Earnings Release • May 26, 2016
Earnings Release
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RNS Number : 3393Z
Pets At Home Group Plc
26 May 2016
FOR IMMEDIATE RELEASE, 26 MAY 2016
Pets at Home Group Plc, the UK's leading specialist retailer of pet food, pet accessories, veterinary and grooming services, today announces its preliminary results for the 53 week period to 31 March 2016.
Financial summary and highlights
| GBPm | FY16 | FY16 | FY15 | Growth |
| Audited 53 weeks to 31 March 2016 | Proforma 52 weeks to 24 March 2016 | Audited 52 weeks to 26 March 2015 | On proforma 52 weeks to 24 March 2016 | |
| Group like-for-like revenue growth1 | 2.1% | 2.2% | 4.2% | |
| Merchandise like-for-like | 1.4% | 1.5% | 3.7% | |
| Services like-for-like | 10.0% | 10.4% | 10.7% | |
| Group revenue | 793.1 | 777.8 | 729.1 | 6.7% |
| Merchandise revenue | 710.2 | 696.5 | 666.1 | 4.6% |
| Services revenue | 82.9 | 81.3 | 63.0 | 29.2% |
| Group gross margin | 54.5% | 54.5% | 54.2% | 31 bps |
| Pre exceptional EBITDA2 | 127.4 | 124.7 | 119.6 | 4.2% |
| Pre exceptional PBT3 | 97.3 | 95.3 | 87.0 | 9.6% |
| Statutory PBT | 92.1 | 90.2 | 87.0 | 3.7% |
| Pre exceptional basic EPS3 (pence) | 15.4 | 15.1 | 13.5 | 11.2% |
"52 weeks" represents LFL sales for the 52 week period to 24 March 2016 compared with the 52 week period to 26 March 2015. "53 weeks" represents LFL sales for the 53 week period to 31 March 2016, compared with the 53 week period to 2 April 2015
Excludes £0.8m of M&A related exceptional expenses
Excludes £0.8m of M&A related exceptional expenses and an exceptional finance expense of £4.3m associated with the amortisation of capitalised fees from the previous finance facility
· Merchandise: Food revenue growth 6.4%, including Advanced Nutrition revenue up 12.3%. Accessories revenue growth 2.4% (52 week)
· Services: Fee income from Joint Venture veterinary practices up 22.3% (52 week)
· Strong free cashflow generation of £77.8m, deleveraging to 1.2x net debt/EBITDA2 (52 week)
· Total dividend payable 7.5 pence per share, up 39%, reflecting payout ratio increased to 50% of earnings
Operational highlights
· VIP club reached 4.5m members and card swipe rate at store tills represented 64% of revenues in Q4
· Achieved rollout targets through opening 20 Pets at Home superstores (net), 6 Barkers stores and 1 Whiskers 'n Paws trial format, 50 veterinary practices and 60 grooming salons
· Acquired two specialist veterinary referral centres and a further two post year end
Ian Kellett, Group Chief Executive Officer, commented:
"I am pleased to report another year of good progress. Despite some seasonal challenges to our Health & Hygiene sales, we have seen excellent performance in our strategic growth drivers of Advanced Nutrition, VIP, vet and grooming services. Together with refinancing benefits, this contributed to pre-exceptional earnings per share growth of 11.2%. Our strong cashflow has enabled us to increase the ordinary dividend to shareholders by 39%, to a payout ratio of 50% of earnings, whilst investing for growth through acquisitions of veterinary specialist referral centres.
"We have enjoyed 25 very successful years as a business and enter our 26th year confident in the future. Our colleagues have been central to our success and I thank them for their significant contribution to our results.The pet market has proved over time to be more resilient than general retail, so whilst consumer confidence may be more fragile, we believe our drive to become more specialist and most loved by customers will deliver further progress."
Outlook and current trading
We are confident in our ability to execute on our strategy through growing like-for-like revenue and rolling out new space. Whilst margins this year will see the impact of weaker sterling and the National Living Wage, over the medium to longer term we believe these challenges will be outweighed by the support from our growing services business, which is still maturing.
Trading to date in the first quarter of FY17 is in line with our expectations.
FY17 guidance
· Rollout: 15-20 Pets at Home superstores, 45-55 vet practices, 50-60 grooming salons
· Cost impact of National Living Wage maintained at c£2m
· Depreciation and amortisation £29-30m
· Net interest cost £4-5m
· Effective tax rate 21%
· Capital investment c£45m - includes exceptional investment of £5m as part of a £8m two year energy saving project
· Ordinary dividend payout ratio at 50% of earnings
Capital structure and cash utilisation
We finished the year4 with a leverage position of 1.2x net debt/pre-exceptional EBITDA, having delevered by over 1x in the two financial years since our stock market listing. Our priority is to invest in areas that will expand the Group and deliver appropriate returns. Since the year end, we have acquired two veterinary specialist referral centres for a total consideration of £14.9m and we will continue to explore bolt-on opportunities in the wider veterinary services market.
Going forward, we intend to maintain a leverage position of around 1.5x net debt/EBITDA5 under normal circumstances, moving to a maximum of around 1.75x in the event suitable investment or acquisition opportunities arise. We believe this maintains appropriate flexibility for our business.
The Board has increased the ordinary dividend payment policy to around 50% of earnings, reflective of the cash generative abilities of the business and the positive long term growth prospects. Dependent upon our acquisition outlook and if we do not foresee investment uses, it is our intention to return surplus free cashflow6 to shareholders through a combination of ordinary and special dividends.
4 Refers to 52 week unaudited period ended 24 March 2016
5 On an annualised basis
6 Free cashflow is defined as net cash from operating activities, less net cash used in investing activities, interest paid and finance lease commitments. Free cashflow is stated before cash flows for loans issued, exceptional costs and acquisitions of subsidiaries
A presentation for analysts and investors will be held today at 8.45am at Goldman Sachs, Peterborough Court, 133 Fleet Street, London EC4A 2BB, attendance is by invitation only. An audio webcast and statement of these results will be available at http://investors.petsathome.com
Investor Relations Enquiries
Pets at Home Group Plc: +44 (0)161 486 6688
Amie Gramlick, Head Of Investor Relations
Pets at Home Group Plc: +44 (0)161 486 6688
Brian Hudspith, Director Of Corporate Affairs
Maitland: +44 (0)20 7379 5151
Greg Lawless, Tom Eckersley
Pets at Home Group Plc is the UK's leading specialist pet omnichannel retailer and services provider. Pets at Home operates from 419 superstores located across the UK. The Group operates the UK's largest small animal veterinary business with 388 practices, run principally under a Joint Venture model using the Vets4Pets and Companion Care brand names, and four veterinary specialist referral centres. Pets at Home is the UK's leading operator of pet grooming services offered through its 240 grooming salons. The Group also operates 7 specialist High Street based dog stores, called Barkers, as well as Ride-away, an equine retail business with a superstore and website. For more information visit: http://investors.petsathome.com/
Disclaimer
This statement of preliminary financial results does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Pets at Home Group Plc shares or other securities nor should it form the basis of or be relied on in connection with any contract or commitment whatsoever. It does not constitute a recommendation regarding any securities. Past performance, including the price at which the Company's securities have been bought or sold in the past, is no guide to future performance and persons needing advice should consult an independent financial advisor.
Certain statements in this statement of preliminary financial results constitute forward-looking statements. Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this statement. As a result you are cautioned not to place reliance on such forward-looking statements. Nothing in this statement should be construed as a profit forecast.
Chief Executive Officer's Review
Operational Highlights
| ROLLOUT | FY16 (53 weeks) |
FY15 | ||||
| Stores | Number of stores in period1 | 427 | 400 | |||
| New stores (net) | 27 | 23 | ||||
| Vets | Number of vet practices (total) | 388 | 338 | |||
| Number of standalone vet practices | 138 | 127 | ||||
| Number of in-store vet practices | 250 | 211 | ||||
| % of stores with vet | 59% | 53% | ||||
| New vet practices in period (total) | 50 | 61 | ||||
| New standalone vet practices | 11 | 8 | ||||
| New in-store vet practices | 39 | 53 | ||||
| Groomers | Number of groomers | 240 | 1802 | |||
| % of stores with groomer | 56% | 45% | ||||
| New groomers in period | 60 | 50 | ||||
| VIP CLUB | ||||||
| VIP club members (m) | 4.5 | 3.2 | ||||
| VIP swipe as % revenue3 | 64% | 65% | ||||
| COLLEAGUES | ||||||
| Retention rate (annual) | 79% | 81% | ||||
| PRODUCT | ||||||
| Proportion of products changed or refreshed | 40% | 44% | ||||
1 Includes Barkers and Whiskers 'n Paws by Pets at Home
2 Re-stated to include an additional grooming salon located In Barkers of Wilmslow
3 Average swipe rate over latest quarterly period
Strategic Update
Strategic pillar: Expanding like-for-like growth
Growing loyalty from our VIP club members
Our loyalty scheme has continued to provide support to like-for-like growth this year, through tailored offers on both products and services, alongside achieving an increased level of engagement with our members.
The VIP club has reached over 4.5m members with over 13.5m pets registered on our database. The scheme is now over three years old, which has enabled us to take an initial view of the active customer base, as well as total membership. The number of VIP members who have actively used their card over the past twelve months is 3.3m. The active member participation rises for those customers who are multi brand users, whether that be through our vet practices, grooming salons or online, reflecting the increased loyalty of such customers. We will therefore continue with our strategy to introduce vet and grooming services to our members through active marketing, as well as the rollout of services within the store estate, which remains a significant opportunity for us.
Our swipe rate of the card in stores reached 64% in Q4. We expect to see further progression in the swipe rate this year, but at a slower rate than we have seen previously, which is a normal trend reflective of the club's maturity.
Positively, we are seeing an increasing revenue contribution from our earliest enrolled members, which reaffirms our view that we are successfully using the club to drive incremental spend from customers.
Providing value for our customers
Our approach is to provide value for our customers, reflecting innovation, quality, expertise, and customer service, as well as price.
As part of this, we have continued to refresh our range, with 40% of total products changed during the year. Growing Advanced Nutrition revenue remains core to our strategy and this year we extended Wainwright's into the frozen category, added Lily's Kitchen to our range and exclusively launched Wellness, which is the leading independent natural food brand in the US. We are also adding brands to assist customers with bridging the gap to the top tiers of Advanced Nutrition, which we believe is encouraging customers to trade out of the grocery food segment.
In March, we launched our Brandmatch promise for customers. Brandmatch compares the price of the branded products in our customers' baskets against both Tesco and Jollyes, and if there is a difference, generates a money back voucher for their next shop. This is automatically emailed to the customer if they are a VIP member. Brandmatch is still very new, but initial results indicate the vouchers are encouraging incremental spend from customers when they next purchase.
Delivering results from our seamless shopping investment
We have invested further in our seamless shopping stategy this year, through optimising our website, upgrading systems and expanding our colleague teams to deliver the plan. This has resulted in good traffic growth to our website, enhanced conversion rates and an improved customer experience.
As we have highlighted previously, customers are increasingly opting to collect their online orders in store. This method of pickup represented around 50% of our online revenues in the second half of the year, up from just over 40% in the prior year. This increase has been achieved through improving our collection service in-store and continual optimisation of the product range.
The VIP App is now in its final stages of development, ahead of a colleague, and then customer, launch. The App will give further benefits to our customers, making it simpler to both swipe without the need for a card and redeem offers without presenting a voucher.
Strategic initiatives in our veterinary business
Within our primary opinion vet practice network we are rolling out new practices, but at the same time, we have focused on strategies to deliver extra growth to our more mature practices. We have achieved this through space expansions to eight existing practices and trialling 24/7 or extended opening hours in six practices. Both space and opening hours extensions are bringing even greater convenience to our customers and are delivering additional revenue to these practices.
We have also built a presence in the specialist referrals market through acquisition. Specialist referral represents the premier tier of veterinary medicine, and by acquiring such centres, we gain access to an additional area of customer spend in the market, whilst improving the retention of customer revenue from our primary opinion practice network.
We now have four specialist referral centres and have focused on acquiring those with the best reputations for clinical excellence and service, in locations which are complementary to our primary practice network. We continue to explore opportunities in the wider veterinary services market that will deliver growth to our business, at an acceptable rate of return on our investment.
Engagement with our customers
Alongside our ongoing customer engagement through our colleagues in-store and the VIP club, we have continued with television advertising during the year, both with the Pets at Home and Vets4Pets brands. We are the only branded veterinary services business in the UK with the scale to advertise nationally.
Our customer engagement and advocacy levels are indicated through a net promoter score, which is collected though an online customer survey. Our net promoter score for the year was 88%, up from 86% in the prior year, having risen from 75% in FY11.
Strategic pillar: Space rollout and footprint development
We executed our rollout strategy successfully during the year, having achieved our store and services opening targets.
Our Pets at Home estate now numbers 419 superstores and we plan to open between 15 and 20 superstores in FY17. As we come closer to reaching our UK target of around 500 superstores, our location options narrow, and as we are mainly dependent upon space from new retail park openings, we are seeing an impact on our opening rate. During the year we continued with the rollout trial of our premium Barkers dog stores. We also commenced a new trial format, with a High Street based convenience store, branded 'Whiskers 'n Paws by Pets at Home'.
In Services, we ended the year with 388 veterinary practices, having opened 39 in new and existing stores, and 11 in standalone locations. Nearly 60% of our store estate now has a vet practice and we remain committed to working towards our target of 90% of stores with a practice. Grooming salon openings progressed strongly, with 60 new salons in both new and existing stores, taking the total number to 240. In the coming year, we expect to open 45-55 new veterinary practices and 50-60 grooming salons.
The performance and returns of new stores, vet practices and grooming salons remain in line with our expectations.
Strategic pillar: Growing margins
All refers to 52 weeks unaudited period ended 24 March 2016
We have seen a strong progression in the Group gross margin this financial year, growing by 31bps to 54.5%. Merchandise margin benefitted from our Advanced Nutrition growth and improved terms negotiations with suppliers. In Services, we saw positive support from the maturation of our vet practices, although this was partially offset by the number of immature grooming salons and the addition of lower margin specialist referral centres.
Our pre-exceptional EBITDA margin declined by 38bps to 16.0%, reflecting the mix impact of specialist referral centres, alongside our commitment to strategic investment in seamless shopping and our colleagues, investments which we maintained despite some of the top line challenges we saw during the year.
Looking forward, we expect to see support to our Group gross margin from further Advanced Nutrition growth and services maturity, but this will be more than offset in the current financial year by the impact of weaker sterling. The National Living Wage (NLW) will be incorporated into our colleague cost base this financial year and as we have previously highlighted, alongside our ongoing investment in seamless shopping, will cause some EBITDA margin dilution. Whilst the progression in NLW over the coming years is an ongoing cost pressure, we expect the maturity profile of our vet and grooming businesses to generate EBITDA margin expansion in the medium to long term.
Ian Kellett
Group Chief Executive Officer
25 May 2016
Chief Financial Officer's Review
The FY16 accounting period represents the 53 week period from 27 March 2015 to 31 March 2016. The comparative FY15 period represents the 52 week period from 28 March 2014 to 26 March 2015. Throughout the Chief Financial Officer's review, unless otherwise stated, FY16 commentary will refer to the unaudited 52 week period to 24 March 2016,to better reflect the underlying performance of the Group.
Financial Highlights
| FINANCIALS | FY16 Audited 53 weeks to 31 March 2016 |
FY16 Proforma 52 weeks to 24 March 2016 |
FY15 | Change Proforma 52 weeks to 24 March 2016 | |
| Revenue | Revenue Split (£m) | ||||
| Food | 390.0 | 382.5 | 359.3 | 6.4% | |
| Accessories | 320.2 | 314.0 | 306.8 | 2.4% | |
| Total Merchandise revenue1 | 710.2 | 696.5 | 666.1 | 4.6% | |
| Services & Other revenue2 | 82.9 | 81.3 | 63.0 | 29.2% | |
| Total Group revenue | 793.1 | 777.8 | 729.1 | 6.7% | |
| Like-For-Like growth3 | 2.1% | 2.2% | 4.2% | ||
| Merchandise LFL growth | 1.4% | 1.5% | 3.7% | ||
| Services LFL growth | 10.0% | 10.4% | 10.7% | ||
| Revenue Mix (% of total revenues) | |||||
| Food | 49.2% | 49.2% | 49.3% | (11) bps | |
| Accessories | 40.3% | 40.3% | 42.1% | (171)bps | |
| Services & Other | 10.5% | 10.5% | 8.6% | 182 bps | |
| Gross Margin | Merchandise Gross Margin | 57.0% | 57.0% | 56.3% | 79 bps |
| Services & Other Gross Margin | 32.9% | 33.0% | 32.6% | 35 bps | |
| Total Gross Margin | 54.5% | 54.5% | 54.2% | 31 bps | |
| EBITDA | Pre-exceptional EBITDA4 (£m) | 127.4 | 124.7 | 119.6 | 4.2% |
| Pre-exceptional EBITDA margin | 16.1% | 16.0% | 16.4% | (38) bps | |
| Other Income Statement |
Pre-exceptional profit before tax (£m) | 97.3 | 95.35 | 87.0 | 9.6% |
| Statutory profit before tax (£m) | 92.1 | 90.2 | 87.0 | 3.7% | |
| Pre-exceptional basic EPS (pence) | 15.4 | 15.15 | 13.56 | 11.2% | |
| Dividend (pence) | 7.5 | 5.4 | 38.9% | ||
| Cashflow & Leverage | FCF (£m) | 71.6 | 77.8 | 72.0 | 8.1% |
| Conversion | 56.2% | 62.4% | 60.2% | 226 bps | |
| CROIC7 | 22.1% | - | 22.6% | (46)bps8 | |
| Leverage (Net Debt / EBITDA)4 | 1.3x | 1.2x | 1.6x | (0.4) x |
1 Includes Food and Accessories revenue from our store and online operations
2 Includes veterinary Joint Venture fees and other income, Groom Room revenue, revenue from live pet sales and insurance commission
3 'Like-for-Like' sales growth comprises total sales/fee revenue in a financial period compared to revenue achieved in a prior period, post cannibalisation, for stores, online operations, grooming salons and vet practices. "52 weeks" represents LFL sales for the 52 week period to 24 March 2016 compared with the 52 week period to 26 March 2015. "53 weeks" represents LFL sales for the 53 week period to 31 March 2016, compared with the 53 week period to 2 April 2015
4 Excludes £0.8m of M&A related exceptional expenses
5 Excludes £0.8m of M&A related exceptional expenses and an exceptional finance expense of £4.3m associated with the amortisation of capitalised fees from the previous finance facility
6 Excludes exceptional tax credit of £4.3m
7 Cash return on invested capital excludes goodwill on KKR acquisition
8 Represents y/y change for FY16 53 weeks to 31 March 2016 compared with FY15
Sales and revenue
Total revenue grew by 6.7% to £777.8m (FY15: £729.1m), with particularly strong performance in Services, alongside good growth in our Food business. Like-for-like sales grew by 2.2%, driven by strength in Advanced Nutrition, VIP club momentum and growth in fee income from our veterinary practices and grooming salons. This was partially offset by the seasonal challenge to Health & Hygiene products, which was a negative contributor to like-for-like performance.
Total Merchandise revenue, which includes Food and Accessories, grew by 4.6% to £696.5m (FY15: £666.1m).
Food revenue grew strongly by 6.4% to £382.5m (FY15: £359.3m), reflective of excellent performance in dog food and treats, and both dog and cat Advanced Nutrition. Advanced Nutrition revenue grew by 12.3% to £163.2m (FY15: £145.4m), with our flagship private label Wainwright's a key contributor, growing by 17.4% to £47.0m (FY15: £40.1m). Grocery dog and cat food performance was weaker, where we are seeing the impacts of our space reduction and the ongoing competitive market environment in this category.
Accessories revenue grew by 2.4% to £314.0m (FY15: £306.8m). Revenue growth was significantly impacted by weakness in Health & Hygiene products, which saw particularly strong growth in the prior year and weather related challenges in the current year. We also saw a weaker performance in aquatics accessories, reflecting our space reallocations when we retrofit services into existing stores. Offsetting this to some degree was good performance in dog accessories across toys, bedding and training, where we have reinvigorated ranges this year.
Services revenue grew 29.2% to £81.3m (FY15: £63.0m), increasing participation to 10.5% of Group revenue (FY15: 8.6%). This reflects both new openings and another year of excellent growth in our vet practices and grooming salons. Growth in our Joint Venture veterinary practices was strong, generating fee income of £34.5m (FY15: £28.2m), up 22.3% compared with the prior year. Within our mature vet practices, revenue continued to grow ahead of the market.
Gross margin
Group gross margin expanded by 31bps to 54.5% (FY15: 54.2%), attributable to significant expansion in our Merchandise margin, as well as progression in Services margin.
Gross margin within Merchandise was 57.0%, an expansion of 79 bps on the prior year (FY15: 56.3%). This has primarily been achieved through improvements in terms with suppliers, alongside the mix shift from grocery to AN foods, particularly the margin benefit from our private label Wainwright's. These positive movements more than offset the faster growth of food versus accessories.
Services gross margin, which was 33.0% in FY16 (FY15: 32.6%), expanded by 35 bps through the growing maturity of our veterinary practices. This positive benefit was partially offset by the increasing number of immature grooming salons in the portfolio, our ongoing investment in pet welfare and our acquisition of two veterinary referral centres during the period. The referral centres are operated as wholly owned businesses and therefore have lower margins than that of the Joint Venture fee income model.
Operating costs
Selling and distribution expenses of £274.7m were broadly constant as a percentage of Group revenue at 35.3% (FY15: 35.4%). Occupation costs once again declined as a percentage of revenue as we benefit from a benign rental market and the offset to rental costs from the retrofitting of vet practices to stores. Colleague costs of £156.2m (FY15: £136.5m) increased as a result of our new store rollout and 'learn to earn' Steps training programme, alongside moving to an improved holiday pay scheme for our store colleagues. We also expanded our omnichannel colleague team to deliver the seamless shopping strategy.
Pre-exceptional administration expenses of £50.1m were 6.4% of revenue (FY15: 5.6%). The increase mainly reflects investment in the systems software and hardware to deliver our seamless strategy, and an increase in IFRS2 share based payment charges to £3.0m (FY15: £1.7m)
EBITDA
Pre-exceptional EBITDA of £124.7m, which excludes £0.8m of M&A related exceptional expenses, represented a 4.2% increase on the previous year (FY15: £119.6m).
Pre-exceptional EBITDA margin declined by 38 bps when compared with the prior year. This reflects our commitment to strategic investment in the business, despite some of the top line challenges we saw from the seasonally impacted Health & Hygiene category. There was also a dilutive mix impact from the addition of our newly acquired specialty referral centres during the year.
Finance expense
Pre-exceptional net finance expense was £4.8m, a significant decline from the prior year (FY15: £9.8m) as a result of our refinancing in April 2015. An exceptional non cash finance expense of £4.3m relates to the amortisation of capitalised fees associated with the previous financing facility.
Taxation, trading profit & EPS
Underlying total tax expense for the period was £19.8m, an effective rate of 21% on pre tax profit.
Pre-exceptional trading profit for the period was £75.5m (FY15: £67.9m) which excludes £0.8m of M&A related exceptional expenses, the exceptional finance expense of £4.3m and their taxation impacts. Pre-exceptional basic earnings per share were 15.1 pence (FY15:13.5 pence), showing strong growth of 11.2%, which reflects our operational expansion, the positive impact of refinancing and a lower corporation tax rate this year.
Working capital
The cash movement in working capital for the 53 week period was an outflow of £3.6m, comprised of a £3.6m increase in inventory, an increase in receivables of £6.8m, offset by an increase in trade and other payables of £6.8m. The 53rd trading week caused an overall adverse movement in working capital of £8.6m, comprised of £6.1m in trade receivables and £2.5m in trade and other payables. We therefore saw an underlying improvement in our working capital position of £5.0m on a 52 week basis.
Capital investment
Capital investment in the 53 week period totalled £41.5m (FY15: £33.2m). The majority of our capital investment relates to the rollout of new stores and services, alongside the retrofitting of vet and grooming practices to the existing estate. When compared with the prior year, we have seen greater investment in systems to support the seamless shopping strategy and an increase in the number of wholly owned vet practices, where the Group incurs the full capital cost of build and fitout. We utilise wholly owned vet practices as a trial for potential new JV partners, and cycle around 50% of those opened into Joint Venture models during the year, recovering our initial capital investment.
On a cash basis, capital expenditure in the period was £36.8m (FY15: £30.4m).
Capital structure and cashflow
Pets at Home is a growing, cash generative business. Our leverage position at 31 March 2016 was 1.3x net debt / pre-exceptional EBITDA, reflecting a reduction of 0.3x during the course of the year, despite the £8.6m negative working capital impact of the 53rd trading week.
We have deleveraged by 1.0x in the two financial years since our stock market listing, generating a total of £150m in free cashflow*, returning £37m to shareholders in dividends and investing £8m in bolt-on acquisitions.
| £m | FY16 Proforma 52 weeks to 24 March 2016 |
FY16 Audited 53 weeks to 31 March 2016 |
FY15 |
| Opening net debt | (192.0) | (192.0) | (259.4) |
| Free cashflow* | 77.8 | 71.6 | 72.0 |
| Ordinary dividends paid | (27.9) | (27.9) | (8.9) |
| Acquisitions | (8.1) | (8.1) | - |
| Other | (5.6) | (5.6) | 4.3 |
| Closing net debt | (155.8) | (162.0) | (192.0) |
| Leverage (ND / pre-exceptional EBITDA) | 1.2x | 1.3x | 1.6x |
Our priority is to invest in areas that will expand the Group and deliver appropriate returns. Since the year end, we have acquired two veterinary specialist referral centres for a total consideration of £14.9m and we will continue explore bolt-on opportunities in the wider veterinary services market.
Going forward, we intend to maintain a leverage position of around 1.5x net debt/EBITDA1 under normal circumstances, moving to a maximum of around 1.75x in the event suitable investment or acquisition opportunities arise. We believe this maintains appropriate flexibility for our business, operating in a resilient market with strong cash generation capabilities.
Dependent upon our acquisition outlook and if we do not foresee investment uses, it is our intention to return surplus free cashflow2 to shareholders through a combination of ordinary and special dividends.
1 On an annualised basis
2 Free cashflow is defined as net cash from operating activities, less net cash used in investing activities, interest paid and finance lease commitments. Free cashflow is stated before cash flows for loans issued, exceptional costs and acquisitions of subsidiaries
Dividend
The Board has recommended a final dividend of 5.5 pence per share, giving a total dividend of 7.5 pence per share in respect of the 2016 financial year, up 39% on the prior year. The Board has increased the dividend payment policy to around 50% of earnings, reflective of the cash generative abilities of the business and the positive long term growth outlook.
The final dividend will be proposed by the Directors at the 2016 AGM and is in addition to the interim dividend of 2.0 pence per share, paid to shareholders on the 8 January 2016 The ex-dividend date will be 18 August 2016 and, if approved at the Company's forthcoming AGM, will be paid to shareholders on 19 September 2016 to those shareholders on the register at the close of business on 19 August 2016.
Mark Adams
Interim Chief Financial Officer
25 May 2016
Financial Statements
Financial Information
The financial information set out in this preliminary statement of annual results has been extracted from the Group's financial statements, which have been approved by a resolution of the Board of directors of the Company on 25 May 2016 and agreed with the Company's auditor.
The financial information set out in this preliminary statement does not constitute the Company's statutory accounts for the year ended 31 March 2016 as defined in section 434 of the Companies Act 2006 (the "Act") which have not yet been delivered to the Registrar of Companies.
The Company's auditor has reported on the FY16 financial statements. Its reports were unqualified and did not draw attention to any matters by way of emphasis. The reports also did not contain statements under section 498 of the Act.
Consolidated Income Statement
| 53 week period ended 31 March 2016 | 52 week period ended 26 March 2015 | |||||||
| Note | £000 | £000 | £000 | £000 | £000 | £000 | ||
| Underlying Trading | Exceptional Items (note 3,7,8) |
Total | Underlying Trading | Exceptional Items (note,8) |
Total | |||
| Revenue | 2 | 793,126 | - | 793,126 | 729,086 | - | 729,086 | |
| Cost of sales | (360,702) | - | (360,702) | (333,776) | - | (333,776) | ||
| Gross profit | 432,424 | - | 432,424 | 395,310 | - | 395,310 | ||
| Selling and distribution expenses | (279,293) | - | (279,293) | (257,853) | - | (257,853) | ||
| Administrative expenses | 3 | (50,868) | (835) | (51,703) | (40,695) | - | (40,695) | |
| Operating profit | 3 | 102,263 | (835) | 101,428 | 96,762 | - | 96,762 | |
| Financial income | 6 | 668 | - | 668 | 572 | - | 572 | |
| Financial expense | 7 | (5,628) | (4,326) | (9,954) | (10,369) | - | (10,369) | |
| Net financing expense | (4,960) | (4,326) | (9,286) | (9,797) | - | (9,797) | ||
| Profit before tax | 97,303 | (5,161) | 92,142 | 86,965 | - | 86,965 | ||
| Taxation | 8 | (20,224) | 865 | (19,359) | (19,089) | 4,295 | (14,794) | |
| Profit for the period | 77,079 | (4,296) | 72,783 | 67,876 | 4,295 | 72,171 | ||
All activities relate to continuing operations.
Basic and diluted earnings per share attributable to equity Shareholders of the Company:
| Note | 53 week period ended 31 March 2016 |
52 week period ended 26 March 2015 |
|||||||||||
| Equity holders of the parent - after exceptional items - basic | 5 | 14.6p | 14.4p | ||||||||||
| Equity holders of the parent - after exceptional items - diluted | 5 | 14.5p | 14.4p | ||||||||||
Dividends paid and proposed are disclosed in note 9.
Consolidated Statement of Comprehensive Income
| 53 week period ended 31 March 2016 |
52 week period ended 26 March 2015 |
|
| £000 | £000 | |
| Profit for the period | 72,783 | 72,171 |
| Other comprehensive income | ||
| Items that are or may be recycled subsequently into profit or loss: | ||
| Foreign exchange translation differences | (5) | (4) |
| Cash flow hedges - reclassified to profit and loss | (1,064) | 1,113 |
| Effective portion of changes in fair value of cash flow hedges | (536) | 403 |
| Other comprehensive income for the period, before income tax | (1,605) | 1,512 |
| Income tax on other comprehensive income | 320 | (303) |
| Other comprehensive income for the period, net of income tax | (1,285) | 1,209 |
| Total comprehensive income for the period | 71,498 | 73,380 |
Consolidated Balance Sheet
| Note | At 31 March 2016 | At 26 March 2015 |
|||
| £000 | £000 | ||||
| Non-current assets | |||||
| Property, plant and equipment | 114,746 | 102,890 | |||
| Intangible assets | 973,549 | 955,512 | |||
| Other non-current assets | 10,161 | 8,133 | |||
| 1,098,456 | 1,066,535 | ||||
| Current assets | |||||
| Inventories | 52,476 | 48,474 | |||
| Other financial assets | 1,947 | 1,697 | |||
| Trade and other receivables | 59,028 | 51,627 | |||
| Cash and cash equivalents | 39,998 | 132,966 | |||
| 153,449 | 234,764 | ||||
| Total assets | 1,251,905 | 1,301,299 | |||
| Current liabilities | |||||
| Other interest-bearing loans and borrowings | 11 | - | (5,000) | ||
| Trade and other payables | (160,140) | (144,754) | |||
| Provisions | (436) | (365) | |||
| Other financial liabilities | (1,318) | (632) | |||
| (161,894) | (150,751) | ||||
| Non-current liabilities | |||||
| Other interest-bearing loans and borrowings | 11 | (201,091) | (315,674) | ||
| Other payables | (33,165) | (31,483) | |||
| Provisions | (1,387) | (1,706) | |||
| Other financial liabilities | (5,999) | - | |||
| Deferred tax liabilities | (4,885) | (4,810) | |||
| (246,527) | (353,673) | ||||
| Total liabilities | (408,421) | (504,424) | |||
| Net assets | 843,484 | 796,875 | |||
| Equity attributable to equity holders of the parent | |||||
| Ordinary share capital | 5,000 | 5,000 | |||
| Consolidation reserve | (372,026) | (372,026) | |||
| Merger reserve | 113,321 | 113,321 | |||
| Translation reserve | (5) | - | |||
| Cash flow hedging reserve | (429) | 851 | |||
| Retained earnings | 1,097,623 | 1,049,729 | |||
| Total equity | 843,484 | 796,875 | |||
On behalf of the Board:
Ian Kellett
Group Chief Executive Officer
Company number: 08885072
Consolidated Statement of Changes in Equity as at 31 March 2016
| Share capital | Consolidation reserve | Merger reserve | Cash flow hedging reserve | Translation reserve | Retained earnings | Total equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Balance at 26 March 2015 | 5,000 | (372,026) | 113,321 | 851 | - | 1,049,729 | 796,875 |
| Total comprehensive income for the period | |||||||
| Profit for the period | - | - | - | - | - | 72,783 | 72,783 |
| Other comprehensive income | - | - | - | (1,280) | (5) | - | (1,285) |
| Total comprehensive income for the period | - | - | - | (1,280) | (5) | 72,783 | 71,498 |
| Transactions with owners, recorded directly in equity | |||||||
| Equity dividend paid | - | - | - | - | - | (27,894) | (27,894) |
| Share based payment transactions | - | - | - | - | - | 3,005 | 3,005 |
| Total contributions by and distributions to owners | - | - | - | - | - | (24,889) | (24,889) |
| Balance at 31 March 2016 | 5,000 | (372,026) | 113,321 | (429) | (5) | 1,097,623 | 843,484 |
Consolidated Statement of Changes in Equity as at 26 March 2015
| Share capital | Share premium | Consolidation reserve | Merger reserve | Cash flow hedging reserve | Translation reserve | Retained earnings | Total equity | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| Balance at 27 March 2014 | 5,000 | 1,080,477 | (372,026) | 113,321 | (362) | 4 | (95,665) | 730,749 |
| Total comprehensive income for the period | ||||||||
| Profit for the period | - | - | - | - | - | 72,171 | 72,171 | |
| Other comprehensive income | - | - | - | 1,213 | (4) | - | 1,209 | |
| Total comprehensive income for the period | - | - | - | 1,213 | (4) | 72,171 | 73,380 | |
| Transactions with owners, recorded directly in equity | ||||||||
| Cancellation of share premium (i) | - | (1,080,477) | - | - | - | - | 1,080,477 | - |
| Equity dividend paid | - | - | - | - | - | - | (8,942) | (8,942) |
| Share based payment transactions | - | - | - | - | - | - | 1,688 | 1,688 |
| Total contributions by and distributions to owners | - | (1,080,477) | - | - | - | - | 1,073,223 | (7,254) |
| Balance at 26 March 2015 | 5,000 | - | (372,026) | 113,321 | 851 | - | 1,049,729 | 796,875 |
(i) As contemplated in the Pets at Home Group Plc IPO Prospectus dated 28 February 2014 and pursuant to a shareholder resolution passed on 27 February 2014, Pets at Home Group Plc completed a reduction of capital, whereby £1,080,477,000 standing to the credit of the Company's share premium account was cancelled, creating distributable reserves of an equivalent amount. The cancellation was formally approved by the High Court, and the court order was registered by the Registrar of Companies and became effective on 30 July 2014. The cancellation has no effect on the overall net asset position of the Company and/or its Group.
Consolidated Statement of Cash Flows
| 53 week period | 52 week period | ||||
| ended 31 March 2016 | ended 26 March 2015 | ||||
| £000 | £000 | ||||
| Cash flows from operating activities | |||||
| Profit for the period | 72,783 | 72,171 | |||
| Adjustments for: | |||||
| Depreciation and amortisation | 25,106 | 22,838 | |||
| Financial income | (668) | (572) | |||
| Financial expense | 9,954 | 10,369 | |||
| Share based payment charges | 3,005 | 1,657 | |||
| Taxation | 19,359 | 14,794 | |||
| 129,539 | 121,257 | ||||
| Increase in trade and other receivables | (6,784) | (9,468) | |||
| Increase in inventories | (3,627) | (2,358) | |||
| Increase in trade and other payables | 7,021 | 16,132 | |||
| Decrease in IPO related trade and other payables (i) | - | (25,184) | |||
| Total increase/(decrease) in trade and other payables | 7,021 | (9,052) | |||
| Decrease in provisions | (248) | (225) | |||
| 125,901 | 100,154 | ||||
| Tax paid - underlying | (14,823) | (12,874) | |||
| Tax received - exceptional (ii) | - | 4,295 | |||
| Net cash flow from operating activities | 111,078 | 91,575 | |||
| Cash flows from investing activities | |||||
| Proceeds from sale of property, plant and equipment | 3,082 | 874 | |||
| Interest received | 413 | 364 | |||
| Investment in other financial assets | (1,010) | (2,176) | |||
| Loans issued | (1,674) | - | |||
| Acquisition of subsidiary, net of cash acquired | (8,113) | - | |||
| Acquisition of property, plant and equipment, and other intangible assets | (36,804) | (30,361) | |||
| Net cash used in investing activities | (44,106) | (31,299) | |||
| Cash flows from financing activities | |||||
| Equity dividends paid | (27,894) | (8,942) | |||
| Proceeds from new loan | 202,000 | - | |||
| Repayment of borrowings | (325,000) | - | |||
| Loan repayment on acquisition | (1,808) | - | |||
| Finance lease obligations | (28) | - | |||
| Issue costs | (1,225) | - | |||
| Interest paid | (5,985) | (9,191) | |||
| Net cash used in financing activities | (159,940) | (18,133) | |||
| Net (decrease)/increase in cash and cash equivalents | (92,968) | 42,143 | |||
| Cash and cash equivalents at beginning of period | 132,966 | 90,823 | |||
| Cash and cash equivalents at end of period | 39,998 | 132,966 |
(i) The Initial Public Offering related payables of £25,184,000 at 27 March 2014 related to costs incurred as part of the IPO on 17 March 2014, which were included in accruals and other creditors at the period end date, and which were settled in full in the period to 26 March 2015.
Notes
1 Basis of Preparation
Pets at Home Group Plc (the Company) is a company incorporated in the United Kingdom and its registered office is Epsom Avenue, Stanley Green, Handforth, Cheshire, SK9 3RN.
The company is listed on the London Stock Exchange.
The consolidated financial statements for the 53 week period ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (Adopted IFRS) and were approved by the Directors of the Company on 25th May 2016 along with this preliminary announcement.
The consolidated financial statements are prepared on the historical costs basis except for derivative financial instruments, share based payments and certain investments measured at their fair value.
The financial information included in this preliminary statement of results does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 (the "Act"). The financial information for the 53 week period ended 31 March 2016 has been extracted from the statutory accounts on which an unqualified audit opinion has been issued. Statutory accounts for the 53 week period ended 31 March 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.
The auditors have consented to the publication of the Preliminary Announcement as required by Listing Rule 9.7a having completed their procedures under APB bulletin 2008/2.
The directors of Pets at Home Group Plc, having made appropriate enquiries, consider that adequate resources exist for the Group to continue in operational existence for the foreseeable future and that, therefore, it is appropriate to adopt the going concern basis in preparing the consolidated financial statements for the 53 week period ended 31 March 2016.
Notes (continued)
2 Segmental reporting
The Directors consider there to be one operating and reportable segment, being that of the sale of pet products and services through retail outlets, specialist vet referral services and the Group's websites.
The Group's Board receives monthly financial information at this level and uses this information to monitor the performance of the store portfolio, allocate resources and make operational decisions. The internal reporting received focuses on the Group as a whole and does not identify individual segments. To increase transparency, the Group has decided to include an additional voluntary disclosure analysing revenue within the reportable segment.
| Revenue | 53 week period ended 31 March 2016 |
52 week period ended 26 March 2015 |
|||
| £000 | £000 | ||||
| Food | 390,041 | 359,377 | |||
| Accessories | 320,162 | 306,754 | |||
| Services and other | 82,923 | 62,955 | |||
| 793,126 | 729,086 | ||||
The 'services and other' category includes veterinary group income, veterinary referral centres, grooming revenue, insurance commissions and the sale of pets.
Notes (continued)
3 Operating Profit
The performance of the operating segment is primarily based on a measure of Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) before exceptional items. This can be reconciled to statutory operating profit as follows:
| 53 week period ended 31 March 2016 |
52 week period ended 26 March 2015 |
|||||
| £000 | £000 | |||||
| Operating profit | 101,428 | 96,762 | ||||
| Exceptional items | 835 | - | ||||
| Underlying operating profit before exceptional items | 102,263 | 96,762 | ||||
| Depreciation and amortisation | 25,106 | 22,838 | ||||
| Underlying Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) (before exceptional items) | 127,369 | 119,600 | ||||
Included in operating profit are the following:
| 53 week period ended 31 March 2016 |
52 week period ended 26 March 2015 |
|||||||
| £000 | £000 | |||||||
| Exceptional operating expenses | 835 | - | ||||||
| Depreciation of tangible fixed assets | 21,915 | 19,659 | ||||||
| Amortisation of intangible assets | 3,191 | 3,179 | ||||||
| Rentals under operating leases: | ||||||||
| Hire of plant and machinery | 3,886 | 3,648 | ||||||
| Property | 70,405 | 66,474 | ||||||
| Rental income from sublets | (10,171) | (8,054) | ||||||
| Share based payment charges | 3,005 | 1,657 | ||||||
Exceptional items in operating profit in the 53 week period ended 31 March 2016 of £835,000 represents costs incurred in relation to the acquisitions completed during the period and subsequent to the period end. There are no exceptional items included in operating profit in the 52 week period ended 26 March 2015.
Notes (continued)
4 Colleague numbers and costs
The average number of persons employed (full time equivalents) by the Group (including Directors) during the period, analysed by category, was as follows:
| 53 week period | 52 week period | ||||||||
| ended | ended | ||||||||
| 31 March 2016 | 26 March 2015 | ||||||||
| Number | Number | ||||||||
| Sales and distribution | 5,008 | 4,863 | |||||||
| Administration | 466 | 397 | |||||||
| 5,474 | 5,260 | ||||||||
The aggregate payroll costs of these persons were as follows:
| 53 week period ended | 52 week period ended | ||||||
| 31 March 2016 | 26 March 2015 | ||||||
| £000 | £000 | ||||||
| Wages and salaries | 143,553 | 122,510 | |||||
| Social security costs | 11,044 | 10,051 | |||||
| Contributions to defined contribution plans | 4,294 | 3,984 | |||||
| 158,891 | 136,545 | ||||||
Notes (continued)
5 Earnings per share
Basic earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share is calculated by dividing the net profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all dilutive potential ordinary shares into ordinary shares.
| 53 week period ended | 53 week period ended | 52 week period ended | 52 week period ended | |
| 31-Mar-16 | 31-Mar-16 | 26-Mar-15 | 26-Mar-15 | |
| Underlying Trading | After Exceptional Items |
Underlying Trading |
After Exceptional Items |
|
| Profit attributable to equity shareholders of the parent (£000s) | 77,079 | 72,783 | 67,876 | 72,171 |
| 77,079 | 72,783 | 67,876 | 72,171 | |
| Basic weighted average number of shares | 500,000,000 | 500,000,000 | 500,000,000 | 500,000,000 |
| Dilutive potential ordinary shares | 2,048,984 | 2,048,984 | 1,109,716 | 1,109,716 |
| Diluted weighted average number of shares | 502,048,984 | 502,048,984 | 501,109,716 | 501,109,716 |
| Basic earnings per share | 15.4p | 14.6p | 13.5p | 14.4p |
| Diluted earnings per share | 15.4p | 14.5p | 13.5p | 14.4p |
Notes (continued)
6 Finance Income
| 53 week period ended | 52 week period ended | ||||
| 31 March 2016 | 26 March 2015 | ||||
| £000 | £000 | ||||
| Interest receivable | 401 | 572 | |||
| Other finance income | 267 | - | |||
| Total finance income | 668 | 572 | |||
7 Finance Expense
| 53 week period ended | 52 week period ended | ||||
| 31 March 2016 | 26 March 2015 | ||||
| £000 | £000 | ||||
| Bank loans at effective interest rate | 5,628 | 10,367 | |||
| Other interest expense | - | 2 | |||
| Total underlying finance expense | 5,628 | 10,369 | |||
| Exceptional amortisation costs | 4,326 | - | |||
| Total exceptional finance expense | 4,326 | - | |||
| Total finance expense | 9,954 | 10,369 |
Exceptional finance expenses in the 53 week period ended 31 March 2016 related to £4,326,000 of accelerated amortisation following the repayment of the senior bank facility of £325,000,000 in the period.
Notes (continued)
8 Taxation
Recognised in the income statement
| 53 week period ended | 52 week period ended | ||||
| 31 March 2016 | 26 March 2015 | ||||
| £000 | £000 | ||||
| Current tax expense | |||||
| Current period | 19,441 | 15,307 | |||
| Adjustments in respect of prior periods | (294) | (5,065) | |||
| Current tax expense | 19,147 | 10,242 | |||
| Deferred tax expense | |||||
| Origination and reversal of temporary differences | 155 | 4,319 | |||
| Reduction in tax rate | (263) | - | |||
| Adjustments in respect of prior periods | 320 | 233 | |||
| Deferred tax expense | 212 | 4,552 | |||
| Total tax expense | 19,359 | 14,794 |
The UK corporation tax standard rate for the period was 20% (2015: 21%). The March 2015 budget announced that the UK corporation tax rate will further reduce to 19% (effective from 1 April 2017). The March 2016 budget announced a further reduction in the corporation tax rate to 17% from 1 April 2020. The deferred tax liability has been calculated based on the rate of 19% which is the rate at which the majority of items are expected to reverse.
Deferred tax recognised in other comprehensive income
| 53 week period ended | 52 week period ended | ||||
| 31 March 2016 | 26 March 2015 | ||||
| £000 | £000 | ||||
| Effective portion of changes in fair value of cash flow hedges | (320) | 303 | |||
Notes (continued)
8 Taxation (continued)
Reconciliation of effective tax rate
| 53 week period ended | 53 week period ended | 53 week period ended | 52 week period ended | 52 week period ended | 52 week period ended | |||||||
| 31 March 2016 | 31 March 2016 | 31 March 2016 | 26 march 2015 | 26 March 2015 | 26 March 2015 | |||||||
| Underlying Trading |
Exceptional Items |
Total | Underlying Trading |
Exceptional Items |
Total | |||||||
| £000 | £000 | £000 | £000 | £000 | £000 | |||||||
| Profit for the period | 77,079 | (4,296) | 72,783 | 67,876 | 4,295 | 72,171 | ||||||
| Total tax expense | 20,224 | (865) | 19,359 | 19,089 | (4,295) | 14,794 | ||||||
| Profit excluding taxation | 97,303 | (5,161) | 92,142 | 86,965 | - | 86,965 | ||||||
| Tax using the UK corporation tax rate for the period of 20% (52 week period ended 26 March 2015: 21%) | 19,460 | (1,032) | 18,428 | 18,263 | - | 18,263 | ||||||
| Impact of reduction in tax rate on deferred tax balances | (263) | - | (263) | (45) | - | (45) | ||||||
| Depreciation on expenditure not eligible for tax relief | 862 | - | 862 | 1,424 | - | 1,424 | ||||||
| Expenditure not eligible for tax relief | 139 | 167 | 306 | 217 | - | 217 | ||||||
| Adjustments in respect of prior periods | 26 | - | 26 | (770) | (4,295) | (5,065) | ||||||
| Total tax expense | 20,224 | (865) | 19,359 | 19,089 | (4,295) | 14,794 | ||||||
The UK corporation tax standard rate for the 53 week period ended 31 March 2016 was 20% (52 week period ended 26 March 2015: 21%). The effective tax rate before exceptional items for the 53 week period ended 31 March 2016 was 21%. The principal reason for the difference in rate relates to the non-deductibility of depreciation charged on certain items of capital expenditure.
Notes (continued)
9 Dividends paid and proposed
| Group | |||||
| 53 week period ended | 52 week period ended | ||||
| 31 March 2016 | 26 March 2015 | ||||
| £000 | £000 | ||||
| Declared and paid during the period | |||||
| Final dividend of 3.6p per share (2015: 0p per share) | 17,932 | - | |||
| Interim dividend of 2p per share (2015: 1.8p per share) | 9,962 | 8,942 | |||
| Proposed for approval by shareholders at the AGM | |||||
| Final dividend of 5.5p per share (2015: 3.6p per share) | 27,394 | 17,932 | |||
The trustees of the following holdings of Pets at Home Group Plc shares under the Pets at Home Group Employee Benefit Trusts have waived or otherwise foregone any and all dividends paid in relation to the period ended 31 March 2016 and to be paid at any time in the future (subject to the exceptions in the relevant trust deed) on its respective shares for the time being comprised in the Trust Funds as follows: Computershare Nominees (Channel Islands) Limited (holding at 31 March 2016:1,466,540 shares, holding at 26 March 2015: 1,466,861 shares), has waived its rights to all dividends; and, Wealth Nominees Limited (holding at 31 March 2016: 434,056 shares, holding at 27 March 2014: 434,056 shares), has waived its rights to all dividends.
Notes (continued)
10 Business combinations
Subsidiaries acquired
| Principal activity | Date of acquisition | Proportion of voting equity instruments acquired | Cash Consideration transferred | ||||||||
| £000 | |||||||||||
| Anderson Moores Veterinary Specialists Ltd | Veterinary referral centre | 18 January 2016 | 75% | 7,525 | |||||||
| Northwest Surgeons Ltd | Veterinary referral centre | 15 April 2015 | 100% | 2,600 | |||||||
In addition to the above acquisitions, the Group also acquired a franchised Vets4Pets practice, Leyland Vets.
Acquisition of Anderson Moores Veterinary Specialists Ltd
On 18 January 2016, the Group acquired 75% of the total share capital of Anderson Moores Veterinary Specialists Ltd in exchange for cash and contingent consideration. The remaining share capital of Anderson Moores Veterinary Specialists Ltd is held by non-controlling interests.
A put and call option, written into the Articles of Association, allows the non-controlling shareholders to require sale of their shares to the Group at an agreed pricing method at certain points in the future. The Articles also contain provision for the Group to buy the non-controlling shares under the same pricing mechanism at certain times.
As a consequence, the put and call option has been treated as a forward contract and as a result, the financial statements are prepared on the basis that the Group owns 100% of the total share capital of Anderson Moores Veterinary Specialists Ltd. Therefore no non-controlling interest is recognised. The deemed value of the put and call option is treated as a forward contract.
Consideration transferred
| Anderson Moores Veterinary Specialists Ltd | |||||||||
| £000 | |||||||||
| Cash | 7,525 | ||||||||
| Contingent consideration | 1,000 | ||||||||
| Forward contract | 4,117 | ||||||||
| 12,642 | |||||||||
Acquisition related costs amounting to £225,000 have been excluded from the consideration transferred and have been recognised as an expense in the profit and loss account in the current year, within the 'administrative expenses' exceptional line item.
The business combination includes an element of consideration payable on satisfaction of certain performance conditions in the period to 31 March 2018. The forecast contingent consideration payable, based on the Directors' best estimate of performance at the time of acquisition, in the future period, is £1,000,000.
Notes (continued)
10 Business combinations (continued)
Assets acquired and liabilities recognised at the date of acquisition
The provisional amounts recognised in respect of identifiable assets and liabilities relating to the acquisition are as follows:
| Carrying amounts | Accounting policy adjustments | Fair value adjustments | Assets and liabilities acquired | |||||
| £000 | £000 | £000 | £000 | |||||
| Current assets | ||||||||
| Cash and cash equivalents | 1,733 | - | - | 1,733 | ||||
| Trade and other receivables | 300 | - | (10) | 290 | ||||
| Inventories | 228 | - | - | 228 | ||||
| Non-current assets | ||||||||
| Tangible fixed assets | 810 | - | (3) | 807 | ||||
| Current liabilities | ||||||||
| Trade and other payables | (1,051) | - | - | (1,051) | ||||
| Deferred tax liabilities | (114) | - | - | (114) | ||||
| Non-current liabilities | - | - | - | - | ||||
| 1,906 | - | (13) | 1,893 |
Provisional goodwill arising on acquisition
| Anderson Moores Veterinary Specialists Ltd |
||||||||
| £000 | ||||||||
| Consideration transferred | 7,525 | |||||||
| Contingent consideration | 1,000 | |||||||
| Forward contract | 4,117 | |||||||
| Less: fair value of net assets acquired | (1,893) | |||||||
| Goodwill arising on acquisition | 10,749 | |||||||
Goodwill arose on the acquisition of Anderson Moores Veterinary Specialists Limited because the cost of the combination included a control premium in addition to the consideration paid for the combination, effectively including amounts in relation to the benefits of expected synergies, revenue growth and future market development. Those benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
The goodwill is deemed to be provisional due to the timing of the acquisition in relation to the period end. It is considered that further information could come to light that could affect the fair value of net assets acquired.
None of the goodwill identified on these acquisitions is expected to be deductible for tax purposes.
Notes (continued)
10 Business combinations (continued)
Net cash outflow on acquisition of subsidiary
| Anderson Moores Veterinary Specialists Ltd |
||
| £000 | ||
| Initial cash consideration | 7,525 | |
| Less: cash and cash equivalents acquired | (1,733) | |
| Total cash paid | 5,792 |
Impact of acquisition on the results of the Group
Included in the operating profit for the period ended 31 March 2016 is £164,000 attributable to the additional business generated by Anderson Moores Veterinary Specialists Limited. Revenue for the period ended 31 March 2016 includes £1,481,000 in respect of Anderson Moores Veterinary Specialists Limited.
Had the business combination been effected at 27 April 2015, the revenue for the Group from continuing operations would have been £799,293,000 and the operating profit for the period from continuing operations would have been £102,518,000.
Notes (continued)
10 Business Combinations (continued)
Acquisition of Northwest Surgeons Ltd
On 15 April 2015, the Group acquired 100% of the share capital of Northwest Surgeons Limited in exchange for cash and contingent consideration.
Consideration transferred
| Northwest Surgeons Limited | |||||||||
| £000 | |||||||||
| Cash | 2,600 | ||||||||
| Contingent consideration | 562 | ||||||||
| 3,162 | |||||||||
Acquisition related costs amounting to £101,000 have been excluded from the consideration transferred and have been recognised as an expense in the profit and loss account in the current year, within the 'administrative expenses' line item
The business combination includes an "earn out" mechanism whereby additional consideration may become payable in the financial period to 30 March 2017, subject to the EBITDA performance of Northwest Surgeons Ltd in the period from 1 April 2015 to 31 March 2016.
The forecast contingent consideration payable, based on the Directors' best estimate of the EBITDA performance at the time of acquisition, in the earn out period, is £562,000. The maximum contingent consideration payable is £680,000 and the minimum contingent consideration payable is £nil.
Notes (continued)
10 Business combinations (continued)
Assets acquired and liabilities recognised at the date of acquisition
The provisional amounts recognised in respect of identifiable assets and liabilities relating to the acquisition are as follows:
| Carrying amounts | Accounting policy adjustments | Fair value adjustments | Assets and liabilities acquired | ||||||
| £000 | £000 | £000 | £000 | ||||||
| Current assets | |||||||||
| Cash and cash equivalents | 190 | - | - | 190 | |||||
| Trade and other receivables | 329 | - | - | 329 | |||||
| Inventories | 146 | - | - | 146 | |||||
| Non-current assets | |||||||||
| Tangible fixed assets | 2,051 | - | (178) | 1,873 | |||||
| Current liabilities | |||||||||
| Trade and other payables | (694) | - | - | (694) | |||||
| Non-current liabilities | |||||||||
| Bank loans | (1,552) | - | - | (1,552) | |||||
| Other payables | (56) | - | - | (56) | |||||
| Deferred tax liabilities | (69) | - | - | (69) | |||||
| 345 | - | (178) | 167 | ||||||
Goodwill arising on acquisition
| Northwest Surgeons Limited | |||||||||
| £000 | |||||||||
| Consideration transferred | 3,162 | ||||||||
| Less: fair value of net assets acquired | (167) | ||||||||
| Goodwill arising on acquisition | 2,995 | ||||||||
Goodwill arose on the acquisition of Northwest Surgeons Limited because the cost of the combination included a control premium in addition to the consideration paid for the combination effectively including amounts in relation to the benefits of expected synergies, revenue growth, and future market development. Those benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
None of the goodwill identified on these acquisitions is expected to be deductible for tax purposes.
Notes (continued)
10 Business combinations (continued)
Net cash outflow on acquisition of subsidiary
| Northwest Surgeons Limited | |||||||||
| £000 | |||||||||
| Initial cash consideration | 2,600 | ||||||||
| Less: cash and cash equivalents acquired | (190) | ||||||||
| Total cash paid | 2,410 | ||||||||
Included in the operating profit for the period ended 31 March 2016 is £317,000 attributable to the additional business generated by Northwest Surgeons Limited. Revenue for the period ended 31 March 2016 includes £4,889,000 in respect of Northwest Surgeons Limited.
Other acquisitions
In addition to the above acquisitions, the Group also acquired a franchised Vets4Pets practice, Leyland Vets. The acquisition resulted in additional goodwill of £149,000.
Notes (continued)
11 Other interest-bearing loans and borrowings
| Group | ||
| At 31 March 2016 | At 26 March 2015 | |
| £000 | £000 | |
| Non-current liabilities | ||
| Secured bank loans | 201,091 | 315,674 |
| Current liabilities | ||
| Current portion of secured bank loans | - | 5,000 |
| Total liabilities | ||
| Secured bank loans | 201,091 | 320,674 |
Terms and debt repayment schedule
| Face value | Carrying amount | Face value | Carrying amount | ||||
| Nominal | Year of | At 31 March 2016 | At 31 March 2016 |
At 26 March 2015 | At 26 March 2015 |
||
| Currency | interest rate | maturity | £000 | £000 | £000 | £000 | |
| Senior Finance Bank Loans |
GBP | LIBOR +1.5% |
2019-2020 | 202,000 | 201,091 | - | - |
| Senior Finance Bank Loans |
GBP | LIBOR +2-2.25% |
2019-2020 | - | - | 325,000 | 320,674 |
In April 2015, the Group's Senior Financing Facilities were amended, with the introduction of a further revolving credit facility (RCF) with a total facility amount of £260m. As part of the amendment, £325m of the Group's term loans under the previous terms of the Senior Financing Facilities were repaid via drawings under the Group's RCF along with cash from the Group's existing resources. The amended RCF expires in April 2020 and is reviewed each period. Interest is charged at LIBOR plus a margin based on leverage.
Face value represents the principal value of the Senior Finance Bank Loans.
Interest-bearing borrowings are recognised initially at fair value, being the principal value of the loan net of attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at a carrying value, which represents the amortised cost of the loans using the effective interest method less any impairment losses.
At 31 March 2016 the Group had a revolving credit facility of £260m with a drawn amount of £202m.
Notes (continued)
11 Other interest-bearing loans and borrowings (continued)
The analysis of repayments on the loans is as follows:
| At 31 March 2016 | At 26 March 2015 | ||
| £000 | £000 | ||
| Within one year or repayable on demand | - | 5,000 | |
| Between one and two years | - | 12,500 | |
| Between two and five years | 202,000 | 307,500 | |
| 202,0000 | 325,000 |
Analysis of changes in net debt
| At 26 March 2015 | Cash flow | Non-cash movement | At 31 March 2016 | ||||
| £000 | £000 | £000 | £000 | ||||
| Cash and cash equivalents | 132,966 | (92,968) | - | 39,998 | |||
| Debt due within one year at face value | (5,000) | 5,000 | - | - | |||
| Debt due after one year at face value | (320,000) | 118,000 | - | (202,000) | |||
| Net debt | (192,034) | 30,032 | - | (162,002) |
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAPSSAEPKEFF
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