TIDMDFS
RNS Number : 5557R
DFS Furniture PLC
09 March 2021
9 March 2021 For immediate release
DFS Furniture plc ("DFS" and the "Group")
Interim Results Announcement
STRENGTHENING LEADERSHIP POSITION IN A RESILIENT UPHOLSTERY
MARKET
DFS Furniture plc (the "Group"), the market leading retailer of
living room and upholstered furniture in the United Kingdom, today
announces its interim results for the 26 weeks ended 27 December
2020 (prior year comparative period is the 26 weeks ended 29
December 2019).
GBP'm H1 FY21 (unaudited) H1 FY20 (unaudited) Change
GBPm GBPm
------------------- -------------------
Revenue 572.6 488.0 17.3%
Revenue excluding Sofa Workshop 567.5 477.9 18.7%
Digital % of revenues 25.7% 18.4% 7.3%pt
Underlying PBT(A)(1) 76.5 16.6 59.9
PBT 72.1 15.9 56.2
Basic underlying EPS(1) 23.5p 6.0p 291.7%
Basic EPS 22.5p 6.0p 275.0%
Net bank debt(1) 38.2 147.8 109.6
--------------------------------- ------------------- ------------------- ------
Financial summary:
-- Group revenue GBP572.6m, up 17.3% year-on-year
-- Revenue excluding Sofa Workshop up 18.7% year-on-year to
GBP567.5m driven by strong order intake in the period, as a result
of pent-up demand from 'lockdown one', market share gains and a
shift in consumer spending to the home
-- Resilient trading performance through recent lockdown
periods, leveraging our integrated retail proposition, with online
revenues up 66.2% year-on-year
-- Underlying PBT(A)(1) up GBP59.9m to GBP76.5m, primarily as a
result of the strong revenue growth.
-- Reported PBT increased GBP56.2m to GBP72.1m
-- Significant reduction in net bank debt(1) to GBP38.2m
(c.GBP100m excluding temporary working capital benefit) from
GBP157.7m at previous financial year end with period end
leverage(1) at 1.1x
-- GBP225m senior revolving credit facility term extended from
August 2022 to December 2023 with two further one year extension
options
-- Order bank is currently over GBP65m higher in revenue terms
than the prior year equivalent date, with the GBP200m higher order
bank at Christmas-time providing resilience through the still
ongoing retail lockdown in the second half to date
Operational and strategic highlights:
-- Continued commitment to colleague and customer safety, health
and wellbeing during the pandemic
-- Evidence that Group market share has increased by c.2% in the
period, extending our clear market leadership
-- As showrooms reopen, we're targeting further market share
gains from our well-positioned and resilient integrated retail
business model
Strong strategic progress despite operational challenges of the
pandemic, port disruption and raw materials supply:
-- Drive the DFS core: continued improvements to our integrated
digital and physical customer journey, service and product
initiatives to further extend market leadership
-- Build the platforms: Sofa Delivery Company roll-out underway;
new manufacturing investment under consideration
-- Unlock new growth: 3 new Sofology showrooms opened in H1;
FY21 target of 6-10 openings remains intact
Meaningful progress against ESG Phase 1 Environmental (sourcing,
packaging and emissions) targets and Social (gender, inclusion,
community) targets in the period.
Tim Stacey, Group Chief Executive Officer said:
"This strong first half profit and cash flow performance is a
true reflection of the supreme efforts put in by our teams right
across the Group since the start of the pandemic. I am hugely
grateful to every colleague for their constant focus on the safety,
health and wellbeing of all their colleagues and also our
customers.
Our business has proven to be resilient throughout the period
despite showroom closures and a significant amount of external
disruption in our supply chains. The investments we've made in our
digital channels have generated exceptional revenue growth.
Consequently our order bank remains well above normal levels and,
subject to showrooms reopening by 12 April 2020, our central
planning scenario is for an expected full year profit before tax
outcome of approximately GBP105m, with further benefits to be
realised in next year's financial results.
We're committed to our strategy to lead sofa retailing in the
digital age with our proven integrated retail model. We expect to
see a good level of activity in the home market as Covid-19
restrictions ease and, having accelerated the execution of our
strategy and grown our market share, we are well set for future
growth."
(1) Definitions and reconciliations of KPIs including
Alternative Performance Measures ("APMs") are provided at the end
of this statement in Note 14 to the condensed consolidated
financial statements
Enquiries:
DFS (enquiries via Tulchan)
Tim Stacey (CEO)
Mike Schmidt (CFO)
Phil Hutchinson (Investor Relations)
Tulchan
James Macey-White
Jessica Reid
+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: ww.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 integrated physical and digital retail
network of living room furniture showrooms and web sites in the
United Kingdom and other European countries, trading through our
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.
CHIEF EXECUTIVE'S OPERATING REVIEW
Overview
The Group delivered substantial progress in sales, profits and
cash flow in the half, reflecting the benefit of pent-up demand
early in the period, market share gains, a shift in consumer
spending towards homeware categories and good cost control. Despite
the ongoing impact of the pandemic, which required us to
temporarily close many of our showrooms, and external supply chain
disruption, we were able to continue taking orders, leveraging
investments made in our online capabilities, as well as
manufacturing and delivering safely to customers throughout the
half.
These results reflect the supreme efforts of all of our
colleagues who continue to apply our core Group values on a daily
basis. We remain committed to our strategy to lead sofa retailing
in the digital age, by focusing on our core strategic pillars, as
well as working towards the medium-term ESG targets that we
presented last September.
Strong, resilient and set for growth
Our Group benefits from four fundamental advantages that provide
our business model with resilience and position us well for the
future. We have navigated through the pandemic and reflecting the
core strengths below, we believe that we are set for growth given
our market share gain, our strategic opportunities and also the
likely current pent-up demand in the homeware market.
1) Market leadership
As the clear market leader, scale is one of the major strengths
of our business model. According to independent market research,
pre-pandemic our Group had over 34% value share in the upholstery
sub-sector of the living room furniture market and we are over
three times the size of our nearest competitor. Furthermore,
utilising proprietary datasets that we have developed with
Barclaycard, we have observed recent, sustained Group market share
growth of circa 2%, due to the performance of our online channels
and also the exit of several competitors.
This scale provides us with cost advantages through leveraging
our buying power with raw material and finished goods suppliers and
minimising final mile logistics costs as a result of our customer
postcode delivery density. We also enjoy purchasing economies of
scale in advertising, insurance and interest-free-credit. Our
market-leading showroom sales densities and online volumes also
drive a range of operating efficiencies. Finally, we are also able
to invest ahead of our competitors on our retail and operating
platforms, our people and our technology.
2) Integrated retail business
A second core strength is the increasingly integrated nature of
our retail business model. The continued investment in building the
leading omnichannel business model in this sector allows us to meet
fast-changing consumer shopping habits and positions us well for
the future. We believe the combination of digital and physical is
the right long-term approach to address consumers within the sofa
market. Our market research shows that more than 85% of consumers
research online prior to purchasing their sofa.
To this end we have a well-invested and growing online
capability that we develop and enhance continuously. The
combination of our high levels of brand awareness and a digital
marketing targeting platform that identifies customers coming into
the market, enables us to maintain a significant lead in sector
search traffic, which is over 2.5x ahead of our next nearest
specialist competitor. "DFS" is the most searched term for the
sector ahead of "sofa" and "sofas" combined.
We know that a significant barrier to conversion online is the
ability to visualise a product displayed digitally and so we offer
the world's largest set of augmented reality sofa images through a
web browser, some 12,500 3D images, allowing customers to visualise
a sofa in any room in their home. We have also developed live
"in-store" video communications that enable customers to interact
with showroom colleagues from the comfort of their own homes.
A growing share of customers choose to transact entirely online,
although the vast majority continue to visit our showrooms to
conduct the all-important 'sit-test', with 'comfort' the number one
reason why a customer selects a particular model. We are committed
to maintaining an attractive showroom estate which benefits from
regular refurbishments and technological enhancements. As the
customer journey becomes increasingly integrated, we have adjusted
our sales incentive model for showroom colleagues to support
customers seamlessly throughout the purchase process.
We are comfortable committing to this channel-agnostic approach
to customer engagement, as our 'cost to serve' online is lower than
for transactions in our showrooms - utilising exactly the same
fulfilment infrastructure while incurring lower or no showroom
overheads. We also typically see those customers transacting
digitally being more likely to self-serve for delivery arranging
and any customer support queries, again reducing the cost to
fulfil.
3) Sustainability
We are committed to building a sustainable business model, both
in terms of our impact on the environment and preserving our
long-term success as a Group. Our success has been driven by our
strong brand awareness and reputation, our focus on great value and
customer service, and the continual development of our operations.
We have built-up our efficient infrastructure, superior scale and
industry-specialised know-how over our 50 years of operating
history. This gives us benefits in many of our physical and digital
retail and logistics activities, whether through higher volumes,
superior conversion or higher cost efficiency per transaction.
We launched our ESG strategy in September 2020, with a strong
focus on the Environment based on our "sofa cycle" approach. We set
out clear targets, which are included in the full ESG presentation
available on our corporate website.
As the largest upholstery retailer in the UK, we aim to lead on
the environmental challenges that exist in our industry. Our Sofa
Rescue programme has already saved over 65,000 sofas from landfill,
and we're taking it a step further by reviewing both materials and
manufacturing methods to help the recyclability of our product.
We are also focused on tackling our carbon emissions. We have
signed up for the BRC Climate Action Roadmap targets and are well
on our way to meeting our Scope 2 targets by 2030. Though we have
reduction plans for Scope 1, we are reliant on technological
advances, such as emission-free 7.5 tonne trucks, to meet the 2035
target. Transparency and traceability focused on wood and leather
in Phase One of our ESG targets have enabled us to ensure the raw
materials used in our products are sourced responsibly and not
contributing to deforestation, and we are on track to meet our 2025
FSC target. We are also expanding our supplier requirements to
other aspects of the supply chain to include Leather Working Group
certification and external certification for textiles. Not only
will this ensure that there is rigorous third-party due diligence
throughout our supply chains, but we are confident these will add
value to our suppliers' value chains as well. And ultimately, as
customer awareness grows, these certifications will also add value
to the brands and products.
Our ESG strategy has been woven throughout our business, from
Responsibility Champions to ESG Working Groups within each brand
and external partners in place to support us. We're at the start of
our ESG journey, but we've come a long way in a short amount of
time and are excited about the opportunities ahead of us.
With a robust plan for 'E', we have turned our attention to 'S'
and are working on a clear plan to further embed inclusion and
diversity within the Group. The Group has a real 'family' ethos,
and all our customers and all our people are already at the heart
of everything we do, reflected in our three core values of 'Think
Customer', 'Be Real', and 'Aim High'. The Group benefits from a
high level of colleague loyalty and engagement and is regularly
voted one of the best companies to work for in the UK. In terms of
'G', Governance is a core part of our status as a public listed
company and we have all necessary governance mechanisms in place
across to the Group to ensure we can achieve our targets and we are
committed to complying with all relevant legislation and guidance
as it develops.
4) Attractive homeware market
The homeware market has performed relatively well during this
pandemic compared to other retail and leisure categories. We have
observed strong levels of pent-up demand upon re-opening our
showrooms after the previous lockdowns, with the vast majority of
"lost" sales during enforced showroom closures being re-captured in
subsequent weeks and months. As such, we would expect to benefit
from a significant level of pent-up consumer demand post the
current lockdown, and a positive market for the rest of 2021,
subject to any further trading restrictions going forward.
In summary: We are set for growth
Superior shareholder returns is a long-term feature of our
business. Economies of scale enable us to achieve market leading
operating margins. Our made-to-order business model, relatively
short lead times and supplier credit terms enable us to operate
with negative working capital that releases cashflow as the
business grows and drives high cash conversion and returns on
capital employed. As we look forward, with the combination of the
inherent strengths of our business model, a tailwind from pent-up
demand and market growth, we expect to grow profits and cash in
both the short and medium term.
Financial Results
Revenue rose 17% in the period, or 19% on a comparable basis
(excluding Sofa Workshop). This performance reflects market share
gains as well as the ongoing benefit of a shift in consumer
spending to home categories. The Group saw a particularly strong
order intake in Q1 due to latent demand following the end of the
first UK lockdown and a resilient Q2 despite extensive showroom
closures in November.
Underlying profit before tax and brand amortisation(1) increased
from GBP16.6m to GBP76.5m in the first half. Profits benefited from
the drop-through effect of high revenue growth, cost control and
lower retail rates payments.
Reflecting strong trading alongside a c.GBP60m favourable
movement in working capital, net bank debt(1) reduced by GBP119.5m
in the period to GBP38.2m. As we reported in December, the group
extended its banking facility until the end of 2023, which has
removed restrictions on dividend payments. While we do not propose
a dividend with the interim results, we see the potential to
restart ordinary dividend payments in the near term, subject to
outlook and operational performance.
Operational Update
The first half of FY21 presented a wide range of operational
challenges and I'd like to thank all our colleagues for enabling
the business to operate successfully during this period.
The ongoing Covid-19 pandemic has required us to remain very
agile in response to Government regulations that have changed
frequently and often at short notice. As in the first wave of the
pandemic, our absolute priority was the safety and wellbeing of our
customers and colleagues. Colleagues are regularly reminded to
adhere to our health and safety "Golden Rules", introduced earlier
in the pandemic.
A second lockdown resulted in the closure of the vast majority
of our showrooms for several weeks in the autumn. While most of our
showrooms re-opened briefly in early December, Tier Four lockdowns
and a third national lockdown resulted in significant closure
periods for all our UK showrooms in the run up to Christmas and
through our post-Christmas sale; these showroom closures have
continued into the second half of the year. Despite the closures,
we continued trading very successfully online, and manufacturing
and delivering to customers as well as offering service and repair
visits. As the Group recognises revenues at the point of delivery
of orders to customers, being able to safely manufacture and
deliver to customers despite showroom closures allowed us to
satisfy orders placed earlier in the year.
Gross sales(1) via our online channel increased by 66.2%
compared with a year earlier. Independent market research data
continues to demonstrate that we are the clear market leader in the
sale of sofas online in the UK. During the recent and ongoing
periods of showroom closure we believe we have reaped the benefits
of long-standing investment in our online capability, such as
superior site load speeds giving a more responsive experience and
leading visual search and augmented reality capabilities that build
on our long-standing strength of imagery.
Our online performance has contributed to a particularly
increased market share during lockdown periods relative to
specialist category competitors, as indicated by Barclaycard data.
This does not alter our view that the right model to succeed in our
sector is integrated retail, and we expect it is likely that our
online penetration will reduce once showrooms are fully
reopened.
The proprietary Barclaycard data also does show evidence that
the Group is continuing to extend our market leadership with our
market share increasing by in the region of 2% over the whole of
the last six months. We believe that this gain is sustainable, and
with no other change in market size, compared to a previous c.34%
group market share, would imply more than a 5% growth in our
recurring annual revenues. We believe, this measured share gain
reflects both the exit of competitors, the shift of the market
towards online and also the growth of the reach of the Group's
physical retail estate.
As we highlighted in our December pre-close statement, the
arrival of some of our imported products, and the consequent
recognition of revenues, has been delayed by ongoing shipping
disruption from the Far East and raw materials supply issues
relating principally to foam availability in Europe. This, along
with manufacturing capacity constraints internally and externally,
resulted in longer than average lead times, which we are working
hard to reduce in the second half. We appreciate customers'
continued patience regarding deliveries as well as our sales and
customer support teams for their efforts in keeping customers
informed throughout this period.
The Group has spent the period since the Referendum preparing
thoroughly for Brexit and we had plans in place for a variety of
outcomes to government negotiations and the end of the transition
period. The two principal risks to the Group from the EU departure
were identified as consumer confidence-related impacts on consumer
demand and border delays. While these uncertainties have been
compounded by the effect on the global supply chain by the Covid-19
pandemic, very limited disruption has been experienced to date and
we continue to believe that the Group is well placed in its key
markets following the UK's departure from the EU.
Strategic Update
In spite of the operational challenges detailed above, the Group
has remained focused on its strategy to lead sofa retailing in the
digital age. Our strategy will transform the Group in the
medium-term by focusing on three interrelated pillars - drive the
DFS core, build the platforms for growth and unlock new growth. We
continue to target a GBP40m medium term profit before tax benefit
from the extensive range of initiatives targeted across the
business.
Drive the DFS Core
The DFS brand is the largest and most profitable in the Group
and the key priority of this strategic pillar is to drive the
growth of the brand across all our channels. In the first half, the
DFS brand delivered revenue and brand contribution growth of 21%
and 35% respectively. We continue to invest in our digital and
physical infrastructure in order to further improve our integrated
retail customer journey.
One of the attractions of our well-invested omnichannel business
model is that we can support customers to shop in the way that
suits them, whether they prefer to shop purely online, solely in a
showroom or a combination of the two. With more and more customers
using the web to begin their sofa search process, many of our
investments are focused on making this research stage as convenient
as possible.
Online, we have introduced a more responsive checkout which has
improved the customer experience. We are growing our 'visual
search' database, enabling customers to take photos of a sofa they
like in any setting and compare it with our extensive ranges
online. We are also continuing to expand our augmented reality
database, one of the largest in the retail sector, which allows a
customer to visualise a sofa in 3D in their living room using a
smartphone. In addition, we have introduced shared baskets so
customers can conduct their research seamlessly across the
platform, review options at a pace that works for them and complete
their purchase whether the showroom is open or not.
We believe an attractive showroom experience is vital to the
customer journey and have continued to invest in our network in the
period. We refurbished six showrooms during the first half of the
year, and have nine planned for the second half. Customers
appreciate our appointment bookings facility, which drove
conversion in the first half.
Dwell, our homeware and accessories brand, has also been
integrated into the DFS platform so customers can now order an
increasing range of Dwell furniture and accessories directly from
the DFS retail channels. The space allocation in the combined
DFS/Dwell showrooms is being optimised across the various product
categories with a view to maximising revenue across the
platform.
The second element of our 'Drive The Core' strategy is to
continue developing new services to engage customers. We are
conducting live 'video in store' trials, which allow customers to
interact with a sofa expert and see products in the showroom
environment. We currently offer this service in around 11
showrooms. During a period of unprecedented disruption, our sales
colleagues have been able to deliver customer service even whilst
their showrooms are closed, supporting customers over our web chat
facility. We have also made improvements to our remuneration model
to support a more seamless customer journey.
We are using data and customer insights more effectively to
design and develop new products with greater appeal to both
existing and emerging customer segments. New product launches in
the first half include: the Vinson, our first 'smart' sofa; Boxsit,
our sofa-in a-box concept targeting young, urban renters; and
Sofables, an aspirational modular sofa perfect for growing
families. Our new Halo Luxe range, launched in September and
supported with its own TV campaign, has succeeded in attracting
aspirational customers to the DFS brand.
DFS is also well-known for our exclusive brand partner
collaborations and every year we roll-out new eye-catching models.
One of our current success stories is the Patterdale, developed in
partnership with the lifestyle brand Joules. We are also launching
our successful French Connection Studio model in our first ECO
fabric, made from recycled plastic bottles and textiles waste. One
of the highlights in the second half is the launch of our new
partnership with 'Grand Designs' for a new range of sofas combining
design integrity and a sustainability ethos.
In summary, while our DFS brand enjoys a strong competitive
position in the UK sofa retailing market we continue to see
opportunities for further growth. We have continued to grow our
market share in the first half as we've grasped the opportunities
presented by recent structural changes in the market. Our
specialist expertise and financial strength means we can continue
to invest in those products and services which provide the greatest
value to customers.
Build The Platforms for Growth
This strategic pillar focuses on Group-wide benefits from
leveraging 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 in order to improve
productivity and the customer proposition. We have secured a
further GBP0.9m of annualised savings since the previous year end,
which will start to be realised from the second half of this
financial year onwards. This brings the total annualised saving
since the program began to GBP5.2m and we are confident of
achieving as a minimum the GBP6-8m targeted annual savings by
Financial Year 2023 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 rental
market trends and the Group's strength as an anchor tenant on many
retail parks.
Turning to logistics, we continue to progress towards our
objective of building a leading Group-wide supply chain platform,
The Sofa Delivery Company. Our aim is to offer improved customer
service and a more flexible working environment for colleagues
whilst also reducing the Group's environmental impact. Our current
year roll-out plans are on track as we work towards achieving
annualised savings of GBP3m+ by the end of financial year FY22. In
the first half of the year, we completed the IT systems integration
across the Group, a key enabler for multi-brand order fulfilment.
We have also made significant progress in the implementation of our
Stockwise inventory management system across our showrooms and
Customer Distribution Centres (CDCs). This roll-out is now close to
completion for the DFS brand with the Sofology roll-out a priority
for the second half.
Following successful trials in the last financial year, we are
in the process of launching The Sofa Delivery Company's 7-day,
extended hours delivery model across the Group towards the end of
the current financial year. Combined with other initiatives such as
'Track My Order' and eco-friendly delivery slots, The Sofa Delivery
Company has a compelling proposition to meet our customers' busy
lifestyles. A further objective is to complete the roll-out of The
Sofa Delivery Company rebranding and vehicle livery across the CDC
network. Over half of the network has been rebranded to date, with
the remainder on track for completion by the financial year end. In
a competitive market for large vehicle drivers, the Group is
committed to being an attractive employer in the logistics
industry, offering competitive rewards and attractive working
conditions.
The Sofa Delivery Company is also at the forefront of the
Group's ESG strategy, with a key role to play in meeting the
Group's CO2 emissions and waste and recycling targets. At the end
of the first half we met our target of making 100% of sofa
packaging recyclable. The benefits of moving to the extended hours
delivery model will be a reduction in miles driven due to tighter
delivery radials (aided by our Apollo smart routing technology) and
an overall reduction in the number of DFS Group delivery fleet
vehicles following the introduction of new shift patterns.
We continue to drive our marketing transformation programme
forward. At a macro level, there has been a continued focus on data
aggregation and activation. The DFS Group now has over 35 internal
& external data sources captured within a centralised data lake
from which a powerful set of data insights dashboards are now being
leveraged across the business. At a more micro level, we are
running a series of combined marketing channel and communications
tests to understand how best to further optimise our marketing
spend.
The combined impact of these macro and micro initiatives is
allowing us to understand our customers further and, as a result,
drive increasingly efficient and effective digital and physical
footfall whilst achieving GBP6m of savings in H1 FY21 relative to
FY19 and FY20.
Unlock New Growth
Sofology revenue and brand contribution increased 10.3% and
35.5% respectively in the first half. The reported revenue growth,
relative to order intake experienced, was suppressed by shipping
delays and foam disruption, which has now started to normalise in
the second half of the financial year.
As detailed in our year end results, one of our growth
priorities is to accelerate the roll-out of the Sofology showroom
estate. We remain on track to add 6-10 new showrooms in the current
financial year. In the first half we opened new outlets in Hove,
Cambridge and Maidstone, extending Sofology's coverage in the
South-East. The new showrooms are powered by 100% renewable
electricity and are equipped with digital retail technology to
reduce unnecessary waste and lessen the showroom's impact on the
environment. Customers can use the Group's Sofa Rescue initiative,
a sustainable collection service for recycling old sofas, saving
them from landfill.
Current year product launches are also in keeping with
Sofology's reputation as an environmental leader. In the first half
of the year we launched our first 'eco sofa', the Pioneer, in
conjunction with our 'Green Friday' marketing campaign. The Pioneer
sofa features zero foam, 100% recyclable springs, sustainably
sourced timber, fabric made from recycled yarns plus a 20-year
guarantee.
We continue to see the opportunity to grow the Sofology brand to
65-70 outlets in the medium term, targeting revenue of c.GBP300m at
a pre-tax profit margin of 5-7%.
Dwell and International
Back in July, following a strategic review of our smaller
brands, we took a decision to sell our Sofa Workshop business and
completed the disposal in September 2020. We also restructured the
Dwell operating model to enable its wide range of attractive
products to be sold more seamlessly to DFS brand customers, as well
as online. As indicated with September's FY20 results, we are
reviewing growth options for our International business, which
includes six showrooms in Holland and two in Spain. In the first
half we opened a new Dutch showroom in Breda, with a product and
marketing offer more tailored to the local market.
Manufacturing Review
We outlined some reflections on our manufacturing operations at
the time of the final results and would like to provide a further
update. While the Group's digital and logistics platforms have
received a higher proportion of our total investment in the last
few years, vertical integration remains a key source of competitive
advantage for the Group, particularly given consumer desires for
unique designs and shorter lead times as well as our commitment to
meeting our ESG targets. The Covid-19 pandemic and the extended
Brexit process has also highlighted the complexities of a global
supply chain for upholstery.
DFS has manufactured sofas since the company was formed and we
currently manufacture around 20% of all Group sofas across five UK
sites with around 950 colleagues. A further c.20% is manufactured
in the UK by long-established partners. We currently import around
60% of our sofas, of which half are manufactured in the Far East.
There are many benefits from manufacturing our own sofas including:
greater supply chain transparency, increased control over lead
times, product differentiation and innovation, superior quality
control, the ability to flex capacity around peaks in demand, as
well as manufacturing margin benefits.
We are currently refining our investment plans for our
manufacturing operations. However, our early feasibility work is
clear that, in addition to delivering a range of operational
benefits consistent with our ESG targets and customer proposition
ambitions, an attractive financial returns opportunity exists.
While we will provide further details in due course, we
indicatively expect to commit to an incremental investment of
GBP12-15m (across FY22 and FY23). This investment would be funded
from internal cash generation and will also meet our strict
financial appraisal criteria.
Increasing our Sales of Living Room Furniture and Beds
We are developing our plans to increase our presence in the
GBP1.2bn Living Room Furniture market through an attachment model
and the GBP3.7bn Bedroom market primarily through our online
platforms, which will increase the total addressable market that we
target.
The Living Room furniture market is a natural attachment
opportunity for both DFS and Sofology. Utilising Dwell's
infrastructure, warehousing and supplier relationships we are now
offering customers the opportunity to "buy the look" or whole
living room including, for example, coffee tables, side tables,
rugs and mirrors. Our attachment rates are currently less than 5%
per sofa order, but with over 750,000 sofa orders per year we have
an opportunity to develop a material business.
The largest segment of the Homeware market is the Bedroom
market. We believe that we can deploy the assets we already have
such as our website traffic, our well-invested web platforms,
differentiated brand partners, manufacturing capability and leading
Interest Free Credit offer in order to address the Bed market
primarily online. Early proof points are emerging with bed sales
online through the DFS brand channel growing +159% post
Christmas.
Outlook
This strong first half profit and cash flow performance is a
true reflection of the supreme efforts put in by our teams right
across the Group since the start of the pandemic. I am hugely
grateful to every colleague for their constant focus on the safety,
health and wellbeing of all their colleagues and also our
customers.
Our business has proven to be resilient throughout the period
despite showroom closures and a significant amount of external
disruption in our supply chains. The investments we have made in
our digital channels have generated exceptional revenue growth.
Consequently our order bank remains well above normal levels and,
subject to showrooms reopening by 12 April 2020, our central
planning scenario is for an expected full year profit before tax
outcome of approximately GBP105m, with further benefits to be
realised in next year's financial results.
We are committed to our strategy to lead sofa retailing in the
digital age with our proven integrated retail model. We expect to
see a good level of activity in the home market as Covid-19
restrictions ease and, having accelerated the execution of our
strategy and grown our market share, we are well set for future
growth.
Tim Stacey
Group Chief Executive Officer
(1) Refer note 14 to the condensed consolidated financial
statements for APM definitions.
FINANCIAL REVIEW
The financial performance of the Group in the first six months
was strong, and we ended the period in a robust financial position.
While the current national lockdown has reshaped the profile of our
financial performance we remain well-positioned for the remainder
of the financial year and into the next.
The volatile trading environment of the first half of the
financial year has highlighted the relative advantages of our
made-to-order, channel-agnostic business model that clearly leads
sofa retail both online and in the physical setting. In an
environment in which showroom trading has been periodically
disrupted, we have been able to utilise our order bank to keep our
manufacturing and delivery operations fully utilised and generating
profits and cash flow. Furthermore, the growth in our well-invested
online operations has significantly mitigated showroom order intake
disruption. Our operating costs have been broadly unaffected by
both the "lumpiness" of demand and the switch in order intake
channel as we rely on exactly the same fulfilment operation for
orders taken in-store and online, and our made-to-order approach
avoids the need to redistribute local stockholdings. Finally, our
negative working capital model has avoided a requirement to invest
in stock to support revenue growth.
The high demand levels experienced overall have driven material
year on year revenue growth. A robust retail gross profit margin
and good cost control, supported by the suspension of UK retail
business rates, has resulted in significant profit growth. Despite
various showroom closures through our second quarter and throughout
the third quarter to date, given the strength of our trading
performance we have not drawn on either the Coronavirus Job
Retention Scheme or other property closure-related grants in the
current financial year.
The trading performance along with our negative working capital
model has enabled us to de-lever with net bank debt(1) reducing by
GBP119.5m since June 2020 and we have fully repaid the HMRC VAT
liabilities that were deferred from the previous financial year.
Our period end position still benefits from transient working
capital inflows, being principally increased customer deposits but
also agreements in place to defer the payment of rent to landlords,
and we therefore expect a working capital outflow of approximately
GBP60m over the next six to twelve months. Notwithstanding this we
expect that our financial leverage(1) will be in our targeted
0.5x-1.0x range at the end of FY21.
In December we entered into a new three-year agreement for a
GBP225m senior revolving credit facility with our existing
syndicate of seven banks and adding two mutual one year extension
options. Under the terms of this facility, previous restrictions on
acquisitions and dividends were lifted.
As disclosed previously, we reached Christmas Eve with an order
bank over GBP200m higher, in revenue terms, than typical seasonal
levels, providing us with resilience heading into the second half
of the financial year. Despite the current closure of the showroom
network, the order bank presently remains at around GBP65m ahead of
the prior year reflecting the ongoing strength of online order
intake over the lockdown period.
Basis of financial presentation
Following the reorganisation of our Dwell business over the
summer period as highlighted in our FY20 Annual Report we have this
year combined the Dwell and DFS brand segments into one to reflect
how these brands are now managed. As also previously communicated,
we sold the Sofa Workshop business in September 2020. In order to
aid comparison of continuing operating segments, the table below
and related commentary present reported results excluding Sofa
Workshop for both current and prior periods.
After a year of transition to IFRS 16 in FY20, we now report all
current and prior period numbers on an IFRS 16 basis.
26 weeks ended 27 DFS Sofology Subtotal Sofa Workshop Total before Non underlying Total
December 2020 non - underlying items
items
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Gross Sales 587.1 141.4 728.5 6.3 734.8 - 734.8
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Revenue 454.9 112.6 567.5 5.1 572.6 - 572.6
Cost of Sales (190.0) (53.0) (243.0) (1.3) (244.3) - (244.3)
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Gross Profit 264.9 59.6 324.5 3.8 328.3 - 328.3
Selling & Distribution
costs (121.7) (28.3) (150.0) (0.5) (150.5) - (150.5)
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Brand Contribution(1) 143.2 31.3 174.5 3.3 177.8 - 177.8
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Property Costs (2.0) - (2.0)
Administrative Expenses (40.1) (1.1) (41.2)
EBITDA(1) 135.7 (1.1) 134.6
----------------- -------------- -------
Depreciation & Amortisation excl brand amortisation (41.8) - (41.8)
Operating Profit 93.9 (1.1) 92.8
----------------- -------------- -------
Interest (17.4) (2.6) (20.0)
PBT pre brand amortisation(1) 76.5 (3.7) 72.8
----------------- -------------- -------
Brand amortisation (0.7) (0.7)
PBT 75.8 (3.7) 72.1
----------------- -------------- -------
26 weeks ended 29 DFS Sofology Subtotal Sofa Workshop Total before Non underlying Total
December 2019 non - underlying items
items
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Gross Sales 488.1 129.0 617.1 12.6 629.7 - 629.7
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Revenue 375.8 102.1 477.9 10.1 488.0 - 488.0
Cost of Sales (150.7) (50.5) (201.2) (5.0) (206.2) - (206.2)
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Gross Profit 225.1 51.6 276.7 5.1 281.8 - 281.8
Selling & Distribution
costs (119.4) (28.5) (147.9) (4.1) (152.0) - (152.0)
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Brand Contribution(1) 105.7 23.1 128.8 1.0 129.8 - 129.8
------------------------------ ------- -------- -------- ------------- ----------------- -------------- -------
Property Costs (16.4) - (16.4)
Administrative Expenses (34.0) - (34.0)
EBITDA(1) 79.4 - 79.4
----------------- -------------- -------
Depreciation & Amortisation excl brand
amortisation (44.1) - (44.1)
Operating Profit 35.3 - 35.3
----------------- -------------- -------
Interest (18.7) - (18.7)
PBT pre brand amortisation(1) 16.6 - 16.6
----------------- -------------- -------
Brand amortisation (0.7) (0.7)
PBT 15.9 - 15.9
----------------- -------------- -------
Sales and revenue
We experienced very high order intake in the first quarter
driven by pent-up demand following the UK's first lockdown in the
previous financial year. We then operated through a period of flux
in the second quarter with a series of mandated showroom closures
in different parts of the countries we operate in and with the vast
majority of showrooms closed through November. Our order intake
performance in this second quarter was resilient, benefitting from
our historical investments in our online proposition, together with
a redeployment of sales and administration teams to support the
conversion and processing of significantly elevated online order
intake.
The high opening order bank through the period enabled us to
maintain a consistent, elevated level of customer deliveries
despite various retail showroom closures. We however experienced
some limitations on internal and external manufacturing capacity,
raw material shortages and supply chain disruption that impacted
the revenue we could recognise in this period, particularly in the
second quarter. Group revenue increased 18.7% to GBP567.5m
excluding Sofa Workshop, and including the disposed operations grew
by 17.3%. While order intake performance at both the DFS and
Sofology brands has been similarly positive, the lower rate of
revenue growth in the period in Sofology (+10.3%) relative to the
DFS brand (+21.0%) reflects higher levels of disruption of inbound
supply experienced in the second quarter. These impacts on Sofology
have now largely normalised.
Gross profit
Gross profit increased 17.3% to GBP324.5m in the period,
excluding Sofa Workshop. Gross profit as a percentage of revenue
decreased from 57.9% to 57.2% (excluding Sofa Workshop). This was
primarily due to internal manufacturing operation (which captures
an incremental manufacturing cash margin) continuing to operate at
full capacity, as in the prior year, and therefore giving a lower
year-on-year mix benefit. Adjusting for this mix effect, despite
facing cost headwinds for raw materials and shipping, gross margin
was broadly flat year-on-year due to growth in average order value.
While we anticipate higher global shipping costs, a weaker hedged
dollar exchange rate and foam supply restrictions to persist
through the second half of the financial year these factors are
industry-wide and are not expected to cause a deterioration of
sustainable gross profit margins.
Operating costs and brand contribution(1)
Selling and distribution costs (excluding property costs) of
GBP150.0m increased by GBP2.1m year on year excluding Sofa
Workshop. Higher operating costs are to be expected given the
increased sales volumes and the variable nature of costs in our
delivery network and wage commission models. We also incurred
c.GBP2m of Covid-19 associated costs such as PPE. Given the
strength of trading overall, we have not submitted claims under the
CJRS or other pandemic-related government financial support schemes
in the current financial year.
Our higher operating costs were partially offset by a
significant increase in the effectiveness of our marketing spend
driven by improved targeting, which allowed a c.GBP6m net
year-on-year reduction in spend in the first half.
Brand contribution(1) of GBP174.5m for the half year represents
an increase of GBP45.7m (excluding Sofa Workshop) driven by the
higher revenues.
Property costs and administrative expenses
Under IFRS 16, property costs in the income statement include
only business rates and a very small amount of rental charges where
we occupy premises on a 'hold-over' basis (where the lease has
expired) or for short term leases under a year long. Property costs
decreased GBP14.4m year on year primarily due to the UK retail
business rates relief which applies to the majority of our showroom
estate.
Underlying(1) administrative expenses of GBP40.1m increased by
GBP6.1m due to investment to support the acceleration of our
strategy, increased performance recognition payments across the
business and some pandemic-related one-off operating costs. We also
recognised a one-off increase in our payment protection insurance
provision in connection with historical sales transactions.
Depreciation, amortisation and interest
Depreciation and amortisation charges (excluding brand
amortisation) reduced by GBP2.3m year-on year to GBP41.8m. The
reduction was driven by a lower level of capital expenditure over
the past twelve months and a reduction in IFRS 16 property related
charges. The IFRS16 property-related charges are as a result of
savings secured on existing leases and from the assignment of
leases following the disposal of Sofa Workshop. These savings are
partially offset by the impact of entering leases for new Sofology
showrooms.
Underlying interest charges of GBP17.4m were GBP1.3m lower
year-on-year as a result of a lower IFRS 16 related charge and
lower average net debt position across the period.
Profit before tax ('PBT')
PBT on an underlying basis and excluding brand amortisation(1)
has increased by GBP59.9m to GBP76.5m driven by the higher
revenues.
Non-underlying costs of GBP3.7m were incurred in the period
(FY20: Nil) in relation to the loss on disposal of Sofa Workshop
(including legal fees and other related costs) and costs associated
with the refinancing of the Group's revolving credit facility.
Reported PBT of GBP72.1m was GBP56.2m higher than the comparative
period.
Tax
The tax charge recognised in the interim financial statements
has been calculated using the expected effective tax rate for the
full year of 20.2% (FY20: 14.8%). This is higher than the
applicable UK Corporation Tax rate of 19.0% (FY20: 19.0%),
primarily due to disallowable depreciation on non-qualifying fixed
assets. The FY20 effective tax rate was lower than normal for the
Group due to losses incurred in Sofa Workshop which were not
recognised as deferred tax assets and the non-deductible write down
of goodwill.
EPS
Underlying basic earnings per share(1) for the Group was 23.5
pence (FY20: 6.0
pence). Reported earnings per share was 22.5 pence (FY20: 6.0
pence).
Capital expenditure, cash flow and balance sheet
We have generated significant operating cash inflows in the
period driven by the strong trading performance and our negative
working capital cycle.
Our operating cash flow generation has allowed us to continue to
invest in our stated strategy. In the first half of this financial
year we opened three Sofology and two DFS brand showrooms, made
good progress on finishing the transformation of our final mile
logistics network and continued our investment in our data and
digital capabilities. We plan to invest further in these areas and
the majority of the current year capital expenditure which we
expect to be between GBP35-37m will fall in the second half of the
financial year.
Net bank debt(1) reduced by GBP119.5m to GBP38.2m in the period
and our leverage (measured as net bank debt / last twelve month
operating cash flows before tax and excluding working capital
movements, less lease payments) fell to 1.1x (FY20: 2.2x as
measured on an IAS17 basis of net debt / trailing twelve month
EBITDA(1) ). In addition to the increased profits in the first
half, the closing net bank debt position also benefits from the
higher than usual closing order bank (and associated customer
deposits). We therefore expect that the normalisation of the order
bank to more typical seasonal levels, together with settlement of
residual rent deferrals from the previous financial year, would
generate a c.GBP60m working capital outflow over the next six to
twelve months.
Our refinanced GBP225m banking facility covenants remain
consistent with our facility pre Covid-19 at 3.0x maximum net debt
/ EBITDA and minimum 1.5x fixed charge cover, both measured on an
IAS17 basis.
Dividend
We recognise the value placed by shareholders upon regular
dividend payments and we have today published a revised Capital and
Distribution policy on our corporate web site to guide on our
future approach to dividends. Although I would strongly encourage
our shareholders to read this document in full, I would summarise
the key principles of our approach as:
1. To operate with a resilient, but efficient capital structure
in the context of the principal risks the Group faces. We define
this as operating broadly in the middle of a financial leverage
range of between 0.5x-1.0x;
2. Prioritising investment in the long-term health of the Group,
above other uses of cash flow generated, and committing to
investments were we anticipate returns in excess of our cost of
capital; and
3. Recognising dividends as an important element of our
investment case for our shareholders, and aiming to maintain a
payout ratio of between 40-50% of annual underlying cash
generation.
We are also encouraged by the business's recent trading
performance and the reduced financial leverage we are now operating
at. The potential for a recommencement of dividends will depend on
continuation of good trading and also how the principal risk
environment changes over the next six months.
Outturn for the full financial year
The sofa demand cycle is robust and it is reasonable to believe
that we will again experience the benefit of pent-up demand when
our showrooms reopen. However our FY21 performance will inevitably
be impacted by the short time period between the lockdown ending
and the end of our financial year. This is because of the lead time
between a customer order being placed, subsequent manufacture and
the recognition of the associated revenues on delivery of our
made-to-order products. Some scenarios are included below to
illustrate the potential FY21 outturns, but also the potential for
a build-up of order bank resilience for FY22, assuming a reopening
as currently expected on 12 April 2021. For the avoidance of doubt,
these scenarios reflect the benefit of the continued property rates
suspension through to the end of June 2021.
Low Medium High
---------- ----------
Order intake Vs FY19 from
12 April 2021* 0% +30% +50%
FY21 Revenues GBP1,050m GBP1,070m GBP1,085m
FY21 PBTA(1 **) GBP97m GBP105m GBP112m
FY22 PBTA Order Bank Benefit(1) +GBP0m +GBP10m +GBP20m
Net bank debt(1) c.GBP120m <GBP100m <GBP100m
*Order intake growth measured excluding
Sofa Workshop
**Includes retail business rates holiday
extension
---------------------------------------------- ---------- ----------
Prior experience in the first national lockdown showed order
intake for the 13 weeks following resumption of trading of +64%.
Our "high scenario" is more conservative than this given late
spring and summer are typically less favourable trading periods.
Should we see a particularly strong uplift in order intake in the
remaining weeks of FY21, due to lead times, a significant
proportion of this order intake would likely be realised in
FY22.
We recognise the risk that showroom reopenings are delayed
beyond 12 April, and this would adversely impact the profit outturn
for the current year. We would however expect any reduction in FY21
largely to represent a deferral of profits into FY22.
Conclusion
We have traded through a volatile last twelve months and we are
emerging with clear indications of market share gain. We will need
to manage through a further potentially turbulent period until the
Covid-19 pandemic subsides and there may be other unforeseen events
to deal with in the future. However this is a resilient business
with a proven record of strong cash flow generation across all but
the most extreme situations. I believe the Group is well positioned
operationally and financially and with a sound strategy should
continue to generate strong and improving returns.
Mike Schmidt
Chief Financial Officer
(1) Refer note 14 to the condensed consolidated financial
statements for APM definitions.
RISKS AND UNCERTAINTIES
The Group faces a number of risks and uncertainties in both the
development and day-to-day operations of its business. A risk
management process has been adopted to help the Group achieve its
strategic objectives. The Board does not consider that the
principal risks and uncertainties to have changed since the
publication of the annual report for the period ended 28 June 2020.
These comprise:
-- Business continuity and resilience
-- Implications of Brexit*
-- Keeping core IT systems up and running and protected from cyber attacks
-- Managing the business to high environmental, social and governance standards
-- Financial risk and liquidity
-- Changes to the regulatory environment
-- Customer proposition and industry competition
-- Transformation strategy
*While the Board notes that the end of the Brexit transition
period has been reached, it believes the Group still remains
exposed to potential future risks in relation to consumer demand
and border delays (particularly, given the still-tightening
restrictions on the Irish Sea crossing and the consequent impact on
customs relationships with the EU overall). Border delays may
impact the timing of when revenues are recognised and may result in
increased transport and storage related costs.
Refer to pages 32 to 38 of the 2020 Annual Report
(www.dfscorporate.co.uk) for a detailed explanation of these
risks.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first six months of the financial year and their impact
on the condensed set of financial statements; and a description of
the principal risks and uncertainties for the remaining six months
of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period; and any changes in the related party
transactions described in the last annual report that could do
so.
By order of the Board
Tim Stacey Mike Schmidt
Chief Executive Officer Chief Financial Officer
9 March 2021
INDEPENT REVIEW REPORT TO DFS FURNITURE PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
26 weeks ended 27 December 2020 which comprises the Condensed
Consolidated Income Statement, Condensed Consolidated Statement of
Comprehensive Income, Condensed Consolidated Balance Sheet,
Condensed Consolidated Statement of Changes in Equity, Condensed
Consolidated Cash Flow Statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 27
December 2020 is not prepared, in all material respects, in
accordance with IAS 34 Interim Financial Reporting adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
and the Disclosure Guidance and Transparency Rules ("the DTR") of
the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the latest annual financial statements
of the Group were prepared in accordance with International
Financial Reporting Standards as adopted by the EU and the next
annual financial statements will be prepared in accordance with
International Financial Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006. The
directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Frances Simpson
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
9 March 2021
Unaudited condensed consolidated income statement
26 weeks to 27 26 weeks to 29 52 weeks to 28
December 2020 December 2019 June 2020
Underlying Non- Total Underlying Non- Total Underlying Non- Total
underlying underlying underlying
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Gross sales 3 734.8 - 734.8 629.7 - 629.7 935.0 - 935.0
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Revenue 3 572.6 - 572.6 488.0 - 488.0 724.5 - 724.5
Cost of sales (244.3) - (244.3) (206.2) - (206.2) (307.4) (3.1) (310.5)
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Gross profit 328.3 - 328.3 281.8 - 281.8 417.1 (3.1) 414.0
Selling and
distribution
costs (152.5) - (152.5) (168.4) - (168.4) (287.5) (2.1) (289.6)
Administrative
expenses (40.1) (1.1) (41.2) (34.0) - (34.0) (67.7) (0.2) (67.9)
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Operating
profit before
depreciation,
amortisation
and
impairments 135.7 (1.1) 134.6 79.4 - 79.4 61.9 (5.4) 56.5
Depreciation (38.9) - (38.9) (41.7) - (41.7) (81.9) - (81.9)
Amortisation (3.6) - (3.6) (3.1) - (3.1) (6.8) - (6.8)
Impairments - - - - - - (0.3) (11.2) (11.5)
Operating
profit 4 93.2 (1.1) 92.1 34.6 - 34.6 (27.1) (16.6) (43.7)
Finance income - - - - - - 0.1 - 0.1
Finance expense 5 (17.4) (2.6) (20.0) (18.7) - (18.7) (37.6) - (37.6)
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Profit before
tax 75.8 (3.7) 72.1 15.9 - 15.9 (64.6) (16.6) (81.2)
Taxation 6 (15.7) 1.1 (14.6) (3.3) - (3.3) 11.1 0.9 12.0
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Profit for the
period 60.1 (2.6) 57.5 12.6 - 12.6 (53.5) (15.7) (69.2)
=============== ==== ============== ================= ============== ============== ================= ============== ============== ================= ==============
Statutory earnings
per share
Basic 723.5p (1.0)p 22.5p 6.0p -6.0p (24.3)p (7.1)p (31.4)p
=================== ===== ====== ===== ==== ==== ======= ====== =======
Diluted 723.3p (1.0)p 22.3p 5.9p -5.9p (24.3)p (7.1)p (31.4)p
=================== ===== ====== ===== ==== ==== ======= ====== =======
Unaudited condensed consolidated statement of comprehensive
income
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
================================================= ============ ============ ========
Profit/(loss) for the period 57.5 12.6 (69.2)
Other comprehensive income/(expense)
Items that are or may be reclassified
subsequently to profit or loss:
Effective portion of changes in fair
value of cash flow hedges (20.3) (4.7) 3.9
Net change in fair value of cash flow
hedges reclassified to profit or loss
Recognised in cost of sales 3.8 (5.9) (8.3)
Recognised in finance expense 1.3 (0.4) 0.7
Income tax on items that are/may be reclassified
subsequently to profit or loss 2.9 1.9 0.4
================================================= ============ ============ ========
Other comprehensive expense for the period,
net of income tax (12.3) (9.1) (3.3)
================================================= ============ ============ ========
Total comprehensive income/(expense)
for the period 45.2 3.5 (72.5)
================================================= ============ ============ ========
Unaudited condensed consolidated balance sheet
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
======================================== ===== =========== =========== =======
Non-current assets Note
Property, plant and equipment 11 69.8 80.6 74.1
Right of use assets 11 367.8 419.0 384.5
Intangible assets 11 532.6 540.8 532.5
Other financial assets - - 0.8
Deferred tax assets 24.1 10.2 24.0
======================================== ===== =========== =========== =======
994.3 1,050.6 1,015.9
======================================== ===== =========== =========== =======
Current assets
Inventories 49.7 50.8 58.9
Other financial assets - 0.5 4.5
Trade and other receivables 24.2 13.3 22.2
Current tax assets - - 7.8
Cash and cash equivalents 26.8 47.2 62.3
======================================== ===== =========== =========== =======
100.7 111.8 155.7
======================================== ===== =========== =========== =======
Total assets 1,095.0 1,162.4 1,171.6
======================================== ===== =========== =========== =======
Current liabilities
Trade payables and other liabilities (262.2) (223.9) (216.0)
Lease liabilities (86.9) (88.1) (88.6)
Provisions 12 (15.8) (6.5) (11.9)
Other financial liabilities (8.3) (1.7) (0.1)
Current tax liabilities (2.9) (0.2) -
======================================== ===== =========== =========== =======
(376.1) (320.4) (316.6)
======================================== ===== =========== =========== =======
Non-current liabilities
Interest bearing loans and
borrowings (62.8) (194.1) (218.7)
Lease liabilities (400.8) (436.9) (428.6)
Provisions 12 (5.3) (2.9) (3.9)
Other financial liabilities (3.6) (2.8) (1.9)
======================================== ===== =========== =========== =======
(472.5) (636.7) (653.1)
======================================== ===== =========== =========== =======
Total liabilities (848.6) (957.1) (969.7)
======================================== ===== =========== =========== =======
Net assets 246.4 205.3 201.9
======================================== ===== =========== =========== =======
Equity attributable to equity
holders of the parent
Share capital 383.7 319.5 383.4
Share premium 40.4 40.4 40.4
Merger reserve 18.6 18.6 18.6
Treasury shares (0.7) (1.7) (0.7)
Shares held by employee benefit
trust (0.3) - -
Cash flow hedging reserve (11.9) (4.0) 3.3
Retained earnings (183.4) (167.5) (243.1)
======================================== ===== =========== =========== =======
Total equity 246.4 205.3 201.9
======================================== ===== =========== =========== =======
Unaudited condensed consolidated statement of changes in
equity
Shares
Treasury held by Cash
shares employee flow
Share Share Merger benefit hedging Retained Total
capital premium reserve trust reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Balance at 30 June 2019 319.5 40.4 18.6 (2.1) - 7.0 (131.6) 251.8
Impact of change in accounting
policy - - - - - - (33.5) (33.5)
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Adjusted balance at 1
July 2019 319.5 40.4 18.6 (2.1) - 7.0 (165.1) 218.3
Profit for the period - - - - - - 12.6 12.6
Other comprehensive
(expense)/income - - - - - (11.0) 1.9 (9.1)
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Total comprehensive
(expense)/income
for
the period - - - - - (11.0) 14.5 3.5
Dividends - - - - - - (15.9) (15.9)
Purchase of own shares - - - (0.4) - - - (0.4)
Treasury shares issued - - - 0.8 - - (0.7) 0.1
Settlement of share based
payments - - - - - - (1.6) (1.6)
Share based payments - - - - - - 1.3 1.3
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Balance at 29 December
2019 319.5 40.4 18.6 (1.7) - (4.0) (167.5) 205.3
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Balance at 28 June 2020 383.4 40.4 18.6 (0.7) - 3.3 (243.1) 201.9
Profit for the period - - - - - - 57.5 57.5
Other comprehensive
(expense)/income - - - - - (15.2) 2.9 (12.3)
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Total comprehensive
(expense)/income
for
the period - - - - - (15.2) 60.4 45.2
Purchase of shares held
by employee
benefit trust 0.3 - - - (0.3) - - -
Settlement of share based
payments - - - - - - (2.2) (2.2)
Share based payments - - - - - - 1.5 1.5
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Balance at 27 December
2020 383.7 40.4 18.6 (0.7) (0.3) (11.9) (183.4) 246.4
=================================== ======== ======== ======== ========== ========= ======== ========= =======
Unaudited condensed consolidated cash flow statement
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
========================================== ============ ============ ========
Profit/(loss) for the period 57.5 12.6 (69.2)
Adjustments for:
Income tax expense 14.6 3.3 (12.0)
Finance income - - (0.1)
Finance expense 17.4 18.7 37.6
Non-underlying financing costs 2.6 - -
Depreciation of property, plant
and equipment 9.8 13.0 21.3
Depreciation of right of use assets 29.1 28.7 60.6
Amortisation of intangible assets 3.6 3.1 6.8
Impairment of assets - - 11.5
Gain on sale of property, plant
and equipment (1.3) (0.4) (1.1)
Loss on sale of subsidiaries 1.1 - -
Settlement of share based payments (2.2) (1.6) (1.6)
Share based payment expense 1.5 1.3 2.4
(Increase)/decrease in trade and
other receivables (2.5) 7.3 (1.6)
Decrease/(increase) in inventories 9.2 4.0 (4.1)
Increase in trade and other payables 46.1 13.0 4.7
Increase in provisions 2.9 0.2 6.6
========================================== ============ ============ ========
Net cash from operating activities
before tax 189.4 103.2 61.8
Tax paid (1.4) (5.1) (6.1)
Net cash from operating activities 188.0 98.1 55.7
Cash flows from investing activities
Proceeds from sale of property,
plant and equipment 1.4 0.7 1.4
Proceeds from sale of subsidiaries 0.3 - -
Interest received - - 0.1
Acquisition of property, plant and
equipment (6.3) (11.8) (16.8)
Acquisition of other intangible
assets (4.1) (4.9) (6.6)
========================================== ============ ============ ========
Net cash from investing activities (8.7) (16.0) (21.9)
Cash flows from financing activities
Interest paid (4.0) (4.8) (9.0)
Interest paid on lease liabilities (13.7) (14.6) (29.2)
Payment of lease liabilities (39.0) (29.0) (36.3)
Exceptional financing costs (3.1) - -
Drawdown of borrowings - - 25.0
Repayment of borrowings (155.0) - -
Proceeds on issue of shares 0.3 - 63.9
Purchase of own shares (0.3) (0.4) (1.1)
Proceeds from sale of own shares - - 1.3
Dividends paid - (15.9) (15.9)
========================================== ============ ============ ========
Net cash from financing activities (214.8) (64.7) (1.3)
Net (decrease)/increase in cash
and cash equivalents (35.5) 17.4 32.5
Cash and cash equivalents at beginning
of period 62.3 29.8 29.8
========================================== ============ ============ ========
Cash and cash equivalents at end
of period 26.8 47.2 62.3
========================================== ============ ============ ========
Notes to the unaudited condensed consolidated financial
statements
1. Basis of preparation
This unaudited condensed consolidated interim financial
information for DFS Furniture plc ("the Company") and its
subsidiaries (together, "the Group") was approved for release on 9
March 2021.
The condensed consolidated interim financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in
the European Union and the Disclosure and Transparency Rules of the
Financial Conduct Authority, and comprise the results for the 26
weeks ended 27 December 2020, the 26 weeks ended 29 December 2019,
and the 52 weeks ended 28 June 2020. They do not include all of the
information required for full annual financial statements, and
should be read in conjunction with the consolidated financial
statements of the Group for the 52 weeks ended 28 June 2020.
The financial information included in this interim statement of
results does not constitute statutory accounts within the meaning
of Section 435 of the Companies Act 2006. The statutory accounts
for the 52 weeks ended 28 June 2020 have been reported on by the
Company's auditor and delivered to the Registrar of Companies. The
auditor's report for those accounts was unqualified, did not
include a reference to any matters to which the auditor drew
attention by way of emphasis without qualifying their report and
did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006. The auditor's review report for the 26 weeks
ended 27 December 2020 is attached.
Going concern
The financial statements are prepared on a going concern basis,
which the directors believe to be appropriate for the following
reasons.
The Group has a GBP225.0m revolving credit facility with a
consortium of seven banks maturing in December 2023, with two
one-year options to extend the facility, subject to mutual
agreement. At the date of approval of these interim condensed
financial statements, GBP[160]m of the revolving credit facility
remained undrawn, in addition to cash in hand, at bank (GBP[40.0]m
as at 5 March 2021).
Covenants applicable to the revolving credit facility are
consistent with those on the previous facility (prior to the
temporary alternative covenants in place from April 2020 to
December 2020): 3.0x net Debt / EBITDA and 1.5x Fixed Charge Cover,
and are assessed on a six-monthly basis at June and December. The
Directors have prepared cash flow forecasts for the Group covering
a period of at least twelve months from the date of approval of
these interim condensed financial statements, which indicate that
the Group will be in compliance with these covenants. These
forecasts include a number of assumptions in relation to: duration
and extent of Covid-19 related showroom closures in FY21 and FY22
and their impact on 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,
including specific consideration of a range of impacts that could
arise from the continued coronavirus pandemic. These scenarios
included: more prolonged showroom closures; significantly reduced
customer spending; and impacts on gross margin from regulatory and
other changes. 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 to operate within the committed
facilities and to comply with all relevant banking covenants during
the forecast period.
1. Basis of preparation (continued)
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 has adequate
resources to continue to meet all liabilities as and when they fall
due for a period of at least twelve months from the date of
approval of these interim condensed financial statements.
Accordingly, the financial statements are prepared on a going
concern basis.
2. Principal accounting policies
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the accounting policies adopted in
preparing the condensed consolidated interim financial statements
are consistent with the policies in the Group's financial
statements for the 52 weeks ended 28 June 2020, which were prepared
under IFRS as adopted by the European Union. There are no new
standards, amendments to existing standards or interpretations that
are effective for the first time in the period ended 27 December
2020 that have a material impact on the Group's results.
The annual financial statements of the Group for the year ending
27 June 2021 will be prepared in accordance with International
Financial Reporting Standards (IFRSs) adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union
and in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006.
3. Segmental Analysis
The Group's operating segments under IFRS 8 have been determined
based on management accounts reports reviewed by the Group
Leadership Team. 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 and other
furniture and related products through DFS and Dwell branded stores
and websites.
Sofology: the retailing of upholstered furniture and related
products through Sofology branded stores and website.
During the current financial year, the retail operations and
management of the Dwell brand were combined with the DFS brand and
accordingly they are now presented as one segment. Prior period
comparatives have been restated to align with the revised
presentation. Other segment activities comprise the retailing of
upholstered furniture and related products through Sofa
Workshop.
Segment revenue and profit
External sales Internal sales Total gross sales
26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks 26 weeks 26 weeks 52 weeks
to to to to to to to to to
27 29 December 28 June 27 29 December 28 June 27 29 December 28 June
December December December
2020 2019 2020 2020 2019 2020 2020 2019 2020
Re-presented Re-presented Re-presented Re-presented Re-presented Re-presented
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============= ======== ============ ============ ======== ============ ============ ======== ============ ============
DFS 587.1 488.1 735.3 - - 587.1 488.1 735.4
Sofology 141.4 129.0 181.7 - - 141.4 129.0 181.7
Other
segments 6.3 12.6 18.0 - - 6.3 12.6 18.0
Eliminations - - - - - - (0.1)
============= ======== ============ ============ ======== ============ ============ ======== ============ ============
Gross sales 734.8 629.7 935.0 - - - 734.8 629.7 935.0
============= ======== ============ ============ ======== ============ ============ ======== ============ ============
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
==================================== ============ ============ ========
Total segments gross sales 734.8 629.7 935.0
Less: value added and other sales
taxes (116.2) (98.5) (146.4)
Less: costs of interest free credit
and aftercare services (46.0) (43.2) (64.1)
==================================== ============ ============ ========
Revenue 572.6 488.0 724.5
==================================== ============ ============ ========
Of which:
Furniture sales 530.4 454.7 676.0
Sales of aftercare products 42.2 33.3 48.5
==================================== ============ ============ ========
Revenue 572.6 488.0 724.5
26 weeks to 27 December 2020 DFS Sofology Other Total
Re-presented Re-presented
GBPm GBPm GBPm GBPm
=============================== ============ ======== ============ =======
Revenue 454.9 112.6 5.1 572.6
Cost of sales (190.0) (53.0) (1.3) (244.3)
=============================== ============ ======== ============ =======
Gross profit 264.9 59.6 3.8 328.3
Selling and distribution costs
(excluding property costs) (121.7) (28.3) (0.5) (150.5)
Brand contribution (segment
profit) 143.2 31.3 3.3 177.8
Property costs (2.0)
Underlying administrative
expenses (40.1)
=============================== ============ ======== ============ =======
Underlying EBITDA 135.7
=============================== ============ ======== ============ =======
26 weeks to 29 December 2019 DFS Sofology Other Total
Re-presented Re-presented
GBPm GBPm GBPm GBPm
=============================== ============ ======== ============ =======
Revenue 375.8 102.1 10.1 488.0
Cost of sales (150.7) (50.5) (5.0) (206.2)
=============================== ============ ======== ============ =======
Gross profit 225.1 51.6 5.1 281.8
Selling and distribution costs
(excluding property costs) (119.4) (28.5) (4.1) (152.0)
Brand contribution (segment
profit) 105.7 23.1 1.0 129.8
Property costs (16.4)
Underlying administrative
expenses (34.0)
=============================== ============ ======== ============ =======
Underlying EBITDA 79.4
=============================== ============ ======== ============ =======
52 weeks to 28 June 2020 DFS Sofology Other Total
Re-presented Re-presented
GBPm GBPm GBPm GBPm
=============================== ============ ======== ============ =======
Revenue 566.5 143.7 14.3 724.5
Cost of sales (227.5) (72.3) (7.6) (307.4)
=============================== ============ ======== ============ =======
Gross profit 339.0 71.4 6.7 417.1
Selling and distribution costs
(excluding property costs) (205.3) (47.8) (7.2) (260.3)
Brand contribution (segment
profit) 133.7 23.6 (0.5) 156.8
Property costs (27.2)
Underlying administrative
expenses (67.7)
=============================== ============ ======== ============ =======
Underlying EBITDA 61.9
=============================== ============ ======== ============ =======
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
=============================== ============ ============ ========
Underlying EBITDA 135.7 79.4 61.9
Non-underlying items (1.1) - (16.6)
Depreciation & amortisation (42.5) (44.8) (88.7)
Impairments - - (0.3)
=============================== ============ ============ ========
Operating profit 92.1 34.6 (43.7)
Finance income - - 0.1
Finance expense (17.4) (18.7) (37.6)
Non-underlying financing costs (2.6) - -
Profit before tax 72.1 15.9 (81.2)
=============================== ============ ============ ========
A geographical analysis of revenue is presented below:
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
=============== ============ ============ ========
United Kingdom 557.4 472.7 701.7
Europe 15.2 15.3 22.8
--------------- ============ ============ ========
Total revenue 572.6 488.0 724.5
=============== ============ ============ ========
Segment assets and liabilities
Assets Liabilities
27 December 29 December 28 June 27 December 29 December 28 June
2020 2019 2020 2020 2019 2020
Re-presented Re-presented Re-presented Re-presented
GBPm GBPm GBPm GBPm GBPm GBPm
=============================== =========== ============ ============ =========== ============ ============
DFS 940.2 986.9 997.0 (650.6) (617.0) (595.4)
Sofology 155.6 154.6 145.5 (145.3) (131.3) (143.9)
Other segments - 20.7 7.5 - (20.5) (25.2)
=============================== =========== ============ ============ =========== ============ ============
Total segments 1,095.8 1,162.2 1,150.0 (795.9) (768.8) (764.5)
Loans and financing - - - (62.8) (194.1) (218.7)
Financial assets/(liabilities) - 0.5 5.3 (11.9) (4.5) (2.0)
Current tax - - 7.8 (2.9) (0.2) -
Deferred tax 24.1 10.2 24.0 - - -
Eliminations (24.9) (10.5) (15.5) 24.9 10.5 15.5
Total Group 1,095.0 1,162.4 1,171.6 (848.6) (957.1) (969.7)
=============================== =========== ============ ============ =========== ============ ============
Segment assets comprise 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, amortisation
assets and impairments
27 December 29 December 28 June 27 December 29 December 28 June
2020 2019 2020 2020 2019 2020
Re-presented Re-presented Re-presented Re-presented
GBPm GBPm GBPm GBPm GBPm GBPm
=============== =========== ============ ============ =========== ============ ============
DFS 10.1 16.1 22.9 32.4 33.8 68.3
Sofology 6.4 5.5 7.6 9.0 9.3 18.8
Other segments - 0.5 0.6 1.1 1.7 13.1
=============== =========== ============ ============ =========== ============ ============
Total Group 16.5 22.1 31.1 42.5 44.8 100.2
=============== =========== ============ ============ =========== ============ ============
Additions to non-current assets include both tangible and
intangible non-current assets but exclude amounts arising on
acquisition.
4. Operating profit
Group operating profit is stated after charging/(crediting):
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
============================================ ============ ============ ========
Depreciation on tangible assets (including
depreciation on right of use assets) 38.9 41.7 81.9
Amortisation of intangible assets 3.6 3.1 6.8
Impairment of tangible assets - - 5.2
Impairment of intangible assets - - 1.0
Impairment of goodwill - - 5.3
Net gain on disposal of property, plant
and equipment (1.3) (0.4) (1.1)
Cost of inventories recognised as an
expense 246.2 212.1 317.1
Write down of inventories to net realisable
value 1.5 (0.5) 7.2
Other costs of sales (3.4) (5.4) (13.8)
Operating lease rentals 1.0 0.3 1.9
============================================ ============ ============ ========
Non-underlying items:
Restructuring costs - - 2.3
Impairment of tangible and right of
use assets - - 4.9
Impairment of goodwill and brand names - - 6.3
Write down of inventories on restructuring - - 3.1
Loss on disposal of subsidiaries 1.1 - -
============================================ ============ ============ ========
1.1 - 16.6
============================================ ============ ============ ========
On 18 September 2020 the Group formally completed the disposal
of The Sofa Workshop Limited for cash consideration of GBP0.3m. The
loss on disposal includes professional fees, property guarantees
and other costs associated with the disposal.
In the 52 weeks to 28 June 2020, non-underlying costs 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
relating to Sofa Workshop was fully impaired, together with the
right of use and other tangible assets relating to stores being
closed, and the brand name was written down to GBP0.3m. 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.
5. Finance expense
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
===================================== ========================== ============ ========
Interest payable on senior revolving
credit facility 2.5 3.7 7.6
Bank fees 1.1 0.1 0.5
Interest on lease liabilities 13.6 14.9 29.2
Other interest 0.2 - 0.3
Total underlying finance expense 17.4 18.7 37.6
Non-underlying items:
Refinancing costs 2.6 - -
Total finance expense 20.0 18.7 37.6
===================================== ========================== ============ ========
Non-underlying finance costs relate to the refinancing of the
Group's revolving credit facility in December 2020.
6. Taxation
The tax charge recognised in the interim financial statements
has been calculated on the basis of the expected effective tax rate
for the 26 weeks to 27 December 2020 of 20.2% (26 weeks to 29
December 2019: 20.5% and 52 weeks to 28 June 2020: 14.8%). The FY20
effective tax rate was lower than normal for the Group due to
losses incurred in Sofa Workshop which were not recognised as
deferred tax assets and the non-deductible write down of
goodwill.
7. Earnings per share
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
pence pence pence
===================================== ============ ============ ===========
Basic earnings per share 22.5 6.0 (31.4)
Diluted earnings per share 22.3 5.9 (31.4)
===================================== ============ ============ ===========
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
===================================== ============ ============ ===========
Profit/(loss) attributable to equity
holders of the parent company 57.5 12.6 (69.2)
===================================== ============ ============ ===========
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
No. No. No.
===================================== ============ ============ ===========
Weighted average number of shares
for basic earnings per share 255,808,727 212,239,375 220,289,976
Dilutive effect of employee share
based payment awards 1,844,663 2,630,951 -
===================================== ============ ============ ===========
Weighted average number of shares
for diluted earnings per share 257,653,390 214,870,326 220,289,976
===================================== ============ ============ ===========
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.
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
GBPm GBPm GBPm
====================================== ============ ============ ========
Profit/(loss) attributable to equity
holders of the parent company 57.5 12.6 (69.2)
Non-underlying items loss after
tax 2.6 - 15.7
Underlying profit attributable to
equity holders of the parent company 60.1 12.6 (53.5)
====================================== ============ ============ ========
26 weeks 26 weeks 52 weeks
to to to
27 December 29 December 28 June
2020 2019 2020
pence pence pence
Underlying basic earnings per share 23.5 6.0 (24.3)
Underlying diluted earnings per
share 23.3 5.9 (24.3)
====================================== ============ ============ ========
8. Dividends
Pence 26 weeks 26 weeks 52 weeks
per ordinary to to to
share 27 December 29 December 28 June
=============
2020 2019 2020
=============
GBPm GBPm GBPm
======================== ============= ============ ============ ========
Final ordinary dividend
for FY19 7.5p - 15.9 15.9
- 15.9 15.9
======================== ============= ============ ============ ========
The directors do not recommend an interim dividend in respect of
the financial period ended 27 June 2021.
9. 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.
10. Seasonality of operations
The Group's business is subject to sales order peaks due to the
effects of promotional periods and, historically, a significant
proportion of its annual revenue has been derived from orders
generated during specific promotional periods. Promotional periods
are generally aligned with periods over which consumers seek to
make more purchases.
The Group's most important trading periods in terms of order
volumes have historically been in the promotional periods during
the post-Christmas winter sale, Easter, the pre-Christmas
guaranteed delivery period, and other public bank holidays. These
increases in its order volumes (as opposed to its revenue, which is
recognised upon completion of delivery, typically between three and
12 weeks after orders are placed) have generally been influenced,
inter alia, by increases in the Group's spending on marketing and
promotions in the period immediately prior to, and during, these
promotional periods.
As a result of this seasonality of operations the results for
the first half of the financial year have typically been smaller
than the second half. However, the coronavirus pandemic has
resulted in a significant change to expected trading patterns as
the impact of showroom closures during lockdown periods and
subsequent surges in customer demand have materially altered the
phasing of order intake and subsequent revenue recognition.
11. Capital expenditure
Property, Right of Intangible
plant use
and equipment asset assets
GBPm GBPm GBPm
========================================== ============= ======== ==========
Net book value as at 29 June 2020 74.1 384.5 532.5
Additions 6.3 6.1 4.1
Remeasurements - 9.5 -
Disposals (0.8) (3.2) (0.4)
Depreciation, amortisation and impairment (9.8) (29.1) (3.6)
========================================== ============= ======== ==========
Net book value as at 27 December 2020 69.8 367.8 532.6
========================================== ============= ======== ==========
Property, Right of Intangible
plant use
and equipment asset assets
GBPm GBPm GBPm
========================================== ============= ======== ==========
Net book value as at 1 July 2019 79.4 445.0 539.0
Additions 11.9 5.3 4.9
Disposals - (0.3) -
Depreciation, amortisation and impairment (10.7) (31.0) (3.1)
========================================== ============= ======== ==========
Net book value as at 29 December 2019 80.6 419.0 540.8
========================================== ============= ======== ==========
12. Provisions
Guarantee Property Other
provision provisions provisions Total
GBPm GBPm GBPm GBPm
=========================== ========== =========== =========== =====
Balance at 28 June 2020 8.1 1.6 6.1 15.8
Transferred from accruals - 0.6 - 0.6
Provisions made during
the period 2.3 3.0 2.9 8.2
Provisions used during
the period (2.3) - - (2.3)
Released during the period - (1.2) - (1.2)
=========================== ========== =========== =========== =====
Balance at 27 December
2020 8.1 4.0 9.0 21.1
=========================== ========== =========== =========== =====
Current 5.6 1.2 9.0 15.8
Non-current 2.5 2.8 - 5.3
8.1 4.0 9.0 21.1
=========================== ========== =========== =========== =====
Guarantee Property Other
provision provisions provisions Total
GBPm GBPm GBPm GBPm
=========================== ========== =========== =========== =====
Balance at 30 June 2019 7.4 2.4 0.8 10.6
Impact of IFRS 16 - (1.4) - (1.4)
=========================== ========== =========== =========== =====
Balance at 1 July 2019 7.4 1.0 0.8 9.2
Provisions made during
the period 1.8 0.3 - 2.1
Provisions used during
the period (1.5) - - (1.5)
Released during the period - (0.4) - (0.4)
=========================== ========== =========== =========== =====
Balance at 29 December
2019 7.7 0.9 0.8 9.4
=========================== ========== =========== =========== =====
Current 5.7 - 0.8 6.5
Non-current 2.0 0.9 - 2.9
7.7 0.9 0.8 9.4
=========================== ========== =========== =========== =====
The Group offers a long-term guarantee on its upholstery
products and in accordance with accounting standards a provision is
maintained for the expected future cost of fulfilling these
guarantees on products which have been delivered before the
reporting date, nearly all claims arise within two years of
delivery.
12. Provisions (continued)
Property provisions relate to an estimate of dilapidation costs
based on anticipated lease expiries and renewals, and lease
guarantee obligations in respect of properties occupied by former
subsidiary undertakings which are expected to unwind over the life
of the lease.
Other provisions relate to payment of refunds to customers for
payment protection insurance policies and deferred consideration
payable on the Group's November 2017 acquisition of Sofology.
13. Net debt
Other
Cash non-cash 27 December
28 June 2020 flow changes 2020
GBPm GBPm GBPm GBPm
========================== ============ ============= ========= ===========
Cash in hand, at bank 62.3 (35.5) - 26.8
========================== ============ ============= ========= ===========
Cash and cash equivalents 62.3 (35.5) - 26.8
Senior revolving credit
facility (218.7) 155.0 0.9 (62.8)
Lease liabilities (517.2) 39.0 (9.5) (487.7)
========================== ============ ============= ========= ===========
Total net debt (673.6) 158.5 (8.6) (523.7)
========================== ============ ============= ========= ===========
30 June IFRS Cash Other non-cash 29 December
2019 16 transition flow changes 2019
GBPm GBPm GBPm GBPm GBPm
========================== ======= ========================== ============== ============== ===========
Cash in hand, at bank 29.8 - 17.4 - 47.2
========================== ======= ========================== ============== ============== ===========
Cash and cash equivalents 29.8 - 17.4 - 47.2
Senior revolving credit
facility (194.0) - - (0.1) (194.1)
Lease liabilities (12.1) (536.6) 29.0 (5.3) (525.0)
========================== ======= ========================== ============== ============== ===========
Total net debt (176.3) (536.6) 46.4 (5.4) (671.9)
========================== ======= ========================== ============== ============== ===========
14. 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 International Financial
Reporting Standards (IFRS) as applied in the European Union.
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.
14. Alternative performance measures (continued)
APM glossary and definitions
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 in operation 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.
====================== =============================== ==================================
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, Simple cash profit measure
taxation, depreciation reflecting underlying
and amortisation, as trading performance.
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.
PBT(A) with the acquired brand
names.
====================== =============================== ==================================
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.
====================== =============================== ==================================
LTM Dec-20 Last twelve months/52 Certain KPIs (e.g. Leverage)
weeks ended 27 December are only meaningful when
2020 (unaudited, pro assessed on a full year
forma period). basis.
====================== =============================== ==================================
Cash EBITDA Net cash from operating Measure of the operating
activities before tax cash generation of the
less movements on working business, normalised
capital and provisions to reflect timing differences
balances and payments in working capital movements.
made under lease obligations.
====================== =============================== ==================================
Leverage (gearing)(1) The ratio of period end Key measure which indicates
net bank debt to Cash the relative level of
EBITDA for the previous borrowing to operating
twelve months. cash generation, widely
used by investors and
analysts.
====================== =============================== ==================================
1. Definition revised following adoption of IFRS 16.
14. Alternative performance measures (continued)
Reconciliations to IFRS measures
EBITDA H1 FY21 H1 FY20 FY20
GBPm GBPm GBPm
======================== ======= ======= ======
Operating profit/(loss) 92.1 34.6 (43.7)
Depreciation 38.9 41.7 81.9
Amortisation 3.6 3.1 6.8
Impairments - - 11.5
========================= ======= ======= ======
EBITDA 134.6 79.4 56.5
========================= ======= ======= ======
Underlying EBITDA H1 FY21 H1 FY20 FY20
GBPm GBPm GBPm
=============================== ======= ======= ====
EBITDA 134.6 79.4 56.5
Non-underlying operating items 1.1 - 5.4
================================ ======= ======= ====
Underlying EBITDA 135.7 79.4 61.9
================================ ======= ======= ====
Underlying profit before tax and brand H1 FY21 H1 FY20 FY20
amortisation - PBT(A)
GBPm GBPm GBPm
======================================= ======= ======= ======
Profit/(loss) before tax 72.1 15.9 (81.2)
Non-underlying items 3.7 - 16.6
Amortisation of brand names 0.7 0.7 1.5
======================================== ======= ======= ======
Underlying profit before tax
and brand amortisation 76.5 16.6 (63.1)
======================================== ======= ======= ======
Net bank debt H1 FY21 H1 FY20 FY20
GBPm GBPm GBPm
====================================== ======= ======= ======
Interest bearing loans and borrowings 62.8 194.1 218.7
Unamortised issue costs 2.2 0.9 1.3
Cash and cash equivalents (26.8) (47.2) (62.3)
Net bank debt 38.2 147.8 157.7
======================================= ======= ======= ======
Leverage LTM Dec-20 FY20
GBPm GBPm
=================================== =========== =======
Net bank debt (A) 38.2 157.7
===================================== =========== =======
Net cash from operating activities
before tax 146.4 61.8
Less:
Movement in trade and other
receivables 11.4 1.6
Movement in inventories (1.1) 4.1
Movement in trade and other
payables (37.8) (4.7)
Movement in provisions (9.3) (6.6)
Payment of lease liabilities (46.3) (29.2)
Payment of interest on leases (28.3) (36.3)
===================================== =========== =======
Cash EBITDA (B) 35.0 (9.3)
Leverage (A/B) 1.1x (17.0)x
===================================== =========== =======
This interim report, 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",
"project", "goal", "expectation", "belief", "estimate", "plan",
"target", or "forecast" and similar expressions for the negative
thereof; or by forward-looking nature of discussions of strategy,
plans or intentions; or by their context. No representation is made
that any of these statements or forecasts will come to pass or that
any forecast results will be achieved. All statements regarding the
future are subject to inherent risks and uncertainties and various
factors that would cause actual future results, performance or
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
Company's expectations in regard thereto or any change in events,
conditions or circumstances on which any statement is based after
the date of this interim report or to update or to keep current any
other information contained in this interim report or to provide
any additional information in relation to such forward-looking
statements. Undue reliance should not therefore be placed on such
forward-looking statements.
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END
IR DKFBQCBKDQNK
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