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Good morning, everybody, and thank you for joining us to discuss the Pets at Home quarter 1 trading update for financial year '20. I'm delighted to say the rain has finally stopped in Manchester and we have a golden globe in the sky which is very rare to the north. I'm Pete Pritchard, the Group CEO; and with me is Mike Iddon, our group CFO. Our first quarter runs from the 29th of March to the 18th of July 2019. And I'm pleased to say the strong momentum which we exited FY '19 has continued into this quarter. We've made really -- we've made a really strong start to the new financial year and our pet care strategy continues to deliver results. So let me take you through some of the highlights of our performance in quarter 1. Total group revenue increased 9.9% to GBP 303.4 million, with a like-for-like growth of 8%. Within that, we saw retail revenues increase 8.7% to GBP 266.4 million, with a like-for-like growth of 8.2%, at around 14% on a 2-year basis. In particular, our omnichannel business continues to grow at pace, delivering a 36% year-on-year increase to GBP 26 million. So after ending FY '19 with our strongest quarter of retail like-for-like growth, we have accelerated that further still into quarter 1 of the new year. We are seeing more new customers and more shoppers using digital channels. This demonstrates how successful recent initiatives have been, whether that's in terms of competitive pricing or making it even easier for customers to shop with us. Such stores are increasingly popular easy to repeat food ordering platform or our monthly flea worm treating service. We know that our customers generally first shop with us when buying food. They then move to other purchases, such as accessories and services. So there we've seen a gross margin effect in the quarter as a result of our new customer acquisition. And our weighting towards food, it has delivered an overall cash benefit. I'm not worried about this since by acquiring new food customers today, we have a big opportunity to drive incremental revenue over the lifetime of the pet. So we're really pleased with our sustained momentum in retail. I'm also particularly pleased with our performance in the vet group, where total revenue growth was 18.8% to GBP 37 million, with a like-for-like growth of 6.2%. The vet group revenue is made up of a number of different parts. In the first opinion business, we've seen customer revenues in our vet practices grow by 11.4%, with our mature practices growing their revenues ahead of the market. This reflects both growth in the number of clients visiting our practices and the average transaction value, and means that we are taking share in the market. On the back of this, customer revenue growth in our like-for-like joint venture fee income was 1.1%. And this, of course, reflects the planned impact of the fee remediation measures we've been putting in place for some of our joint venture practices. Whilst this has suppressed the like-for-like and will continue for the rest of the year, it is the right thing to do both for our practices and for Pets at Home and will ensure that our practices can mature sustainably. And we also have the revenue from our company managed practices which we consolidate in full. This has grown significantly year-on-year and reflects both the strong like-for-like performance in those practices that we've owned for more than 12 months as well as the revenue from those joint venture practices which we've been buying out since the end of last year. For these practices, revenues are consolidated in full when the point at which a buyout is completed and therefore contributes to the total vet group revenue growth, but not the like-for-like growth. And finally within the vet group, our specialist hospitals had another steady quarter. One of our great strategic advantages is our ability to bring all aspects of pet care together for customers in ways that our competitors simply can't. I've spoken previously about the opportunity we have to drive customers into pet care, and we continue to make good progress on this. The number of VIPs who both purchase products and use one of our grooming or vet services are growing again year-on-year by 23%. The breadth of our pet care offering has been strengthened further by the exciting new partnership with Tailster.com, a leading online marketplace for U.K. pet walking, sitting and boarding services. Whilst this currently is a small strategic investment, it's a very interesting way for us to expand our offer, demonstrating another way in which we can deliver pet care to our customers. So to wrap up, I am extremely encouraged by the start we've made to this financial year. We've still got lots to do. But given the sustained performance we've seen in retail, together with the success in executing the joint venture buyout program, which is now largely complete, we now expect underlying profit for the year to be slightly above current market expectations. With the ongoing uncertainty around Brexit, we remain prudent in our approach for the rest of the year, but we are cautiously optimistic that by minimizing disruption for customers, our pet care strategy will continue to be successful. So I'll stop there. Mike and I will be delighted to answer any questions you may have. So let me hand back to the call operator, Sergey, for any questions.
[Operator Instructions] And have our first question comes from the line of Matthew Garland.
We're on the results. My first question is around the fee income reduction. I was wondering if you could give a bit more information around the level of maturity of practice where you're seeing that reduction in fee income and the overall reduction in fee income that you're expecting. So I think 16% to 17% for fee income from those joint venture practices. I was wondering how that had changed?
Yes. I'll -- it's Mike. So I'll take that one up. So the fee income reduction we've seen in the first quarter, it's exactly in line with our plan and the guidance we gave at the start of the year. You asked the question around what type of practices, it generally is our younger practices where we're supporting them through those earlier years of growth. But of course, our thinking here is reduce our fee, get into profitability quicker and have to put less support in, in terms of operating loans. So what you see in the first quarter is the first full quarter's impact of that. And looking ahead, we'll probably expect to see fee income like-for-like growth of around about the 1% we've had in the first quarter.
Okay. So no expected effect from the more mature practices?
So our mature practices tend to be our more successful ones. You may remember, we've got over 100 of those now completely debt-free. And we'll continue with our existing fee arrangements for those practices. So we focus very precisely in our -- on those practices we think need the most support as they go through the earlier years as they build their maturity.
And my second question was just around the retail business. Have you seen any more significant price investment from your competitors in any of the key categories, both food and accessories?
No. It's been relatively benign. So obviously, we've spent the last 2 years readdressing our pricing position, and that pricing work is now complete from an investment phase. And obviously we're now into a maintenance phase. But we have seen no significant reaction from any of our competitors and we are still holding our price gap within the expectations that we set ourselves.
Our next question comes from the line of George [ Bilakotos ].
First one is just whether you could remind us about your sourcing exposure to different currencies and perhaps how that might vary to some of your peers. A second one is just on the VIP spend. Could you give us a bit more of a breakdown in how much of that is coming from new customers or increased spend from existing customers?
Yes, hi George, I'll pick up the currency question. So this year, we're fully hedged out. So for FY '19 at $1.35. To help sort of quantify scale of this, we've got -- we purchase every year about $70 million at cost, mainly from the Far East, and mainly accessories. Our hedging policy for this year is covered as we hedge out up to 95% of the next 12 months. So we partly hedged some of FY '20 as well. But clearly, the recent movement of the dollar, that we're already starting to look now what we can do to mitigate any impacts of the dollar swing we've seen over the last couple of weeks.
I'll pick up the question around VIP spend. You're right. Actually, our spend comes from 2 sources, it comes from new clients and new customers and from existing. So what we're seeing is we're seeing growth across both within new customers. And new customer is the lifeblood of a pet business because of the lifespan of a pet. We're seeing particularly strong new client registrations in our vet business and strong acquisition in our retail business, driven by our puppy club and kitten. But within our mature customers, what we're seeing is 2 dynamics. We're seeing customer spend increase and we're seeing their frequency tick up as well. So we're seeing movement across all pieces. We're obviously seeing more members in our VIP clubs. So we think about that in terms of our active members, year-on-year, our VIP members have moved -- active members have moved from 4.4 million last year to 4.7 million this year. So they all point to a good, strong underlying health in our customer base.
And just one follow-up if that's all right. You kind of mentioned the food was kind of driving new customers. So do you think that you're gaining even more share from a volume perspective? And on the food side, kind of gave the overall vet spend in aggregate?
Yes. Yes, we've obviously called it out for you, so you can see total retail like-for-like growth is at 8%, 8.2%. Our food like-for-like is ahead of that. And there's a couple of dynamics which are important in that, in terms of what we've seen is we've seen customers buying bigger bags of food. So a higher weighted purchase, partly driven by our price investment program which part of it's focused on big bags. So pleased to see that's working. Secondly, we've seen an up trade as customers buy better food. Partly that's a market trend, but also because we've made our food more affordable relative to grocery pricing, we've seen a natural uptake. We -- it's often quite hard to read statistics in a pet market because it's not as consolidated as, let's say, the grocery market. If we look at what we believe to be growth levels within food, it would suggest we're taking strong shares.
Our next question comes from the line of Greg Lawless.
Just a couple, if I may. Where do you see consensus going? It's about slightly above GBP 85 million. I just wanted to get a feel for that. And do you -- are there any early learnings really from the new stores, format stores at Stockport and Chesterfield?
Greg, it's Mike. Yes. I'll pick up that question on consensus. So our average PBT consensus, you'll see it in our investor site, is GBP 85 million at full year. Clearly, we had a really strong first quarter and that will have translated to profit outperformance in the first quarter. We're clearly -- we're looking forward into the rest of the year, and we're still early on, at 4 periods only, 9 periods to go. We've obviously got momentum in our retail business which will carry us through into the second quarter. So at this stage of the year, we look ahead and say we're cautiously optimistic. I think that's probably the right place to be. But clearly, we've got the benefit of the profit we've done in the first quarter. So we're guiding slightly up at this point, so slightly ahead of that GBP 85 million for the full year. And we'll take the opportunity when we get to the autumn and update with our Q2 and half year results where we are at that point.
I'll pick up the question on our 2 stores, Stockport and Chesterfield. And let me just remind everybody, we took 2 existing stores and we refitted those stores, really with a focus on creating an environment that people both would need to go to for services, probably would also want to go to, and we've really driven our focus on services and product, also would want to go to. And we've really driven our focus on services and experiences in the store. My overall headline would be I'm very pleased with what we've delivered in those 2 stores. What we can see in early days is customer visits are up, and that's relative to our control, which is really encouraging. And probably the thing that makes me happiest actually is customer satisfaction levels in those stores has materially stepped on. So that's always a really good proxy for how we would expect those stores to perform. It's still relatively early days because we've tried a lot of new things in there and we will continue to evaluate. But today, we opened Stratford-upon-Avon which is a [ re-sited ] store, and this will be our first brand-new store that opens with the new format. So again, we'll be taking additional learnings from that as that store opens and starts to trade. So a good start I think will be my summary.
[Operator Instructions] And we have a follow-up question from Matthew Garland.
One quick follow-up question. Can you give -- in terms of the fee increase in food revenue, can you give a bit more color around how you performed in the Advanced Nutrition area and also how your private label performed in the period?
I'll do that one. We haven't released that information today. But I think you can probably take an assumption because food has grown ahead of our retail like-for-like and we have a strong presence in Advanced Nutrition, we've got a very strong like-for-like number within that number. And within Advanced Nutrition, our private label continues to build scale and share.
And if there are no further questions in the queue, that will conclude today's question-and-answer session. And now I would like to turn the call back to Mr. Pritchard for any additional or closing remarks. Over to you, sir.
No. Thanks very much, everybody, and we hope you have a good day. Much appreciated.