ability to have their product ready to collect within an hour. They obviously pay for online and it allows us to remove any career 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. The capability that we put into the stores 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, you know, whether it be an Uber, a delivery or a DPD to allow us then facilitate a delivery from an order that's picked in store and then sent out from store to a customer nearby. You get a benefit there because actually, generally, what you do is you you reduce your miles and you're normally taking out one or two 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 is slightly 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 you do with click and collect, we stress test it and make sure it works before we roll it out. Mike, do want to take the question on CapEx? Yes. So Owen, on CapEx, 70,000,000 the year ahead we've just talked about. And the driver of that are two things really is the DC that opens in 2023 and Polestar that Pete has been talking about that we referred to in the RNS, and that's GBP 20,000,000. So we're going to see a heightened level of capital for two years really. They're one projects after which we'll see the benefits, but already start actually from Polestar shortly. So a heightened level of capital for the next two years, but then dropping down back to sort of in the range GBP 95,000,000 ongoing after that. So far more to historic levels with two years of heightened capital as we build out the DC and we complete Polestar. Sorry, there's one bit I didn't actually answer. You asked me what proportion of orders So as a rule of thumb, roughly, one in five orders placed on our website will be for a click collect rather than a, deliver to home. Brilliant. Thank you. And and have you, given any kind of anecdotes around the color on the proportion that you've seen shift to Click and Collect since you switched on same day Click and Collect? Yes. Well, that said, we obviously went from a standing start to roughly one in five orders and 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 up, which is under 16% of orders have a digital part to it. You can't just say online anymore because actually involves pick and store, etcetera, etcetera. But roughly about 16% participation now is somehow digital. Obviously, as we come out of the pandemic and things, we're open enough, so we've been open all the way through. We've seen some further shifts. We've actually seen quite 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 very good for us. And it's obviously how customers wanna shop because the I think, frankly, bored of being at home, I wanna get out and see people again. So that's that's been a a recent trend we've seen in the last few weeks. Brilliant. Thank you. 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. Thanks, everybody, for dialing in. I really appreciate those questions. They're really helpful. Thanks for your continued support, and have a great day.