Pets at Home Stock

Good morning, everyone. Welcome to our full year results. Sarah and I will take you through our FY '26 results and particularly the progress made through half 2, and we'll give you some early impressions of the business we joined around 8 weeks ago.

So a little about me and why I'm here. I spent my career in retail, and it's part of the reason that I'm passionate about the opportunity that Pets at Home represents. I joined Pets around 8 weeks ago as Chief Exec, coming from Waitrose, where I spent 5 years as Managing Director. And before that, I spent 18 years at Sainsbury's, lastly as Commercial Director for the Grocery business.

When I was approached about this role, 2 things stood out. Firstly, Pets at Home is the clear market leader in a genuinely attractive sector. If we get the basics right and leverage that competitive advantage we have, we can create significant value for shareholders. Secondly, I can see an opportunity to create value by improving execution and building on the strong foundations the business already has.

And I want to reassure you that the current priorities are the right ones for now. The team is talented and there's meaningful headroom to do better. I spent my first 8 weeks immersing myself in the business, spending time in our stores, in our vet practices with our amazing colleagues and with our customers, and I am genuinely encouraged by what I've seen so far. Today, I'll share some of those early impressions with you.

So Pets at Home is the market leader in a structurally attractive market. Let me start by why I think Pets at Home is such an exciting opportunity. The U.K. pet market is structurally attractive. Pet ownership benefits from a deep emotional connection and pet owners increasingly want the best products, care and advice for their pets. This drives premiumization and humanization in the sector that supports structural growth over many years.

These underlying trends are alive and well, even though growth in the sector has been more subdued in the past couple of years. And within this market, we are the leading pet care business with a 20% market share and delivering close to GBP 2 billion sales, over GBP 1.3 billion from retail sales alone and over 650 from our vet consumers, 460 pet care centers, 455 vet practices, 339 grooming salons and a well-invested modern online platform. No other business in the sector brings together retail, vets, grooming and digital in the way we do. And this is a genuine competitive advantage, and it's one I'm excited to build on.

And those competitive advantages are underpinned by a set of genuine hard-to-replicate strengths. Our colleagues sit at the heart of our business. The expertise and passion of our store teams, our vets and our groomers is something you can really feel when you walk into our pet care centers. I've been a customer of the business and since joining have visited many of our stores and vet practices and the quality of our people is undeniable. They know their products, they know their customers, and they do genuinely care.

Our vet business is unique in the U.K. market. The joint venture model we have built partnering with clinical entrepreneurs creates aligned incentives and genuine quality of care. There is nothing quite like it. Our physical estate across 460 locations gives us unrivaled reach. And combined with our digital capabilities and our Pet Club membership base of over 7 million active members, we have a compelling platform that I think it's difficult for any of our competitors to replicate.

And of course, we have that trusted brand in a sector where pet owners want reassurance and expertise, being the most recognized and trusted name matters enormously. So diving deeper into our vet group. We have a truly unique business built around the alignment that our JV model gives us, bringing together our best-in-class infrastructure and service with the entrepreneurial and clinical expertise of our practice owners.

Our Vet business delivers differentiated economics for us and for our partners while delivering great outcomes for pet owners and their pets. The JV structure means that we support practices in running a great business, leveraging the scale and expertise we have as a group, bringing our trusted brand, commercial rigor, large customer base to support our practice owners who are free to run their practice with clinical autonomy and take the best care of their pets.

We know that our practices are the most productive in the sector because of this, with average practice revenues reaching GBP 1.5 million this year and plenty more to go for in this respect. They benefit from co-location in our stores, great infrastructure, which will get even better with the deployment of our new practice management system. And this combination drives differentiated economics while delivering great customer outcomes.

And this was confirmed in the recent CMA report, which found our practices are considerably better value than our corporate competitors, while delivering significantly higher levels of customer satisfaction, something we can see in our own data with vet satisfaction up a further 1.5 points in the year from already high levels. This is a high-quality cash-generative business that supports the resilience of the group.

This winning combination has supported a long track record of revenue, profit and cash growth. Over the course of the last 5 years, we've compounded practice revenues at a 13% growth rate, leveraging the proven growth levers of driving out maturity, extending practices, rolling out new practices and growing our care plan revenues. Profits have compounded at 18%, reaching GBP 83 million in this financial year. And our practices have seen similar benefits with GBP 48 million in dividends taken out by our practice owners.

And the capital-light nature of our Vet Group means that free cash flow has compounded at 28% and now represents the vast majority of group free cash flow. This is not a 1-year story. That is a sustained track record of growth built on a sustainable model that delivers great outcomes for all stakeholders. And there is more to come, leveraging the proven growth levers we have consistently executed against.

Practice sales growth, we've grown average practice revenue significantly over recent years, reaching GBP 1.5 million per practice in this financial year from only GBP 1.1 million 3 years ago. But there is plenty of headroom here as our practices continue to mature as we drive further optimization of core practice operations and through the continued growth of our extremely successful care plans.

In practice, rollout in the last financial year, we accelerated our openings to 8, and this is a marked acceleration from previous years. And then we expect to further accelerate this year with plenty of white space in which to grow through in-store practices and stand-alone, both of which are successful models. We will bring our winning formula to more of the U.K. pet owners in the years to come.

Alongside new openings, we have a strong pipeline of practice extensions. This is a proven model with attractive returns and advanced capabilities, we're building clinical specialisms that deepen the offer for our most committed pet owners, which will help us expand our revenue pool.

Now let me return to retail. We've built a retail business on great foundations. Our infrastructure is solid, having undergone significant investment in recent years, and it was aimed at the right areas and gives us a strong foundation for the future. And while execution and core retail basics have led to some underperformance in recent years, this remains a market-leading business with significant competitive advantages.

At our interim results, we announced our retail turnaround plan to address shortcomings and sharpen focus around some clear priorities of product, price, cost and execution. And these are the right priorities for the business now. We're executing against this plan, and we've seen good improving momentum in retail, including winning back some share as a result. Bringing my retail experience to this turnaround plan, this is how I see it.

In product, we need to ensure our ranges are relevant to today's pet owners. Consumer tastes have shifted. And for a period, our ranges didn't evolve with that. And that's changing. We've brought on a number of new brands in food, and there's more to come, and we're launching strong and well-supported own brands. And we will bring innovation to accessories.

On price, we need to be competitive. We've dug deep to understand where we are competitive and where we need to do more. And late last year, executed nearly 1,000 targeted price cuts to put us in a much more competitive position and we've seen a really encouraging volume response as a result.

On cost, we committed to remove GBP 20 million from our support office, which had grown too large, and we have completed that program. Cost control outside of this has been strong in recent years, but productivity is a constant requirement, and you'll hear much more from me on this in the future.

On execution, retail is a discipline. Getting the basics right in store every day is what drives customer satisfaction and sales. And we have raised the bar here, and we will continue to do so.

Against these priorities, we've made meaningful progress, and we are starting to see these flow through into our results. Having invested price on around 1,000 lines by an average of 12%, price discipline is a must, and we will remain vigilant. But right now, we've taken the action we need, and we'll focus on making sure we get the deserve credit for this from our customers and with our suppliers.

We executed our half 2 trading plan well and delivered positive sales growth through half 2 with improving momentum as we move through the half, and that continues into this financial year. And this has enabled us to deliver the PBT outcome of GBP 93 million, in line with expectations.

We have improved execution and as a result, improved customer experience, which has helped us drive customer satisfaction higher. It's up 4 points in the year and a good improvement in product availability. And on cost, we've delivered our commitment to remove GBP 20 million from our group overhead. I am encouraged by the progress we've made. It is delivering results, and it puts the business on a more solid footing, but there is more to do.

We will continue to deliver improvement to our product range this year and beyond, and we'll work hard to delight customers and improve customer satisfaction further. We'll look closely at cost at all levels to ensure we have the right cost structure to deliver great value to customers, recover the gross margins and deliver better outcomes on the bottom line for our investors. Some of this will take time, and we are focused on the right areas and moving quickly.

The progress we've delivered against our retail turnaround plan is showing up in our results, and those early results are encouraging. Volume momentum has been building through the second half of the year as we've sharpened the offer. Our Q4 volume growth was over 5% with broad-based growth across food, consumables and accessories. And this is translating into sales growth, which turned positive in Q4 and taking half 2 overall into positive territory.

And we've continued this momentum into the new financial year. This improvement is sustainable with customer satisfaction up as we focus on doing the right things for them, but it's still early, and we're not complacent. We have clear plans for this financial year coming, and we're focused on delivering our plan and embedding a volume-based recovery in our business.

Now moving on to pet insurance. Pets insurance is an exciting addition, and it's ready to launch in 2026. In May '25, we announced this move and we said that we will launch a pets branded insurance offer, leveraging the considerable advantages we have to gain our fair share of the GBP 2 billion U.K. pet insurance market. We've made considerable progress in just a year, and we're on track to launch in 2026.

We have a team in place with deep experience in building insurance businesses, including for pets. We have FCA approval in place with a technology platform built from the ground up, a strong endorsement of the way we've built our new digital platform. And this is a genuinely exciting opportunity that represents a further complementary business for the group.

I have talked in detail about the strength of our business and the competitive advantages we have. But what genuinely excites me about the future and our ability to unlock value is the talented and passionate team I found at Pets at Home. The quality, the passion and the commitment of our people across retail, vets, insurance, grooming and our support office is an advantage a few other businesses in retail and pet care have.

Our people are a special advantage. They care about what they do, and they genuinely care about our customers and their pets, and they care about our business. So as I look across the business, I'm excited about the future and the opportunities we have in front of us. We are the market leader in a structurally attractive and growing sector. We have very hard to replicate competitive advantages in our vet businesses, our physical estate, our brand and our people.

We have a turnaround underway in our retail business that is showing real early signs of momentum, and we have exciting adjacencies in insurance and beyond. Our Vet Group has a clear focus and a number of proven growth levers to execute against. We will continue to deliver against this with a relentless focus on delivering growth and great outcomes for our clients, our practice owning partners and our shareholders.

Our retail business has better sales momentum and transaction-led recovery. Continuing to embed this is a core focus. And in time, our profits, margins and cash will follow. And we have an early-stage opportunity in insurance that has the potential to create significant value over time. We have a clear plan and are executing this plan of strong foundations with well-invested infrastructure and an enviable balance sheet.

As we deliver against our priorities, I see a tremendous opportunity to create sustainable value for shareholders. So what can you expect from me? You can expect a relentless focus on customers. I spent the vast majority of my career in retail, and I've been through turnarounds. I know the importance of a consumer customer focus in everything we do and everything we do will start with the customer. And you can expect discipline and consistency on costs, on capital allocation and on execution. So what next for me?

I will continue to spend most of my time in the short-term in the business, listening and learning, talking to our colleagues, our customers and our suppliers. I'll be focused on continuing the momentum we've begun to build, and I look forward later in the year to coming back and talking to you more about our plans and the opportunities that lie ahead.

I'll hand you over to Sarah now to take you through the financials in detail.

Thanks, James, and hello, everyone. I'm Sarah Pollard, the group's new CFO. I joined the business back in March, and I've already reconfirmed for myself the opportunity that Pets represents, an opportunity to create meaningful value for our shareholders, success from which all our stakeholders can benefit. I took over the reins from Mike Iddon, who has earned himself a very well-deserved retirement.

Having spent my career in listed U.K. and global consumer and retail businesses, Diageo, Tesco, Unilever and lastly PZ Cussons, I'm thrilled to be here and reporting my first set of Pet results with James.

So let me start with an overview of our financial performance in FY '26. Retail underperformance impacted our results, but the Pet's underlying financial position remains strong. While group consumer revenue grew by 1% to close to GBP 2 billion, underlying profit before tax reduced by 1/3 to GBP 93 million, generating free cash flow of GBP 62 million.

Within this, the strong structural economics of Vets has remained resilient, thanks to our proven JV model, contributing GBP 688 million of revenue. But by contrast, our retail business underperformed during the financial year, with revenue down 1% to GBP 1.3 billion. Retail profit of GBP 31 million is some 60% lower, generating GBP 3 million in cash. And we know that, that level of performance is neither good enough nor sustainable, and the business has clear plans to improve it.

And we're starting to see some improvement already, including volume growth off the back of the retail turnaround plan, which centered on 4 priorities: product, price, execution and cost, as James explained. So pausing now on our current trading. Whilst only 9 weeks into our new financial year, we are quietly encouraged by the volume and sales growth, plus progress in some operational metrics, namely customer satisfaction and availability, but we know there is much, much more to do.

The underlying financial strength of the overall business remains very strong. Our CapEx investment requirements remain in line with our previous guidance, normalizing now after the peak tech platform and distribution center investments of prior years. The spend in FY '27 will be focused on our retail store space reset program, the largest we've ever done, and we will employ a disciplined return on investment mindset.

We continue to have very little debt on our balance sheet, meaning growth investments need not to be restricted nor do we have any liquidity concerns. Our leverage is low for a business of our size and risk profile at only 0.1x. We remain fully committed to our capital allocation approach with surplus cash being returned to shareholders in a sustainable way. The overall quantum returned in FY '26 was in line with the year before.

Turning now to a more detailed breakdown of the group's revenue performance, where continued vet growth offset the retail decline. Statutory revenue was very slightly lower in the year, defined as our retail sales plus for vets, primarily the JV fee income paid to the Pets Group. Vet revenues, therefore, constitute a smaller proportion of our overall statutory revenue than they do our consumer revenue.

Overall consumer revenue, measuring actual vet practice revenues grew 1% to approximately GBP 2 billion. This comprised vet growth of 6% and a decline in retail revenue of 1%. And this vet JV practice revenue growth generated a 5% increase in fee income for the group. Revenues in our company-managed vet practices, which we have now returned to a position of profitability, were 3% lower as we continue our strategy to transition them onto our proven JV model.

As I mentioned, retail revenue declined by 1%, but we saw sequential improvement with sales improving as we progress through FY '26, exiting Q4 at a growth rate of 2%. And volumes grew ahead of sales as we invested in price at the beginning of the second half, supporting an improved performance against a subdued U.K. pet retail market overall broadly flat during FY '26.

Within this, Pets at Home retail food sales were flat with volume growth offsetting deflation of around 1%. Our own label products performed better than branded food as we maintain our focus on strengthening our own label proposition, introducing 2 new pets brands, Ruff's Recipes for dogs and Willow's for cats. Own label food sales were up 3% in the year, while branded food sales declined 2%.

Discretionary accessories continue to be our main area of challenge with a sales decline of around 3.5%, and it remains a key area of focus for us. We've already taken steps to strengthen our team, and they're focused on bringing innovation and newness to our product ranges. The performance of consumable accessories was held back by the lapping of a very strong weather-related flea season in FY '25.

Looking now through the important retail channel lens, store sales experienced an overall low single-digit decline, but we saw the rate of that decline slow, exiting Q4 down approximately 2%. We've seen further green shoots so far in FY '27. Online again delivered double-digit sales growth in FY '26.

Turning now to profit performance in the year. Group underlying PBT was GBP 93 million, GBP 41 million lower than the prior year. The retail sales decline of 1% alongside a gross margin rate reduction of 175 basis points, with half of that explained by our targeted price investments are the key contributors to the decline in overall group profitability. We know that our retail gross margins can't continue to be eroded, and we have plans in place to improve them.

Vets again improved its profitability, but not enough to offset retail. Cost control was strong with productivity largely offsetting cost headwinds and underlying inflation. Insurance start-up costs and the reinstatement of an employee bonus for our hard-working colleagues complete the picture. And both of these figures came in, in line with our expectations.

Now to cash flow. Within the context of our performance, the business has continued to deliver strong cash flow. We generated overall free cash flow of approximately GBP 62 million, GBP 22 million lower than in FY '25 due to the decline in retail profitability. Vets, however, generated cash of GBP 74 million, GBP 7 million more than the prior year, demonstrating the predictable, high-quality and capital-light nature of our Vet's JV model. Lower non-underlying costs, tax payments and CapEx outflows all benefited free cash flow in the year, with CapEx maintained at normalized levels.

We booked some impairments on some old investments totaling approximately GBP 6 million. So more now on our investment program. We invested GBP 42 million in CapEx in the year with just over GBP 30 million of that being in our pet care centers. We opened 3 new stores, we relocated 3 and we completed 23 store refits, which helped to drive higher sales.

We also continue to invest in our digital capabilities, but this has normalized versus prior years. The capital requirements of our vet business remain very low, with the Pets Group contributing only modest sums to practice expansions with the vast majority funded by the JV practice owners themselves. Now we partner with the practice owners to ensure the investments will yield a good level of return for all, and we have significantly reduced our level of operating indebtedness with practice owners over the years to now less than GBP 2 million.

Being disciplined with our capital investments allows us to maintain a very strong balance sheet, which you can see on the next slide. Our balance sheet is flexible and robust, allowing us to invest in the future growth of the business as well as reward shareholders now. We have net debt of GBP 19 million after returning a total of GBP 84 million to shareholders in either ordinary dividends or share buybacks.

We've maintained our overall cash returns to shareholders despite lower profitability as an indication of our commitment to and confidence in the future prospects of the business. We have flexible funding arrangements and good financial capacity with leverage of just 0.1x and significant headroom on our borrowing facilities.

Let's take a look at capital allocation in some more detail. Our refreshed capital allocation approach highlights the importance we attach to effectively rewarding our shareholders. We have been consistent and clear on the 4 elements of our capital allocation policy and have been disciplined in the execution of it. We've returned over GBP 430 million of surplus capital to shareholders in the last 5 years.

Following extensive consultation across our shareholder base, we announced a rebalancing between dividends and share buybacks at our pre-close statement at the end of March. We're not changing the overall quantum we will return to shareholders in FY '27, but we will rebase our dividend back to a sustainable 50% payout ratio and increase the cash amount returned to shareholders via our buyback program to GBP 50 million.

Looking now more broadly to the year ahead. We're comfortable with current consensus expectations. And this will represent a year of profit growth for the group from another strong vets contribution and critically, an increase in retail profitability as the benefits of the retail turnaround plan and other actions come through. We will see the GBP 20 million support office overhead saving flow to the bottom line.

Now as is the case for everyone in the U.K. consumer and retail sector, we have sizable cost headwinds to navigate with our productivity programs geared up to offset these. This will allow us to continue to invest in the right areas to support both the short and the long-term growth of the business.

So in closing my first set of Pets results, I would leave you with the message that the business has a unique set of strengths and the actions that are being taken are starting to deliver. These factors, together with our very strong balance sheet, give me confidence in the future prospects for Pets.

And with that, I'll hand us back to James to close the call, and I look forward to meeting you all very soon.

So thanks for listening, everyone. Thank you for your time. Sarah and I are confident about the future for this business, and we look forward to seeing and hearing from some of you over the coming days.

Well, good morning, everyone, and welcome to our interim results presentation. I'm Ian Burke, Interim CEO, and I'm here today with Mike, our CFO. Mike and I will take you through our H1 results and then take your questions. There's much ground to cover today in what has been a period of significant change for Pets at Home. I'll start with the progress we have made against our strategy, the broad aims of which we believe remain the right ones. Then I'll talk about the challenges we have faced and the work we have done in understanding the root causes of our poor retail stores performance.

Since I stepped into the business 10 weeks ago as Interim CEO, I've worked quickly with the team to build a turnaround plan. We have set 4 clear priorities for the retail business centered on product, price, execution and cost, and I'll come back to these. And lastly, I'll talk to you about the strength of the business and why we are convinced that with the right execution, Pets at Home will be a great business for customers, colleagues and shareholders. So let's get started by looking at the core strategy of the business. This strategy is one you will be familiar with now to build the world's best pet care platform, which is integrated, bringing together product service and advice in one place in a way that no other pet care business in the U.K. can.

It's omnichannel, making the most of our 459 pet care centers and modernized digital capabilities to offer consumers great choice and convenience. And it's consumer-centric, leveraging our expertise and data to best meet the needs of the nation's pet owners. These 3 pillars leverage the unique strengths we have to create a compelling offer for consumers. And underpinning this strategy is our purpose, that is to create a better world for pets and the people that love them. This purpose runs through our business from our expert store colleagues to our trusted vets and passionate support office colleagues.

Against our strategy, we have delivered progress in recent years. We have unified our portfolio of brands under a single clear master brand, and we've seen positive results in how our brand is perceived. We've built a new digital platform, moving from an end-of-life web-only retail platform to a modern platform with a transactional app and enhanced user experience. Significant progress has been made, but there is still more to do integrating our vets and other services. We've consolidated our distribution network to a single site at Stafford. This fulfills both all our store and online sales and has the capacity to support future growth.

We've seen further growth in our vet group underpinning the attractions of our unique joint venture model. We've launched subscriptions. We know the attractions and potential of a subscription model in both the vet and retail sectors, and we've stepped forward our propositions. We've seen good sales growth, and there is more we can do to improve. We have launched Pets Club as our primary mechanic for promotions. And we've embarked on a new pet insurance venture using some of the core strengths we have to establish a position in the GBP 2 billion pet insurance vertical.

But while this progress sets us up for the future, we must acknowledge that our retail performance has fallen short of our expectations, leading to group underlying PBT expected to be GBP 90 million to GBP 100 million this year, well below our original expectations. We've seen 3 main impacts on the business in recent years. First, economic impacts. I'll not spend much time on these as they are well known, out of our control, and we must be prepared to deal with them.

Second, changes in the pet sector, including the normalization impact as those large cohorts of COVID pet owners spent less after the puppy and kitten phase. There have been shifts in consumer preferences to new product ranges like fresh and frozen products, and there has been a lack of general inflation in pet products at a time when costs have increased significantly. And third, there are issues specific to pets at home, which we could have dealt with better. We have lacked innovation in branded advanced nutrition ranges to which we are overexposed. We've not been quick enough to adapt our range of products to new consumer tastes. We over-index in premium ranges where inflation has been much lower than those lower value ranges sold in the grocery channel, limiting our ability to mitigate cost inflation pressures.

There's been a shift by consumers into fresh and raw ranges, and we are only at an early stage in building our own propositions. And we have lacked innovation in accessories, where we're missing out on many opportunities to meet customer needs. Looking at some of these important dynamics in more detail. The pet market is going through a period of subdued growth, but even then is showing resilience with the long-standing trends of premiumization and humanization still evident. In the first half of the year, there has been no growth across the retail pet care sector, well below the historic trend. Against this market context, we are obviously disappointed to have underperformed, although that gap has narrowed since the start of this year. And within this market, we've also seen significant change.

Changing consumer preferences have supported growth from a plethora of new direct-to-consumer brands. These brands have grown quickly, mostly expanding the fresh frozen category with premium-priced, high-quality product. In 2019, they represented about 1.5% of the food market, and they now represent about 6.5%. They've taken share at the expense of branded advanced nutrition products, a key category for us. They now represent over 1/4 of premium pet food compared to less than 10% in 2019. Growth in new innovative categories has historically been an area of strength for Pets at Home.

We have a long track record of bringing new products and brands to market, educating customers and driving growth as a result, and we'll need to do this again. In accessories, a lack of innovation and dynamism in our ranges has also been a problem. Once we have added buying and merchandising capabilities to our existing team, we'll focus on the opportunity for better performance in our accessories business through improved own brand product innovation, new partnerships with third-party brands, closer relationships with Far East manufacturers as well as ensuring we have a clear price architecture with enhanced entry price points.

So what are we doing about improving our retail business? With the issues we face clear, we're not standing still while the search for a new CEO is underway. We're taking actions to improve short-term momentum as much as possible and lay the foundations for the future. Our retail turnaround plan is based around 4 priorities: product, price, execution and cost. I'll look at each of these in turn.

Product. We haven't retained our competitive advantage in product and are no longer the primary innovator in the sector. This will take longer to change. However, we understand where the gaps in our ranges exist, and we have clear plans to address them. This will include new own brand and new third-party brands. These ranges, though, will not impact until FY '27. In accessories, our recovery plans are currently less advanced. We are strengthening our team, our processes and our capabilities, and we'll give you an update in due course on how our product ranges develop. Moving on to price. We need to stay competitive. Overall, our pricing is broadly in the right place. We have good information and have invested where we need to, having lowered the prices on around 1,000 nutrition lines by about 12% across November and into December. We have increased prices in some areas, too, all at a second half year net cost of around GBP 4 million. We will remain price competitive within our guardrails.

Turning next to execution. In recent years, the business has done a huge amount of heavy lifting on 2 major infrastructure projects, the move to a single fulfillment center at Stafford and the development and launch of our digital platform. The implementation of these projects was more complex than we originally envisaged, leading to extra costs in some areas and execution issues that have led to lost and dissatisfied customers. Additionally, our store colleagues have been stretched and our customers disappointed by more routine business initiatives that haven't been executed well. I'll give 2 examples.

First, we have too often poorly executed price and promotional changes in store. And second, we mishandled the launch of Easy Repeat in store earlier this year with orders fulfilled from Stafford to the stores. Our relaunch in October had orders being picked in store for store SKUs. In light of these and other poorly executed new interventions, we are improving the implementation of new initiatives through better forward planning and simplification of tasks asked of our store managers and colleagues.

The fourth component of the plan is cost reduction. Overall, we have controlled our cost base well in recent years in spite of the sizable headwinds we have faced. But this is not true everywhere. Our support office costs have increased significantly. We are taking action to reduce them and have initiated a program to remove GBP 20 million on a full year basis. This program will be completed by year-end FY '26, benefiting FY '27. We will always, though, have a mindset of seeking cost efficiencies. This slide shows you the time lines for our priorities. There is much we're getting on with now, reducing our pricing, reinvigorating our trading plan, improving our customer experiences, improving everyday execution and taking out cost. These are our focus areas for the balance of the current financial year.

But there are elements that will take longer, particularly around product as we reset our ranges in Advanced Nutrition and accessories to make them more relevant for today's pet owners. We intend to reset space within our stores to accommodate new products, but also to cater for growth areas like cat, treats and Click and Collect. These space resets will be undertaken at significantly lower capital expenditures per store than the investments we have made in recent years. Our intended capital expenditure on retail stores will stay broadly in line with the current numbers, about GBP 30 million per annum, and the cost per store for these space resets will be around GBP 125,000.

We are working through the planning of these product and space reset initiatives now with a 5-store trial launching next week. The largest space reset program will commence in the new financial year, coinciding with the new product ranges. My focus as Interim CEO is on the retail turnaround plan, but also to support our vets team continue the good work that has been done in recent years. Our vets remain a unique and attractive strength, bringing together the best of our capabilities with the clinical expertise and entrepreneurial spirit of our independent partners. This model has delivered significant growth in recent years, benefiting our partners and our shareholders by delivering the best outcomes for pet owners. And the first half of this year was no exception with consumer revenue growth of close to 7%, driven by growth in care plans and increased average transaction values. It is worth noting that is slower growth than in recent years, driven by a number of factors, the more normal levels of industry inflation and new customer acquisition. The annualization of the exceptional care plan growth we saw last year and the fact that many of our customers are moving into a phase where they will naturally visit vets less frequently. This is as expected.

Our results, though, are still positive, and our vets continue to deliver. And the progress we have delivered in H1 builds on the significant progress of previous years. Since FY '20, our vet estate has matured, driving average revenues per practice from GBP 750,000 to over GBP 1.5 million a year. We have grown consumer revenues from GBP 330 million to over GBP 650 million. We've grown underlying PBT from GBP 30 million to around GBP 80 million this year, now representing the vast majority of our group profits. And we have grown free cash flow from GBP 17 million to circa GBP 70 million this year, underpinning the resilience of our group free cash flows.

And we have further to go, applying the proven growth levers we have in the vets business. The opportunities to support our growth in future include new practices, where we are accelerating our rollout, opening 5 in H1 compared to 3 in the whole of last year, with extensions with 3 done in H1 and 15 expected for the full year and advanced capabilities in clinical care. We've been successful in growing our care plan revenues, and we will continue to improve our offer. We also see opportunities as we roll out our new vet practice property management system and in the future, fully integrate our vets into our digital experience. So while we do not hide away from the disappointment of recent results, Pets at Home remains a business with many fundamental strengths and the potential to do much better with the right execution.

As the leading specialist pet care retailer, we have expertise, knowledge and passion amongst our frontline colleagues. This is a critical and winning asset in our battle against others. There are a few businesses, if any, where so many colleagues really love the business they work for. We really know our customers with around 8 million already in our pets club. So it's about providing customers more of what they want as well as what they need. And we have many competitive advantages that set us up for future success. Our 459 pet care centers are an unrivaled asset that gives us leading accessibility for the nation's pet owners and brings together our omnichannel propositions. These pet care centers have passionate colleagues and expert clinical teams that have a proven track record in connecting with customers, introducing innovation and growing new categories. They will be at the heart of our turnaround.

We have a trusted brand, the most trusted and recognized in the U.K. pet care sector. We have digital data and subscriptions functionality that unlocks potential future growth avenues. We have a unique joint venture vet model that has proven itself in recent years and has growth headroom ahead of us. And we're developing an insurance proposition as an added adjacent service.

In closing my presentation, I make the following comments. Pets at Home has many strengths and a clear purpose. The process to bring on board a new CEO is well underway. We are looking for a skill set that fits with the priorities of the business, a proven retail expert. And in the meantime, we're not standing still. We are taking steps now to ensure we improve. We will be uncompromising on the fundamentals of price, execution and cost in order to improve the value and experience we give to our customers. We have the opportunity to improve further as we evolve our product ranges within reconfigured stores. So we know we need to turn around our retail business and deliver better outcomes for our customers, our colleagues and our shareholders. We have a plan to do so, and we have reasons to be optimistic. Now I'll hand over to Mike to take you through the results in detail.

Thanks, Ian. Good morning, everyone. I'll now take you through the financials for the first half of the year, and I'll start with a summary of our financial and our strategic KPIs, and I'll step you through the slide here. You can see group consumer revenue grew by 0.7%, just over GBP 1 billion. Group profit was down by 1/3 to GBP 36.2 million, and group cash flow was up just over 2.5% to GBP 34 million. The Vet Group, as Ian has just been saying, has made good progress across all 3 key financial measures: revenue, profits and cash. And that's making a very big contribution now to overall group performance.

The joint venture model with its proven growth levers grew revenue by 6.7% to GBP 376 million, with profits of GBP 44.9 million, that's growing faster than sales at 8.3% growth on profits and delivered over GBP 53 million of cash in the first half. That's a growth of over 17%. In contrast, the retail business underperformed in what was a very weak pet product market. Sales are down 2%, delivering profits of GBP 3.5 million and a cash outflow of just over GBP 11 million. We're very clear on the drivers of that retail underperformance, and we're already making progress, as Ian has outlined, on the retail turnaround plan.

Total retail revenues have been performing in line with our expectations since we gave our profit downgrade back on the 10 weeks ago on the 18th of September. Progress on the strategy is reflected in the strategic KPIs. Average spend per pet Club member is up 4% to GBP 185. Subscriptions now account for nearly 15% of our total revenues and Easy Repeat and care plans have really helped drive that growth now, driving growth over 28% year-on-year in subscription revenue. Clinical headcount grew by over 5%, and this is a really critical driver of future Vet Group revenues, and it does show the appeal of our joint venture model in attracting new talent.

Our strategy is to have an integrated omnichannel customer-centric pet care platform and provide owners with all the products and services they need to take care of their pets. And our pet care centers are at the heart of delivering that strategy, along with our expert and highly knowledgeable store colleagues. A pet care center with full services will deliver around GBP 4 million of annual sales. And we're continuing to improve that customer offer across our 459 pet care centers, and that's through several initiatives. That includes introducing new brands, swapping space from lower growing categories to faster-growing categories and improving Click & Collect services.

70% of our pet care centers already have a vet practice, and we continue to retrofit new vet practices. We've opened some in the first half, and we'll open 10 across the full year. And of course, we're extending our existing practices. We're on track to complete 15 extensions this year, and that's part of the overall total medium-term target to open 100 vet extensions. pet care centers also helped grow our online business, which is now around 20% of our total retail sales. These repeat in-store sign-ups have been really successful and store colleagues have really helped drive that growth. And around 30% of our total online orders are actually collected from our stores. That's convenient for our customers and improves our online economics.

We have a really strong network of stores, all well located, mainly on retail parks, and we have significant operational flexibility as we successfully kept our rental costs flat across the portfolio, and we have an average unexpired lease length of only 3.2 years. Keeping occupancy costs flat, along with improvements in productivity and implementing a new payroll model earlier on in the year have helped mitigate the impact of weaker retail sales on store profitability. So let me now turn to revenues and give a bit more detail behind and a bit more color behind our first half performance.

So retail revenues declined, but vet revenues continue to grow. Group consumer revenue grew by less than 1% to just over GBP 1 billion. Strong Vet Group revenue of 6.7%, as you can see on the slide, wasn't enough to offset a decline in retail revenues of just over 2%. Strong vet revenues translated into equally strong fee income growth of over 7%. And we also saw good growth in the revenues of our company-managed practices. like-for-like practices of company-managed cohort, they grew over 7%. Retail revenues declined by 2.2% on a like-for-like basis. And across the first half, as Ian outlined, we have underperformed a subdued retail pet market. However, we have seen a sequential improvement in the retail business.

Q1 like-for-like was negative 2.8%. Q2 was negative 1.4%, and that has helped narrow the gap to the market. And we expect the actions we're now taking to drive further sales improvement. Food sales, as you can see in the chart, were flat and with volume growth, not enough to offset what we're seeing as continuing deflation of around 1% in food. Own label grew faster than branded food. Own label food grew at around 2%. Branded declined by around 2%.

Discretionary accessories continues to be weak, and we've acknowledged that fixing that category is going to take some time. The performance of consumable accessories you see on the chart there is actually the impact of a very weak fleece season this year compared to a very strong fleece season last year. And normally, we'd expect consumables to perform in line with sales. Across the second quarter, we've seen double-digit online like-for-like sales growth outperforming the market. That's been supported by the improved digital platform and the strong growth we've seen in easy repeat subscriptions.

Contrast, store like-for-like sales were negative 4.9% in the first half. And it's here that the retail turnaround plan is more sharply focused. We've invested around GBP 4 million in pricing in the second half. That's to sharpen our branded Advanced Nutrition pricing, bringing it to a tighter 2% to 3% price difference to our competitors. That compares to an old guide rail of around about 5%.

So I'll turn now to group profit in the first half. Group profit was GBP 36.2 million. That was a decline year-on-year of 33%. Within this result, as you can see on the chart, the Vet Group profits grew at 8%, but that was more than offset by the decline in retail profits. Group gross margin declined by 80 basis points. Vet Group was positive, 29 basis points within that. We'd expect to see that as fee income growth of 7% was on a fairly fixed cost base and providing the services to the Vet business. Retail was down 105 basis points in that 80, and that was a combination of the price investment, the mix of flat sales and food with 6.5% decline in core accessories, and lower supplier income, particularly around branded food as we volumes declined.

We continue to keep a really strong grip on operating costs and our programs to mitigate the external headwinds have proved successful, particularly around payroll, national insurance contributions, national living wage, and we managed to limit that growth. As you can see on the slide, operating cost growth there is 2.5%. That's well within the guidance we've previously given to hold costs to within 5%. And it's worth noting that cumulatively, over the last 3 years, the cumulative cost increases through national wage and NIC are now GBP 48 million.

A key component of our turnaround plan, as Ian has outlined, is costs, and we've already begun a significant support office restructure. Our goal is to complete this by the end of the financial year. And we expect implementation costs of that of around GBP 6 million to GBP 8 million to be accounted for as non-underlying items this year. And then the full benefit of GBP 20 million from this restructuring will benefit into FY '27.

Turning now to cash flow. Cash flow is underpinned by the Vet Group. Overall cash flow was GBP 34 million that grew by about GBP 1 million year-on-year, and the Vet Group delivered close to GBP 54 million of cash. And that demonstrates the predictable, high-quality capital-light nature of the joint venture model. It's worth noting that operating loans in our our Vet Group are now less than GBP 2.5 million. This compares to close to GBP 50 million in the first half of FY '18 and the decisive actions we took then to turn around the Vet Group has since transformed the financial performance across all metrics, and that's what we now need to do in our retail business.

Turning now to investment. Peak investment is now well behind us, and we've now normalized our investment levels, and these remain fully aligned to our strategic priorities. We've invested just over GBP 23 million in the first half. More than half of that investment was directed towards our pet care centers. We opened a new store in Team Valley, that's up in Gateshead, and we completed 17 refits. We've also continued to invest in our digital capabilities. And of course, most of that digital investment goes into our SaaS charge through the P&L.

Investment in the Vet Group remains very light at GBP 3.5 million. And that, of course, does include capital contributions we make to support their growth, particularly around rebranding. But most of the investment in the Vet Group is actually funded directly by the joint venture partners out of choice because they benefit themselves from the returns on that investment. Ian made the point, I'll make it again that all the capital needed to reset the retail business is included in our previously guided GBP 50 million of capital envelope.

Disciplined and targeted investment helps us maintain a strong balance sheet. And our balance sheet remains robust, whilst at the same time, we invest in the growth of the business and reward shareholders. The business remains in strong financial health. Net debt of only GBP 12 million at the end of the first half, and that's after paying a total of GBP 50 million in both dividends and share buybacks. We retain a lot of financial capacity. We have very low leverage even on a lease-adjusted basis. And we're very aware of the importance of capital allocation to our shareholders. And we continue to seek out and listen carefully to regular feedback. We've maintained a very clear policy and consistently and reliably followed that policy for the last 5 years.

We plan to continue with this year's GBP 25 million share buyback. That's well underway, and we'll maintain the interim dividend at 4.7p a share. Our plan is then to return to the very important topic of capital allocation at the full year results in May, and all shareholder feedback is listened to very carefully and shared in full at the Board.

So in summary, our priority and direction is clear. Number one priority is to return the retail business to profit growth. The retail turnaround plan is gaining traction, and we're restructuring our support office costs. The vet business continues to make progress, and that's driven by the proven growth levers. We expect the pet care sector to return to normal levels of growth, and that's driven by the structural growth factors of premiumization and humanization. And we at Pets at Home are very well placed to benefit from that. Our strategy is clear. We've progressed beyond peak investments, and we have significant benefits to flow from those investments. We have a robust balance sheet and a strong grip on costs, which gives us good financial capacity. And as a result, we are reconfirming our profit guidance for the full year.

Thank you for listening, and Ian and I will now take questions.

Alison Lygo from Deutsche Numis here. I've got a few, please. Could we maybe start with one on the retail product proposition? Just wondering if you could add a bit more color on kind of why or how the product range ended up kind of so out of sync with what was happening in terms of the broader market trends and sort of what you're sort of doing to address that? Did I catch that maybe buying merchandising wasn't a part of the way the teams work? Just anything you can do to kind of bring that to life a little bit more in terms of what you're focused on and how we can get comfortable that it shouldn't be an issue sort of going forward?

The second one is just really around the store estate. Clearly, you're happy with the overall shape and sort of locations. Is there anything you think that might need changing in terms of have you got too much density in some locations? Are the stores the right size? Just anything you're looking at on that front would be great. And then the final one is just on vets. And I'm just wondering whether, obviously, we're seeing the kind of normalization as we move through that kind of peak level of spending and annualize those exceptional care plan revenues we saw last year. Are you seeing anything from the consumer in terms of deferring treatment or kind of trading down or anything like that in terms of any changes in the kind of consumer behavior that might speak to how the consumer is feeling?

Okay. Thanks, Alison. Mike, if I take the first and third, and perhaps you could cover the store estate. So on the product range, I think, frankly, we have underinvested in our buying and merchandising capability. We've filled 2 very senior buying roles in recent weeks in our accessories team. And it's important to build that so that we can then move forward and look at our own range products, develop better relationships with third-party products. We were out in the biggest pet accessories show in the world last week in China.

One of the encouraging things there is with the tariff issues in the U.S., a lot of Chinese manufacturers are putting an awful lot of innovation into products that they could sell into the U.K. and the wider European market. And our buying team was out there having conversations with existing suppliers, but also with a host of new suppliers who've not traditionally supplied us in the past, and that's not a show we've been to for far too many years, frankly. So it does start with getting the capabilities right in our team, particularly on the accessories side.

On the Advanced Nutrition, look, we've been alert to the trends in Advanced Nutrition for a while. And by trends, I'm particularly talking here about raw and fresh frozen. And we've taken some actions. We will have finished another GBP 3 million capital investment program this year to put 1,000 freezers in our stores. That's in addition to the 1,000 we've put in the last financial year. And we'll start the new financial year in April with only 75 stores where we've not made that investment, and we will quickly make that investment in the new financial year.

So we think we've captured over 25% of the raw frozen market through that initiative, and we're seeing that in our sort of like-for-like trends in stores. The fresh frozen market is now a market we think is worth about GBP 220 million a year in the U.K., and that's grown significantly over the past 3, 4, 5 years. And these are generally start-ups. We've got a number of exclusives with those start-ups in stores. But actually, our revenues with those start-ups in stores is low single millions. And so you can see the bulk of those revenues are going direct to the consumer.

And whilst we have a big direct-to-consumer food business, about 1/3 of the U.K. pet food market is already online, and that's broadly true for our revenues as well. So we're already a fairly significant player in the home delivery for food. We're not currently got the capability to do that in fresh frozen. That requires different manufacturing, different distribution, different transport logistics, and we haven't built those capabilities and actually working our way through those challenges is part of the reason why we're talking about the product range resets not really impacting our customers until some point in the middle of 2026. Mike, if you cover the store estate and question, please?

Yes. Your question also was around our profitability of our store estate. So yes, we have, as we've been talking through, 459 pet care centers, mostly on retail parks, mostly on prime retail parks. As we rolled out that network over the last 20, 30 years, it's always been around putting a pet care center within a 15-minute drive time of U.K. pet owners. And we've done that thoughtfully. So we haven't got a concentration in any particular area. We have some towns, for example, we've got 2 or 3 pet care centers, and we look at that very carefully to make sure when those lease breaks come up, we should continue with those 3 centers or not.

And we have been improving productivity. We've got a new payroll model in there. And of course, we've been keeping the occupancy costs down. So all of that means that we only got 2 loss-making pet care centers, and they're only slightly loss-making. And of course, what we're doing, and I put a slide in my presentation, the average pet care center now is GBP 4 million of revenues. We've got a vet in 307, and we're expanding those vets. And actually, we'd like to put a vet in all the ones that don't have a vet.

And we can clearly see at least 100 where that is a possibility, and we've opened up -- we'll open up 10 vets this year. 8 of those will be in store. So we're confident we've got the right size. I think the growth of our network is probably coming to an end. We've opened a store in the first half. We'll probably open 2 more in the second half, and it'll be fairly opportunistic going forward. So the growth of the network is about -- it will be now about putting our services into completing the rollout of services and extending services in our pet care centers.

And the final point I'll make on that, of course, is Online is such a big part of the business now and the role of the fulfillment, both in picking up orders now in store, but also Click & Collect can't be overstated. They play a big role as many fulfillment centers support the online business.

In terms of, we're not seeing much evidence of what I think you call trading down. We are seeing a shift between what we call paid visits versus care plan visits. And that's not really surprising given the real strength of our complete care plans. We've got now over 950,000 complete care customers, and we think that delivers terrific value to them being part of that program. We are also seeing that peak COVID growth in puppies and kittens. Those puppies and kittens are now typically 3 or 4 years old. And we know and we've spoken to you about this many times in the past that, that coincides with the lowest years of spend in the vet and then it starts to build up again from around 5 years old actually and literally grows at GBP 20, GBP 25 a year on average for a dog every year thereafter until end of life. So we watch closely the balance of spend on curative versus preventative and also between paid visits and our care plan visits. And I think the trends are pretty evident and overall still resulting in good growth in the vet business.

Jonathan Pritchard from Peel Hunt. Two or 3. Just on Click & Collect, you just mentioned it, Mike. What are you doing wrong? What are you not doing right there? What can improve from that perspective? That's obviously something you're looking to improve. I don't know if it's just me, but GBP 20 million feels like a very big number at the supply -- at the support center. Could you just give us another level of granularity on what sort of roles they are and where that GBP 20 million is coming from? And then just on data, et cetera, is there an opportunity to perhaps win back some of those lapsed customers or at least prevent those who are lapsing to bring them back into the fold as it were?

Mike, do you want to take as Jonathan directed the click to you take that one, and I'll come back on the support off.

It's a great question, Jonathan. one of the challenges we've had on Click & Collect is keeping up with demand and making sure our stores are set up to help best service customers. And what we're doing now is putting in specific space in stores to store customers' click and collect orders. It's proven successful. I think why customers want a click and collect, of course, is free parking, easy accessible retail parks, and they can come at time of they're choosing rather than having to wait in at home for delivery. So I think we've got to operationalize that. It's been a bit ad hoc really how we've executed. Ian talked about the importance of execution.

I think we can get a lot slicker on our Click & Collect operation in our pet care centers, and we're making good progress. I said it was 30% of online orders are collected -- that's at least 1/3 of our online orders are collected. And actually, we see that as a growing opportunity to continue that. So we're very encouraged by that. And of course, that is great for our economics. as well as being convenient for the customer. What you'll see in our refit program as we continue to put -- do some investment in stores is just putting a bit more investment into Click & Collect facilities for customers.

On the support office, we've got something around 1,300 colleagues in our support office, and we're looking at something like 250 roles taken out across the support office in pretty much all areas, although we're protecting the vet group for obvious reasons, given the sort of growth and the opportunity still in the vet group. And the cuts will fall fairly equally across most of the support functions. We've been briefing our support office colleagues this morning. And clearly, this is a very troubling and unsettling time for 1,300 colleagues in the support office. And we've been trying to articulate why it is we feel we need to take this action.

Even after these changes, when we're settled down at around, 1,050 colleagues in our support office, we will have about 100 roles more than we had in FY '21, and that's approximately 50 in our tech services because we brought a lot of our data and software engineering in-house rather than use third parties. We've got about 35 additional heads since FY '21, even after the restructure in our vet support group as we've beefed up our partnership teams in order to drive the sort of practice owner growth that Mike referred to in his presentation.

And of course, we're putting a team in place to launch insurance next year, and that's added 13, 14, 15 heads. On the third point on data, we're starting to see significantly more personalization in our retail business. I see that as a customer with a 6-year-old English pointer, I see the marketing getting more and more targeted at me. It's not absolutely personalized to me yet in terms of specifically about my product purchasing habits and the breed, but we will get there over time as we refine that. I also, as a vet customer, see the sort of marketing that we direct towards vet customers. And we know we've got to integrate the 2. So it's a fairly seamless proposition from the customer's point of view. So progress has been made, but there's still much to do. I don't know whether you want to add anything to that, Mike?

I think it's a great opportunity that we haven't ever really fully realized. 10 million pet owners 10 years of data broadly. Some of that will be organizational. Some of it is we've been on -- obviously on with other things as well. I think the digital platform allows us to unlock the data and having the digital platform now in place, certainly for our retail business allows us to unlock the data. It's -- I referenced in my presentation, all the benefits still to flow. I think one of the big ones is from data. We certainly haven't made the most of that so far.

Adam Tomlinson from Berenberg. Just 2 questions from me, please. First, on stores and the performance within stores. Do you have any data or can you provide any comment on footfall into stores? So is it the fact people are coming into stores less? Or are they just putting less in their baskets when they're actually in stores? And the second question is just Ian's comment upfront about after the brand relaunch, positive results in how the brand is perceived. Obviously, with the retail performance struggling somewhat, I wonder if you had any more recent surveys that perhaps shows the customer perception currently of the brand.

Yes. On the first point, we roughly have about 1,000 -- sorry, 1 million transactions across the entire retail stores a week, 1 million transactions a week. And over the first half of this year, we lost across that 28-week period, about 700,000 transactions. And that's some customers and it's customer frequency. And I think we can link those losses to the issues we've been talking about, the product issues, the price issues and the execution issues. And we would expect as we tackle those issues that we will stop frustrating our store colleagues, frankly, and stop disappointing our customers. On the brand, we track a number of metrics from awareness, consideration and particularly important, value for money. And all of those metrics have gone up quite strongly year-on-year.

The value for money metric is up about 6 percentage points on a year ago. And we have taken even more action in recent weeks to take some fairly significant price cuts on over 1,000 Advanced nutrition lines, and I would expect to see that feed through into the value for money metric in time. I think from a customer point of view, we've got 3 really important propositions. We've got Pets Club. We've been wanting to introduce Pets Club promotional pricing. This is our equivalent, if you like, of a Nectar or Club card for quite some time, but we've been hampered by our original pet care platform. And now with this modernized pet care platform, we've been able to launch Pet Club pricing from the summer of this year.

And the second one is our subscriptions model with easy repeat, both for delivery to home, but also for delivery into store through Click & Collect, as Mike has just been outlining. And then the third is the complete care packages I've already referenced in answer to Alison's question. So I think there are 3 really strong component parts of the overall proposition for customers, which we intend to keep on building.

It's Mandari Dahl from RBC. I also just had 3 questions, if I may. First, on the club membership declines. I just wondered if you could give us any color on if that is just solely due to the issues with retail you've outlined or if there's anything else that's going on there? And do you have any sort of reactivation measures planned to target those customers?

Secondly, on online versus stores, I just wondered if you could give us a bit of color on the sort of margin economics of each of those 2 channels? And is there anything you can do or planning to do to bring those close together?

And then finally, just on all the work you're doing in retail now. And you've given some helpful color on what you're doing so far, what you're planning. But I just wondered if you could give maybe just a bit of an idea on the sort of longer-term time line for the work you're doing and how we should expect the benefits to build from here?

Mike, perhaps if you could to the second of those 3.

Yes.

So yes, we've seen a slight decline in Pet Club members. And I think that's linked to the answer I was giving to Adam's question about losing some customers and losing customer frequency. And inevitably, some of those customers are Pets Club members. We do track, not surprisingly, new customers, lapsed customers, reactivated customers, and we do have specific marketing activity, marketing campaigns targeted at each of those 3 component parts of the overall customer base.

In terms of the point about the longer term, I mean, we're not sort of standing still whilst we develop these product ranges in Advanced Nutrition and accessories. Last week, we launched a premium advanced nutrition brand called [indiscernible]. It's probably the fastest-growing brand in the U.S. It's a U.S. brand. We've got an exclusive deal with them in the U.K. that's in-store and online.

This week, we've launched in accessories, new health and wellness ranges. And so there are things we can do on a month-to-month basis in both Advanced Nutrition and accessories. But the work we're doing, particularly in Advanced Nutrition to develop a number of new brands, both own brand and third-party brand, combined with the capabilities I was mentioning in connection with Alison's question means it is going to take us some time, and we're not really expecting to see much progress from a customer point of view until sort of the spring of 2026. And then we will see a fairly consistent drumbeat of activity in the sort of period after that, 6, 12 months after that as each of these new brands comes into the stores. And that's why the store space reset is so important as well because we need to reconfigure our stores.

I mean orders of magnitude, this is probably 15 to 20 bays out of a 300 bay store typically. But nevertheless, quite a significant reset given that we've got the added complexities of small animals and fish, which requires us to plan for these things quite carefully. So Mike, perhaps on the second question.

Yes. I mean there are, as you know, distinct differences in profitability or shape of profitability of stores versus online. There's 3 big things I'll talk to. One is the average order value. One is the gross margin and one is the cost of fulfillment. We're working on all 3. AOV online is higher than the store. So store average transaction value is about GBP 22. Online, it's about GBP 35. And clearly, we do things to move that up in the way we price up free delivery, for example.

Gross margin is lower online. The reason why gross margin is lower is it's more branded, it's more food. Own label is lower. Accessories are lower. So our total online sales, only about less than 10% are core accessories. And clearly, that's a big opportunity for us, given that half the accessories market is online. And we know accessing that is about the new digital platform will help with that. So we see those levers of getting that gross margin percent higher, and we're pulling those.

And then there's fulfillment. And we've talked a bit about Click & Collect, but also picking in store that helps with those fulfillment costs and getting our fulfillment costs to be as efficient as possible. So in the first half, we did GBP 136 million of online sales. And after taking into account all costs, that's fulfillment and marketing, we have made a positive margin on that. And that's why we're going to keep driving up the AOV, the gross margin and the fulfillment cost down.

It's Andrew from Investec. Just one for me, actually on the vet business following on from Alison's question. Just on -- I think your release highlights average transaction value increasing in the vet business and that being a key driver of the top line growth. And that sort of sits with what you're saying, Ian, on sort of that post-pandemic volume not coming through yet. I'm just curious as to the driver of that. I assume with the CMA running, you've not -- well, the industry has not been pushing price that hard. And therefore, I would guess it's a mix thing. And the only reason I mentioned that is because I know some of your competitors in the vet space are talking about vet confidence through the CMA and their willingness to recommend higher price point procedures just with a semi negative backdrop. Is that -- I'm just trying to triangulate those 3 bits and understand what's driving that average transaction value.

Mike, if I start and perhaps then you can add some comments. Yes, ATV growth represents lower levels of price inflation inevitably this year because we've come off a period of very high cost inflation affecting the whole sector during recent years, which was a big contributing factor to the sort of price increases we did see across the vet sector. I'm not specifically just talking about our business. So we've seen some price increases, but we've also seen, as you've suggested, we've seen some mix changes in terms of the treatments. And this is part of the humanization and premiumization.

One of the growth areas that we see currently is in dental care. So we're working with our practice owners at the moment. Between them and us, we're making capital investments to improve the dental x-ray capability and offer clients better options for looking after their pets' teeth. So there's a mix element. On the vet confidence, I mean, the CMA process has been massively draining for a whole group of people across this sector and unsettling for a lot of vets, not surprisingly. And they've seen some reaction from their clients in their reception areas and consult rooms to the whole process of the CMA. But I think they've sort of largely got through that. We still need to see the full outcome from the CMA process expected next March and then a period of actually complying with the orders, which could be over a year or two. We still haven't got a firm timetable for that.

Yes. A couple of points just to build on the comments that Ian made. Just as a contextual point, our average transaction value is less than GBP 100, less than GBP 100. And pricing is set by our joint venture partners. They're independent business owners. They set their own pricing to be competitive in their local markets. We might give them guidance on that and give them some help using our data, but they do set the pricing.

And we've made big steps to be very transparent on pricing. So you go into one of our practices, you'll see a list of prices for standard procedures. If you compare that with specialist centers, and we used to own our own specialist centers, we sold those a few years ago. The average ticket in a specialty center is GBP 2,500. And that tells you the difference in terms of the costs of the treatments and the expense of customers.

So we've benefited by -- we're not integrated. Our vets will refer to all sorts of different specialists. They aren't tied to their own specialist centers like some of our competitors are. And we've made big steps on transparency, but it does start with the average transaction value being less than GBP 100 as a contextual point.

Do want to ask one, but I feel like someone else is first. I will just crack on. Andy Wade from Jefferies. Three questions from me, sorry. First one on execution. You sort of talked about a lot of things. I appreciate almost by its nature, it's quite broad ranging, but you sort of talked price range, easy repeat promotions where there's been issues. So I guess 2 things on that. The first one, how how can we think about what benefit that might be providing to the business? Is there any idea you've got how much you've lost out as a result of that?

And the second part is a bit similar to Alison's question. How did it get to the point where all those things were sort of going wrong. It can't all have been leases fault. Was there -- is there more expertise I know there has been on the buying merchandise and accessories as you talked to. But on the retail side of things, merchandising in the stores, is there change being made there? So that's all sort of part one.

Second question, you're talking to having lost a bit of share in the first half, gaining a bit of share in the second half. Just it would be really helpful if you could run through what you see as the building blocks to get you from losing a bit to gaining a bit first half to second half? And then actually, I won't ask the third one because it's not that important.

Mike, would you take the share question, please? So Andy, on the execution issues, look, the business has had a lot to contend with in recent years. The 2 infrastructure projects were once-in-a-generation infrastructure projects. They were incredibly complex, much more complex than we envisaged they would be. They took a lot longer. We encountered problems that we hadn't predicted, both in the Stafford launch and also in the development of the digital platform. And the team worked really diligently to address those problems such that those problems are now behind us.

Of course, I think it's a really valid question as to why alongside that, couldn't we also do all the other things we're trying to do. And all I can say is colleagues were trying their best to do all of those things. But inevitably, some things fell between the cracks. On the -- so they are 2 big execution issues, which undoubtedly led to frustrated and lost customers. Our availability at one point during the Stafford transition was down as low as 80% in store. In the last 6 months, 9 months, it's been regularly up at sort of 99% for what we call A lines, the top 200 sellers and 96%, 97% for everything else, which whilst not 100%, is fairly good.

In terms of day-to-day execution, as we've tried to recover our retail performance, inevitably, the teams have put pressure on themselves to try and move quicker. I mean, our business, we ought to be planning product promotion and pricing about 12 weeks out in order to get the right combination of products at the right prices and then brief our store colleagues to make the most of those promotions. We've been compressing that time scale to much less than 6 weeks, and we've been making far too many changes. And by the time the new initiatives have launched, we've caused too much confusion to our colleagues. They've not been able to get fully behind the new initiatives, and it's led to frustration all around.

So the execution issues vary from the really big infrastructure issues down to the day-to-day issues you'd expect in the retail business. We have 6-week promotional phases a year and 4 4-week phases. And it's about planning those phases at least 12 weeks out. Mike?

On the share point, Andy, yes, I mean, we have lost market share, pretty open and about that. If you look at the market, we get an independent market survey data, and that tells us that the retail pet product market in the first half, it was about minus 0.5% decline overall across the first half. Our retail like-for-like as I've just been talking was minus 2.2% across the first half. But we have sequentially seen an improvement and you were to extend that into more recent trading, our growth and the market have pretty much gone together now.

So we have come from a point of a gap to the market to much, much closer performance to the market over recent weeks. Online has been driving that for us. We have double-digit online growth. And we know why customers choose online, and we've made great steps to improve our online offer and successfully got there. So we're getting good growth online. Stores that remain negative 4.9% in the first half. And it's that where we've got to get better. Someone asked a question about transactions. It is -- we need to get more customers into our stores, and that will get us back into growth in the stores because the basket sizes are still holding up. This is a tough market to make money in because there is no inflation. We had deflation last year in food got deflation this year. It's a tough market. We had 3, 4 percentage points of inflation like in, say, the grocery market, we'd be looking at a wholly different profit profile than one we've been describing this morning.

Tim Ramskill from Bank of America. I have a sort of a series of price-related questions, so it's really under one umbrella. But you've obviously indicated the GBP 4 million of price investment and you referenced a 12% price change. So if I sort of gross that up, that only looks to be covering GBP 30 million, GBP 35 million of your overall sales. So it looks like a small portion. So just interested to know whether that needs to expand a little further.

And then you also referenced the fact that your guide rail on price was historically circa 5%, bringing that down to 2%. And again, what might seem like a small change grossed up across the entirety of your food revenues, again becomes quite a meaningful number. So again, just interested in thoughts around that, and in particular, on that closing the gap to 2%, sort of why does that now feel like the right answer? What's changed? Is it just a reflection of price transparency and other considerations?

Perhaps, Mike, if I start and then you could build.

Yes.

So you're right. We used to operate with a guide rail of around 5% against identified competitors being the grocers and the online and the specialists. And we felt that, that was leaving us too exposed in this environment. And so we determined to narrow that to around 2% to 3% I mean, it's a little bit of an art as well as a lot of analysis. But we know from past exercises, if we move that to below 100, we see a big reaction from certain competitors using algorithms, for instance, to determine prices. So we feel that's the right place. And our efforts have been focused on Advanced Nutrition. We've seen fairly large price increases from the global brand providers during 2023 into 2024. And to some extent, we're seeing a reversal of that with the price changes we're making because our prices were out of line with where they needed to be.

So I take your point about if you gross it up across the entire product range, GBP 4 million in one half is not going to cover it. But we're actually -- we're not uncompetitive outside of our guide rails across our entire product range, but we have been on 1,000 or more Advanced Nutrition lines. This is not in grocery lines and not in what we have previously referred to as bridging products between Advanced Nutrition and the grocery lines.

So we feel that's about right, but we will keep our eye on this on a day-to-day basis. We've got the right tracking systems in place for both food across the food ranges. And we're almost at the point where we've got the same tracking systems in place for branded accessories, remembering that a very high percentage of our accessories business is owned brand and much more difficult to get precise price comparables. Mike, do you.

Yes, a couple of points to add to Ian's comments, of course, own label food is in volume growth. And of course, own label typically is 15% cheaper than branded. And we've got some very good own labels. Wainrights, we talk about a lot, AVA. These are products where store colleagues explain the virtues and benefits of those higher cash margin, higher percentage. So the price investment we've been making has been targeted really on advanced branded nutrition. I talked about our online business growing at double digit. Price is no more transparent anywhere than it is online. So that, in a way, is an indicator of the competitiveness of our pricing. It's not something we look at month-on-month. It's something we look at every day. We've got a team looking at that every day.

And -- and getting that gross margin, that percent, we just got to recognize you can't afford not to be competitive. And that's the reason why we're taking the action on the cost base. To get our retail profitability back into where it needs to be, we need to -- yes, we need to fix our core accessories business, and that's a 60% margin business. And that obviously, you saw that my presentation, it went down by 6.5%. We've got to get that back into growth. That will be accretive on margin. We've got to drive own label growth. That's accretive on margin, but we've also got to get our costs into shape. And that's why really we've got to look at gross margin and costs. It's retail profit margin that really matters at the end of the day and having a viable, sustainable profit in the retail business overall.

Richard Taylor from Barclays. Also 3 questions. On the [indiscernible] side, I realize you're trying to get volumes going again, but what are the economics like at the bottom line in light of the price cuts? The margin overall in retail is quite slim. So at the lower prices, will you be fully profitable once fully costed there?

Secondly, can you just talk a bit more about accessories? And noted you're taking action in food and you've said that you need a bit more time to evaluate accessories. But looking at the like-for-likes, accessories obviously a bit weaker. So does that require price investment as well alongside innovation or a bit of both? And then a more medium-term question, which I appreciate is going to be hard to answer, but I'll ask it anyway. What do you think a reasonable margin might be in the medium term for the retail business in light of your initiatives?

Mike, perhaps you could start with the first question on the margin economics across the food range.

Yes. I mean we have a wide range of gross margins across food. If you look at grocery gross margins are as low as 30%, some below. Advanced Nutrition margin is much higher, 40%. And obviously, our own label Advanced Nutrition margin is higher still. So we do know that getting our store layout, for example, the right way around our merchandising in store, how we feature product influences how customers buy. And our store colleagues play an enormous role in helping our customers make the right choices. So we've got lots of levers there to get that into the right place.

You asked the question, I think, about the right margin for our retail business. And clearly, profitability is held back when you've got no inflation and only a little decline in sales. What people guess sometimes don't take into account is the operational leverage we're going to get when we start to get back into like-for-like growth in our retail business. That is really, really key for us. That's what's going to help drive a return to strong profitability alongside the cost reductions. If you think about the margins we achieved in our retail business as recently as last year, that was 5.5%, and that was pretty much the same as we achieved in FY '24. We'll end up this year at sort of 2.5% based on the guidance we've given.

Getting the costs in the right place is a building block back there. Distribution and supply chain, if you took our total cost there of GBP 580 million of operating costs, that's about GBP 120 million of costs. We know we've got opportunities to drive productivity and efficiency there. And then, of course, getting the growth back into sales will enable volume growth. And then the work of our commercial team is to go and capture the value that volume growth creates in our supply base. Pets at Home is still a significant scale business. The level of our purchases is proportionately higher than a lot of our competitors. And we just need to make sure we're leveraging that scale when we go back to our suppliers and get the right terms from our suppliers because clearly, cost prices, we talked a lot about output prices, selling prices, but the cost prices are fundamental in setting the right gross margins and key to getting the right cost prices is to get back into volume growth sustainably.

Thanks, Mike. And Richard, if I go to your second question about accessories. I mean, accessories covers a really broad range of products from a GBP 3 toy to a GBP 150 cap furniture. And 70% of our accessories is own label. And it makes it, therefore, difficult to try and summarize accessories pricing in a very competitive market with a whole range of alternative providers. And that's why we are doing more detailed analysis on our accessories price ranges. We have no evidence to date to conclude that we're out of line on branded accessories across that vast range of price points, but we need to complete our analysis to fully firm up that conclusion.

Okay. That concludes our update on H1 results. Thanks very much for joining us.