November 27, 2018 / 12:05 PM / 6 months ago

UPDATE 2-Pets At Home rethinks vets business strategy as costs climb

* Takes 30 mln pound restructuring charge

* Forecasts drop in full-year profit

* Faces rising costs and shortage of vets

* Expects Brexit supply disruption (Recasts, adds detail, context, analyst comment)

By Karina Dsouza

Nov 27 (Reuters) - Britain’s Pets At Home warned of a drop in full-year profit and the potential closure of dozens of veterinary practices in what amounts to a strategy rethink after first-half pretax profit slid more than 9 percent.

The pet care group had touted its push into higher-margin veterinary services as key to growth in the face of declines in its traditional pet food operations. But on Tuesday said it had taken an almost 30 million pound charge against a restructuring of the veterinary business, with a further 20 million pounds-plus expected in 2019 and 2020.

The restructuring will also involve the purchase of 55 of the 470-plus practices it runs as joint ventures with iundependent vets, aiming to increase profitability.

Shares in the company, which have plunged 36 percent this year, were down 1.3 percent at 113 pence by 1056 GMT.

Pets At Home said a shortage of specialists in the UK had hampered growth and led to higher salaries in their veterinary business, increasing debt and curbing profitability.

“There are clearly lots of moving parts here,” Liberium analysts said of the company’s plans, noting that it could take time to deliver results.

Britain’s exit from the European Union, a deal on which was agreed by EU states last weekend, remains a risk, meanwhile.

Pets At Home warned of possible border delays and supply chain disruptions, with imports accounting for about 17 percent of the company’s cost of goods sold. It also said potential changes to immigration policy could hit recruitment and retention, particularly within in its veterinary business and distribution centers.

“A decline in the number of EU vets in the UK is putting pressure on salaries and also making it more difficult to find new partners, coming after Pets reduced the maximum number of stores it expected nationally it’s not ideal,” analyst Nicholas Hyett from Hargreaves Lansdown said.

Pets At Home said underlying pretax profit for the year to March 29, 2019, is expected to be 80 million pounds to 85 million pounds, compared with the 84.5 million pounds reported the previous year.

Its half-year profit decline to just below 40 million pounds was on 7 percent higher revenue, with growing cost pressures highlighted by a gross profit margin that shrank by 160 basis points to 50.3 percent. ($1 = 0.7843 pounds)

Reporting by Karina Dsouza in Bengaluru Editing by David Goodman

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