TIDMDFS
RNS Number : 9483Z
DFS Furniture PLC
24 September 2020
24 September 2020 For immediate release
DFS Furniture plc ("DFS" and the "Group")
Preliminary Results
Emerging stronger, with financial and operating resilience,
following a challenging year
DFS Furniture plc (the "Group"), the market leading retailer of
living room and upholstered furniture in the United Kingdom, today
announces its preliminary results for the 52 weeks ended 28 June
2020 (prior year 48 weeks ended 30 June 2019).
The Group changed its accounting reference date from 31 July to
30 June last year and FY19 was therefore a short accounting period
of 48 weeks. In order to enable comparison to our historical
results, unaudited pro-forma figures for the 52 weeks ended 30 June
2019 are presented in the table and commentary below in addition to
the audited statutory period of the 48 weeks ended 30 June 2019. In
addition, the Group has adopted IFRS 16 Leases for the first time
in the current financial year on a modified retrospective basis
with no restatement of comparatives.
FY20 FY19 LTM(1)
(52 weeks) (48 weeks) Jun-19 YoY change
GBPm GBPm GBPm GBPm
------------ -------------
Gross Sales(1) 935.0 1,165.0 1,287.2 (352.2)
Revenue 724.5 901.0 996.2 (271.7)
Underlying PBT(A) pre IFRS
16(1) (56.8) 28.2 50.2 (107.0)
Adoption of IFRS16 (6.3) n/a n/a
Underlying PBT(A)(1) (63.1) n/a n/a
PBT pre IFRS 16(1) (74.9) 22.4 43.6 (118.5)
PBT (81.2) n/a
Basic EPS (31.4)p 8.6p 18.4p (49.8)p
Dividends per share - 11.2p 11.2p (11.2)p
Net debt(1) (pre IFRS16) (169.2) (176.3) (176.3) 7.1
(1) Definitions and reconciliations of KPIs including
Alternative Performance Measures ("APMs") are provided at the end
of this statement in Note 12 to the condensed consolidated
financial statements
Financial Summary:
-- Group revenue for FY20 GBP724.5m, a reduction of GBP271.7m
from the unaudited pro-forma 52 week comparative period, driven by
the pause in trading during the Covid-19 lockdown
-- Underlying loss before tax pre IFRS 16 and excluding brand
amortisation(1) of GBP56.8m, a reduction of GBP107.0m, driven by
reduced margin from lower revenue levels, and partially offset by
mitigating actions
-- Restructuring and impairment charges totalling GBP16.6m
recognised in connection with strategic review of smaller
brands
-- Year end net debt maintained at GBP169.2m on a pre IFRS 16
basis(1) , compared with GBP176.3m at June 2019, with equity
issuance proceeds of GBP63.9m offsetting operating losses
-- No final dividend proposed, to maximise resilience given macroeconomic uncertainty
-- Strong online order intake since March, and in showrooms
since reopening, which has continued into current year
Operational and Strategic Highlights:
Comprehensive response to Covid-19, protecting colleagues,
customers and the long-term value of the business.
Further progress with our strategy to lead sofa retailing in the
digital age:
Drive the DFS core
-- Focus on digital and showroom investment to drive DFS
omnichannel, underpinned by record new product development and a
relentless focus on customer service with established customer NPS
rising to 42.9% (FY19 33.0%)
Build the Platforms
-- Development of a Group-wide, best-in-class platform underway
with the roll out of The Sofa Delivery Co., and our Stockwise
inventory management system
-- Property savings on track to deliver GBP6-8m annualised
saving by FY23: a further GBP1.4m of annualised savings secured
since June 2019 taking the total to GBP4.3m to date
Unlock New Growth
-- Sofology roll-out accelerates with three new showrooms opened
in this year and 6-10 sites targeted for FY21
Development of our ESG strategy, detailing specific multi-year
targets for our brands across key areas of the business
The current year has started very strongly with all showrooms
now open and our digital channels continuing to grow. Our
year-on-year order intake growth over the last twelve weeks,
combined with our previously announced higher opening order book,
implies c.GBP226m of additional revenues will be realised in this
financial year.
Tim Stacey, Group Chief Executive Officer said:
" While the reported decline in profit is undoubtedly
disappointing in headline financial terms, a significant proportion
of this profit has already been recovered in the current year as we
resumed customer deliveries. The current year has started very
strongly with all showrooms now open and our digital channels
continuing to grow. We believe that this growth is due to a
combination of pent up demand from lockdown, consumers spending
relatively more on their homes and the strength of the DFS and
Sofology propositions in particular.
We remain focused on executing our strategy, with agility and
pace, and believe that the Group is well placed to further
strengthen our market-leading position in the medium term. The
events of the past year have allowed us to build an even stronger
sense of togetherness. We emerge from the crisis stronger and with
renewed energy and purpose."
Enquiries:
DFS (enquiries via Tulchan) Tulchan
Tim Stacey (Group CEO) James Macey-White
Mike Schmidt (Group CFO) Jessica Reid
Phil Hutchinson (Investor Relations) Amber Ahluwalia
+44 (0)20 7353 4200
dfs@tulchangroup.com
Analysts presentation
DFS will be hosting a virtual results analyst presentation at
9.00am today. A live webcast and the presentation slides will be
available on the Group's website: www.dfscorporate.co.uk .
About DFS Furniture plc
The Group is the clear market-leading retailer of living room
furniture in the United Kingdom. We design, manufacture, sell and
deliver to our customers an extensive range of furniture products.
The business operates an omnichannel retail network of living room
furniture showrooms and web sites in the United Kingdom and other
European countries, trading through three leading brands. The Group
has been established and developed gradually over 50 years of
operating history. We attract customers through our substantial and
continued investment in nationwide marketing activities and our
reputation for high quality products and service, breadth of
product ranges and price points and favourable consumer financing
options.
CHAIR'S STATEMENT
Overview
This has been an extraordinary year, unprecedented in the
challenges posed by the closure of our showrooms, manufacturing and
delivery capabilities for almost three months of our peak spring
trading period. During this period, the majority of our colleagues
were furloughed and the small team which remained, worked from
home.
I applaud the response of our people in managing the closure of
our operations in late March, looking after colleague welfare and
planning and executing the reopening of the business at the start
of June.
During the peak of the COVID-19 pandemic, the Board met
frequently to provide support and guidance to the Group Leadership
Team. This included assisting with the making key tactical
decisions required to secure the operational and financial position
of the Group, including agreeing arrangements with landlords and
suppliers to manage our cashflow, increasing the Group's banking
facilities and raising new equity financing.
Strategy Progress
In the first full financial year since its launch, we have
continued to progress the implementation of the Group's strategy to
be the leading sofa retailer in the digital age. In particular, a
number of new initiatives have been launched to further develop the
omni-channel proposition of the largest brands, DFS and Sofology.
Progress has also been made on leveraging DFS's existing assets to
support improved returns on capital through sharing retail space
and logistics assets to support Sofology's expanded presence across
the UK. Having proved our ability to do this, including the
integration and development of the supporting information systems
and processes the Group is well positioned to replicate this
approach across the UK and the Republic of Ireland over the next
two years.
Financial Results
At our half-year trading update we reported that Group revenues
were down 5.7% in the first half against the strong prior year
comparative; however, importantly, order intake was up year-on-year
in the second half, with a particular strength in the DFS brand.
This remained the position and the Group, excluding the
underperformance of Sofa Workshop, was on track to broadly meet
market profit expectations for the full year until the COVID-19
pandemic took hold in late March. Then, in line with Government
requirements, all UK operations excluding our web platform were
suspended from 23 March. Our showrooms, manufacturing facilities
and delivery network closed for almost three months, resulting in a
revenue shortfall of c.GBP270m which led to a reported loss before
tax for the year of GBP81.2m.
Covid-19 Pandemic Closedown
The reaction of the business to the pandemic was fast and
effective. After pausing operations overnight, additional
communication channels were established to ensure colleagues
remained fully informed of the developing situation and the impact
of the business' 'hibernation'. Almost 90% of our colleagues were
furloughed and around 500 remaining colleagues worked tirelessly to
manage the impact on the business. Expenditure was minimised and,
in order to increase financial resilience, in April 2020 the
executive team secured an incremental GBP70m twelve month debt
facility from our banks to supplement our existing lending
arrangements, and we also raised GBP64m in new equity financing
from a share placing.
I would also like to express our thanks to the Group's many
stakeholders for their support through this challenging period.
This includes the Government for providing broad support including
the Coronavirus Job Retention Scheme and many of our larger
suppliers and landlords, who agreed to payment deferrals.
Re-establishing our Operations
The DFS and Sofology brands traded well online throughout the
lockdown period. Benefitting from continued investment over
numerous years, as we shared in our July trading statement order
intake across the online channels was up 77% year-on-year from the
beginning of lockdown to 12 July.
Most of the Group's customers still choose to visit our
showrooms, so they can experience the look and feel of our
products, as well as the all important "comfort test", before
committing to a purchase. During lockdown the executive team worked
hard to put in place all the steps necessary to safely welcome back
employees and customers into our showrooms and restart our
manufacturing and delivery operations with appropriate safety
measures. To facilitate the reopening, we implemented strict social
distancing and hygiene measures and introduced a new appointment
system for customers which has proved popular.
Since re-opening in June, we have been pleased to see a
significant increase in customer orders, which has been sustained
into the first 3 months of the new financial year. We believe this
reflects both latent demand from the period of closure and a
renewed focus and enthusiasm amongst customers for enhancing the
comfort of their homes.
The high level of orders, combined with constrained deliveries
through June as operations gradually recommenced, resulted in a
higher than normal order bank at the end of the year. The Group
therefore entered the new financial year with good momentum.
We are very aware of the ongoing economic uncertainty and have
decided to focus our efforts more closely on the development of the
DFS and Sofology brands, which we believe provide the greatest
opportunities for growth. To facilitate this we have, since the end
of the financial year, completed the sale of Sofa Workshop and
integrated the management of the Dwell retail team into DFS to
reduce costs and help it become a more profitable part of the
Group. Unfortunately, the consequence of this is the loss of a
number of colleague roles from the business.
We recognise the environment in the new financial year, is
likely to be highly challenging, and may require rapid changes in
our ways of working to adapt to the continued impact of COVID-19.
The Board and Executive have adopted a shorter, more frequent
planning cycle to reflect this heightened risk. I am confident
given the pace at which the Group has responded to recent
challenges we have the right team and structures in place to manage
these risks.
Our purpose, our values and our people
The Gr oup, which is the outright market leader in its sector in
the UK, has a distinctive culture. There is a great sense of pride,
commitment, and a "can-do" attitude amongst the people that work
across the business. Our purpose, built on our values, is to bring
great design and comfort into every living room, in an affordable,
responsible, and sustainable manner.
That our people live our values has been evident from their
dedication and enthusiasm over the past year. Aside from the
pandemic there is a significant amount of change going on within
the Group and I commend our employees for their commitment and
determination to see through the numerous projects that are
underway.
Environmental, Social and Governance ("ESG")
With the support of the Board, the Group Leadership Team has
spent a considerable amount of time and effort developing phase one
of the Group's ESG strategy. Our ambition is to leverage our
influence and scale as market leader to offer sustainable and
ethical products and to drive a more circular product lifecycle.
This starts from sourcing and manufacturing, through to retailing
and delivery, before then ensuring the collection and responsible
disposal of products at the end of their useful lives. As a result,
we expect to become more efficient, competitive and innovative
without margin dilution to support the long-term sustainability and
profitability of the Group. We believe this approach to
sustainability is expected by our customers and indeed embedding
sustainability into everything we do is a key priority for the
future.
We are well aware that there is much to be done, and the team
has been on a journey to first understand, through independent
audits, our current situation in relation to sourcing, energy
consumption, waste products and our people. We have then developed
what we consider to be stretching but realistic targets and plans
to achieve these.
We launched four key initiatives in the year: our wood and
leather sourcing strategy; reduction and recycling of packaging;
our 'sofa rescue' service to reduce the amount of waste product
entering landfill; and our tree planting initiative working with
the Woodland Trust. There are many other work streams underway -
more detail on these and our targets will be found in our full
annual report.
I am proud of the work done by our colleagues across the Group
to support the incredible work of the NHS during the height of the
health crisis. Support was provided to 50 NHS hospitals across the
UK, by donating and delivering sofabeds, sofas and recliners to
allow health workers to enjoy much needed rest whilst remaining on
site between shifts to support patients.
The Board
In September 2019, Alison Hutchinson succeeded Luke Mayhew as
Senior Independent Director, prior to his retirement from the Board
at the AGM in November. In January, Steve Johnson succeeded Alison
as Chair of the Remuneration Committee. In January 2020 we welcomed
Jane Bednall to the Board as a Non-Executive Director. Jane has
subsequently taken on the role as our Designated Non-Executive
Director as we look to further strengthen the Board's understanding
of employee views.
The Board's focus in the year has been to drive the
implementation of the Group's strategy through providing oversight,
support and challenge to the Group Leadership team. Although
interrupted by the sudden and extreme impact of Covid-19 closure,
the Group's strategic direction remains intact and steps have been
taken to accelerate changes which we anticipate will enhance the
Group's UK market leadership position and profitability.
Dividend
As a result of the uncertainty driven by the pandemic, we took
the decision to cancel the interim dividend. Whilst trading has
been strong since the lockdown measures eased, we remain cautious
around the continued potential impacts of Covid-19 on operations
and the macro-economy. While the terms of the incremental banking
facility secured in April preclude payment of a dividend at the
current time in any event, we would not have otherwise sought to
recommend payment of a final dividend in respect of the FY20
financial year as we seek to maximise the financial resilience of
the Group.
Looking ahead
The Group's scale economies, brand heritage, vertical
integration and financial strength position it well for what is, as
noted in the Chief Executive's outlook, likely to be a tough
trading environment. This strength has enabled the Group to grow
its market share during previous times of economic challenge as
less resilient competitors exited the market, for example during
the global financial crisis of 2008/9.
In these uncertain times we need to be cautious and alert to the
unexpected. It is impossible to predict the impact of the
political, social and economic developments we are seeing.
Notwithstanding these challenges, the Board is confident that the
strength and resilience of the business places the Group in a
relatively strong position over the long term and well placed to
manage these market uncertainties. We remain committed to
developing the Group to drive shareholder returns, have a positive
impact on our society and continue to provide a rewarding place for
our people to work and believe these aspirations are mutually
compatible.
Ian Durant
Chair of the Board
24 September 2020
CHIEF EXECUTIVE'S OPERATING REVIEW
Overview
The decision to close our business down for the first time in 50
years on 23 March 2020, based on the Government guidance, was
momentous but clearly necessary. We moved swiftly to protect
colleagues and customers by temporarily closing all showrooms,
manufacturing and distribution operations.
The way our people responded to this crisis was nothing short of
exemplary, and I cannot thank them enough for their spirit,
engagement and hard work throughout lockdown, ingredients that
enabled us to come through the crisis. We also really appreciated
the support we received from our key stakeholders, including our
shareholders, our banking partners, our suppliers and our
landlords. With their collective support, and the actions we have
taken, I am very confident that the Group has emerged even stronger
from this unprecedented period.
Re-opening the business safely has been a huge undertaking and
we have put colleague and customer safety first. The careful
re-opening through late May and June, together with the disruption
through lockdown itself, has clearly impacted the financial
performance in the year with revenue for the 52 weeks to 28 June
2020 declining by GBP271.7m to GBP724.5m compared to the 52 week
unaudited pro-forma comparative period. This reported performance
is based on the fact that the Group recognises revenues at the
point of delivery of orders to customers, and consequently second
half financial performance was particularly adversely affected. The
Group traded very well online, but government lockdown restrictions
from March 23 severely restricted customer deliveries for much of
the remaining period.
Underlying loss before tax excluding brand amortisation(1) for
the year on a pre-IFRS 16 basis was GBP56.8m compared to a profit
of GBP50.2m in the comparative period. We ended the year with net
debt on a pre-IFRS 16 basis(1) of GBP169.2m (2019: GBP176.3m),
after raising GBP63.9m from shareholders as part of our measures to
build financial resilience in response to the pandemic.
Since the year end, net debt has reduced significantly, due to a
combination of the resumption of customer deliveries and very
strong order intake, which has exceeded our expectations in the
first few months of the new financial year. We have reviewed
extensive external and internal data and we believe that the
current level of performance is due to a combination of latent
demand post lockdown, a shift of consumer behaviour towards
spending on "home", the relative strength of our omnichannel offer
and competitor market exits.
Based on data from Global Retail, the upholstery market was
relatively flat for three years from the start of 2017 to the end
of 2019, driven by low consumer confidence and a subdued housing
market caused by political uncertainty and relative macro-economic
weakness. There appeared to be some green shoots in the market
after the December General Election, pre-lockdown, as conversion
and Average Order Value improved post Boxing Day, although footfall
and web visitors remained fairly depressed.
Post-lockdown there appears to be a shift upwards in the market
cycle, but it is only a few months of trading, and macro-economic
storm clouds are gathering, together with the next phase of Brexit
and the threat of further disruption from Covid-19. Indeed, the
current out-performance could be "pull forward" from the autumn as
consumers fear a second wave of the virus. It is therefore
impossible to call how sustainable this trend might be, and as
such, to predict the future from the autumn onwards would be
speculative at best. That said, given the start to the new
financial year and the relative strength of our proposition, we are
well positioned to take advantage if the current trends continue
and we can also cope with potential further disruption.
Prior to the arrival of Covid-19, we were making good progress
on our strategic initiatives, despite the continued challenges from
the relatively flat market. During lockdown we reflected on our
progress, given the acceleration in consumer behaviour towards
online shopping, and the underlying strengths of our well-invested
omnichannel platform and unrivalled industry scale.
As I outline below, since the year end, we have taken further
actions to reinforce the structure of the Group and we will
continue to invest in core assets and key initiatives which support
our long-term strategy and deliver improved shareholder
returns.
M anaging the Covid-19 pandemic
Our company values, allied to our rigorous risk management
framework, helped shape our response to the Covid-19 pandemic. From
January, Covid-19 evolved rapidly from a predominantly regional
concern, disrupting our Chinese imports, to an international crisis
affecting many elements of daily life, including every aspect of
our own Group activities.
As the pandemic spread into the UK, our first actions were to
prioritise the health and safety of our colleagues and customers.
On 23 March, we closed all our showrooms, manufacturing and
distribution operations in the UK, Republic of Ireland and Spain
and immediately suspended all customer deliveries, with health
concerns paramount. Despite severe restrictions on physical
operations, we continued to support close to 5,000 furloughed
colleagues at a time of growing financial uncertainty, fully
protecting salaries in April and maintaining salaries at 80% of
full pay until colleagues returned to work, in excess of Government
salary caps. In solidarity with our teams on furlough, all our
Group's senior leadership, including our Board Directors and senior
executives, agreed an equivalent salary reduction.
We also amended our sick pay policy to take account of Covid-19
risks and the salaries of the Group's senior executives were
reduced while operations were suspended. We also provided valuable
well-being support to employees via numerous avenues including our
employee assistance helpline and The DFS Living Well Workplace
platform. Government restrictions on our business began to be eased
from the end of May, and our own operations resumed once we were
confident that we had the correct measures in place to protect our
colleagues and customers.
Safety concerns addressed, aided by our Group-wide Google
technology infrastructure to facilitate remote team-working, we
were able to enact recently updated business continuity procedures
in order to protect the health of the business. We undertook a
thorough financial review, significantly reducing expenditure,
deferring new store openings and utilising the UK Government's
business rates holiday and the Coronavirus Job Retention Scheme to
manage costs and cash.
In relation to key external stakeholders, we aimed to act with
integrity in relation to our suppliers and landlords. Recognising
their existential challenges, we prioritised payments to smaller,
key long-standing suppliers. We acknowledge the support of our
strongest landlords and suppliers in allowing us to secure
temporary improvements to our payment schedules.
Our investors also deserve recognition for their support during
the pandemic. With cash flows temporarily constrained as lockdown
restrictions prevented us from delivering our growing customer
order bank, we were able to secure a temporary GBP70m extension to
our banking facilities. Our largest shareholders also participated
in a GBP63.9m share placing, which was also supported by our Board
members. As dividend payments have been suspended to help manage
the financial impact of the pandemic, we acknowledge our
shareholders' support and will aim to recommence payments once the
macroeconomic outlook is more certain.
At a time of unprecedented challenge, I have greatly admired how
our various stakeholders and management teams have been able to
work calmly together, allowing us to operate safely and preserve
the long term value of the Group. The power of strong relationships
is something that we value highly as a Group.
Review of strategic progress
The far-reaching consequences of the pandemic underline more
than ever the importance of fully embracing digital channels as
online penetration accelerates across the retail sector. In the
upholstery market we believe that it is the combination of digital
and the physical aspects of our showrooms that will continue to be
successful. We know from our research that 90% of sofa buying
decisions are made in the showrooms after the all important "sit
test" as "comfort" is the number one reason why customers choose to
buy a sofa or not. Showrooms are therefore at the centre of our
business model and, as such, we believe that the Group is well
placed if consumers reprioritise the home within their lifestyles
and spending patterns.
Our strategy, to lead sofa retailing in the digital age, aims to
generate, as previously announced, GBP40m of incremental profit
before tax relative to FY18 and excluding the impact of normal
market growth/decline, by focusing on three core pillars: (i) to
drive the DFS core brand, (ii) to build group platforms to maximise
efficiency, and (iii) to unlock new profitable channels of
growth.
Drive the DFS Core
The DFS brand is the largest and most profitable in the Group
and the key priority of our strategy is to focus on driving this
brand across all channels. We continue to invest in our
infrastructure in order to further improve our omnichannel customer
journey.
With a strong online offer and well-invested showrooms, DFS is
well positioned to compete across all channels. Prior to the
Covid-19 pandemic, our recent market research showed that 85% of
customers began their sofa buying research online, with around 90%
of customers subsequently visiting a showroom to conduct a
"sit-test" before completing their purchase. As such we believe
that the combination of digital and physical showrooms is the right
business model for the upholstery sector.
We were pleased, however, to see that we could trade well
online, even without the benefit of showrooms during the lockdown
period. This performance underlines the strength of the DFS brand
and our online proposition, as well as our reputation for supplying
good value products.
Our showrooms performed strongly as they reopened in the final
weeks of the financial year. This trend has continued into the
current financial year, together with high levels of growth through
our online channels. Our online penetration of total orders is up
3ppts to 22% over the last six months.
A greater proportion of our advertising expenditure was spent on
digital marketing as we worked with Facebook, Instagram and
Pinterest to develop increasingly targeted customer campaigns. We
also improved our on-site search capabilities, being the first sofa
retailer in the UK to introduce "visual search". This functionality
enables customers to take photos of any sofa they see in any
setting and then compare that to our extensive ranges.
In the first half of the year, we re-platformed the DFS website
onto Google Cloud, enabling improved functionality, a faster user
experience and far greater user capacity. Furthermore, having been
the first sofa retailer to launch augmented reality on an iPhone
mobile browser, enabling a customer to view a sofa in their own
home, we've launched a second generation service with a new
software partner and have been increasing the number of ranges
available on this service. These initiatives have had a positive
impact, particularly when showrooms were closed during the lockdown
period.
We continued to invest in our showrooms in the year, equipping
our sales colleagues across the showroom estate with 1,200 new
Google Chrome tablets. The tablets enable rapid access to key
information in a convenient and secure way, utilising customer data
from their online account with us to direct them to the products
they've been browsing and similar products that may match their
requirements. Working with our artificial intelligence partner,
Satalia, we developed a model to predict footfall, based on local
market trends, weather, and promotional campaigns to ensure we can
act at short notice to optimise our sales team scheduling to meet
demand.
We continue to track customer satisfaction by monitoring Net
Promoter Scores (NPS) at various stages of the customer journey.
Our post purchase NPS score for the DFS brand was 85.7% (FY19
84.2%). Our established customer satisfaction score improved
significantly to 42.9% (FY19 33.0%). This increase was driven by a
combination of better digital communication with customers post
purchase, improved product quality and new digital tools enabling
customers to book their own delivery and access customer service
and help.
We're using our data more efficiently to deliver timely insights
into consumer trends and drive more effective product development.
We continue to see above average sales growth from our licensed
sofa brands including French Connection, House Beautiful, Country
Living and Joules, with successful new model introductions driving
sales as they roll out across the DFS store estate.
Towards the end of the financial year, we also introduced the
DFS Chair Edit - a series of new colourful accent chairs that
complement existing sofa product ranges and allow customers to
indulge their own design talents and create a coordinated living
room look. In the current year, we have recently launched new
ranges targeting busy families and to attract additional
style-focused customers with our exclusive Halo Luxe partnership,
which showcases the very best leather products.
We are making great progress in modernising and driving the DFS
core business and this remains the key priority of our strategy. We
look forward to continuing our investment, particularly in digital
capability, as the year progresses, as we look to strengthen DFS's
market-leading position.
Build the platforms
This strategic pillar focuses on Group-wide benefits from
utilising existing infrastructure and scaling systems, processes
and data. As a market-leading, vertically-integrated business, we
are targeting significant efficiency gains from our property,
logistics, marketing and manufacturing activities.
We continue to make good progress securing property savings,
through a combination of rent reductions on leases approaching
renewal and downsizing some showrooms. Last year we secured a
further GBP1.4m of annualised savings, bringing the total
annualised saving since the program began to GBP4.3m. We are
confident of achieving the GBP6-8m targeted annual savings by FY23
as previously communicated. In order to secure the maximum value
benefit over the longer term, we only commit to new leases where
appropriate terms are available, reflecting the rental market trend
and the Group's strength as an anchor tenant on many retail parks.
We are also well placed to strengthen our portfolio during a period
of market disruption affecting our competitors.
We continue to seek efficiencies from our Customer Distribution
Centre (CDC) network, with some of our CDCs now delivering multiple
Group brands after a successful trial. In the year, we relocated
our Belfast CDC from our retail site into a new standalone
location, repurposing the space to house more of our brands with
minimal incremental rent. Our relocated Belfast CDC now delivers
more of our brands' products to customers' homes on the same
vehicles under our 'The Sofa Delivery Co' branded group delivery
network. This network will enable us to provide better and more
consistent service to our customers at a lower cost to the Group
by: increasing utilisation of our delivery fleet and reducing
carbon emissions; reducing CDC operating costs; and leveraging
DFS's proprietary routing and scheduling optimisation software. We
have the opportunity to transition all the Group's sofa delivery
operations to this model by the end of Financial Year 2022 with
annualised savings of GBP3m+.
To improve customer experience, we have trialled seven days a
week and later evening delivery slots in our Glasgow CDC. As well
as providing greater customer convenience, the change in shift
patterns has also generated positive feedback from our colleagues
in relation to work life balance and rest periods. We are
considering extending this trial to all CDCs over the next 24
months.
We target continuous incremental improvements in our customer
facing technology platforms. In the year, we enabled DFS customers
to book their delivery and installation slots online. Around fifty
percent of our customers now use this online functionality
resulting in both higher NPS scores and increased efficiency.
Customers can also now track where their delivery vehicle is, in
real-time, on the day of delivery.
Marketing has been a traditional DFS strength and a major area
of investment for the group. However, we believe we can drive
significant efficiencies by using increasingly granular data-led
analysis, particularly in relation to our digital marketing
investment. With the support of our expert partners, we have
identified optimum amounts of investment by brand for the current
financial year, which will be regularly reviewed to reflect
prevailing market conditions.
Going forward we are reviewing our own manufacturing capacity
and capability given our growth plans for DFS, Sofology and Dwell,
the clear margin benefits of vertical integration and the potential
for increased control of end to end supply chain.
We recognise that world class retail businesses are moving to
become more platform-based in order to enable future profitability
and extract cost efficiencies. We are making good progress on our
platforms and intend to deliver all of the cost savings identified
by Financial Year 2023.
Unlock new growth
The third pillar of our strategy is 'unlock new growth' which
targets profitable growth from our other brands. Most recently this
was reflected in the acquisition of Sofology in 2017 for GBP25m,
following on from opportunistic acquisitions of Dwell and Sofa
Workshop in 2013 and organic expansion in the Netherlands and
Spain.
Recent operational challenges, weaker results and the uncertain
retail outlook have led us to review our Group structure and
re-assess the prospects of certain smaller Group businesses. As we
recover from the pandemic, we believe that it is important that the
Group retains the financial resilience to weather a period of
economic uncertainty, and that the investment in individual brands
matches future returns prospects. With a leaner, simplified
structure, we believe the Group will be best placed to maintain its
leading market position, while taking advantage of the significant
Sofology profit growth opportunity.
Sofology
We plan to accelerate the development of Sofology, and see
significant scope to expand the number of showrooms in the UK,
driving further economies of scale. We were encouraged by the
performance of Sofology during the year, particularly the online
channels during the lockdown period and as showrooms re-opened
towards the end of the financial year.
Sofology continues to lead the sector with its seamless
omnichannel journey, and made further progress in this area in the
last financial year. Recent developments include website
enhancements such as a 'go-in-store' capability, whereby a customer
browsing online can be connected to a colleague in a showroom via
video, see the product live and have any questions answered, and
the introduction of a 'sofa sizer', enabling a customer to enter
the maximum height, width and depth of a sofa with the range
immediately refined and presented to the customer. These
initiatives have helped contribute to improved web and showroom
conversion throughout the year.
We have developed significant new product ranges and refreshed
the existing offer through the addition of new coverings. These new
collections have been successful in driving improved Average Order
Values and gross margins, and as such are driving strong sales and
margin growth year on year post lockdown.
Sofology's NPS continues to benefit from investment in product
quality and after sales service. Colleague engagement scores have
also continued to improve and attrition has reduced
significantly.
Sofology opened three new showrooms in the period including its
first showroom in Northern Ireland. Despite disruption due to
lockdown measures, we remain encouraged by the new showroom
performance.
We continue to see the opportunity to grow the Sofology brand to
65-70 outlets in the medium term. In the current year, taking
advantage of favourable lease terms, we are seeking to accelerate
the showroom opening programme and plan to open 6-10 new showrooms
in the next twelve months.
Sofa W orkshop and Dwell
The disappointing performance by Sofa Workshop we outlined in
our interim results deteriorated further in the second half.
Following our strategic review, we decided to sell Sofa Workshop
and the transaction was finalised and announced in August.
In a competitive homewares market, Dwell also reported a decline
in sales and brand contribution during the year. We have
restructured the Dwell operating model to enable its wide range of
attractive products to be sold more seamlessly to DFS customers, as
well as online. We believe that Dwell has a complementary
proposition to our sofa brands and is now set up to deliver
profitable growth going forward.
International
Prior to lockdown, the performance of our six Netherlands
showrooms was in line with expectations and we expect to conclude
our review on growth options for this business in 2021. Our two
Spanish showrooms continue to perform well despite potential
uncertainty from Brexit which may have some effect in the areas
they are located.
People, purpose and values
FY20 placed significant demands on our Group colleagues,
including managing uncertainties around the government furlough
programme, or working extended hours from home alongside domestic
pressures and perhaps coping with anxiety around Covid-19. Using a
variety of means, we have aimed to support our colleagues from a
financial and wellbeing perspective as much as possible during this
period. I genuinely appreciate all our colleagues for their efforts
in the year.
Despite the growing importance of digital technology, retailing
remains very much a 'people' business, and the industry remains the
UK's largest private sector employer. I am proud to lead a Group
with more than 5,000 passionate and dedicated colleagues. As a
vertically-integrated omnichannel business, with a strong 'family'
ethos, the Group offers a wide range of career opportunities across
our manufacturing, retailing, distribution and support functions.
We also provide a range of career development opportunities, from
our award-winning apprenticeship programme to leadership skills
workshops.
We continue to receive external recognition for our employment
engagement, gaining a Best Companies(TM) accreditation for a fifth
consecutive year, with colleagues highlighting positive manager
relationships and an enjoyable team working environment as key
attractions of the Group. We continue to benefit from colleagues'
loyalty, with almost 40% of colleagues having more than five years'
service with the Group.
As a successful UK-based company and the market leader in our
sector, we also believe that, in addition to delivering long-term
value for shareholders, we have a responsibility to contribute to
the success of wider society and to be aware of our impact on the
environment. To this end, we have spent time reflecting on our
company purpose throughout the year:
Our Group purpose is to bring great design and comfort into
every living room, in an affordable, responsible, and sustainable
manner. Our customers and our people are at the heart of everything
we do, reflected in our three core values of "Think Customer", "Be
Real" and "Aim High". These values are firmly ingrained across the
Group and are central to our strategy and our purpose.
Environmental, Social and Governance (ESG)
Reflecting our purpose and values, we are committed to acting in
a responsible and sustainable manner into the long-term. Our
Group-wide ESG initiative is led by Sofology CEO Sally Hopson and
supported by Alison Hutchinson as Board sponsor. In the last twelve
months, we have intensified our efforts in this critical area, and
have developed a new ESG Strategy that will be announced alongside
our preliminary results. The Strategy will detail specific
multi-year targets for our brands across key areas of the business
including sourcing, packaging, recycling, energy efficiency, gender
diversity and flexible working. We intend to turn ESG leadership
into a sustainable source of competitive advantage for the
Group.
Impact of the UK's exit process from the EU
In my 2019 CEO's report, I reported in detail on our work on the
potential impact of the UK's departure from the European Union. Our
preparations have continued, overseen by the Group Risk Team
reporting to the Audit Committee. The UK is currently in a
transition period until the end of 2020 while trade negotiations
take place regarding the nature of the future relationship with the
EU. The level of change required as part of any trade deal is
unclear as yet. We have established a cross brand Working Group
prioritising actions to address the "known knowns" surrounding the
EU departure process. With governments prioritising the Covid-19
response, it is currently unclear whether the transition period
will be extended and, on balance therefore, the risks of a 'no
deal' departure have increased.
As indicated in last year's report, the two principal risks to
the Group from the EU departure remain consumer confidence related
impacts on consumer demand, and border delays. As a result of the
Covid-19 pandemic, consumer confidence is already low. We will
continue our preparations to minimise the disruption as part of our
risk management process, until the UK and EU's path forward is
clear.
Outlook
While the reported decline in profit is undoubtedly
disappointing in headline financial terms, a significant proportion
of this profit has already been recovered in the current year as we
resumed customer deliveries. We have also continued to make
progress with our strategic agenda, strengthened our stakeholder
relationships and worked hard to preserve the value of the
Group.
The current year has started very strongly with all showrooms
now open and our digital channels continuing to grow. Our
year-on-year order intake growth over the last twelve weeks,
combined with our previously announced higher opening order book,
implies c.GBP226m of additional revenues will be realised in this
financial year. We believe that this growth is due to a combination
of pent up demand from lockdown, consumers spending relatively more
on their homes and the strength of the DFS and Sofology
propositions in particular.
In the absence of further lockdown impacts, we therefore look
forward to reporting a strong first half sales and profit
performance, although the full year outcome will be dependent on
the effects of the pandemic and Brexit on consumer confidence, the
housing market and levels of employment. Cash generation will
continue to be a priority as we look to rebuild our financial
resilience.
We remain focused on executing our strategy, with agility and
pace, and believe that the Group is well placed to further
strengthen our market-leading position in the medium term. The
events of the past year have allowed us to build an even stronger
sense of togetherness. We emerge from the crisis stronger and with
renewed energy and purpose.
Tim Stacey
Group Chief Executive Officer
24 September 2020
FINANCIAL REVIEW
Our headline financial results reflect the impact of the
Covid-19 lockdown, due to showroom closures and the suspension of
deliveries for the majority of the final quarter as well as an
unusually strong prior year comparative in the first half. Since
the Group recognises revenue on delivery to the customer, the
lockdown period resulted in a significant sales and profit
shortfall compared to the prior year. In order to mitigate the
short and medium term financial impacts of the pandemic, the Group
has taken wide-ranging actions with the aim of strengthening its
financial resilience. Order intake in late June and in the current
year has been very positive year-on-year as we have benefited from
deferred consumer spending, and an increased consumer
prioritisation of home-spending, since the national lockdown
ended.
Nevertheless, despite current trading, the economic outlook
remains particularly uncertain due to the ongoing pandemic and the
end of the Brexit transition period. Our current year focus is on
capturing the benefit of the strong market environment while it
persists, maintaining financial resilience, and prioritising
investment in the key elements of our long-term digital age
strategy. To support our responsiveness we have shortened our
planning cycles, and sought where possible to time-limit any
incremental cost commitments that we make - for example in
discretionary marketing spend commitments and flexible recruitment
of colleagues to match resources with current incremental
demand.
During this period of unprecedented change and challenge for the
Group, I sincerely appreciate the hard work and dedication of all
our colleagues in helping us respond positively and proactively,
and the strong support and understanding that we have received from
our broader stakeholder groups.
Basis of financial presentation
In the previous financial year, the Group changed its accounting
reference date and reported a 48 week period to 30 June 2019. The
current period being reported is the 52 week period to 28 June
2020. In order to provide a meaningful comparative, the unaudited
pro-forma results for the 52 week period to 30 June 2019 are
included in the table below and commentary that follows.
The financial statements are prepared for the first time this
year under IFRS 16. The Group has adopted a modified retrospective
transition approach to IFRS 16, meaning financial statements for
earlier periods will not be restated. To aid comparability with the
prior period, results are presented in the table both before and
after applying IFRS 16. The impact of applying IFRS 16 is to
increase the reported loss before tax for the reported 52 weeks by
GBP6.3m. The adoption of IFRS 16 has no impact on the way we run
the business or on the Group's cash flows, other than a marginal
change in corporation tax payments due with a slight reduction in
the short term, offset by higher payments in the longer term.
Brand contribution, which is reported before property or central
costs, remains our preferred measure of segment profitability.
52 weeks to 28 DFS Sofology Other Group IFRS Group Non- Group
June - underlying 16 - underlying underlying - Reported
2020 pre IFRS IFRS items IFRS
GBPm 16 16 16
Gross Sales(1) 697.1 181.7 56.2 935.0 - 935.0 - 935.0
Revenue 535.2 143.7 45.6 724.5 - 724.5 - 724.5
Cost of sales (212.6) (72.3) (22.5) (307.4) - (307.4) (3.1) (310.5)
-------- --------- ------- -------------- ------- -------------- ------------ ------------
Gross profit 322.6 71.4 23.1 417.1 - 417.1 (3.1) 414.0
Selling and
distribution
costs(+) (191.6) (47.8) (20.9) (260.3) - (260.3) (2.1) (262.4)
-------- --------- ------- -------------- ------- -------------- ------------ ------------
Brand
contribution(1) 131.0 23.6 2.2 156.8 - 156.8 (5.2) 151.6
-------- --------- -------
Property costs (102.5) 75.3 (27.2) (27.2)
Administrative
expenses (68.1) 0.4 (67.7) (0.2) (67.9)
-------------- ------- -------------- ------------ ------------
EBITDA(1) (13.8) 75.7 61.9 (5.4) 56.5
Depreciation,
amortisation
& impairment (31.2) (56.3) (87.5) (11.2) (98.7)
-------------- ------- -------------- ------------ ------------
Operating profit (45.0) 19.4 (25.6) (16.6) (42.2)
Interest (11.8) (25.7) (37.5) - (37.5)
-------------- ------- -------------- ------------ ------------
Loss before tax
and
brand
amortisation (56.8) (6.3) (63.1) (16.6) (79.7)
-------------- ------- -------------- ------------ ------------
Brand amortisation (1.5) - (1.5) - (1.5)
Loss before tax (58.3) (6.3) (64.6) (16.6) (81.2)
-------------- ------- -------------- ------------ ------------
Unaudited pro-forma results: Audited results for
52 weeks to 30 June 2019 the 48 weeks to 30
June 2019
GBPm DFS Sofology Other Group Group Non- Group
- underlying underlying underlying - Reported
items
-------- --------- ------- -------------- ------------ ------------ ------------
Gross Sales(1) 942.1 260.7 84.4 1,287.2 1,165.0 - 1,165.0
Revenue 721.7 205.9 68.6 996.2 901.0 - 901.0
Cost of sales (288.4) (101.5) (31.7) (421.6) (383.8) - (383.8)
-------- --------- ------- -------------- ------------ ------------ ------------
Gross profit 433.3 104.4 36.9 574.6 517.2 - 517.2
Selling and distribution
costs(+) (232.1) (56.7) (25.6) (314.4) (293.7) - (293.7)
-------- --------- ------- -------------- ------------ ------------ ------------
Brand contribution(1) 201.2 47.7 11.3 260.2 223.5 - 223.5
-------- --------- -------
Property costs (107.5) (99.1) - (99.1)
Administrative expenses (62.5) (59.3) (4.4) (63.7)
-------------- ------------ ------------ ------------
EBITDA(1) 90.2 65.1 (4.4) 60.7
Depreciation, amortisation
& impairment (29.3) (26.8) (26.8)
-------------- ------------ ------------ ------------
Operating profit 60.9 38.3 (4.4) 33.9
Interest (10.7) (10.1) - (10.1)
-------------- ------------ ------------ ------------
Profit before tax
and brand amortisation 50.2 28.2 (4.4) 23.8
-------------- ------------ ------------ ------------
Brand amortisation (1.5) (1.4) (1.4)
Profit before tax 48.7 26.8 (4.4) 22.4
-------------- ------------ ------------ ------------
(+) excluding property costs
(1) Refer to note 12 to the condensed consolidated financial
statements for definitions and reconciliations of alternative
performance measures
Covid-19 impact and refinancing
The CEO Report covers the Group's detailed operational and
strategic actions in relation to the pandemic in the last financial
year. From a financial perspective, our main actions in response to
the pandemic were to address the profit and cash flow implications
of disruption to our made-to-order, negative working capital model,
to meet our financial obligations to key stakeholders (in
particular those smaller suppliers most dependent upon the Group)
and to ensure that we had sufficient financial resources to see us
through a lockdown period of potentially uncertain duration.
In March, as the implications of the pandemic became more
apparent, the Group undertook a wide range of mitigating actions to
reduce cash operating costs. In addition, in order to give the
Group liquidity headroom through a severe lockdown scenario, the
Group successfully completed a placing of 42.6m shares (an increase
of 19.9% of the issued ordinary share capital of DFS prior to the
placing) to raise gross proceeds of GBP63.9m in April 2020.
Alongside the placing, the Group also secured a 12-month, GBP70m
extension to its existing GBP250m bank facilities.
Our usual bank covenants of 3.0x (IAS17) net debt / EBITDA and
1.5x Fixed Charge Cover have been temporarily replaced by two
financial covenants for so long as the additional GBP70m 12 month
facility remains outstanding. The first is a quarterly EBITDA test
that proxies the previous net debt / EBITDA test, and requires us
to ensure cumulative EBITDA (IAS17) during FY20 grows by at least
GBP17.1m each quarter across the FY20 financial year, reaching a
target last nine month EBITDA of GBP51.3m in March 2021. The second
is a test to ensure that total facilities are not drawn beyond
GBP300m each month end through to November 2020 and beyond GBP250m
each month end through to March 2021.
Restructuring of Dwell and sale of Sofa Workshop
As detailed in our July trading update, towards the end of FY20
the Group began an operational restructuring of Sofa Workshop and
Dwell to improve the returns generated by these brands. Since the
financial year end, the Sofa Workshop business has been sold and
Dwell's retail sales teams and certain back office support
functions have been integrated into the DFS brand operating unit,
while their buying, marketing and other commercial operations will
remain distinct. Largely as a result of this restructuring and
related trading, the Group has recognised non-cash impairments of
acquisition-related goodwill and brand names and certain property
right-of-use assets. The Group has also incurred cash restructuring
costs of GBP1.3m associated with related headcount reductions and a
GBP3.1m reduction in net realisable value of associated inventory.
In total we have recognised income statement charges of GBP16.6m in
FY20 in relation to the restructuring, which have been presented as
non-underlying costs.
Sales and revenue
As noted above, annual revenues were severely impacted by the
pause in deliveries for the majority of the final quarter to comply
with COVID-19 restrictions. Total gross sales(1) for the Group
declined by 27.4% to GBP935.0m compared to the pro-forma twelve
month comparative period. Revenue, which is stated after deducting
VAT and the costs of providing interest free credit and aftercare
products, declined at a similar rate to GBP724.5m. Sofology opened
three showrooms in the financial year which overall performed in
line with our expectations prior to the pause in trading due to
Covid-19.
While the suspension of customer deliveries severely impacted
reported revenue in the financial year, the Group continued to take
orders online during the lockdown period, achieving strong
year-on-year growth. Showrooms also benefited from a release of
latent demand as stores re-opened in the final weeks of the
financial year. We discuss the current year implications of a
materially higher year-on-year opening order bank in the 'looking
forward' section below.
Gross profit
Underlying(1) gross profit declined by 27.4% to GBP417.1m
compared to GBP574.6m for the twelve month pro forma comparative
period as a result of the lower revenues and a small decrease in
underlying gross margin percentage of 10bps to 57.5%. The DFS brand
gross margin increased 20bps year-on-year as a result of sourcing,
pricing and quality improvements coming through as well as more
favourable US dollar exchange rates. This was offset by increased
promotional activity and customer care costs across Dwell and Sofa
Workshop and sell-off of clearance stock in Sofology. After
additional inventory write downs in connection with the
reorganisation of Dwell and Sofa Workshop, reported gross margin
was GBP414.0m.
We source around one quarter of the finished goods that we sell
from the Far East, and we pay for these goods in US dollars. We
continue to protect ourselves from adverse US dollar exchange rate
movements for our spend of c. $165m annually, by hedging our US
dollar purchases to maintain eighteen months cover by value. Our
hedged rate for FY20 as a whole was broadly consistent with the
rates secured for FY19. Our hedged rate for FY21 is 5 cents lower
than the average rate secured for the whole of FY20. Each one cent
movement in the dollar to sterling exchange rate impacts profits by
approximately GBP1m, however these impacts will be felt by all
industry participants and we will seek to mitigate these impacts in
our commercial proposition.
Operating costs and brand contribution(1)
Underlying selling and distribution costs (excluding property
costs) reduced by GBP54.1m (17.2%) to GBP260.3m, reflecting the
reduced trading volumes together with a wide range of mitigating
actions to offset the financial impact of the pandemic, including a
re-phasing of marketing spend and reduced discretionary
expenditure. We continued to invest in key initiatives including
Sofology showroom expansion, digital innovation and last-mile
logistics development. Underlying brand contribution(1) for the
Group reduced by GBP103.4m overall to GBP156.8m.
Pro perty costs and administrative expenses
Underlying property costs(1) pre IFRS 16 reduced by GBP5.0m to
GBP102.5m. This was primarily due to a c.GBP6m benefit in FY20 from
the retail business rates holiday implemented by the UK government
from April 2020. While a limited increase in costs arose from
incremental space taken in the year, this was broadly offset by the
impact of lease re-gears.
Underlying administrative expenses(1) pre IFRS 16 increased by
GBP5.6m to GBP68.1m, predominantly as a result of investment in the
infrastructure to support the delivery of strategic initiatives and
to a lesser extent from regulatory-driven increases to employer
pension contributions.
EBITDA(1)
As a net result of the lower revenues and the other factors
described above, the Group's underlying EBITDA(1) pre IFRS 16
decreased from GBP90.2m profit for the unaudited pro-forma 12
months to June 2019 to a loss of GBP13.8m for FY20. Government
support through the retail business rates holiday and for the
furlough of over 5,000 of our team members to protect employment
levels partially mitigated the substantial losses that we have
incurred due to the business suspension.
Depreciation, amortisation and impairment
Underlying depreciation, amortisation and impairment charges of
GBP31.2m pre IFRS 16 (excluding brand amortisation) reflected a
modest increase on the prior year in line with the related asset
base. A further GBP11.2m of non-underlying impairment charges were
recognised in connection with the restructuring discussed above,
including the write down of the Sofa Workshop goodwill and brand
name.
Interest
Pre IFRS 16 interest charges increased by GBP1.1m from GBP10.7m
to GBP11.8m due to higher borrowings as part of our contingency
planning in the early stages of the pandemic.
Profit Before Tax ('PBT')
Underlying PBT(1) for the year (pre-IFRS 16 and brand
amortisation) was a loss of GBP56.8m compared with a profit of
GBP50.2m for the unaudited twelve month pro-forma comparative
period. Including non-underlying items and the adoption of IFRS 16,
total reported loss before tax was GBP81.2m.
IFRS 16
To provide better comparability with the previous financial
year, the table above illustrates the impact on the income
statement of the adoption of IFRS 16. Further details are provided
in Note 1 to the financial statements.
Reported EBITDA(1) (including the impact of IFRS 16) was
GBP56.5m as a consequence of the majority of lease rental charges
no longer being charged to operating profit. These charges were
replaced with additional depreciation and interest charges of
GBP56.3m and GBP25.7m respectively. The net impact of these changes
increased the reported loss before tax for the 52 weeks ended 30
June 2020 by GBP6.3m compared to that which would have been
reported under IAS 17.
Although the timing of the recognition of lease expenses is
accelerated under IFRS 16, the total expense over the life of the
lease is identical to that under IAS 17. Therefore, excluding the
effect of any future changes to the Group's leases, this negative
impact will reduce over the next two financial years and by FY23
would result in a modest benefit to reporting profit before tax.
However, new leases entered into will also slow the realisation of
this non-cash benefit to reported profits.
Tax
The reported effective tax rate for FY20 is 14.8%. This is lower
than the applicable UK Corporation Tax rate of 19.0% primarily due
to losses incurred in Sofa Workshop which have not been recognised
as deferred tax assets, the non-deductible write down of goodwill
and disallowable depreciation on non-qualifying assets.
Earnings p er share
Basic earnings per share for the Group was a loss of 31.4 pence
per share for the 52 weeks to 28 June 2020 (48 weeks to 30 June
2019: profit of 8.6 pence per share), based on a weighted average
number of shares in issue for the financial year of 220.3m
reflecting the placing of new shares in April 2020 (FY19
212.0m).
Capital expenditure
Cash capital expenditure for the period was GBP23.4m, a
reduction of GBP2.9m from the GBP26.3m for the unaudited pro forma
comparative period(1) . The year-on-year reduction reflects a
scaling back in non-essential discretionary capital expenditure as
part of our mitigating actions to manage the financial impact of
the pandemic. In addition to the GBP23.4m cash capital expenditure,
GBP5.3m of assets (predominantly delivery vehicles and company
cars) were acquired under lease arrangements which was a consistent
level of investment to last year.
Cash flow and balance sheet
As we have highlighted previously, the DFS business model
benefits from negative working capital: payments are received from
customers on or before delivery, while our suppliers are paid to
agreed terms. Working capital balances are seasonal depending on
recent trading activity and cost seasonality (particularly in
advertising spend) as well as predictable patterns of payments on
rents, tax payments and other recurring charges. Inventory balances
are limited and have historically remained broadly stable.
The suspension of customer deliveries during the pandemic
delayed the receipt of the related customer payments and the Group
was only partially able to limit the unwind of its negative working
capital position. The additional GBP70m 12-month credit facility
agreed in April was primarily intended to cover a working capital
unwind. The proceeds of the placing, combined with both the
resumption of customer deliveries towards the end of FY20, and the
better than expected sales in the current year to date, means the
Group has not as yet needed to draw on this secondary facility.
The sharp reduction in operating profits experienced in the
second half resulted in a significant operating cash outflow for
the year. This was partially mitigated by the actions the Group had
taken to reduce discretionary spending as well as utilisation of
available Government support. In addition to the GBP6.0m in-year
benefit of the retail business rates holiday, the Group has
received GBP19.5m in respect of FY20 under the UK Coronavirus Job
Retention Scheme, and was also able to defer VAT, PAYE and Duty
payments totalling GBP28.7m into FY21. In consultation with our
landlords, GBP27.8m of rent payments were also deferred as at year
end. A working capital out flow is therefore to be expected in FY21
as stakeholders' various Covid-19 related payment deferral schemes
and agreements fall due. Combined with net financing cash inflows
as a result of the share placing, the Group ended the year with a
pre IFRS 16 net debt of GBP169.2m (FY19 GBP176.3m).
Dividend
Reflecting confidence in the Group's outlook at the time, the
FY20 interim dividend was declared at 3.7 pence per share.
Subsequently, however, it became clear that Covid-19 was evolving
from a Far East sourcing issue into a more significant threat to
the UK economy. A desire to strengthen the group's financial
resilience and liquidity position led the Group to cancel the
payment of the interim dividend and seek additional financing
facilities, including a 12-month, GBP70m facility secured in April
2020. As part of the terms of this facility, the Group has
undertaken not to pay dividends or conduct any acquisitions until
either six months after the repayment of the incremental facility,
or following the refinancing of all existing bank facilities.
Given the broader macroeconomic uncertainty, the desire to
increase financial resilience and the restrictions in place under
the banking facilities, the Directors do not propose a final
dividend (FY19: 7.5 pence).
We do recognise the value placed by shareholders upon regular
dividend payments. The Group will continue to review the potential
for a recommencement of dividends in the light of our trading
performance, business requirements and the uncertain economic
environment.
Risk and governance
Building on initiatives in FY19, the Group continues to
strengthen its approach to risk and governance. In FY20 a
particular focus was on developing comprehensive operational risk
registers via group-wide engagement sessions, as well as the
roll-out of our new in-house developed online risk management
platform. The new platform is expected to further embed risk
management into the day-to-day practice of all senior and middle
management colleagues. Specific risk-focused initiatives undertaken
during the financial year included a full externally assessed Cyber
review, completed in July 2019, and an upgrade to the Group's
Business Continuity procedures, completed in September 2019, both
of which have proved valuable in facing into the impacts of
Covid-19. Business Continuity and Resilience constitutes one of the
Group's Principal Risks and the Group has incorporated the
learnings and strategies from our response to the pandemic in 2020
into its procedures for responding to a potential second wave of
the Covid-19 virus or other significant disruption. The Group's
formal business continuity plans will be updated further in the
current year.
Looking forward
As indicated in our August trading update, the Group has
experienced strong trading since the lockdown period both online
and in our showrooms. Nevertheless, given the lingering effects of
the pandemic and wider economic uncertainty, we remain cautious on
the outlook for the remainder of 2020 and into 2021 and we remain
concerned by lower consumer confidence and a potentially slower
residential property market. Whilst a weak trading environment
would impact our short-term revenue and profits, the Group has
historically prospered in economic downturns and gained market
share.
The dichotomy between current trading and the potential future
macroeconomic environment makes giving meaningful guidance for our
revenue performance in FY21 and beyond exceptionally challenging;
and it will be our revenue performance that will primarily drive
our future profit outturn. To assist our stakeholders however, we
have prepared three scenarios for revenue performance. We believe
the scenarios can help give a feel for how the Group might perform
in very different trading environments. However, the choice of
revenue changes modelled and their impact on costs and profits
should be seen as illustrative and not as guidance given the number
of factors that are unforeseeable and the current early stage of
the current financial year.
Scenario Overview
IFRS 16 Basis Low Medium High
Revenues Rest of Year: Rest of Year: Rest of Year:
-30% -15% 0%
GBP959m GBP1,064m GBP1,169m
---------------- -------------- ----------------
Overall gross margin broadly flat at 58%
--------------------------------------------------
Gross Profit GBP556m GBP617m GBP678m
---------------- -------------- ----------------
Operating Costs Identified cost c. GBP400m Increases by
mitigation of <10% of change
up to GBP15m in revenues
---------------- -------------- ----------------
Interest & Depreciation c.GBP123m
--------------------------------------------------
Implied PBT GBP57m GBP94m GBP147m
---------------- -------------- ----------------
Revenues
In planning for FY21 we benchmark our performance relative to
the 52 weeks to December 2019, where we generated revenues of
GBP943.0m excluding Sofa Workshop. We take some comfort from a
materially higher opening order bank year-on-year, from which we
expect to realise an incremental c.GBP100m of revenues and early
trading over the first 12 weeks that has generated a further
c.GBP126m of incremental revenues. Trading in October 2020 onwards
may however be significantly weaker, with (i) the UK furlough
scheme potentially coming to an end which may affect employment
levels and consumer sentiment, and (ii) expected longer
manufacturing lead times for our products creating less of a call
to action for delivery ahead of Christmas, and (iii) the potential
impact of Brexit on sentiment. Offsetting that, we have some early
evidence that the DFS Group is gaining market share following the
recent tough environment and we believe we may see consumers
continuing to prioritise spending on their homes, which is
consistent with the average order value growth that we have seen
over the last twelve weeks of +7.6%. We therefore see a very wide
range of potential outcomes, with some of our internal modelling
scenarios hypothesising that the upholstery market could be weaker
than the 10% year-on-year market declines seen post the global
financial crisis. Likewise we also do see a potential scenario
where demand levels could even stay positive across the year.
Gross Profit
Our gross margins continue to remain stable or grow slightly in
the retail activities of our scale brands of DFS and Sofology.
Although we will face some pressure from adverse foreign exchange
rates we believe this can be offset through the commercial
proposition. As revenues rise or fall, the manufacturing
participation will flex slightly, which may generate slight
fluctuation in margin levels, however this variation is unlikely to
be significant relative to other assumptions.
Cost Base
We have taken appropriate action on operating costs, including
headcount and marketing budgets. Following the sale of Sofa
Workshop, we believe our base operating cost base is likely to be
c.GBP400m excluding Sofa Workshop. Retail business rates relief of
c.GBP19m will also be received in FY21 and is reflected within that
expected cost base. The cost base does carry some flexibility from
sales team commissions and last-mile delivery costs, which we
expect to move by a little less than 10% of any revenue change. We
do also retain the ability to make choices on our advertising spend
and other cost commitments, giving potential additional flexibility
of up to GBP15m.
Interest and Depreciation
We expect these to remain broadly similar to prior years, albeit
with depreciation of property right-of-use assets changing to
reflect the increased property estate and the potential for bank
facility refinancing fees to be incurred during the year.
Profit Before Tax Outturn
The three scenarios show a wide range of outcomes, but it is
notable that all scenarios result in profit before tax above recent
financial years, and the 'middle' and 'high' scenario are
materially above prior years. We would however be cautious around
extrapolating these profits into future years given that the rates
relief is not expected to continue and the risk that these revenue
levels will not recur.
Financial Resources and Cashflow
Following the recently completed equity placing and the GBP70m
temporary working capital facility secured in April, our available
cash resources at the year end were just over GBP160m. In line with
typical market practice, we expect to refinance the Group's
existing GBP250m senior revolving credit facility at least a year
ahead of its maturity in August 2022.
Although we do expect that we will need to make 'deferred'
rental and taxation payments of approximately GBP56.5m during FY21
and into FY22, our strong trading to date has reduced net bank
borrowings (excluding finance lease obligations) as at 21 September
2020 to GBP32.2m (equivalent to overall pre-IFRS 16 net debt of
less than GBP50.0m) and we believe we have the resilience to
respond to a range of economic scenarios whilst continuing to
invest in our most compelling growth initiatives.
Applying recent learnings from the pandemic, we also now expect
customer deliveries and hence revenue and cash generation to
continue throughout all but the most severe lockdown scenarios,
further increasing our resilience.
We have prioritised capital expenditure on our critical
development initiatives and up to ten showrooms opening during the
year, which have proven rapid paybacks, and we therefore currently
expect our capital expenditure in FY21 to be broadly in line with
prior years.
In conclusion
The past six months have presented exceptional challenges and we
do not anticipate the near-term environment will be any less
demanding. Notwithstanding that, we continue to believe the
business is well positioned strategically and has an appropriate
financial model and resources to deliver attractive shareholder
returns.
Mike S chmidt
C h ief Financial Officer
24 September 2020
(1) Refer to note 12 to the condensed consolidated financial
statements for definitions and reconciliations of alternative
performance measures.
Consolidated income statement
52 weeks to 28 June 48 weeks to 30 June
2020 2019
Underlying Non- Total Underlying Non- Total
underlying underlying
Note GBPm GBPm GBPm GBPm GBPm GBPm
=============== ==== ============== ================= ============== ============== ================ ==============
Gross sales 2 935.0 - 935.0 1,165.0 - 1,165.0
=============== ==== ============== ================= ============== ============== ================ ==============
Revenue 2 724.5 - 724.5 901.0 - 901.0
Cost of sales (307.4) (3.1) (310.5) (383.8) - (383.8)
=============== ==== ============== ================= ============== ============== ================ ==============
Gross profit 417.1 (3.1) 414.0 517.2 - 517.2
Selling and
distribution
costs (287.5) (2.1) (289.6) (392.8) - (392.8)
Administrative
expenses 3 (67.7) (0.2) (67.9) (59.3) (4.4) (63.7)
=============== ==== ============== ================= ============== ============== ================ ==============
Operating
profit before
depreciation
and
amortisation 61.9 (5.4) 56.5 65.1 (4.4) 60.7
Depreciation (81.9) - (81.9) (23.3) - (23.3)
Amortisation (6.8) - (6.8) (4.9) - (4.9)
Impairments (0.3) (11.2) (11.5) - - -
=============== ==== ============== ================= ============== ============== ================ ==============
Operating
(loss)/profit 3 (27.1) (16.6) (43.7) 36.9 (4.4) 32.5
Finance income 0.1 - 0.1 0.2 - 0.2
Finance
expenses 4 (37.6) - (37.6) (10.3) - (10.3)
=============== ==== ============== ================= ============== ============== ================ ==============
(Loss)/profit
before
tax (64.6) (16.6) (81.2) 26.8 (4.4) 22.4
Taxation 11.1 0.9 12.0 (5.1) 0.8 (4.3)
=============== ==== ============== ================= ============== ============== ================ ==============
(Loss)/profit
for the
year (53.5) (15.7) (69.2) 21.7 (3.6) 18.1
=============== ==== ============== ================= ============== ============== ================ ==============
Earnings per
share
Basic 5 (24.3) (7.1) (31.4) 10.3p (1.7)p 8.6p
=============== ==== ============== ================= ============== ============== ================ ==============
Diluted 5 (24.3) (7.1) (31.4) 10.1p (1.7)p 8.4p
=============== ==== ============== ================= ============== ============== ================ ==============
Consolidated statement of comprehensive income
52 weeks 48 weeks
to to
28 June 30 June
2020 2019
GBPm GBPm
=================================================== ======== ========
(Loss)/profit for the year (69.2) 18.1
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss:
Effective portion of changes in fair value
of cash flow hedges 3.9 9.7
Net change in fair value of cash flow hedges
reclassified to profit or loss
Recognised in cost of sales (8.3) (6.1)
Recognised in finance expense 0.7 (0.6)
Income tax on items that are/may be reclassified
subsequently to profit or loss 0.4 (0.5)
=================================================== ======== ========
Other comprehensive (expense)/income for the
period, net of income tax (3.3) 2.5
=================================================== ======== ========
Total comprehensive (expense)/income for the
period (72.5) 20.6
=================================================== ======== ========
Consolidated balance sheet
28 June 30 June
2020 2019
GBPm GBPm
========================================= ======= =======
Non-current assets
Property, plant and equipment 74.1 89.9
384.5 -
Intangible assets 532.5 539.0
Other financial assets 0.8 1.4
Deferred tax assets 24.0 8.7
========================================== ======= =======
1,015.9 639.0
========================================= ======= =======
Current assets
Inventories 58.9 54.8
Other financial assets 4.5 6.3
Trade and other receivables 22.2 32.8
Current tax assets 7.8 -
Cash and cash equivalents 62.3 29.8
========================================== ======= =======
155.7 123.7
========================================= ======= =======
Total assets 1,171.6 762.7
========================================== ======= =======
Current liabilities
Trade payables and other liabilities (216.0) (225.1)
Lease liabilities (88.6) -
Provisions (11.9) (5.0)
Other financial liabilities (0.1) -
Current tax liabilities - (0.8)
========================================== ======= =======
(316.6) (230.9)
========================================= ======= =======
Non-current liabilities
Interest bearing loans and borrowings (218.7) (194.0)
Lease liabilities (428.6) -
Provisions (3.9) (5.6)
Other financial liabilities (1.9) (0.7)
Other liabilities - (79.7)
========================================== ======= =======
-
(653.1) (280.0)
========================================= ======= =======
Total liabilities (969.7) (510.9)
========================================== ======= =======
Net assets 201.9 251.8
========================================== ======= =======
Equity attributable to equity holders
of the parent
Share capital 383.4 319.5
Share premium 40.4 40.4
Merger reserve 18.6 18.6
Treasury shares (0.7) (2.1)
Cash flow hedging reserve 3.3 7.0
Retained earnings (243.1) (131.6)
========================================== ======= =======
Total equity 201.9 251.8
========================================== ======= =======
Consolidated statement of changes in equity
Cash
Treasury flow
Share Share Merger shares hedging Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================= ======== ======== ======== ========== ======== ========= =======
Balance at 28 July
2018 319.5 40.4 18.6 (3.3) 4.0 (126.8) 252.4
Profit for the year - - - - - 18.1 18.1
Other comprehensive
income/(expense) - - - - 3.0 (0.5) 2.5
======================= ======== ======== ======== ========== ======== ========= =======
Total comprehensive
income/(expense)
for the period - - - - 3.0 17.6 20.6
Dividends - - - - - (23.8) (23.8)
Treasury shares issued - - - 1.2 - (1.2) -
Share based payments - - - - - 2.6 2.6
======================= ======== ======== ======== ========== ======== ========= =======
Balance at 30 June
2019 319.5 40.4 18.6 (2.1) 7.0 (131.6) 251.8
Adjustment on initial
application of
IFRS 16 (net of tax) - - - - - (26.4) (26.4)
======================= ======== ======== ======== ========== ======== ========= =======
Adjusted balance at
1 July 2019 319.5 40.4 18.6 (2.1) 7.0 (158.0) 225.4
Loss for the year - - - - - (69.2) (69.2)
Other comprehensive
income/(expense) - - - - (3.7) 0.4 (3.3)
======================= ======== ======== ======== ========== ======== ========= =======
Total comprehensive
income/(expense)
for the period - - - - (3.7) (68.8) (72.5)
Dividends - - - - - (15.9) (15.9)
Purchase of own shares - - - (1.1) - - (1.1)
Treasury shares issued - - - 2.5 - (1.2) 1.3
Shares issue 63.9 - - - - - 63.9
Settlement of share
based payments - - - - - (1.6) (1.6)
Share based payments - - - - - 2.4 2.4
======================= ======== ======== ======== ========== ======== ========= =======
Balance at 28 June
2020 383.4 40.4 18.6 (0.7) 3.3 (243.1) 201.9
======================= ======== ======== ======== ========== ======== ========= =======
Consolidated cash flow statement
52 weeks 48 weeks
to to
28 June 30 June
2020 2019
GBPm GBPm
======================================================= ======== ========
(Loss)/profit for the period (69.2) 18.1
Adjustments for:
Income tax expense (12.0) 4.3
Financial income (0.1) (0.2)
Financial expenses 37.6 10.3
Depreciation of property, plant and equipment 21.3 23.3
Depreciation of right of use assets 60.6 -
Amortisation of intangible assets 6.8 4.9
Impairment of assets 11.5 -
Gain on sale of property, plant and equipment (1.1) (0.8)
Settlement of share based payments (1.6) -
Share based payment expense 2.4 2.6
Increase in trade and other receivables (1.6) (1.6)
Increase in inventories (4.1) (0.4)
Increase/(decrease) in trade and other payables 4.7 (10.2)
Increase/(decrease) in provisions 6.6 (0.3)
======================================================= ======== ========
Net cash from operating activities before tax 61.8 50.0
Tax paid (6.1) (7.4)
======================================================= ======== ========
Net cash from operating activities 55.7 42.6
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 1.4 1.2
Interest received 0.1 0.2
Acquisition of property, plant and equipment (16.8) (17.5)
Acquisition of other intangible assets (6.6) (6.9)
======================================================= ======== ========
Net cash from investing activities (21.9) (23.0)
Cash flows from financing activities
Interest paid (9.0) (7.7)
Interest paid on lease liabilities (29.2) -
Payment of lease liabilities(1) (36.3) (3.5)
Drawdown/(repayment) of borrowings 25.0 (2.0)
Proceeds on issue of shares 63.9 -
Purchase of own shares (1.1) -
Proceeds from sale of own shares 1.3 -
Ordinary dividends paid (15.9) (23.8)
======================================================= ======== ========
Net cash from financing activities (1.3) (37.0)
Net decrease in cash and cash equivalents 32.5 (17.4)
Cash and cash equivalents at beginning of period 29.8 47.2
======================================================= ======== ========
Cash and cash equivalents at end of period 62.3 29.8
======================================================= ======== ========
(1) Prior period interest and capital repayments on lease
liabilities relate solely to finance leases recognised in
accordance with IAS 17.
1 Basis of preparation
The condensed consolidated financial statements have been
prepared and approved by the directors in accordance with
International Financial Reporting Standards as adopted by the EU
("Adopted IFRS"). The financial statements are prepared on the
historical cost basis except for certain financial instruments and
share based payment charges which are measured at their fair value.
The financial statements are for the 52 weeks to 28 June 2020 (last
year 48 weeks to 30 June 2019).
The financial information set out above does not constitute the
company's statutory accounts for the periods ended 28 June 2020 or
30 June 2019 but is derived from those accounts. Statutory accounts
for the period ended 30 June 2019 have been delivered to the
registrar of companies, and those for the period ended 28 June 2020
will be delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
G oing concern
The Group has a GBP250.0m revolving credit facility in place
until August 2022, and in April 2020, to increase resilience to the
short-term effects of the Covid-19 pandemic, secured an additional
twelve month facility of GBP70.0m from the same group of lending
banks. In the same month the Group also secured GBP63.9m of equity
funding from a placing of ordinary shares. During the period from
the inception of the additional GBP70.0m facility through to June
2021, existing covenants on the revolving credit facility (of 3.0x
net Debt / EBITDA and 1.5x Fixed Charge Cover) have been replaced
by new minimum quarterly EBITDA and net debt covenants. At the date
of approval of these financial statements, none of the GBP70.0m
facility had been utilised and a further GBP170.0m of the revolving
credit facility remained undrawn, giving the Group a total of
GBP240.0m available facility in addition to cash in hand, at bank
(GBP47.8m as at 21 September 2020).
The Directors have prepared cash flow forecasts for the Group
covering a period of 18 months to March 2022. These forecasts
indicate that the Group will be in compliance with the minimum
quarterly EBITDA and net debt covenants applicable for that period,
which are assessed monthly, as well as the original covenants which
become effective once more from June 2021. These forecasts include
a number of assumptions in relation to: level of customer order
intake; gross profit margins; and achievement of cost savings in
line with the Group's strategic plans.
The Directors have also prepared severe but plausible downside
sensitivity scenarios which cover the same period as the base case.
These downside scenarios include specific consideration of a range
of impacts that could arise from the continued coronavirus pandemic
and the UK's exit from the EU. These scenarios included:
significantly reduced customer spending; a second lockdown during
FY21 leading to reduced order intake and customer deliveries;
disruptions to manufacturing and supply chain causing delays in
receiving stock; and possible changes in the regulatory environment
surrounding product warranty insurance. As part of this analysis,
mitigating actions within the Group's control should these severe
but plausible scenarios occur have also been considered. These
mitigating actions included reducing discretionary advertising
expenditure, a pause on expansionary capital investment and other
measures to protect cash balances. These forecast cash flows,
considering the ability and intention of the Directors to implement
mitigating actions should they need to, indicate that there remains
sufficient headroom in the forecast period for the Group and
Company to operate within the committed facilities and to comply
with all relevant banking covenants during the forecast period.
The Directors have considered all of the factors noted above,
including the inherent uncertainty in forecasting the impact of the
coronavirus pandemic, and are confident that the Group and Company
have adequate resources to continue to meet all liabilities as and
when they fall due for the foreseeable future and at least for the
period of twelve months from the date of these financial
statements. Accordingly, the financial statements are prepared on a
going concern basis.
New accounting standards
In the period ended 28 June 2020, the Group has adopted IFRS 16.
Further details of the impact of the adoption of this standard are
given below. There are no other new standards, amendments to
existing standards or interpretations that are effective for the
first time in the period ended 28 June 2020 that have a material
impact on the Group's results.
A number of new or revised standards and interpretations have
been issued which are not yet effective or endorsed by the EU, and
which have not therefore been applied by the Group in these
financial statements.
IFRS 16 Leases
IFRS 16 Leases replaces existing lease guidance under IAS 17
Leases and introduces a fundamental change to the recognition,
measurement, presentation and disclosure of leases for lessees.
IFRS 16 eliminates the current dual accounting model for lessees
under IAS 17 (operating leases and finance leases) and requires
lessees to account for most leases under a single, on-balance sheet
model. Accordingly, figures presented for the 48 weeks ended 30
June 2019 reflect the requirements of IAS 17, while those presented
for the 52 weeks ended 28 June 2020 are in accordance with IFRS
16.
Definition of a lease
At the inception of a contract, the Group assesses whether a
contract is, or contains, a lease. A contract is, or contains, a
lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for
consideration.
Transition method and practical expedients used
The Group has opted to apply the modified retrospective approach
to transition; under this approach the Group is not required to
restate prior year figures.
Under the modified retrospective approach, IFRS 16 provides for
a number of optional practical expedients. On transition, the Group
has applied the following practical expedients:
- application of IFRS 16 to contracts that were previously
identified as leases applying IAS 17 Leases and IFRIC 4 Determining
whether an arrangement contains a lease;
- use of a single discount rate to a portfolio of leases with
reasonably similar characteristics;
- accounting for short term (less than 12 months as at 30 June
2019) leases and low value leases on transition as operating
leases;
- exclusion of initial direct costs from the measurement of the
right of use asset on transition;
- reliance on IAS 37 onerous lease assessment to determine
whether leases are onerous on transition;
- use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease; and
- Covid-19-related rent concessions amendment - deferrals of
lease payments as a direct result of Covid-19 have been assessed as
non-modifying.
The published Covid-19 related rent concessions amendment has
been applied to all relevant rent concessions during the financial
year. The amount recognised in the income statement as a
consequence of applying the practical expedient to changes in lease
payments arising from rent concessions was GBP0.3m, all rent
concessions relate to deferrals of lease payments. The Group has
elected to adopt the amendment early, although it has yet to be
endorsed by the EU.
Lease liability - initial recognition
At 1 July 2019 the Group has recognised a lease liability and a
right of use asset. On transition, the lease liabilities are
recognised at the present value of future lease payments discounted
at the incremental borrowing rate applicable to the lease. On
transition, the Group's weighted average incremental borrowing rate
was 5.6%.
Lease payments included in the measurement of the lease
liability comprise the following:
- fixed payments, including in-substance fixed payments; and
- amounts expected to be payable under a residual value guarantee.
Lease liability - subsequent measurement
The lease liability is subsequently increased by the interest
cost arising from the unwind of the discount, and decreased by the
cash lease payments made.
Lease liability - remeasurement
The lease liability is remeasured if:
- there is a change in either the lease term or the assessment
of an option to purchase the underlying asset. In these
circumstances, the lease liability is remeasured using a revised
discount rate; or
- there is a change in the amounts expected to be payable under
a residual guarantee or if there is a change in future lease
payments resulting from a change in an index or a rate used to
determine those payments. In these circumstances, the discount rate
remains unchanged, unless the change in lease payments results from
a change in floating interest rates.
In both scenarios, the carrying value of the right of use asset
will be adjusted by the amount of the remeasurement of the lease
liability, to the extent that the right of use asset will be
reduced to nil, with any further adjustment required from the
remeasurement being recorded in profit or loss.
Right of use asset - initial recognition
IFRS 16 defines a right of use asset as an asset which
represents a lessee's right to use an underlying asset for the
lease term.
At transition, the right of use assets are measured at
either:
- "Mod A": the carrying value as if IFRS 16 had been applied
since the lease commencement date, discounted by the Group's
incremental borrowing rate as at 1 July 2019. This methodology has
been applied where the historical information has been available to
facilitate this.
or
- "Mod B": an amount equal to the lease liability, adjusted by
the amount of any prepaid or accrued lease payments recognised in
the statement of financial position immediately before the date of
initial application. This methodology has been applied to the
majority of the Group's leases.
Right of use asset - subsequent measurement
Right of use assets are subsequently measured at initial
carrying value:
- less any accumulated depreciation and any accumulated impairment losses; and
- adjusted for any remeasurement of the lease liability
The right of use asset is subsequently depreciated on a straight
line basis from the commencement date to the end of the lease term.
In addition, the right of use asset is periodically reduced by
impairment losses, if any, and adjusted for certain remeasurements
of the lease liability.
Impact on the Group financial statements
The impact of the IFRS 16 transition adjustments on the 30 June
2019 balance sheet are summarised below:
30 June IFRS 16
2019 adjustment 1 July 2019
IAS 17 IFRS 16
Note GBPm GBPm GBPm
Non-current assets
Property, plant and equipment i 89.9 (10.5) 79.4
Right of use assets ii - 445.0 445.0
Intangible assets 539.0 - 539.0
Other financial assets 1.4 - 1.4
Deferred tax assets iii 8.7 5.4 14.1
======================================== ===== ======= =========== ===========
639.0 439.9 1,078.9
Current assets
Inventories 54.8 - 54.8
Other financial assets 6.3 - 6.3
Trade and other receivables iv 32.8 (12.3) 20.5
Cash and cash equivalents 29.8 - 29.8
=============================================== ======= =========== ===========
123.7 (12.3) 111.4
============================================== ======= =========== ===========
Total assets 762.7 427.6 1,190.3
=============================================== ======= =========== ===========
Current liabilities
Trade payables and other liabilities v (225.1) 13.5 (211.6)
Lease liabilities vi - (88.8) (88.8)
Provisions (5.0) - (5.0)
Other financial liabilities - - -
Current tax liabilities (0.8) - (0.8)
=============================================== ======= =========== ===========
(230.9) (75.3) (306.2)
============================================== ======= =========== ===========
Non-current liabilities
Interest bearing loans and
borrowings (194.0) - (194.0)
Lease liabilities vi - (459.8) (459.8)
Provisions vii (5.6) 1.4 (4.2)
Other financial liabilities (0.7) - (0.7)
Other liabilities v (79.7) 79.7 -
======================================== ===== ======= =========== ===========
(280.0) (378.7) (658.7)
============================================== ======= =========== ===========
Total liabilities (510.9) (454.0) (964.9)
=============================================== ======= =========== ===========
Net assets 251.8 (26.4) 225.4
=============================================== ======= =========== ===========
Equity attributable to equity
holders of the parent
Share capital 319.5 - 319.5
Share premium 40.4 - 40.4
Merger reserve 18.6 - 18.6
Treasury shares (2.1) - (2.1)
Cash flow hedging reserve 7.0 - 7.0
Retained earnings (131.6) (26.4) (158.0)
=============================================== ======= =========== ===========
Total equity 251.8 (26.4) 225.4
=============================================== ======= =========== ===========
Notes
i. Reclassification of net book value of assets classified as finance leases under IAS 17.
ii. Recognition of right of use assets on transition (including reclassification in 1. above).
iii. Movement in deferred tax arising from IFRS 16 transition adjustments.
iv. Elimination of IAS 17 lease prepayment balances.
v. Elimination of IAS 17 lease incentive balances (capital
contributions, rent-free periods and fixed rent reviews), adjusted
for in right of use asset (or opening retained earnings where Mod A
has been applied).
vi. Recognition of lease liabilities arising under IFRS 16 and
reclassification of finance lease liabilities previously recognised
under IAS 17.
vii. Elimination of IAS 37 onerous lease provisions, adjusted for in value of right of use asset.
The following table reconciles the undiscounted commitments
under non-cancellable operating leases as at 30 June 2019, as
presented in the Group's Annual Report for the 48 weeks to 30 June
2019, to the amount of lease liabilities recognised on transition
to IFRS 16 at 1 July 2019:
1 July 2019
GBPm
Commitments under non-cancellable operating leases
as at 30 June 2019 695.1
Effect of discounting (156.0)
Leases previously accounted for as finance leases 12.1
Other (2.6)
=================================================== ===========
Lease liabilities recognised as at 1 July 2019 548.6
=================================================== ===========
The impact of IFRS 16 to the income statement for the 52 week
period to 28 June 2020 is summarised below:
52 weeks to 28 June 2020
Presented Impact of Presented
under under
IAS 17 IFRS 16 IFRS 16
Note GBPm GBPm GBPm
Gross sales 935.0 - 935.0
====================================== ============== ============== ==============
Revenue 724.5 - 724.5
Cost of sales (310.5) - (310.5)
====================================== ============== ============== ==============
Gross profit 414.0 - 414.0
Selling and distribution costs (369.0) 79.4 (289.6)
Administrative expenses (68.3) 0.4 (67.9)
====================================== ============== ============== ==============
Operating (loss)/profit before
depreciation,
amortisation and impairment i (23.3) 79.8 56.5
Depreciation ii (25.9) (56.0) (81.9)
Amortisation (6.8) - (6.8)
Impairments iii (7.1) (4.4) (11.5)
=============================== ===== ============== ============== ==============
Operating loss (63.1) 19.4 (43.7)
Finance income 0.1 - 0.1
Finance expenses iv (11.9) (25.7) (37.6)
=============================== ===== ============== ============== ==============
Loss before tax (74.9) (6.3) (81.2)
Taxation v 11.9 0.1 12.0
=============================== ===== ============== ============== ==============
Loss for the period (63.0) (6.2) (69.2)
====================================== ============== ============== ==============
Notes
i. Reversal of operating lease rental charges recognised under IAS 17.
ii. Depreciation charge on right of use assets recognised under IFRS 16.
iii. Right of use asset impairment recognised under IFRS 16
iv. Unwind of discount on IFRS 16 lease liabilities.
v. Tax effect on net income statement differences.
The impact of IFRS 16 to the balance sheet as at 28 June 2020 is
summarised below:
28 June IFRS 16 28 June
2020 adjustment 2020
IAS 17 IFRS 16
Notes GBPm GBPm GBPm
Non-current assets
Property, plant and equipment i 85.0 (10.9) 74.1
Right of use assets ii - 384.5 384.5
Intangible assets 532.5 - 532.5
Other financial assets 0.8 - 0.8
Deferred tax assets iii 18.5 5.5 24.0
======================================== ====== ======= =========== =======
636.8 379.1 1,015.9
Current assets
Inventories 58.9 - 58.9
Other financial assets 4.5 - 4.5
Trade and other receivables iv 23.8 (1.6) 22.2
Current tax assets 7.8 - 7.8
Cash and cash equivalents 62.3 - 62.3
================================================ ======= =========== =======
157.3 (1.6) 155.7
=============================================== ======= =========== =======
Total assets 794.1 377.5 1,171.6
================================================ ======= =========== =======
Current liabilities
Trade payables and other liabilities v (243.2) 27.2 (216.0)
Lease liabilities vi - (88.6) (88.6)
Provisions (13.2) 1.3 (11.9)
Other financial liabilities (0.1) - (0.1)
Current tax liabilities - - -
======================================== ====== ======= =========== =======
(256.5) (60.1) (316.6)
=============================================== ======= =========== =======
Non-current liabilities
Interest bearing loans and
borrowings (218.7) - (218.7)
Lease liabilities vi - (428.6) (428.6)
Provisions vii (8.8) 4.9 (3.9)
Other financial liabilities (1.9) - (1.9)
Other liabilities (73.7) 73.7 -
================================================ ======= =========== =======
(303.1) (350.0) (653.1)
=============================================== ======= =========== =======
Total liabilities (559.6) (410.1) (969.7)
================================================ ======= =========== =======
Net assets 234.5 (32.6) 201.9
================================================ ======= =========== =======
Equity attributable to equity
holders of the parent
Share capital 383.4 - 383.4
Share premium 40.4 - 40.4
Merger reserve 18.6 - 18.6
Treasury shares (0.7) - (0.7)
Cash flow hedging reserve 3.3 - 3.3
Retained earnings (210.5) (32.6) (243.1)
================================================ ======= =========== =======
Total equity 234.5 (32.6) 201.9
================================================ ======= =========== =======
Notes
i. Reclassification of net book value of assets classified as finance leases under IAS 17.
ii. Recognition of right of use assets on transition (including reclassification in 1. above).
iii. Movement in deferred tax arising from IFRS 16 transition adjustments.
iv. Elimination of IAS 17 lease prepayment balances.
v. Elimination of IAS 17 lease incentive balances (capital
contributions, rent-free periods and fixed rent reviews), adjusted
for in right of use asset (or opening retained earnings where Mod A
has been applied).
vi. Recognition of lease liabilities arising under IFRS 16 and
reclassification of finance lease liabilities previously recognised
under IAS 17.
vii. Elimination of IAS 37 onerous lease provisions, adjusted for in value of right of use asset.
2 Segmental Analysis
The Group's operating segments under IFRS 8 have been determined
based on management accounts reports reviewed by the Executive
Board. Segment performance is assessed based upon brand
contribution. Brand contribution is defined as underlying EBITDA
(being earnings before interest and tax excluding depreciation
charges and non-underlying items) excluding property costs and
central administration costs.
The Group reviews and manages the performance of its operations
on a retail brand basis, and the identified reportable segments and
the nature of their business activities are as follows:
DFS: the manufacture and retailing of upholstered furniture and
related products through DFS branded stores and websites.
Sofology: the retailing of upholstered furniture and related
products through Sofology branded stores and website.
Other segment activities comprise the retailing of upholstered
and other furniture and related products through other brands,
including Dwell and Sofa Workshop.
Segment revenue and profit
External sales Internal sales Total gross sales
52 weeks 48 weeks 52 weeks 48 weeks 52 weeks 48 weeks
to to to to to to
28 June 30 June 28 June 30 June 28 June 30 June
2020 2019 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm
=============== ======== ======== ======== ======== ========= ========
DFS 697.1 850.2 - - 697.1 850.2
Sofology 181.7 237.7 - - 181.7 237.7
Other segments 56.2 77.1 0.1 0.5 56.3 77.6
Eliminations - - (0.1) (0.5) (0.1) (0.5)
================ ======== ======== ======== ======== ========= ========
Gross sales 935.0 1,165.0 - - 935.0 1,165.0
================ ======== ======== ======== ======== ========= ========
52 weeks to 48 weeks to
28 June 2020 30 June 2019
GBPm GBPm
======================================== ============= =============
Total segments gross sales 935.0 1,165.0
Less: value added and other sales taxes (146.4) (183.5)
Less: costs of interest free credit and
aftercare products (64.1) (80.5)
======================================== ============= =============
Revenue 724.5 901.0
======================================== ============= =============
Of which:
Furniture sales 676.0 839.5
Sales of aftercare products 48.5 61.5
======================================== ============= =============
Revenue 724.5 901.0
======================================== ============= =============
52 weeks to 28 June 2020
DFS Sofology Other TOTAL
GBPm GBPm GBPm GBPm
============================= ======= ======== ====== =======
Revenue 535.2 143.7 45.6 724.5
Cost of sales (212.6) (72.3) (22.5) (307.4)
============================= ======= ======== ====== =======
Gross profit 322.6 71.4 23.1 417.1
Selling & distribution costs
(excluding property costs) (191.6) (47.8) (20.9) (260.3)
Brand contribution (segment
profit) 131.0 23.6 2.2 156.8
Property costs (27.2)
Underlying administrative
expenses (67.7)
Underlying EBITDA 61.9
============================= ======= ======== ====== =======
48 weeks to 30 June 2019
DFS Sofology Other TOTAL
GBPm GBPm GBPm GBPm
============================= ======= ======== ====== =======
Revenue 650.6 187.7 62.7 901.0
Cost of sales (262.5) (92.3) (29.0) (383.8)
============================= ======= ======== ====== =======
Gross profit 388.1 95.4 33.7 517.2
Selling & distribution costs
(excluding property costs) (217.1) (52.7) (23.9) (293.7)
Brand contribution (segment
profit) 171.0 42.7 9.8 223.5
Property costs (99.1)
Underlying administrative
expenses (59.3)
Underlying EBITDA 65.1
============================= ======= ======== ====== =======
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
============================ ============= =============
Underlying EBITDA 61.9 65.1
Non-underlying items (16.6) (4.4)
Depreciation & amortisation (88.7) (28.2)
Impairments (0.3) -
Operating profit (43.7) 32.5
Finance income 0.1 0.2
Finance expenses (37.6) (10.3)
Profit before tax (81.2) 22.4
============================ ============= =============
A geographical analysis of revenue is presented below:
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
=============== ============= =============
United Kingdom 701.7 872.0
Europe 22.8 29.0
=============== ============= =============
Total revenue 724.5 901.0
=============== ============= =============
Segment assets and liabilities
Assets Liabilities
28 June 30 June 28 June 30 June
2020 2019 20120 2019
GBPm GBPm GBPm GBPm
DFS 1,009.8 645.4 (594.3) (236.6)
Sofology 145.5 91.0 (143.9) (66.1)
Other segments 23.5 34.6 (55.1) (37.4)
=============================== ======= ======= ======= =======
Total segments 1,178.8 771.0 (793.3) (340.1)
Loans and financing - - (218.7) (194.0)
Financial assets/(liabilities) 5.3 7.7 (2.0) (0.7)
Current tax 7.8 - - (0.8)
Deferred tax 24.0 8.7 - -
Eliminations (44.3) (24.7) 44.3 24.7
=============================== ======= ======= ======= =======
Total Group 1,171.6 762.7 (969.7) (510.9)
=============================== ======= ======= ======= =======
Segment assets comprises tangible and intangible non-current
assets including goodwill and brand names, inventories, trade and
other receivables, cash and cash equivalents. Segment liabilities
comprises trade payables and current and non-current other
liabilities and provisions.
Additions to non-current Depreciation and
assets amortisation
52 weeks 48 weeks 52 weeks 48 weeks
to to to to
28 June 30 June 28 June 30 June
2020 2019 2020 2019
GBPm GBPm GBPm GBPm
DFS 22.2 24.5 66.2(1) 19.5
Sofology 7.6 3.8 18.8(2) 5.9
Other segments 1.3 1.1 15.2(3) 2.8
=============== ============ ============ ======== ========
Total Group 31.1 29.4 100.2 28.2
=============== ============ ============ ======== ========
Additions to non-current assets represents includes both
tangible and intangible non-current assets but excludes amounts
arising on transition to IFRS 16.
(1) DFS: includes impairment charges of GBP1.2m (2019:
GBPnil)
(2) Sofology: includes impairment charges of GBP0.3m (2019:
GBPnil)
(3) Other segments: includes impairment charges of GBP10.0m
(2019: GBPnil)
3 Operating profit
Group operating profit is stated after charging/(crediting):
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
============================================= ============= =============
Depreciation on tangible assets (including
depreciation on right of use assets) 81.9 23.3
Amortisation of intangible assets 6.8 4.9
Impairment of tangible assets 5.2 -
Impairments of intangible assets 1.0 -
Impairment of goodwill 5.3 -
Net gain on disposal of property, plant and
equipment (1.1) (0.8)
Cost of inventories recognised as an expense 317.1 393.8
Write down of inventories to net realisable
value 7.2 0.2
Other cost of sales variances (13.8) (10.2)
Operating lease rentals 1.9 73.6
============================================= ============= =============
During the period the Group received Government support through
the Coronavirus Job Retention Scheme totalling GBP19.5m (2019:
GBPnil).
Non-underlying items 52 weeks 48 weeks
to to
28 June 30 June 2019
2020
GBPm GBPm
=============================================== ======== =============
Acquisition related professional fees - 0.2
Integration costs - 3.3
Restructuring costs 2.3 0.9
Impairment of goodwill and brand names 6.3 -
Impairment of tangible and right of use assets 4.9 -
Write down of inventories on restructuring 3.1 -
=============================================== ======== =============
16.6 4.4
=============================================== ======== =============
Non-underlying costs in the current year arose in connection
with the restructure of the Dwell brand and the sale of Sofa
Workshop following the end of the financial year. The goodwill and
intangible brand name relating to Sofa Workshop was fully impaired,
together with right of use and other tangible assets relating to
stores being closed. In addition, related inventories impacted by
the restructure were written down to a reduced net realisable
value. Other restructuring costs included redundancy costs and
operational costs associated with exiting closed locations.
In the prior period acquisition related fees, additional
consideration and integration costs arose on the Group's
acquisition of Sofology Limited. Restructuring costs related to
exceptional restructuring activity within the DFS brand and Group
support centre, to align with the revised ways of working following
the Sofology Limited acquisition.
4 Finance expense
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
============================================ ============= =============
Interest payable on senior revolving credit
facility (7.6) (6.8)
Bank fees (0.5) (0.2)
Fair value lease adjustment unwind - (2.7)
Unwind of discount on provisions - (0.1)
Interest on lease liabilities (29.2) (0.5)
Other interest (0.3) -
Total finance expense (37.6) (10.3)
============================================ ============= =============
5 Earnings per share
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
Pence Pence
================================================ ============= =============
Basic earnings per share (31.4) 8.6
Diluted earnings per share (31.4) 8.4
================================================ ============= =============
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
================================================ ============= =============
(Loss)/profit attributable to equity holders
of the parent company (69.2) 18.1
================================================ ============= =============
28 June 2020 30 June 2019
GBPm GBPm
================================================ ============= =============
Weighted average number of shares for basic
earnings per share 220,289,976 212,008,955
Dilutive effect of employee share based payment
awards - 3,144,296
================================================ ============= =============
Weighted average number of shares for diluted
earnings per share 220,289,976 215,153,251
================================================ ============= =============
Underlying earnings per share
Underlying basic earnings per share and underlying diluted
earnings per share are calculated by dividing the profit for the
period attributable to ordinary equity holders of the parent
company, as adjusted to exclude the effect of non-underlying items,
by the same weighted average numbers of ordinary shares above used
for basic and diluted earnings per share respectively.
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
=================================================== ============= =============
(Loss)/profit for the year attributable to
equity holders of the parent company (69.2) 18.1
Non-underlying loss after tax 15.7 3.6
=================================================== ============= =============
Underlying (loss)/profit for the year attributable
to equity holders of the parent (53.5) 21.7
=================================================== ============= =============
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
Pence Pence
=================================================== ============= =============
Underlying basic earnings per share (24.3) 10.3
Underlying diluted earnings per share (24.3) 10.1
=================================================== ============= =============
6 Dividends
52 weeks 48 weeks
to to
28 June 2020 30 June 2019
GBPm GBPm
=================================== ==== ==== ============= =============
Final ordinary dividend for FY18 7.5p paid - 15.9
Interim ordinary dividend for FY19 3.7p paid - 7.9
Final ordinary dividend for FY19 7.5p paid 15.9 -
15.9 23.8
=================================== ==== ==== ============= =============
The directors do not recommend a final dividend in respect of
the financial period ended 28 June 2020.
7 Financial instruments
All derivatives are categorised as Level 2 under the
requirements of IFRS 7 as they are valued using techniques based
significantly on observed market data.
The directors consider that the fair values of each category of
the Group's financial instruments are the same as their carrying
values in the Group's balance sheet.
8 Capital expenditure
For the 52 weeks to 28 June 2020, additions of property, plant
and equipment (including those acquired under finance leases)
totalled GBP24.5m (2019: GBP22.5m). Additions of intangible assets
(computer software) totalled GBP6.6m (2019: GBP6.9m).
At 28 June 2020 the Group had contracted capital commitments of
GBP1.7m (2019: GBP5.4m) for which no provision has been made in the
financial statements.
9 Net debt
30 June IFRS 16 Other non-cash 28 June
2019 transition Cash flow changes 2020
GBPm GBPm GBPm GBPm GBPm
========================== ========== =========== ================= ============== ==========
Cash in hand, at
bank 29.8 - 32.5 - 62.3
========================== ========== =========== ================= ============== ==========
Cash and cash equivalents 29.8 - 32.5 - 62.3
Senior revolving
credit facility (194.0) - (25.0) 0.3 (218.7)
Finance lease liabilities (12.1) (536.6) 36.3 (4.8) (517.2)
========================== ========== =========== ================= ============== ==========
Total net debt (176.3) (536.6) 43.8 (4.5) (673.6)
========================== ========== =========== ================= ============== ==========
30 June Other non-cash 28 June
2019 Cash flow changes 2020
GBPm GBPm GBPm GBPm
================================= ========== ================= ============== ==========
Cash in hand, at bank 47.2 (17.4) - 29.8
================================= ========== ================= ============== ==========
Cash and cash equivalents 47.2 (17.4) - 29.8
Senior revolving credit facility (195.7) 2.0 (0.3) (194.0)
Finance lease liabilities (10.5) 3.5 (5.1) (12.1)
================================= ========== ================= ============== ==========
Total net debt (159.0) (11.9) (5.4) (176.3)
================================= ========== ================= ============== ==========
Non-cash changes include the addition of new finance leases
within the period of GBP7.7m (2019: GBP5.1m) and the amortisation
of capitalised debt issue costs of (GBP0.3m) (2019: GBP0.3m).
10 Annual General Meeting
The Annual General Meeting will be held on 13 November 2020 at 1
Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster,
DN6 7NA. The Annual Report and Accounts and Notice of Meeting will
be sent to shareholders and copies will be available from the
Company's registered office: 1 Rockingham Way, Redhouse
Interchange, Adwick-le-Street, Doncaster, DN6 7NA and on the
Company's website at www.dfscorporate.co.uk .
11 Subsequent events
On 26 August 2020, the Group agreed the same of the entire
issued share capital of The Sofa Workshop Limited for cash
consideration of GBP0.3m. This sale was subject to the receipt of
regulatory approval from the FCA which was received on 1 September
2020 and the transaction formally completed on 18 September
2020.
12 Alternative Performance Measures
In reporting the Group's financial performance, the Directors
make use of a number of alternative performance measures (APMs) in
addition to those defined or specified under EU-adopted
International Financial Reporting Standards (IFRS).
The Directors consider that these APMs provide useful additional
information to support understanding of underlying trends and
business performance. In particular, APMs enhance the comparability
of information between reporting periods by adjusting for
non-underlying items. APMs are therefore used by the Group's
Directors and management for internal performance analysis,
planning and incentive setting purposes in addition to external
communication of the Group's financial results.
In order to facilitate understanding of the APMs used by the
Group, and their relationship to reported IFRS measures,
definitions and numerical reconciliations are set out below.
Definitions of APMs may vary from business to business and
accordingly the Group's APMs may not be directly comparable to
similar APMs reported by other entities.
Notes to FY20
The Group changed its accounting reference date to 30 June and
accordingly the statutory audited results for FY19 were the 48
weeks ended 30 June 2019. To enable meaningful comparatives for
reported key performance indicators, unaudited pro-forma figures
for the 52 weeks ended 30 June 2019 have also been presented. These
pro-forma figures are calculated by adding unaudited results per
the Group management accounts for the 4 weeks to 28 July 2018 to
the audited statutory results for the 48 weeks to 30 June 2019.
APM Definition Rationale
====================== ================================ ==================================
Like-for-like revenue Revenue from all online Provides insight into
and telephone channels year on year changes
and those retail showrooms in the underlying trading
which have been open environment by excluding
for at least one full distortions from new
financial year and not showroom openings.
identified as impacted
by new showroom openings
in the current or comparative
period.
====================== ================================ ==================================
LTM FY19 Last twelve months/52 A twelve month period
weeks ended 30 June 2019 is required to enable
(unaudited, pro-forma comparison to reported
period). results for previous
periods. The seasonal
nature of the Group's
activity means that many
KPIs are only meaningful
when assessed on a full
year basis.
====================== ================================ ==================================
Gross sales Amounts payable by external Key measure of overall
customers for goods and sales performance which
services supplied by unlike IFRS revenue is
the Group, including not affected by the extent
aftercare services (for to which customers take
which the Group acts up the Group's interest
as an agent), delivery free credit offering.
charges and value added
and other sales taxes
====================== ================================ ==================================
Brand contribution Gross profit less selling Measure of brand-controllable
and distribution costs, profit as it excludes
excluding property and shared Group costs.
administration costs.
====================== ================================ ==================================
EBITDA Earnings before interest, A commonly used simple
taxation, depreciation cash profit measure.
and amortisation
====================== ================================ ==================================
Non-underlying Certain material, unusual Clear and separate identification
items or non-recurring items of such items facilitates
which the directors believe understanding of underlying
are not indicative of trading performance.
the Group's underlying
performance
====================== ================================ ==================================
Underlying EBITDA Earnings before interest, Profit measure reflecting
taxation, depreciation underlying trading performance.
and amortisation, as
adjusted for non-underlying
items
====================== ================================ ==================================
Underlying profit Profit before tax adjusted Profit measure widely
before tax and for non-underlying items used by investors and
brand amortisation and amortisation associated analysts.
with the acquired brands
of Sofology, Dwell and
Sofa Workshop
====================== ================================ ==================================
Underlying earnings Post-tax earnings per Exclusion of non-underlying
per share share as adjusted for items facilitates year
non-underlying items. on year comparisons of
the key investor measure
of earnings per share.
====================== ================================ ==================================
Free cash flow Sum of Underlying EBITDA, Measure of the cash flow
less gross capital expenditure generated by the Group
and changes in working beyond that required
capital to invest in its business
activities.
====================== ================================ ==================================
Leverage (or gearing) The ratio of period end Key measure for banking
net debt to underlying facilities which indicates
EBITDA for the previous the relative level of
twelve months. borrowings to profit.
====================== ================================ ==================================
Return on capital Post-tax operating profit Represents the post-tax
employed (ROCE) before non-underlying return the Group achieves
items plus operating on the investment it
lease charges, expressed has made in its business.
as a percentage of the
sum of: property, plant
& equipment, computer
software, working capital
and 8x operating lease
charges.
====================== ================================ ==================================
Key performance indicators: Reconciliations to IFRS measures
EBITDA FY20 LTM FY19 FY19
GBPm GBPm GBPm
======================== ====== ========= ====
Operating (loss)/profit (43.7) 54.3 32.5
Depreciation 81.9 25.8 23.3
Amortisation 6.8 5.0 4.9
Impairments 11.5 - -
EBITDA 56.5 85.1 60.7
========================= ====== ========= ====
Underlying EBITDA FY20 LTM FY19 FY19
GBPm GBPm GBPm
=============================== ==== ======== ====
EBITDA 56.5 85.1 60.7
Non-underlying operating items 5.4 5.1 4.4
Underlying EBITDA 61.9 90.2 65.1
================================ ==== ======== ====
EBITDA (Pre-IFRS 16) FY20 LTM FY19 FY19
GBPm GBPm GBPm
================================== ====== ========= ====
Operating (loss)/profit (43.7) 54.3 60.7
Impact of IFRS 16 19.4 - -
=================================== ====== ========= ====
Operating (loss)/profit (Pre-IFRS
16) (63.1) 54.3 32.5
Depreciation (Pre-IFRS 16) 25.9 25.8 23.3
Amortisation (Pre-IFRS 16) 6.8 5.0 4.9
Impairments (Pre-IFRS 16) 7.1 - -
EBITDA (Pre-IFRS 16) (23.3) 85.1 60.7
=================================== ====== ========= ====
Underlying EBITDA (Pre-IFRS 16) FY20 LTM FY19 FY19
GBPm GBPm GBPm
================================= ======= ========= =====
EBITDA (23.3) 85.1 60.7
Non-underlying operating items 9.5 5.1 4.4
Underlying EBITDA (13.8) 90.2 65.1
================================== ======= ========= =====
Free cash flow FY20 LTM FY19
GBPm GBPm
==================================== ====== =========
Underlying EBITDA (pre-IFRS
16) (13.8) 90.2
Acquisition of property, plant
and equipment (pre-IFRS 16) (16.8) (19.4)
Acquisition of other intangible
assets (6.6) (6.9)
====================================== ====== =========
Cash capital expenditure (pre-IFRS
16) (23.4) (26.3)
Share based payment expense 2.4 2.6
Increase in debtors (pre-IFRS
16) 9.1 (1.9)
Increase in inventories (4.0) 3.2
Increase in trade and other
payables (pre-IFRS 16) 8.6 25.5
Decrease in provisions (pre-IFRS
16) 11.3 (0.7)
====================================== ====== =========
Change in working capital (pre-IFRS
16) 27.4 28.7
Free cash flow generation (pre-IFRS
16) (9.8) 92.6
====================================== ====== =========
Underlying profit before tax and brand FY20 LTM FY19 FY19
amortisation (pre-IFRS 16)
GBPm GBPm GBPm
======================================= ====== ========= ====
(Loss)/profit before tax (81.2) 43.6 22.4
Impact of IFRS 16 6.3 - -
======================================== ====== ========= ====
(Loss)/profit before tax (pre-IFRS
16) (74.9) 43.6 22.4
Non-underlying items (pre-IFRS 16) 16.6 5.1 4.4
Amortisation of brand names 1.5 1.5 1.4
Underlying (loss)/profit before tax
and brand amortisation (pre-IFRS
16) (56.8) 50.2 28.2
======================================== ====== ========= ====
Net debt (pre-IFRS 16) Other
30 June non-cash 28 June
2019 Cash flow changes 2020
GBPm GBPm GBPm GBPm
===================================== ======== ========== ========== =========
Cash in hand, at bank 29.8 32.5 - 62.3
===================================== ======== ========== ========== =========
Cash and cash equivalents 29.8 32.5 - 62.3
Senior revolving credit facility (194.0) (25.0) 0.3 (218.7)
Finance lease liabilities (pre-IFRS
16) (12.1) 4.5 (5.2) (12.8)
===================================== ======== ========== ========== =========
Total net debt (176.3) 12.0 (4.9) (169.2)
===================================== ======== ========== ========== =========
FY20 LTM FY19
Return on capital employed
GBPm GBPm
================================== ====== =========
Operating (loss)/profit (pre-IFRS
16) (63.1) 54.3
Non-underlying operating items
(pre-IFRS 16) 16.6 5.1
Operating lease charge (pre-IFRS
16) 79.9 80.2
==================================== ====== =========
Pre-tax return (pre-IFRS 16) 33.4 139.6
Effective tax rate 17.1% 19.0%
Tax adjusted return (A) (pre-IFRS
16) 27.7 113.1
Property, plant and equipment
(pre-IFRS 16) 85.0 89.9
Computer software 11.8 10.5
==================================== ====== =========
96.8 100.4
Inventories 58.9 54.8
Trade receivables 10.4 9.1
Prepayments (pre-IFRS 16) 11.7 22.8
Accrued income 0.9 0.6
Other receivables 0.8 0.3
Payments received on account (86.8) (42.2)
Trade payables (41.9) (106.9)
==================================== ====== =========
Working capital (pre-IFRS 16) (46.0) (61.5)
8 times lease charge (pre-IFRS
16) 639.2 641.6
Total capital employed (B)
(pre-IFRS 16) 690.0 680.5
ROCE (A/B) (pre-IFRS 16) 4.0% 16.6%
==================================== ====== =========
This preliminary results statement, the full text of the Stock
Exchange announcement and the results presentation can be found on
the Company's website at www.dfscorporate.co.uk
This interim report contains statements that constitute
forward-looking statements relating to the business, financial
performance and results of the Company and the industry in which
the Company operates. These statements may be identified by words
such as "may", "will", "shall", "anticipate", "believe", "intend",
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events to differ materially from those described or implied in
these statements. Such forward-looking statements are based on
numerous assumptions regarding the Company's present and future
business strategies and the environment in which the Company will
operate in the future. Further, certain forward-looking statements
are based upon assumptions of future events which may not prove to
be accurate and neither the Company nor any other person accepts
any responsibility for the accuracy of the opinions expressed in
this interim report or the underlying assumptions. Past performance
is not an indication of future results and past performance should
not be taken as a representation that trends or activities
underlying past performance will continue in the future. The
forward-looking statements in this interim report speak only as at
the date of this interim report and the Company expressly disclaims
any obligation or undertaking to release any updates or revisions
to these forward-looking statements to reflect any change in the
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conditions or circumstances on which any statement is based after
the date of this interim report or to update or to keep current any
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END
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September 24, 2020 02:00 ET (06:00 GMT)
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