FOR IMMEDIATE RELEASE, 10 JUNE 2022

Pets at Home Group Plc: Posting of Annual Report & Accounts and Notice of AGM

Pets at Home Group Plc (LSE: PETS) ("Company") today announces that its Annual Report and Accounts for the year ended 31 March 2022 ("Annual Report"), Notice ("Notice") of the 2022  Annual General Meeting ("AGM") and Form of Proxy for the 2022 AGM have been sent to shareholders and the Annual Report and Notice are available on the Company's website at https://investors.petsathome.com.

In compliance with LR9.6.1, the Company has today submitted electronic copies of the following documents to the National Storage Mechanism appointed by the Financial Conduct Authority and these will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism:

·    Annual Report and Accounts for the year ended 31 March 2022;

·    Notice of the 2022 AGM; and

·    Form of Proxy for the 2022 AGM.

The Company's AGM will be held at 11.00 am on 7 July 2022 at Pets at Home, Chester House, Stanley Green Trading Estate, Handforth, Cheshire, SK9 3RN.

The directors of the Company have determined that all of the resolutions to be put to a vote at the AGM will be decided on a poll.

The Company's preliminary results announcement on 25 May 2022 included, in addition to the preliminary financial results for the year ended 31 March 2022, information on important events that occurred during the year and their impact on those financial statements. That information, together with the information set out in the Appendix below is provided in compliance with the requirements of DTR6.3.5(2) (b). This information is not a substitute for reading the full Annual Report and Accounts for the year ended 31 March 2022.

ENDS

About Pets At Home

Pets at Home Group Plc is the UK's leading pet care business; our commitment is to make sure pets and their owners get the very best advice, products and care. Pet products are available online or from our 457 stores, many of which also have vet practices and grooming salons. Pets at Home also operates a UK leading small animal veterinary business, with 443 First Opinion practices located both in our stores and in standalone locations. For more information visit: http://investors.petsathome.com

Appendix

Directors Responsibility Statement

The responsibility statement below has been prepared in connection with the Company's Annual Report and Accounts for the year ended 31 March 2022.

The Directors of Pets At Home Group Plc confirm that to the best of their knowledge:

·    the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·    the strategic report/directors' report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors of Pets at Home Group Plc consider the annual report and accounts taken as a whole, is fair, balanced and understandable and provides the necessary information for shareholders to assess the Group's position and performance, business model and strategy.

This responsibility statement was approved by the Board of Directors on 19 May 2022 and signed on its behalf by Peter Pritchard, Group Chief Executive Officer.

Principal Risks and Uncertainties

A risk management framework is in place allowing risks to be identified, assessed and managed within appetite, whilst taking advantage of opportunities. This allows the strategy to be effectively delivered and protects value for shareholders.

Risk Management Framework

The responsibility for risk management operates at all levels throughout the Group.

Board of Directors

Sets the tone from the top. The Board of Directors has overall responsibility for the Group's risk and internal control frameworks. It determines the nature and level of principal risks and sets risk appetite. Undertakes a robust assessment of the Group's current and emerging principal risks that have the potential to threaten our reputation, business model, future performance, solvency or liquidity.

Audit and Risk Committee

Assists the Board in fulfilling its corporate governance responsibilities and oversees responsibilities in relation to financial reporting, internal controls, ethics and the risk management framework. Provides oversight and challenge to the assessment of principal risks. Reviews internal financial controls and the risk management framework and assesses their effectiveness in mitigating Group level risks and advises the Executive Management Team on risk appetite. Reviews and oversees the Group risk register and watch list. Reviews detailed risk reports and conducts regular deep dives into key risk areas with relevant Directors to understand the nature of the risks and adequacy of the controls and mitigation plans to bring the risk within tolerance.

Executive Management Team

Collectively responsible for identifying and managing risk. Each principal and emerging risk is allocated to an Executive Management Team member for oversight and ultimate ownership. Gathers assurance and risk updates from across the three lines of defence.

Internal Audit

Gives objective assurance to the Board and Audit and Risk Committee on the effectiveness of the risk management framework. Holds meetings with risk owners across the business four times per year. Updates the individual risk registers with risk owners, including actions and progress made, assesses risk ratings and controls in place that help mitigate each risk. Recommends improvements and corrective actions.

Operational Management

Owns and manages operational and project risks and implement mitigating actions. Ensures Group policies and procedures are implemented and complied with. Communicates significant risks and threats via reporting processes to the senior management team.  

Key Risks

The key risks identified by the Board are summarised below.

Brand and reputation

Description and impact

Protecting our strong brand and reputation is essential and it is every colleague's responsibility to safeguard and indeed enhance the reputation of the Group. Pet welfare remains our highest priority. Underpinning this is our vision to become the best pet care business in the world. To attract new customers and build customer loyalty we must maintain stakeholder trust and confidence in the Group and its brands.

Mitigation

Advancing pet welfare will always be a priority in line with our purpose - We're better with pets. It is at the heart of everything we do and supports our strategy. As a retailer of small pets and as a veterinary group, the highest possible welfare and clinical standards must always be maintained. The Group's pet welfare and clinical standards are overseen by the ESG Committee (environment, social and governance), whose remit includes maintaining and improving our exacting standards. Reporting into this committee is the Pet Welfare Committee, which oversees the assurance and governance of pet welfare (including our breeders and supply chains), quality and welfare considerations of products, services and events, and the Group's position on pet welfare and pets in society. Regular meetings with stakeholders from across the Group allow us to be agile with communications and improvements to procedures should they be needed. We have rigorous processes in place to ensure welfare standards across our stores, in-store adoption centres, grooming salons, and our breeders. All are regularly assessed against a comprehensive set of welfare standards both by internal and independent external assessors. We also have a highly visible field operations team that are focused on maintaining the highest pet welfare standards. We have recently implemented an improved internal audit system that allows us to identify areas where additional colleague training or new procedures are required. And, despite the challenges associated with COVID-19, we have continued to implement our pet welfare audit programme with virtual assessments during the first quarter, followed by a return to in-person visits for the remainder of the year. We also operate a confidential 'Pet Promise Line' where colleagues can raise concerns about pet care directly with our Head of Pets, who is a qualified veterinary surgeon. Any call to this line results in appropriate action to address the concerns raised. We know that, despite our best efforts, customers are often unaware of the complexity or commitment required of pet ownership. Every store colleague is empowered to refuse to sell a pet if they have any doubts about the suitability of its forever home. In addition, as part of a wider project to improve rabbit welfare, we constantly evaluate how we talk about and sell pets, and rabbits are now only sold in stores that have veterinary practices on site. We continually review the price of rabbits to make them more of a considered purchase and we also discontinue the sale and adoption of rabbits over the Easter period. In addition, we have recently completed a comprehensive review of our small animal food and treat range with the aim of improving the health and welfare of both store and customer owned pets. The Group also interacts with customers' pets through its First Opinion veterinary practices. All our veterinary surgeons and nurses are subject to the Royal College of Veterinary Surgeons' (RCVS) Code of Conduct. In addition, 330 practices are accredited under the RCVS Practice Standards Scheme (PSS), with a further 19 currently enrolled to become accredited. This is a voluntary scheme, which through setting standards and carrying out regular assessments, aims to promote and maintain the highest standards of veterinary care. To become accredited, practices volunteer for rigorous assessment every four years and must meet a range of standards. Practices are also subject to independent spot-checks between assessments. The accreditation process has been suspended for part of the financial year due to the pandemic, but we will continue to drive and support PSS accreditation when it has fully resumed. To support our colleagues further our clinical development team, who are all veterinary surgeons, audit to our internally developed 'Aspiring to Clinical Excellence' (ACE) audit programme which has helped improve clinical standards and processes across the Group. The support has been further enhanced by our quality improvement programme which has provided granular detail, as well as clear direction and prioritisation for our future support activities. In conjunction with the VetCompass research team at the Royal Veterinary College we are conducting research into antibiotic prescribing behaviours, which will advance the profession's knowledge of this critical subject that has implications for both human and animal health. We have strong relationships with several large animal and pet rescue charities in the UK and engage with them regularly on pet ownership and welfare issues. We are the biggest grant giver to the UK rescue sector through the Pets at Home Foundation and our VIP Lifelines scheme. This year we have supported both the UK and international rescue sector with an emergency grant scheme to help them to cover essential costs during the pandemic or another crisis. The rescue sector has not reported a significant increase in relinquishment of pets over the past year. However, we will be monitoring the situation closely with the sector and ensuring that our help is placed where it will have most impact. We are aware that an overall increase in the pet population may result in more pet relinquishments, but not an overall percentage increase in the total number of pets versus volume of relinquishments. We are also aware that as restrictions continue to ease more support may be needed to help pets and owners adapt to changing lifestyles and we will work to ensure our pet care ecosystem is here to support our customers during their pet ownership journey.

Outlook

As we continue to increase the size and scale of our pet care service offering, we must ensure that pet welfare and clinical standards continue to be maintained at the mandated high level across the Group. We continually monitor and improve our standards across the Group to ensure they remain robust and best in class. Throughout the pandemic our First Opinion practices have followed both Government and the RCVS guidance and remained open to deliver essential care. We trust our veterinary surgeons as professionals to take each case on its own merit and continue to undertake what is essential for the pet's health and welfare needs.

Key emerging risks

Disruption caused by material changes in customer behaviour and needs, driven by concerns around affordability, sustainability, and the environment. New and emerging animal diseases. Climate change may have a significant impact on pet welfare.

Risk profile: High

Risk appetite: Low

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, Use data and VIP to better serve customers,

Set our people free to serve, 50% of sales from pet services.

Competition and customers

Description and impact

The Group competes with a wide variety of retailers, including other pet specialists, pure play online competitors, direct to customer businesses, supermarkets, discounters, online pet healthcare platforms, veterinary groups, and independent practices. There is increased online competition as large well-known internet businesses continue to expand into pet products and established pet product sites improve and expand their offer. There is also a high level of new start-ups into the subscription market. We must continue to offer an attractive model for our future Joint Venture Partners while keeping ahead of, and responding to, developments by our competitors around price, range, quality, clinical care, and customer service. Failing to do so could have an adverse impact on the Group's financial performance and opportunities for growth.

Mitigation

We offer pet owners a complete pet care experience, something our competitors cannot. We differentiate ourselves through our expanding pet care ecosystem, combining product, services, and expert advice from a trusted, well-known brand. In FY22, we welcomed over 1m customers into our pet care ecosystem. Market research is carried out to review the pet market worldwide to understand what our competitors are doing. We also undertake an annual survey with c5,000 UK pet owners, both customers and non-customers. Both help identify initiatives that we can implement to help keep Pets at Home a leader in the UK market. We also constantly review expansion opportunities into new adjacencies that would contribute to our pet care ecosystem. Our people are at the heart of our business. Our passionate and skilled team of veterinarians, vet nurses, grooming stylists, and store colleagues share their knowledge and expertise with our customers every single day. This a key element of our proposition and we continue to invest to ensure our service standards are continually improved. Our stores play a strategic role in delivering pet care to our customers as key points of acquisition, fulfilment, and advice. We introduce services within stores (Vets, Grooming, Self-Wash etc.) where possible. We are also leveraging our stores as mini distribution centres which will allow us to further improve our delivery options with the introduction of same day delivery. All stores are profit generating and as we open new stores, we see a good return on investment indicating that we have not yet reached maturity on our store estate. We maintain competitive prices across Advanced Nutrition own label foods as well as branded food lines and pet essentials. While we know that our customers are characteristically loyal, we are conscious of increasing inflationary challenges and are committed to affordable pet care for all. We continue to hone our pricing and promotional strategies, to ensure that we will be targeting price investment across product areas that customers will really notice and care about, supported by compelling promotional activity to ensure that our value message really resonates with our customers. There has been continued growth in our membership across our VIP, and Puppy and Kitten clubs with increasing spend across our pet care platform. The clubs help introduce customers to all parts of the business where members typically spend more than non-members. Acquiring customers at the very start of their pet journey helps create loyalty and lock in lifetime value. Our VIP loyalty club provides almost 10 years' worth of proprietary pet and customer data. We are integrating analytics into our extensive pet dataset to generate unparalleled insights, enabling us to understand more accurately our customers and their pets, and predict their future pet care requirements. Beyond our CRM activities, we are increasingly using intelligent data to optimise decision-making across the wider business. By leveraging our data insights, we can offer more personalised, targeted solutions, driving customer loyalty, retention, and lifetime value. Our omnichannel participation of retail sales continues to grow. Our approach extends beyond traditional online shopping, with new fulfilment options such as a one-hour Click & Collect service across all our stores and the contactless Deliver to Car service across much of the estate. Subscription platforms allow us to offer greater convenience, choice, and flexibility to our customers. We have continued to enhance and grow our deliver to home service for the supply of preventive and therapeutic veterinary medicines to our veterinary customers. The Group now has approximately 1.5m pet care plans across the Group, offering customers a convenient way to shop with us, and increasing the quality and visibility of our sales profile. We operate the largest branded veterinary business in the UK, with practices located in two-thirds of stores plus 138 standalone locations and continue to have a differentiated strategy versus our scale UK competitors, which all employ variations of a 'buy and build' model. The JV model, and the relationship with our retail stores and VIP club, plus our ability to advertise at national scale under a single brand are key aspects of a strategy that remain difficult for any competitor to replicate - in part or in whole. Practice maturity represents a significant future profit and cash flow opportunity, with further potential upside from rollout of new practices. We are also continuing to introduce an innovative format for our veterinary practices, enhancing, and modernising the customer's experience through our 'Pathfinder' initiative which combines design innovation, the latest client-facing technology and our new 'Pet Care Advisor' role, to optimise allocation of clinical resource, enhance client engagement, and improve practice economics. Our telehealth business, The Vet Connection, broadens our digital capabilities in providing trusted advice and pet care solutions. It enables us to provide customers with round-the-clock veterinary telehealth advice, triage, and ancillary services, meaning pet owners can remotely access quality care for their pet whenever they need to. We continue to build our digital capability with the first elements of 'Polestar,' our transformational digital initiative, launched in the year, which will create a joined up and personalised pet care experience across the Group. Our vision is to make pet care easier and even more convenient for our customers from Day 1, however they wish to shop, with our entire ecosystem of products and services in one place. Single sign on was successfully launched for PetsatHome.com customers in February 2022 and we will have regular launches of new digital products and customer services through to the end of 2023.

Outlook

Whilst the ongoing presence of COVID-19, current geopolitical tensions, and inflationary pressures represent near term headwinds, the business is well positioned to manage such challenges and we have a clear and well-invested plan. The wider economic challenges will remain a key focus for next year. The Group is in a strong position in a large, resilient market which has seen continued structural growth over the past 12 months with a second wave of new pet ownership increasing our customer base to over 7m VIPs. We expect to see continued strong growth both in our Puppy and Kitten clubs, online and demand for digital services, which will be supported through the new digital platform and increased delivery choices. Key investments across our digital platforms and distribution centres keep us in a strong position to offer these newly acquired customers a complete pet care experience. As we emerge out of COVID-19 we will also start to reintroduce more experiential activities to our stores with a focus on supporting newly acquired Puppy and Kitten customers. Over half of the small animal veterinary market in the UK is corporately owned. We can benefit from our strong strategic footing as the only corporate vet Joint Venture business in the UK that provides the opportunity for entrepreneurial vets to own their own business. This Joint Venture arrangement offers clinical freedom and operational independence to veterinary surgeons, supported by our business expertise.

Key emerging risks

Disruption from new competitors taking advantage of new market dynamics. Continued macroeconomic uncertainty post-pandemic and adjustment to new processes set out in the EU-UK Trade and Cooperation Agreement. Disruption caused by material changes in customer behaviour and needs, driven by concerns around affordability, sustainability, and the environment. Sustainability and climate change concerns make pet ownership less attractive.

Risk profile: Medium

Risk appetite: Moderate to high

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, Use data and VIP to better serve customers,

50% of sales from pet services

Supply Chain and Sourcing

Description and impact

As we source our products and raw materials globally, we are exposed to the risks associated with international trade, such as supplier failure or disruption, inflation, changing regulatory frameworks and currency exposure. We must ensure that our suppliers share and uphold our approach to business ethics, human rights (including safety and modern slavery) and the environment. We are also exposed to the risks associated with the quality and safety of products produced locally and globally on behalf of the Group, many of which are own brand or exclusive private labels. We have three distribution centres covering the UK. A disaster at one of these may result in a significant disruption to the supply of stock for many stores and in the fulfilment of internet orders. Failing to manage this risk could lead to significant reputational damage.

Mitigation

The strength of our long-standing relationships with key suppliers and freight partners is crucial to preserving our supply chain. Global supply chain challenges continued to lead our engagement with suppliers as we all focused on ensuring continuity of supply of products for our customers and their pets. Availability remained a challenge across the year with Asia supply impacted by further challenges due to COVID-19 and the Suez Canal shipment lanes blockage. We were able to minimise disruption to customers through forward buys supported by increased distribution capacity. The Product and Supply Chain Committee is responsible for developing our Responsible Sourcing strategy. Its scope covers the full value chain impact of products including packaging, raw materials, and the environmental impacts of manufacture, Human Rights, and product sustainability innovation. During the year, the Committee has developed a roadmap to deliver the relevant targets for our Better World Pledge. More details can be found on page 42 of the Annual Report. Over 80% of our cost of goods sold is sourced domestically, limiting our direct exposure to container rate volatility. We continue to work closely with our broad base of suppliers to mitigate as much inflation as possible across the supply chain to support our competitive price index. For our own label and private label food products we have identified alternative suppliers where appropriate and have developed contingency plans. We assessed the impact of the crisis in Ukraine for the Group and our stakeholders. For our supply chain the impact of any material changes to the GBP/USD rate would have a financial impact. For our product ranges the main impact is the availability of sunflower seeds. We have assurance from our suppliers around the security of their supply, and we have mitigated this further through redevelopment of the few affected products in our wild bird range. Having Pets at Home colleagues in Asia and the UK working collaboratively with suppliers enables us to monitor compliance with the Group's Code of Ethics and Business Conduct policy, and our Supplier Quality Manual. We use a combination of independent third-party ethical audits and audits completed by our own colleagues to monitor supplier compliance. Our Legal team ensure we have the necessary contractual rights to carry out these activities. Suppliers are then supported to remediate any non-conformance. We continue to invest in our quality assurance and control processes and to ensure the effectiveness of our Far East sourcing office in mitigating our sourcing risks in the region. We have recruited a Responsible Sourcing Specialist who is embedded operationally within our Technical Team while working closely with the Group Head of Social Value and the Company Secretary on our Group wide human rights strategy and approach. In the Vet Group we have worked closely with all suppliers to understand and mitigate any potential risks to manufacture and supply of critical pharmaceutical and consumable clinical products due to national or international instability. We have continued with our intended programme of contract renewals during the year and have improved our provision of ring-fenced stock holdings with both wholesalers and manufacturers which has proved successful in mitigating risk to security of supply. Business continuity plans are in place for the distribution centres. They help us mitigate the impact of a disaster by enabling us to service all stores and orders for a priority range of SKUs from a single distribution centre whilst we source a second facility and recover full product supply. We have sufficient storage capacity to support business growth. Exposure to foreign currency movements and freight rate increases is a risk that is mitigated through our hedging strategy; see the Treasury and finance risk.

Outlook

We recognise that exposure to inflationary pressures, rising energy costs, foreign currency movements and freight market fluctuations will be a heightened risk. Freight market impacts are expected to continue through to 2024 which we are mitigating through our hedging strategy. We are in a positive position, building in more flexibility and resilience. Availability challenges have stabilised however, we continue to actively monitor developments due to COVID-19 especially in the Far East where local policy is resulting in further lockdowns and the new processes set out in the EU-UK Trade and Cooperation Agreement. We are aligning our 2030 strategy to the UN Sustainable Goals, recognising that our actions can impact issues globally and locally and both are important. There is a real consciousness and accelerating trend for ecologically sustainable products. We have ambitions across our key brand strategies to bring sustainability into our innovation plans and range architecture going forward.

Key emerging risks

Geopolitical uncertainty and disruption. Continued macroeconomic uncertainty post-pandemic and adjustment to new processes set out in the EU-UK Trade and Cooperation Agreement. Changes in regulatory environment - including UK Government consideration of wide-ranging changes to product safety regulation. Increased recruitment competition impacting UK manufacturing.

Risk profile: Medium

Risk appetite: Moderate

Change on prior year: Up

Links to strategy: Bring the pet experience to life

Services and stores expansion

Description and impact

A key part of the Group's growth strategy is to deliver 50% of sales from pet care services, by having a complete pet care strategy aligned across the Group. If we fail to deliver our strategic initiatives our expected growth and financial performance could be adversely impacted.

Mitigation

Our business model has pet care at its heart and our core focus is providing our customers with affordable, convenient, and flexible pet care solutions through our growing online platform and estate of 443 First Opinion veterinary practices, 337 Groom Rooms and 457 stores. There has been continued growth in our pet care subscription customers. We have approximately 1.5m customers across the Group on our subscription platform, from which we build loyalty, increase customer lifetime value, and generate a predictable annuity revenue stream. In addition, new client registrations across our First Opinion veterinary practices have increased. We welcomed over 473,000 new clients this year. To take advantage of this opportunity the Propositions Team, are working across the Group to introduce new and unique bundles of products and services aimed at providing complete pet care, with significant potential to personalise and tailor packages to customers. Our telehealth business, The Vet Connection, broadens our digital capabilities in providing trusted advice and pet care solutions. We will continue to incorporate their capabilities into our existing customer offer - across product, services, and subscriptions - to enhance the overall customer experience, and help drive customer acquisition, retention, and lifetime value. Our store estate provides further operating leverage versus online pure plays. This year we have launched one new pet care centre taking us to 19 stores in this format, in addition to two smaller next generation stores. The performance of these two stores will inform our decision-making on a wider rollout. We have also opened four in-stores practices whilst completing four conversions of company owned first opinion practices to Joint Venture partnerships. Returns generated from recent store openings and transformations remain ahead of initial expectations, and we plan to open five new stores and transform 40-50 stores each year over the medium term to improve both the physical shopping experience and the integration with our digital platform. Having a range of store format models that correlate with our customer and business needs enables us to optimise returns, and by taking a blended approach we will also be able to refurbish more stores, faster. We have taken learnings from the initial cohort of pet care centres which will shape how we develop the format going forwards, focusing on range, store selection and disruption as opportunities to improve. We remain agile so that we can quickly adapt our formats to maximise the potential from our estate and ensure that we have the right number of stores and practices in the appropriate format and location. We are accelerating our refurbishment plan which allows us to refurbish our oldest stores and by refining the format models we will make our stores more relevant to our customers through the introduction of new elements whilst maintaining our stores in a good state of repair from the renewal capital. We will continue to invest in infrastructure across our veterinary practices and plan to open new practices each year over the medium term. Our Pathfinder initiative is proving pivotal in improving practice revenues and efficiencies, and is generating a better client experience, and we plan to extend this to all company managed and select Joint Venture practices over the coming year. Our store estate is also entirely leased which gives us great flexibility. As leases come up for expiry or contain a break, we will assess our portfolio on a case-by-case basis before deciding whether to renew the lease, to close or relocate a unit. We continue to monitor and plan to mitigate the risk of landlords redeveloping sites for alternative uses at lease expiry. Further capacity will be added when our new distribution hub comes online from 2023. This purpose-built and highly automated facility will support our future growth ambitions through improved capacity while lowering our cost to sell through better inventory management and availability, and faster delivery.

Outlook

The Group is in a strong competitive position through our unique omnichannel pet care model. Whilst the ongoing presence of COVID-19, current geopolitical tensions, and inflationary pressures represent near term headwinds, we remain confident in our long-term strategic plan to deliver 50% of sales from pet care services. We expect to see participation in subscriptions and services continue to grow led by our ability to extend, and increasingly personalise our offering whilst taking advantage of the significant increase in pet ownership.

Key emerging risks

Material changes in customer behaviour and needs, driven by concerns around affordability, sustainability, and the environment. Speed of change in innovation and advances in pet care and clinical technology.

Risk profile: Medium

Risk appetite: Moderate to high

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, Set our people free to serve, 50% of sales from pet services

Our People and culture

Description and impact

Our Group and People strategy recognises that our 15,000+ colleagues and Partners are fundamental to the success of our business and key to us achieving our vision of becoming 'The Best Pet Care Business in the World'. We must keep our unique culture alive through our shared values and behaviours to safeguard the long-term sustainability of our business. A loss of trust at any level will negatively impact our culture and our ability to retain and attract talent. It is essential for the Group to attract, develop, reward, and retain talented, engaged colleagues and Partners who will deliver quality service and clinical care to our customers and their pets. If we are unable to achieve this our ability to deliver our strategic aims will be significantly impacted.

Mitigation

During the last year, a primary focus was to continue to keep our colleagues safe and minimise the impact of the pandemic on them and across our Group. The strength of our culture and values has never been more important. They are the anchor from which every decision is made and will continue to be made. As our business evolves it was natural that our values need to as well, and this year, we undertook a cross-business approach to redefine our values to better reflect our people and our vision. This helps us to connect our colleagues to our purpose and vision whilst doing all we can to drive loyalty and trust. We continue to listen closely to colleagues and look for more ways to engage with them. Our annual engagement survey had a specific focus on wellbeing, as we know it is closely connected with attracting, engaging, and retaining great talent. Our listening groups 'Tune In' and COO email addresses 'ask' to provide additional channels to tap into how colleagues feel and what we can do to support. Insights from all channels continually shape our People strategy and associated wellbeing, Learning and Development and Inclusion, Diversity and Equity (IDE) strategies. Our capability framework articulates what great looks like for all colleagues. This framework has been used to create development programmes for all levels. Our training and development programmes support the development of pet care expertise in our ecosystem which in turn creates a competitive differentiator and enables us to attract and retain talent. We continue to develop bespoke critical talent group strategies and to invest in these (e.g. data, IT, grooming) alongside developing short, medium and long-term strategic mitigations to the global veterinary workforce shortage both internally and in partnership with the wider industry. We have a targeted international recruitment strategy for veterinary talent which focuses on key markets where clinical education meets UK standards. We have invested in a head to continue to work on our mitigations to the IR35 legislation which impacted some locum vets and nurses. We continue to invest in apprenticeships and other employability programmes across the Group (e.g., Kickstarter) to provide opportunities to those who face barriers. We have apprentices at all levels of our business, and across critical talent areas in addition to our colleague and leadership development programmes, which both focus on 'growing our own', building our own talent pipeline as well as attracting new talent. We launched a profession wide listening project to address the systemic issues within the veterinary workforce. The insights led to an evidence-based action plan which was communicated to the profession. We have committed to and invested in the BVA Good place to Work Code and are rolling this out to all our practices. Our leading vet graduate programme recruits over 90 newly qualified vets per annum and was a finalist in Personnel Today awards. We continue with our EMS bursaries, and we launched ten new vet school scholarships in partnership with Nottingham vet school. We are partnering with Timewise to launch new flexible working practices. To support our colleagues' wellbeing, we continued to focus on maintaining the sense of belonging that was challenged by remote working whilst at the same time developing our wellbeing strategy to reflect life post-pandemic. Our strategy received external recognition when we won the best workplace wellbeing strategy at the National Workplace wellbeing awards. Our 'modern ways of working group' is focused on how we support our colleagues, and attract new talent, as we transition out of the restrictions that we have been living and working under over the past two years. We launched a colleague wellbeing handbook and invested in Mental Health First Aid training. We have trained over 620 mental health first aiders across the Group. All First Opinion practices now have a trained Mental Health First Aider (MHFA). By FY24 we will train one colleague for every site in our Group, and we are focused on developing our MHFA alumni community. Enhanced counselling was also launched to colleagues through the Retail Trust, and this included up to six sessions for colleague's children. We continue to support colleagues and Partners who have been dealing with challenging situations with customers through additional training and mental health resources. From a reward perspective, total reward statements have been developed and will launch in FY23 as we work to show colleagues the overall value of their reward package. We continue to review our remuneration and benefits packages to remain competitive to current and future colleagues. This year, for example, we enhanced our maternity and shared parental leave. Free shares were issued to eligible colleagues in summer again. Our second sharesave scheme matured where colleague's shares gained over £11.8m in value from their initial investment in 2018. We invested in formal ways for colleagues to receive instant recognition through our new reward platform. Over £100,000 of awards were sent this year. Colleague appreciation day was also recognised with every colleague and team sent tokens of gratitude from the Executive Management team.

Outlook

We continue to make great progress with our People strategy across the Group and remain in a strong position to attract, retain, reward, and develop our colleagues. We continue to seek new opportunities to further enhance our colleague experience as we emerge from COVID-19. This is especially so for our critical talent groups. The current headwinds facing the business from an operational cost perspective will mean we need to keep innovating in a heavily candidate led market. External awards recognising our wellbeing strategies and as a place to work have provided further external credibility to our approach and will serve to build further trust with colleagues.

Key emerging risks

Continuing restriction in critical talent markets. Continued macroeconomic uncertainty post-pandemic. Adaptation to new technologies and work environments.

Risk profile: Medium

Risk appetite: Low

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, Set our people free to serve, 50% of sales from pet services.

Information Security and Business Systems

Description and impact

Cyber-attacks continue to grow in frequency and complexity, increasing the risk to Pets at Home and our ability to continue to safely operate and protect our customer and colleague data. As we continue to adapt to these new challenges there is an associated increase in cost, resources, and time to ensure we remain secure.

Mitigation

Pets at Home are investing heavily in our cyber security position both from a personnel and technology standpoint, this includes engaging industry leading specialist consultants to help deliver our strategy based around the NIST cyber security framework, an industry standard for measuring technical and organisational maturity. We remain committed to delivering secure high-performance resilient systems that underpin our strategic plan. Scalable, secure, cloud-based solutions are adopted where they support our strategy. Awareness, training, and testing campaigns continue, educating colleagues about the risks associated with protecting data and physical security.

Outlook

To deliver our vision to become 'The Best Pet Care Business in the World' we include the need to protect our customers and colleagues from the ever-increasing threat of cyber-attacks, investing in both technology and our people, to deliver our comprehensive risk reduction programme and adopt a continuous service improvement cycle to monitor and adapt to the constantly evolving threat landscape.

Key emerging risks

Geopolitical uncertainty and disruption. The increasing technology capability and complexity of organised cyber-crime gangs. Disruption through technology advances and adoption.

Risk profile: High

Risk appetite: Low

Change on prior year: Up

Links to strategy: Use data and VIP to better serve customers, Set our people free to serve

Liquidity and Credit

Description and impact

The business requires adequate cash resources to enable it to fund its growth plans through its capital projects and working capital requirement. Without adequate cash resources, the Group may be unable to deliver its growth plans, with a consequent impact on future financial performance.

Mitigation

The Group's finances are continually monitored in the context of its growth plans and of the wider economic landscape. The Group's core financing facilities are in place until March 2027. The Group maintains close working relationships with its banking partners to ensure sufficient liquidity and credit is available. The Group monitors a range of potential cash flow sensitivities to ensure the banking facilities in place remain sufficient and adequate considering evolving macro- and micro-economic factors. As a result, the Group is confident that it has adequate facilities in place, with a broad syndicate of banks. The Group's growth plans in respect of Joint Venture veterinary practices are predicated on the availability of finance for new Joint Venture veterinary Partners to fund both the capital cost and working capital requirement for each new practice opening. The Group also provides additional financial support to First Opinion practices to underpin their working capital requirements and growth in clinical capacity. This investment is a particular feature of the Joint Venture operating model and in making this investment the Group considers its total returns across all practices on a portfolio basis. The Group has from time to time bought out and consolidated a number of Joint Venture veterinary practices. As part of these acquisitions, the Group settles any liabilities for third party bank loans and leases within these practices on behalf of the Joint Venture Partner, with all such liabilities being written off. For the practices which the Group continues to operate under a Joint Venture Agreement, the Group has established a credit impairment provision to reflect the assessment of extended loans and investments being repaid over different lengths of time, with different risks of return, to provide for any potential shortfall. The Group has facilities in place with recognised lenders that give us confidence that our medium-term growth plans are financed adequately. The Group ensures that all cash surpluses are invested with banks that have credit ratings and investment criteria that meet the requirements set out in the Group Treasury Policy, which has been approved by the Board. The Group's key suppliers are exposed to credit risk and as part of the Group's overall risk management programme, the business has identified alternative suppliers where appropriate and developed contingency plans in respect of own label and private label food products.

Outlook

The increase in the Group's liquidity headroom in the financial year, and the amendment and extension of the Group's core financing facilities, supported by the strength of trading throughout the period, has led to the liquidity risk profile remaining low. The evolving political and macro-economic situation has created increased uncertainty in relation to forecast cash flows, liquidity, and credit requirements. We continue to monitor our finances and build relationships with our finance providers to ensure that the business is well positioned to manage its cash flows effectively and ensure sufficient liquidity is available. Mindful of these prevailing circumstances, we recognise the potential need to support some of our Joint Venture veterinary practices with additional funding during the year ahead. Such funding will be available for those businesses that remain viable over the longer term, considering resilience evidenced within the sector throughout the last financial year.

Key emerging risks

The continued development of the UK's relationship with the EU. The evolving supply chain and inflationary factors.

Risk profile: Low

Risk appetite: Low

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, 50% of sales from pet services

Treasury and Finance

Description and impact

The Group has an exposure to exchange rate risk in respect of the US dollar, which is the principal purchase currency for goods sourced from Asia. The political and macro-economic environment has increased currency pressures and we may see this continue for some time. The Group also faces risks from changes to interest rates and compliance with taxation legislation. If we do not manage this exposure there could be an impact on the Group's financial performance with a consequential impact on operational and growth plans.

Mitigation

This exposure to exchange rate fluctuation is managed via forward foreign currency contracts that are designated as cash flow hedges. The Group has borrowings with floating interest rates linked to SONIA, thereby exposing the Group to fluctuations in SONIA and the consequential impact on interest cost. To manage this risk the Group has interest rate swaps in place that fix the interest rate on a considerable proportion of the Group borrowing. Further details can be found on page 171 of the Annual Report. All hedging activity is undertaken by the Group Treasury function in accordance with the Group Treasury Policy that sets out the criteria for counterparties with whom the Group can transact, which states that all hedging activities are undertaken in the context of known and forecast cash flows, with speculative transactions specifically prohibited.

Outlook

Ongoing currency movements between the US dollar and GBP may result in further exchange risk, particularly considering the evolving position in relation to COVID-19, the political and macro-economic environment, and the UK's developing relationship with the EU. We will continue to monitor this and adjust our approach to hedging where necessary. We do not expect any increased threat from other significant macro-economic changes in the short to medium term.

Key emerging risks

Geopolitical uncertainty and disruption. Continued macroeconomic uncertainty post-pandemic and adjustment to new processes set out in the EU-UK Trade and Cooperation Agreement.

Risk profile: Low

Risk appetite: Low

Change on prior year: Down

Links to strategy: Bring the pet experience to life, 50% of sales from pet services

Regulatory and Compliance

Description and impact

Many of the Group's activities are regulated by national and international legislation, applicable industry regulations and standards including, but not limited to, consumer and competition laws, trading, advertising, packaging, product quality, health and safety legislation and guidance, pet shop licensing, National Minimum Wage and National Living Wage, Equality Act, modern slavery, Anti-Bribery, data protection, environmental regulations, the Corporate Governance Code, the RCVS Code of Professional Conduct for Veterinary Surgeons, and the off-payroll regulations (IR35). Failure to comply with the obligations set out in this and other applicable legislation may lead to financial penalties and reputational damage and other consequences for the business and its Directors.

Mitigation

We actively monitor regulatory developments in the UK and Europe (as applicable) and our existing obligations where we have internal policies and standards to ensure compliance where appropriate. We also provide training for colleagues where needed and operate a confidential whistleblowing hotline for colleagues, Partners, suppliers, and people working within our supply chain to raise concerns regarding any potential breach of legal or regulatory obligations in confidence. Our suppliers commit to comply with all relevant business regulations for the territories in which they operate and to meet international labour standards which are laid out in our Supplier Code of Conduct. We reinforce this by placing contractual obligations on our suppliers and support where necessary. The Group's Data Protection Officer, and executive sponsored steering committee, monitors Group compliance with legal requirements relating to personal data, ensuring relevant policies are up to date and works with our Information Security Steering Committee which monitors data security. Health and safety is a key priority for the Board and senior management. The Group has a dedicated Health and Safety team covering all areas of the business. The Health and Safety Committee, chaired by the Group Legal Director and Company Secretary, is responsible for the Group health and safety framework, policy, and performance. Health and safety performance is also reviewed by the Board and the Audit and Risk Committee on a regular basis.

Outlook

We continue to monitor legal and regulatory developments across the UK and Europe and will plan accordingly. We anticipate regulatory changes following Brexit to start to take shape within the next 12 months. FY23 will see an increased focus on human rights and environmental standards in our supply chain and international sanctions.

Key emerging risks

New and amended regulations, including further amendments to the law resulting from Brexit, and significant strengthening of UK consumer laws, and increasingly stringent environmental regulation.

Risk profile: Low

Risk appetite: Low

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, Use data and VIP to better serve customers,

50% of sales from pet services, Set our people free to serve

Sustainability and Climate Change

Description and impact

The success of our business over the long term will depend on the social and environmental sustainability of our operations, the resilience of our supply chain and our ability to manage the impact of any potential climate change on our business model and performance. Our investors, colleagues and customers need to be assured that we are acting responsibly across our business and supply chains. If we do not meet these expectations the Group's reputation and license to operate could be threatened. More stringent environmental regulation could affect the cost of production and operational flexibility.

Mitigation

The ESG Committee meets at least three times a year to approve and review the implementation of the approved social value strategy, Our Better World Pledge. The Group executive board reports to the ESG Committee and is supported by management committees that oversee different areas of the agenda.

The Climate Change and Waste Committee and the Product and Supply Chain Committee, both established in 2019, continue to implement our strategy and actions regarding the sustainability of our operations and our supply chains.

At the Product and Supply chain meeting, during the year policies have been developed on raw materials and packaging outlining environmental considerations like deforestation and plastics use. The supplier code of conduct has been updated and this forms part of our terms and conditions of trade. We have developed a product sustainability framework to support the implementation of our environmental and social requirements across our product developments and selections.

The climate change and waste committee has been overseeing our operational climate change strategy, particularly focusing on opportunities to reduce carbon usage. An environment policy has also been developed.

In line with the Task Force on Climate-related Financial Disclosures (TCFD) requirements, we conducted a climate change scenario analysis that built on the previous year's risk assessment. Details of this and our overall approach to TCFD can be found on page 42 of the Annual Report and in our Social Value Report. We have now submitted both our near term 2030, 42% scope 3 reduction target and our 2040 net zero target to the science-based targets initiative (SBTi) for approval and work is underway to develop the programmes that support the delivery of these targets. Extreme weather events form part of our TCFD scenario analysis presenting both risks and opportunities which we are actively monitoring. In the short term we can adapt our planned and tactical promotional activity to decide whether strengthening this would support pet welfare through sales of appropriate products and providing advice.

Outlook

The social value strategy, Our Better World Pledge, can be found on page 42 of the Annual Report, and in our separate Social Value Report. This includes a summary of our targets relating to sustainability and climate change and our performance over the last year and our latest TCFD disclosure. We are committed to achieving these ambitions but recognise the challenges and complexities involved with tackling global issues, such as climate change. Further improvements to our subscription and omnichannel services offering will continue to improve our resilience to reduced store footfall during periods of extreme weather.

Key emerging risks

Decarbonisation - inability to transition our products and services to low carbon models. Physical risks of extreme weather events affecting demand, sales, our operations, and supply chains.

Risk profile: Medium

Risk appetite: Low

Change on prior year: Stable

Links to strategy: Bring the pet experience to life, 50% of sales from pet services

Related Party Transactions

Veterinary practice transactions

The Group has entered into a number of arrangements with third parties in respect of veterinary practices.  These veterinary practices are deemed to be related parties due to the factors explained in note 1.4 of the financial statements.

Commitments relating to these veterinary practices are included within notes 25 to 27 of the financial statements.

The transactions entered into during the period, and the balances outstanding at the end of the period are contained in note 27 to the financial statements.