DFS Dfs Furniture Plc

19 March 2024

Immediate release

 

DFS Furniture plc ("DFS" and the "Group")

Interim Results Announcement

 

RESILIENT PERFORMANCE DESPITE CHALLENGING MARKET ENVIRONMENT

 

DFS Furniture plc, the market-leading retailer of living room and upholstered furniture in the United Kingdom, today announces its interim results for the 26 week period ended 24 December 2023 (H1 FY24). Prior year comparative period is the 26 weeks ended 25 December 2022 (H1 FY23).

 

£m	H1 FY24	H1 FY23	Change
Gross sales1,3	666.2	705.6	(5.6%)
Revenue1	505.1	544.5	(7.2%)
Gross margin	56.0%	53.8%	+2.2%pt
Underlying PBT(A)1,2,3	8.7	7.1	+1.6
Reported PBT	0.9	6.8	(5.9)
Basic underlying EPS1,3	2.8p	2.2p	+0.6p
Reported basic EPS	0.2p	2.1p	(1.9p)
Interim dividend per share	1.1p	1.5p	(0.4p)
Net bank debt3	133.9	135.6	(1.7)
Leverage3	1.6x	1.7x	(0.1x)

 

¹ Continuing operations excludes the discontinued International operation which ceased trading in FY23

² PBT(A) - Profit before tax, excluding brand amortisation

³ Definitions and reconciliations of KPIs including Alternative Performance Measures ("APMs") are provided at the end of this statement in note 13 to the condensed consolidated financial statements

 

Strategic and operational highlights:

●    Good progress on our Cost to Operate programme. Gross margin improvement from 53.8% in H1 FY23 to 56.0% in the current period and operating costs £11.5m lower (£22m gross savings more than offsetting inflation and interest rate headwinds)

●    Despite a more challenging and volatile than expected upholstery market, with order volumes down c-10% year on year versus -5% assumed in formulating our profit guidance in September, the Group has continued its long track record of market share gains reaching a record level of 38.5% driven by the strength of our brands, scale and retail proposition

●   Continued improvement in customer NPS measures, with both brands continuing to grow established customer scores significantly

 

Financial summary:

●   Resilient underlying profit performance, PBT(A)^1,2,3 £8.7m, up £1.6m on H1 FY23 despite weaker than expected market demand

●     Reported profit before tax of £0.9m, after deducting expected non-underlying costs of £7.1m (£4.2m cash cost), including costs associated with closure of one our factories and September's refinancing

●     Group order intake down -1.1% year on year, outperforming the wider market

●    Gross sales³ down to a greater extent as expected, -5.6% year on year (£39.4m) due to the unwind of an elevated opening order bank at the start of the prior year resulting in a higher level of delivered sales in the comparator period

●     Revenue from continuing operations¹ down -7.2% year on year; higher than the gross sales reduction due to Bank of England base rate changes increasing the cost of providing interest free credit (IFC) which we partially mitigated through amending our IFC proposition 

●     Gross margin rate (+220 bps) and lower operating costs more than mitigated the revenue decline and impact of cost inflation on PBT(A)

●     Net bank debt³ reduced from the FY23 year end position of £140.3m to £133.9m and leverage reduced from 1.9x to 1.6x (H1 FY23 £135.6m and 1.7x)

●     Interim dividend of 1.1p approved by the Board

 

Current trading and FY24 outlook:

●    After a solid start to January, market demand has weakened significantly over the last two months, with market order volumes down c16% year on year across January and February (H1 -10%)

●     The group has not been immune to this and today we provide updated guidance for the year ending 30 June 2024 (53 weeks)

●     Revenues expected to be in the range of £1,000m-£1,015m and PBT(A) to be in the range of £20-25m, excluding risk of Red Sea delays which we continue to monitor closely

●     This represents a £60-£65m reduction in revenue guidance, partially mitigated to a £10m reduction in PBT(A) guidance, supported by strong progress on costs and gross margins

●   The guidance assumes H2 market volumes broadly consistent with H1 year on year, in a range of -8% to -10%, supported by weaker Q4 comparatives and a level of pent up demand following the weak January and February. We remain cautious about consumer confidence starting to improve and benefit demand until FY25

●     H2 group year on year order intake of -2% to -4% (H1 -1.1%) is based on our assumptions for H2 market volumes and our spring trading plans

●     If the Red Sea issues continue through to our year end, potential delivery delays could result in up to £4m of profit being deferred into our following financial year

 

Tim Stacey, Group Chief Executive Officer said:

"I want to thank our colleagues for their dedication toward providing a first class service to our customers. Whilst the current macroeconomic situation has presented many challenges, we are pleased to have extended our market leadership while reporting a resilient profit performance through the first half.

 

As a result of weaker market demand we have lowered our FY24 profit guidance to £20-£25m, excluding the potential risk of Red Sea delays which we continue to monitor closely. This reflects Revenue guidance reducing by £60-65m, partially mitigated by good progress on our Cost to Operate programme.

 

We remain confident in both our long-term growth strategy and the capability to deliver on our objectives.  We remain well positioned to improve our profit margins without market recovery and remain confident in delivering our 8% PBT target when the market recovers."

 

Refer to note 13 to the financial statements for definitions and reconciliations of Alternative Performance Measures.

 

 

FY24 Interim Results Presentation

 

A webcast for analysts and investors will be held at 9.00am (UK time) today to announce the H1 FY24 results. Webcast link (Password: DFS2024):  https://vimeo.com/event/4135214

 

A copy of the presentation will be made available at: https://www.dfscorporate.co.uk/

 

 

Enquiries:

 

DFS (enquiries via Teneo)

Tim Stacey (Group CEO)

John Fallon (Group CFO)

Phil Hutchinson (Investor Relations)

investor.relations@dfs.co.uk

 

Teneo

James Macey-White

Jessica Reid

Ayo Sangobowale

+44 (0)20 7353 4200

85fs.dfs@teneo.com

 

About DFS Furniture plc

The Group is the clear market-leading retailer of living room furniture in the United Kingdom. Our Group purpose is to bring great design and comfort into every living room, in an affordable, responsible and sustainable manner. We operate an integrated physical and digital retail network of living room furniture showrooms and websites in the United Kingdom and Republic of Ireland, trading through our leading brands, DFS and Sofology. We attract customers through our targeted and national marketing activities and our reputation for high quality products and service, breadth of product offer and favourable consumer financing options. We fulfil orders for our exclusive product ranges through our own UK finished goods factories, and through manufacturing partners located in the UK, Europe and Far East, and delivered with care through our expert final-mile delivery service "The Sofa Delivery Company Limited".

FY24 Interims CEO statement

 

Overview

The Group entered the financial year with record market share and operations in good shape but within a very weak upholstery market heavily impacted by the cost of living crisis, a subdued housing market and relatively weak consumer confidence levels. Following a detailed cost review, in September we announced a £50m annualised cost efficiency programme to be delivered over the next three years, whilst continuing to pursue our strategy to profitably grow our market share in the upholstery sector and grow our presence in other furniture categories.

 

Market demand in the period was weaker than the assumption we had used in preparing our profit guidance at the start of the year and we believe market order volumes are currently at record low levels. The Group has, however, continued to increase market share whilst improving gross margins and reducing operating costs, which has enabled us to report year on year underlying profit growth.

 

The current macroeconomic situation remains challenging and market demand has weakened into H2. As a result of weaker market demand we have lowered our FY24 PBT(A) guidance to £20-£25m, excluding the potential risk of Red Sea delays which we continue to monitor closely. The updated guidance includes a reduction in Revenues of £60-65m, which we have partially mitigated to a £10m reduction in PBT(A) as a result of good progress on our Cost to Operate programme. If our shipping partners continue to avoid using the Red Sea shipping route, delays to customer deliveries will result in up to £4m of profit being deferred into the following financial year.

 

The Group is well positioned for the future - customer service NPS scores are strong and continue to improve, costs are well controlled and reducing and we have line of sight to improved profit margins as we deliver our cost efficiency plans. As the market recovers, our market share, well invested asset base and P&L operating leverage puts us in a great shape to deliver our 8% PBT target and, given our negative working capital cycle, generate good levels of free cash flow when market demand recovers.

 

Market size update:

Market order volumes in the prior year were at very low levels, c-15%* below pre-pandemic levels based on our proprietary banking transaction data. At the start of the current period we had planned for market order volumes to be down a further -5% year on year given the weak macro outlook at the time. Actual market demand has been weaker, down -c10%* in volume terms in the first half, with exceptionally low footfall in the September-October period driven by record hot weather conditions proving a significant drag on performance.

 

*Proprietary Barclaycard and CACI banking data

 

Our three areas of focus:

 

Below is an update on the three areas of focus I announced in September 2023.

 

Growth

The Group has grown market share in value terms in the period from 38% at the end of FY23 to c38.5%* continuing our long track record of growing market share across the economic cycle due to the strength of our brands, scale and retail proposition. Market share has continued to be taken from independent retailers. Across the remainder of the sector we have seen general retailers pick up share, particularly at low to mid price points.

 

Gross margins

We have made solid progress increasing our gross margin rate towards our pre-pandemic historical level of 58%. We have now achieved growth in the last three half yearly reporting periods growing margins from a low of 52.7% in FY22 to 56.0% in this period.

 

Cost to operate efficiencies

During the first six months of our three year Cost to Operate programme we have made good progress as we target c£50m of savings across our cost base. H1 operating costs^ reduced £11.5m year on year, with £22.1m gross savings more than offsetting inflation of c£7.0m and £3.6m of higher interest charges on our debt facilities. These savings have come from improved operational performance as well as starting to realise some savings from our Cost to Operate programme. Further details are provided in the Financial Review.

 

^Sales, distribution, administration, depreciation, amortisation and interest, excluding brand amortisation

 

An update on our pillars and platforms strategy:

 

Pillars:

The market share gains described above have been driven by the DFS brand, the largest in the Group. The brand benefits from a well invested retail estate and digital assets that support the customer across their buying journey and from strong, unique brand partnerships. In the period we have partnered with the Ted Baker brand, launching three ranges and initial sales levels have surpassed expectations.

 

The Sofology brand, which has a higher average price point, has not been able to match DFS's share gains in this environment but good operational cost control has ensured brand profit contribution levels were maintained year on year. We are in the process of adapting the brand's price proposition to ensure it is best positioned for this market environment.

 

I'm pleased to say that both brands have achieved growth in their NPS scores to good levels. DFS's NPS established customer scores have improved by +62%, and are now nearly back to pre-pandemic levels. Sofology has also achieved strong levels of improvement with its established customer score improving to record levels over the last few months. Operationally both brands are now in a much better position recovering the ground lost through the pandemic period when customer orders were significantly delayed.

 

In relation to our non-upholstery 'Home' strategic initiative we have developed a drop ship solution and a new warehouse management system, providing the foundations to support growth. Due to the weak market demand in the upholstery segment we took the decision to defer investing in marketing to build awareness and drive future sales growth and instead focus our resources on optimising the profitability in our core business over the short term. The profitability of our Home offer has, however, increased year on year as we operate with improved gross margins and lower operating costs. We remain committed to driving sales growth in the Home product category in the future.

 

Platforms:

Our key platforms sourcing & manufacturing, technology & data, logistics and people & culture support our pillar brands and all play a key role in supporting our growth, be it across the top line or through improving the efficiency of our cost base. We are obtaining and making more use of data to drive insight and improved decision making across our business. Our fully integrated two man delivery service is market leading, our sourcing strategy has helped deliver three half year periods of gross margin rate improvement and through our People plan our colleagues remain highly engaged to drive us forward.

 

Sourcing & Manufacturing: As previously disclosed we entered a consultation process in September for the potential closure of the smallest of our three manufacturing sites and one of our wood mills. We concluded this process and ceased manufacturing at these sites in October. These types of decisions are never easy and we understand the impact it can have on our colleagues. Following a consultation with 215 colleagues, we were able to retain 44 colleagues through providing employment elsewhere in the Group, including at our recently formed sewing hub. We supported the remaining workforce through a comprehensive and meaningful outplacement support service. The ranges that were produced by the manufacturing site that has closed have been redistributed across our existing supplier base and this has contributed to reducing our cost of goods.

 

Technology & Data: To help mitigate the high interest rate environment on our profit margins we have recently expanded the capabilities of our Intelligent Lending Platform which we initially  launched with our DFS brand, and developed it for our Sofology brand. This will enable Sofology to work with a wider Group of lenders, resulting in cost synergies.

 

These cost savings, in addition to retail price increases that were implemented in the second half of the prior year supported a further improvement in our gross margin rate from 55.0% in the second half of the prior year to 56.0% in the first half of this period.

 

Operating Costs and Logistics: Despite absorbing significant levels of cost inflation, our operating costs have reduced £11.5m year on year due to improved operational performance and we are starting to see the benefits of some of our 'operate for less' cost initiative projects. Our final mile logistics business, The Sofa Delivery Company, is performing well having completed the integration of the two discrete delivery arms of DFS and Sofology. Sofa orders for both brands are stored and  delivered through the same infrastructure and resources and we are seeing consistently higher van fill rates, reduced delivery failure rates and improved post-delivery NPS scores year on year.

 

ESG: The Group is guided by our purpose to bring great design and comfort into every home in an

affordable, responsible and sustainable manner. We have developed policies and targets to help reduce our impact on the environment covering key elements of the materials that make up the sofas we sell, for example leather, textiles and timber along with targets covering inclusivity & diversity and our impact on local communities.

 

Highlights from the first half of FY24 include meeting our 10% target of an absolute reduction in Scope 1 emissions measured against our 2018/19 baseline.  This has been achieved in part due to lower delivered volumes but also through various initiatives, such as moving to gas alternatives  across our real estate and the consolidation of our delivery fleets into The Sofa Delivery Company. AI route planning tools as well as the investment in our teams with driver efficiency training have delivered great results and we are incrementally shifting our company cars and service vehicles to hybrid and electric models.

 

We have also made a significant amount of progress in developing our carbon reduction roadmap and remain on track to submit our net zero strategy to the Science Based Targets Initiative for approval in June. Over the past six months, we have engaged our manufacturing partners and raw material suppliers in our roadmap planning and many have shared their commitment to our net zero ambition.

 

Our colleagues remain highly engaged, and we've seen positive results from our colleague engagement survey, with the overall NPS engagement score increasing 14 points from March to September 2023. We've also made good progress in developing our inclusive culture where everyone is welcome, adding further Colleague Networks, bringing our total to five across Gender, Sexuality, Religion, Race and Disability. Finally, our Workforce Disclosure Initiative score has also increased from 73% to 80%, well above the UK average of 71% and the consumer discretionary sector of 60%.

 

Outlook:

 

Since our trading update on 19 January, market demand during the winter sale period has weakened by c-6%ppt compared to the H1 average and we have experienced a corresponding step back in the Group's order intake performance.

 

Today we provide some updated guidance for the 53 week period ending 30 June 2024. Order intake and delivery lead times are the two key sensitivities to our FY24 profit performance.

 

We expect revenues to be in the range of £1,000-1,015m and PBT(A) to be in the range of £20-25m, excluding the potential risk of Red Sea delays which we continue to monitor closely. The £10m reduction in our PBT(A) guidance represents a resilient profit performance given the £60-65m reduction in Revenue, supported by the strong progress on costs and margins.

 

Full year guidance	September 2023	March 2024
Revenue	£1,060m-£1,080m	£1,000m-£1,015m
PBT(A)3 excl. Red Sea risk*	£30m-£35m	£20-25m
Cash capex	£25m-£30m	£25m
Non underlying costs (cash)	£4m-£5m	£5m

*If Red Sea delays continue, we expect up to £4m of profit to be deferred into FY25

 

Whilst forecasting future market demand remains challenging, we expect overall H2 market demand will be broadly consistent with H1, in a range of -8% to -10%. This is partly supported by a relatively weak Q4 in the prior year and some potential for pent up demand following the especially weak market during the winter sale period. We are also confident that our commercial plan will be stronger year on year through Easter and Q4, as we annualise price rises and changes to interest free credit in the prior year.  Based on these assumptions, the Group's year on year order intake performance** is forecast to be in the range of -2% to -4% for H2 overall, slightly below the H1 level of -1.1%.

 

Year end net bank debt is expected to be around £150-155m. As previously guided, this is artificially elevated due to around £15m of temporary working capital outflows that occur in the 53rd week of this financial period.

 

As with our previous guidance, the PBT(A) range of £20-25m assumes that issues in the Red Sea are resolved, with no delays to delivery lead times. If the Red Sea issues are not resolved ahead of our year end, then we expect delays to customer delivery lead times will result in up to £4m of profit being deferred into FY25.

 

**Calculated on a 26 week vs 26 week basis (i.e. excludes FY24 order intake in the 27th week in the second half of this 53 week financial period)

 

Conclusion:

I want to thank our colleagues for their dedication toward providing a first class service to our customers. Whilst the current macroeconomic situation has presented many challenges, we are pleased to have extended our market leadership while reporting a resilient profit performance through the first half.

 

As a result of weaker market demand we have lowered our FY24 profit guidance to £20-£25m, excluding the potential risk of Red Sea delays which we continue to monitor closely. This reflects Revenue guidance reducing by £60-65m, partially mitigated by good progress on our Cost to Operate programme.

 

We remain confident in both our long-term growth strategy and the capability to deliver on our objectives.  We remain well positioned to improve our profit margins without market recovery and remain confident in delivering our 8% PBT target when the market recovers.

 

 

Tim Stacey

CEO

 

19 March 2024

FINANCIAL REVIEW

 

H1 FY24 reported profit before tax was £0.9m (H1 FY23: £6.8m), after the deduction of expected non-underlying operating costs of £7.1m (H1 FY23: £0.4m non-underlying profit).

 

H1 FY24 underlying profit before tax and brand amortisation (PBT(A))¹ was £8.7m, slightly ahead of prior year (H1 FY23: £7.1m). This represents a resilient profit performance despite the tough market conditions, supported by planned improvements in gross margin rate, lower operating costs and market share gains, which offset the profit impact of a year on year decline in revenues.

 

Non-underlying costs of £7.1m include the costs associated with the planned closure in the period of the smallest of our UK manufacturing facilities and one of our wood mills. The closures have enabled us to consolidate volumes within other UK Group manufacturing sites and further leverage our buying scale with our external supplier partners, lowering operating costs and improving the net profitability of the Group. Cash outflow for the period on non-underlying costs was £4.2m, with the full year expectation remaining in line with the previous guidance of £5m.

 

Trading conditions proved to be more volatile and weaker than anticipated across the period, with H1 market order volumes down c-10% year on year, versus the -5% reduction assumed in our previous guidance. Although we have not been immune to the weaker demand, the reduction in Group order intake of -1.1% year on year was lower than the reduction across the market, resulting in further market share gains. Proprietary data² for H1 shows we increased market share to 38.5% (38% at FY23 close). We remain in a favourable position for future growth when market volumes begin to recover.

 

Net bank debt¹ decreased from £140.3m at the end of FY23, to £133.9m at the end of H1 FY24, and leverage¹ decreased from 1.9x at the end of FY23 to 1.6x. Over the medium term we remain committed to managing leverage within our target range of 0.5-1.0x.

 

Revenue and gross sales

 

	H1 FY24 £m	YoY	H1 FY23 £m
Gross sales	666.2	-5.6%	705.6
DFS	525.6	-5.7%	557.2
Sofology	140.6	-5.3%	148.4
Revenue	505.1	-7.2%	544.5

 

Group gross sales¹, which are recognised on delivery of orders to customers, decreased by -5.6% to £666.2m (H1 FY23: £705.6m), with both retail brands reporting a reduction on H1 FY23. As expected, this was a higher rate of decline than order intake over the same period as a result of the higher order bank at the start of the comparative period converting into sales in H1 FY23.

 

Market demand was volatile within the period, with the Group experiencing year on year order intake growth in July and August, a challenging September and October driven by very low footfall during unseasonably warm weather, followed by an improvement in November and December. A shift in product mix towards models with shorter lead times also meant that we were able to deliver more orders to customers and convert these to gross sales in the period.

 

Group average order values have increased year on year as a result of range innovation and targeted price increases in March 2023, which fed through to deliveries from May 2023 onwards.

 

H1 FY24 Group revenue of £505.1m was 7.2% lower than H1 FY23. This is a higher rate of decline than gross sales due to increased interest free credit costs, primarily as a result of the higher Bank of England base rates. This impact was partially mitigated by changing our everyday interest free credit customer proposition to a maximum of 36 months. We note that this cost will start to reduce when reductions in base rates are instigated by the Bank of England.

 

Gross profit

H1 FY24 Gross profit of £283.0m decreased by £9.9m (3.4%) year on year, driven by lower revenues.

 

Gross margin rate improved to 56.0% for H1 FY24 (H1 FY23: 53.8%, H2 FY23: 55.0%), an increase of 220bps year on year. The margin improvement has been achieved as a result of the benefits of reduced freight rates, targeted price increases on orders placed from March 2023 onwards, and cost of goods improvements partly as a result of benefits from the closure of our smallest factory and one of our woodmills part way through the period. These benefits were partially offset by adverse hedged foreign exchange movements and the increased cost of interest free credit.

 

We have now recorded three consecutive half year periods of year on year gross margin rate growth, and we expect this trend to continue through H2 FY24.

 

Selling, distribution, administration, and property costs

H1 FY24 selling, distribution, administration and property costs totalled £209.5m (H1 FY23: £224.7m), a decrease of £15.2m (6.8%), representing a % cost of revenue of 41.5% (FY23: 39.9%).

 

The reduction in delivered volumes contributed £4.0m to the decrease in costs. We also took the decision to flex our marketing spend down by £3.9m in response to the tougher market conditions, prioritising spend against our core upholstery business. Other cost reductions of £14.3m were delivered from across retail operations, The Sofa Delivery Company, property costs and central overheads. This was driven by a combination of better service levels and cost management disciplines, alongside good early progress on our cost efficiencies programme, all of which helped to mitigate total inflationary cost increases of c3.1% (£7.0m).

 

Depreciation, amortisation and interest

H1 FY24 Depreciation of £38.9m decreased by £1.3m year on year, supported by the benefits of retail property lease regears and the rationalisation of our legacy warehouse estate into fewer, larger distribution centres. Amortisation has increased £1.0m year on year due to continued investment in our IT systems.

 

H1 FY24 Finance costs of £20.3m increased £4.3m year on year, largely due to increased interest rates on the Group's borrowings as a result of the higher Bank of England base rate, and to a lesser extent from a higher average drawn balance during the period. The higher drawn balance on the Group's borrowings is due to working capital balances normalising during FY23, principally as the higher order bank and therefore higher customer deposit levels reduced to be in line with more historical levels.

 

Profits and earnings per share

H1 FY24 reported profit before tax for the period was £0.9m (H1 FY23: £6.8m). Underlying profit before tax and brand amortisation (PBT(A))¹ was £8.7m compared to £7.1m in H1 FY23, with margin rate improvement and cost savings mitigating the profit impact of the year on year revenue reduction.

 

£7.1m of non-underlying costs were incurred in the period which related to the closure of the Group's smallest UK manufacturing facility and one of our woodmills (£5.7m), and costs associated with refinancing the Group's borrowing facilities (£1.9m), partially offset by the annual review and release of lease guarantee creditors no longer required in relation to properties leased by a former subsidiary entity (£0.5m).

 

Underlying basic earnings per share from continuing operations was 2.8 pence (H1 FY23: 2.2p). H1 FY24 basic earnings per share from continuing operations was 0.2 pence (H1 FY23: 2.3p).

 

The tax charge recognised in the interim financial statements has been calculated using the expected effective tax rate for FY24 of 24.0% (FY23: 21.3%). This is lower than the applicable UK Corporation Tax rate of 25.0% (FY22: 20.5%), primarily due to the availability of the fully expensing rules on capital expenditure.

 

Cash flow, net debt and dividends

Refinancing of our debt facilities was completed in September 2023, which increased the total amount of funds available from £215m to £250m and diversified the lending group. The new facilities were secured at competitive rates and consist of £200m from existing banking partners which runs to September 2027 (with a 16 month extension option) and £50m from the addition of US private placement notes, with redemption dates split equally between September 2028 and September 2030.

 

Net bank debt¹ decreased from £140.3m at the end of the prior year to £133.9m at the end of the current period. This includes a timing benefit of £6.9m in relation to the FY23 final dividend which was paid post period end in H1 FY24 and pre period end in H1 FY23.

 

H1 FY24 Cash capex was £14.7m (H1 FY23: £19.6m) and included the opening of the new DFS Greenwich store, six store refits, and technology related investments to further strengthen our customer proposition, mid and back office functions. We expect annual cash capex investment for FY24 to be at the lower end of the £25-£30m range previously communicated.

 

H1 FY24 return on capital employed (ROCE)¹ was 14.8% (H1 FY23: 13.5%) as a result of slightly higher profit on a last twelve months basis, with capital employed remaining stable. We expect returns to grow over time given i) our anticipated improved profitability as our product, property and operating cost reductions continue to be delivered and market volumes recover and ii) our negative working capital model.

 

Leverage¹ decreased  from 1.9x at the end of FY23 to 1.6x for H1 FY24. Based on the revised FY24 profit guidance described in the CEO's report, our year end net bank debt is expected to be in the range of £150m-£155m and leverage in the range of 2.0x to 2.1x. This includes the impact of a temporary £15m working capital outflow in the final week of this extended 53 week financial period. Excluding the temporary working capital outflow, leverage will be in the range of 1.8x-1.9x. Over the medium term we remain committed to returning leverage to within our target range of 0.5-1.0x.

 

Aligned to our capital distribution policy, the Board has declared an interim dividend for FY24 of 1.1 pence per share, at a total cost of £2.5m. This dividend will be paid on 30 May 2024 to shareholders on the register on 19 April 2024.

 

 

John Fallon

Chief Financial Officer

 

19 March 2024

 

¹ Definitions and reconciliations of KPIs including Alternative Performance Measures ("APMs") are provided at the end of this statement in note 13 to the condensed consolidated financial statements

² Proprietary Barclaycard banking data

 

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks that could threaten the Group's business model, future performance, solvency or liquidity remain consistent with those described in the 2023 Annual Report. A summary is provided below:

Risk	Impact
Financial risk and liquidity	The geopolitical and macroeconomic environment or other events (such as a future pandemic or expansion of the Ukraine war into other territories) may impact the Group's working capital requirements, its ability to access debt or equity financing, the cost of that financing, or the price of purchases in foreign currencies.
Regulatory	The Group is subject to increasing levels of compliance requirements in many of its activities from regulatory and other authorities, including the Financial Conduct Authority for its consumer finance offering, the Information Commissioner's Office in relation to data protection and Health and Safety Executive and local authorities for the health and safety of its colleagues and customers. The Group also generates revenue from the sale of product aftercare insurance, a form of general insurance add-on product.
Cyber	A cyber-attack, ransomware or data breach could result in business disruption, and loss or corruption of customer data, which could adversely impact our reputation and customer confidence. Our website and IT infrastructure are key elements of our strategy. A failure to review and innovate in this competitive area could impact achievement of the Group's growth plans.
Supply chain and manufacturing resilience	Disruption across our supply chain, including shortages of critical materials, reliance on key manufacturing sites and logistics constraints could result in supply shortages or delays.
Macro economic uncertainty	The Group's products represent a significant discretionary spend for customers and demand is heavily influenced by factors affecting the economic environment in which the Group operates including (but not limited to): consumer confidence, employment levels, real income, the availability of credit and the level of housing market activity.
Environmental, social and governance	Key stakeholders, including customers, colleagues, investors and regulators, as well as the media, are increasingly focused on the Group's policies and management regarding Environmental, Social and Governance ('ESG') risks. The Group is also required to meet increasing non-financial reporting and disclosure requirements.
Retention of skilled workers due to labour shortage	There has been increased pressure within the UK labour market in general with low levels of unemployment, high levels of vacancies and shortages of skilled workers across all sectors. The Group needs to attract, retain and develop the right talent and required capabilities to achieve targeted business performance and delivery of our strategy.
Consumer Proposition and industry competition	The reputation of, and value associated with, the Group's brands and product offering is central to the success of the business. Failure to maintain a well-designed, high-quality product range that is priced attractively could compromise the success of the Group.
Transformation	The Group undertakes a number of significant investment or business change projects that are key to successfully executing its strategy.

 

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

 

●     the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK;

●     the interim management report includes a fair review of the information required by:

 

(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

By order of the Board

 

 

 

Tim Stacey                                          John Fallon
Chief Executive Officer                  Chief Financial Officer

 

19 March 2024

INDEPENDENT REVIEW REPORT TO DFS FURNITURE PLC

 

Conclusion 

 

We have been engaged by DFS Furniture plc ("the Company") to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 24 December 2023  which comprises Condensed Consolidated Income Statement, Condensed Consolidated Statement of Comprehensive Income, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in Equity, Condensed Consolidated Cash Flow Statement and the related explanatory notes.

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 24 December 2023 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").   

 

Basis for conclusion

 

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.  

 

Conclusions relating to going concern

 

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

 

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the Group to cease to continue as a going concern, and the above conclusions are not a guarantee that the Group will continue in operation.

 

Directors' responsibilities 

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

 

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK-adopted international accounting standards.

 

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

 

In preparing the condensed set of financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

 

Our responsibility 

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

 

The purpose of our review work and to whom we owe our responsibilities

 

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. 

 

 

 

Gill Hopwood-Bell

for and on behalf of KPMG LLP 

Chartered Accountants 

1 Sovereign Square

Sovereign Street

Leeds

LS1 4DA

 

19 March 2024