TIDMDFS
RNS Number : 1938N
DFS Furniture PLC
21 September 2023
21 September 2023
Immediate release
DFS Furniture plc ("DFS" and the "Group")
Preliminary Results
Record market share c38% and FY23 PBT within previously guided
range
Solid start to FY24, in line with expectations
DFS Furniture plc (the "Group"), the market leading retailer of
living room and upholstered furniture in the United Kingdom, today
announces its preliminary results for the 52 weeks ended 25 June
2023 (prior year comparative period is the 52 weeks ended 26 June
2022).
GBPm FY23 FY22 Change
------- -------
Revenue from continuing operations(1) 1,088.9 1,149.8 (5.3%)
Gross margin(1) 54.4% 52.7% 1.7%pt
Underlying PBTa from continuing operations(1,2) 30.6 60.3 (49.3%)
Reported PBT 29.7 58.5 (49.2%)
Basic underlying EPS from continuing
operations(1,2) 9.6p 17.5p (45.1%)
Reported EPS 11.1p 12.3p (9.8%)
Free cash flow excluding working
capital normalisation(1,2) 29.4 37.2 (21.0%)
Free cash flow(2) (7.0) (5.0) (40.0%)
Cash returned to shareholders(3) 43.0 58.2 (26.1%)
Net bank debt(2) 140.3 90.0 55.9%
Leverage(2) 1.9x 1.0x (0.9x)
------------------------------------------------ ------- ------- -------
(1) Excludes the discontinued Netherlands and Spain
businesses
(2) 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.
(3) Ordinary dividends, special dividends and share buy backs
paid in the period
Strategic and operational highlights:
-- Continuing to win share in a very tough market, extending our
market leadership with 2%pts share gain to a record 38% of the UK
upholstery market.
-- Operationally in the strongest position since the pandemic,
reflected in customer experience scores, with supply chains, order
banks and customer lead times all back to normal.
-- Brands continue to evolve: DFS range continues to broaden
appeal and extend into higher price points; three further Sofology
showrooms opened taking the total to 58 (38 at acquisition) and
closer to our nationwide target of 65-70.
-- In the Home category, we continue to strengthen the
foundations for growth in this GBP5bn market opportunity, with a
drop-ship delivery solution launched and exclusive brand
partnerships extended to bed ranges, driving online beds &
mattress sales up 69% year on year.
-- Carbon reduction plan now developed to reach our ambition of
Net Zero by 2040, on track to submit targets to SBTI by June
2024.
Financial highlights
-- Group revenue from continuing operations was GBP1,088.9m, a
decrease of 5.3% from prior year however 13.8% ahead of the
pre-pandemic FY19 pro-forma period*
-- Group gross margin continues to recover in line with
expectations, up 170 bps year on year to 54.4%, with an FY24 entry
rate of 56.5%.
-- Underlying PBTa from continuing operations(3) of GBP30.6m in
line with guidance at our interims, down year on year as
anticipated given strong post-pandemic sales in prior year and very
weak market demand in FY23, combined with inflationary
pressures.
-- Cost efficiencies programme established across our product,
property and operating cost models targeting cGBP50m annualised
savings by FY26.
-- Free cash flow(1) , excluding working capital normalisation, of GBP29.4m.
-- Increase in net bank debt(1) from GBP90.0m to GBP140.3m with
working capital now normalised after inflows across the high demand
pandemic years, and special shareholder returns associated with
cash generated in those prior periods.
-- Successful refinancing of debt facilities in September 2023
is a strong positive endorsement of the Group, securing additional
liquidity for an extended period and flexibility to execute our
future growth plans.
Outlook
-- FY24 underlying PBTa guidance is for a low single digit year
on year improvement (range GBP30m-GBP35m), supported by continued
market share gains and margin improvements. Guidance based on the
assumption market volumes decline -5% year on year.
-- Profit will be weighted to the second half of the period
reflecting weak market demand at the end of FY23 and timing of cost
saving initiatives.
-- We are confident the market will recover, however we can't
predict how quickly that will happen. We have a clear route to a 5%
PBT margin without market recovery, supported by further margin
improvement, new cost efficiencies and continued growth in
Home.
-- When market volumes recover to pre pandemic levels,
additional operational leverage supports 8% PBT margins, in line
with previous guidance.
* unaudited pro-forma period 52 weeks ended 30 June 2019,
excluding disposed and discontinued operations.
Tim Stacey, Group Chief Executive Officer said:
" I want to sincerely thank our colleagues for their truly
outstanding and consistently high level of determination and
dedication to deliver at their best for the Group, and for their
help in getting us to the strongest position we have ever been in
terms of market share.
The Group is operating in one of the toughest economic climates
we have experienced. Whilst we are confident the upholstery market
will recover, forecasting the specific timing and pace of the
recovery is challenging.
We do, however, expect to generate a modest year on year
increase in profit before tax in FY24 despite a relatively weak
market in which we expect volumes will continue to decline across
the next 12 months. Looking to the future as market volumes
recover, we remain confident in achieving the financial performance
set out at our Capital Markets Day in 2022 of GBP1.4bn of revenues
at an 8% PBT margin."
Enquiries:
DFS (enquiries via Tulchan)
Tim Stacey (Group CEO)
John Fallon (Group CFO)
Phil Hutchinson (Investor Relations)
investor.relations@dfs.co.uk
Teneo
James Macey-White
Jessica Reid
Ayo Sangobowale
+44 (0)20 7353 4200
85fs.dfs@teneo.com
About DFS Furniture plc
The Group is the clear market-leading retailer of living room
furniture in the United Kingdom. Our Group purpose is to bring
great design and comfort into every living room, in an affordable,
responsible and sustainable manner. We operate an integrated
physical and digital retail network of living room furniture
showrooms and web sites in the United Kingdom, Republic of Ireland,
trading through our leading brands, DFS and Sofology. We attract
customers through our targeted and national marketing activities
and our reputation for high quality products and service, breadth
of product offer and favourable consumer financing options. We
fulfil orders for our exclusive product ranges through our own UK
finished goods factories, and through manufacturing partners
located in the UK, Europe and Far East, and delivered with care
through our expert final-mile delivery service "The Sofa Delivery
Company Limited".
CHAIR'S STATEMENT
The year to June 2023 has been marked by an uncertain and
disrupted external environment, with the continuing impact of the
conflict in Ukraine, global inflationary pressures, and the move
away from the extremely low level of interest rates seen over the
last ten years all weighing on UK consumers.
This external backdrop has meant another incredibly challenging
year for the Group, with the business constantly balancing the need
to invest in the assets and resources to support future growth with
caution given current market volatility. I am delighted to be able
to report that, as always, no matter how big the challenge, our
colleagues across the Group have responded with skill and
enthusiasm to ensure that the business continues to deliver a
positive experience for all our customers. The success of the Group
in growing its market share to record levels is testament to the
operational excellence within the business along with the strong
affinity our brands have developed with our customers.
Financial results
FY23 was a year of significant challenge due to the weak
economic backdrop. Despite consumer demand being impacted by the
macroeconomic environment, the business has extended its long
history of growing market share which increased to 38%. This growth
in market share has been underpinned by the Group's leading brands,
scale and well invested integrated retail proposition and the Group
expects to continue to outperform a declining market in FY24.
Despite the challenging market environment we are confident that
the Group's long-term value generation ambition remains unchanged.
Further growth in market share and carefully managing the cost base
will deliver a return to growth in profit and the potential for
significant value creation through share price appreciation and
capital returns.
Board & Governance
This has been a year of significant change at Board level, but
we believe that both the external Board appointments and the
internal promotions have further enhanced and reinvigorated the
Group's capability and talent.
Ian Durant had indicated to the Board a wish to retire at the
AGM in November 2022 and after a robust, externally led search I
was delighted to accept the opportunity to Chair the Board. On
behalf of the Board I would like to thank Ian for his invaluable
contribution to the business over the last six years. Under his
leadership the DFS Group achieved substantial growth and
successfully navigated the challenges the business faced during the
last few years, first with the pandemic and then the cost of living
crisis. We all wish Ian well for the future.
In November 2022 we were pleased to announce the appointment of
John Fallon as Chief Financial Officer (CFO). John is an
accomplished finance leader who brings a wealth of retail
experience to the Group, all of which will be hugely beneficial as
we work to achieve our strategic aims and drive profit, through
growing market share and closely managing our cost base.
In March 2023 we announced the appointment of Gill Barr to the
Board as a Non-Executive Director and Chair of the Remuneration
Committee. Gill has wide experience in retail, consumer, and
logistics, both as an executive and Non-Executive Director,
including as a seasoned Remuneration Chair, and I am looking
forward to working closely with her.
Jane Bednall decided to step down from the Board at the end of
the financial year. My thanks go to Jane for her contribution
during her time with the business and I wish her the best for her
future ventures. I am delighted that Loraine Martins has agreed to
take over Jane's responsibilities as the Designated Non-Executive
director representing the views of the wider workforce.
I would like to thank my Board colleagues and the Group
Leadership Team for their commitment and support over the last
year.
One of my key responsibilities as the Chair is to set the tone
for our Group and ensure good governance. As a Board we continue to
work closely with the Group Leadership Team to maintain oversight
of the strategic, operational and compliance risks across the
Group, to help to shape our strategy and uphold the standards
expected of us. The Corporate Governance report that will be
included in our FY23 Annual Report sets out our approach to
ensuring good governance and provides details of this year's
activities.
People
Our people live our values, they are dedicated and loyal and put
our customers and each other at the heart of everything they do.
They are committed to delivering the highest level of customer
service and to collaborating closely with our suppliers and the
local communities we operate in, wherever they are. We rely on
their skills, experience, competence, agility, and drive to take
our business forward. For all this we thank our colleagues. We will
continue to support their efforts, to help them develop and grow
their careers in ways that benefit both them and the business.
Strategy
As previously announced, the Group decided in 2022 to simplify
its structure and close its operations in Spain and the
Netherlands. This work was completed in the Autumn of 2022. Since
then, the Group has made good progress in refocusing the business
on our DFS and Sofology brands and The Sofa Delivery Company.
Continuing to improve productivity across our operations is key to
better supporting our customers and to carefully managing our cost
base in light of ongoing inflationary pressures. To this end, a
full review of the Group's operating cost base has been undertaken,
led by the new CFO, with support from the Group Leadership team and
external advisers. As a result of this review and given the
significant cost increases facing UK manufacturing, we are
currently working to consolidate our UK manufacturing base and are
consulting with our colleagues on the proposed closure of our
smallest factory and the wood mill that supplies it. As part of
that process we are working with those colleagues who are impacted
to identify alternative opportunities for them at our other
manufacturing sites and within the wider Group.
As the market leader, we have always believed that long term
sustainable growth can only be achieved by being aware of the
impact our activities can have on the wider society and
understanding what is important to colleagues and customers both
now and in the future. Work continues on developing the Group's ESG
strategy with the focus on building our relationships with our
existing supplier base to develop sustainable and ethical products
and to drive a more circular product lifecycle. During the year
Sofology launched, the Gaia, our first fully circular range. As a
Board we are keen to continue to show leadership in this area and
to be judged by our performance, including through our approach to
executive pay. In FY23 we included ESG measures in our annual bonus
and, from FY24, ESG targets will be included in our Long-Term
Incentive Plan performance measures.
Capital structure and returns
Having reviewed our approach to dividends and having published
an updated Capital and Distribution policy in March 2023, the Board
is recommending a final dividend of 3.0 pence per share (2022:
3.7p), giving a total ordinary dividend for the year of 4.5p (2022:
7.4p).
I am pleased to announce that since the year end the Group has
successfully completed a GBP250m refinancing. The facility is a
combination of a GBP200m Revolving Credit Facility, provided by
members of the previous banking syndicate and GBP50m of US private
placement notes.
Looking Forward
The Board remains mindful of the impact on consumers of the
uncertain macroeconomic environment that resulted in the
upholstered furniture market being 15% below pre-pandemic levels,
and we expect a mid-single digit year on year market decline in
FY24. Despite this, the Group's financial and operational position
is robust. Our market share continues to grow driven by our
operational excellence and the Group Leadership Team is focused on
robustly managing our margins and cost base, supporting our
customers, and collaborating with our suppliers to bring the best
possible products to the market, whilst remaining alert and agile
to deal with the unexpected. The Board is confident that this
approach will allow the Group to create a solid base for long-term
cash generation and attractive returns to shareholders once the
market returns to a more stable trading environment.
STEVE JOHNSON
Chair of the Board
21 September 2023
CHIEF EXECUTIVE'S REVIEW
Overview
The Group has made good progress strategically and operationally
throughout the year as we focused on executing our growth strategy
and continuously improving our operating platforms. We have
continued our long term track record of growing our market share in
the UK upholstery sector with a significant 2%pts step up in the
period, taking the Group's value share of the upholstery market to
a record high of 38%. This has been achieved whilst rebuilding our
gross margin rate back towards historical levels. We have also seen
a step change in our customer experience scores through improved
operational grip and the easing of the external supply chain
crisis.
This progress has been made against a backdrop of a very
challenging market environment with high levels of cost inflation
and significant increases in interest rates. The combined impact of
these macroeconomic factors reduced consumer confidence levels,
which have remained at or close to record lows and reduced consumer
real disposable income levels. Consequently the UK upholstery
market has been under significant pressure and we estimate that
market order volumes were down 15% or more relative to pre-pandemic
levels. In addition, like most other businesses, we have had to
tackle high levels of input cost inflation. As expected, we have
seen improved efficiency in our operating platforms following
historical investments and these, alongside careful management of
our operating costs and selective retail price increases have
helped to mitigate these cost headwinds.
Despite the weaker than anticipated market environment the
Group's underlying profit before tax and brand amortisation(1)
performance of GBP30.6m was within the range we had guided to when
we reported our interim results. In what we expect to be a
challenging trading environment for at least the next financial
year we are continuing to focus on executing our strategy,
developing our customer propositions and adapting our cost base to
bolster profitability in this period of subdued demand whilst
ensuring we are well placed for the long term.
Market update
Proprietary data that we have access to indicates the upholstery
market has been in significant decline in FY23 with market order
volumes down 15% or more relative to the pre-pandemic period.
Demand across the period was also volatile with weaker demand more
pronounced in the first and final quarters of the year. As a result
of the low demand in the final quarter, profits were constrained to
the lower end of the range we had guided to.
Over the period as a whole the Group outperformed the market,
growing its share by 2%pts across the year to a record level of 38%
as tracked by GlobalData and our proprietary Barclaycard data.
Market share was picked up predominantly from the independent and
pure play competitors which now represents 26% of the market. We
anticipate that this competitor set will continue to decline,
providing opportunity for further market share growth for the
Group.
With the cost of living crisis lingering on and consumers now
also being impacted by higher property costs, we anticipate that
market demand will drop further in FY24 before we start to see a
recovery to pre-pandemic levels. We do however expect to continue
our track record of growing market share underpinned by the Group's
leading brands, scale and well invested integrated retail
proposition.
Reflections on FY23 financial performance
Stepping back, when I consider FY23 as a whole, the fact that
profits were delivered within our guided range despite the tougher
than expected trading conditions our market faced is testament to
the relative strength of our brands and our operational
agility.
The reported profit before tax of GBP29.7m and underlying profit
before tax and brand amortisation(1) of GBP30.6m however is a low
point for the Group (outside the Covid lockdown impacted FY20
period) and reflective of a very weak market and high levels of
input cost inflation. These headwinds were mitigated, to an extent,
by the market share gains we achieved, gross margin rate
improvement, effective operating cost management and the benefit of
a high opening order bank that unwound in the period.
Our plan to recover gross margin rates to pre-pandemic levels of
c 58% is making progress. Since H2 FY22, where a margin rate of
51.9% was recorded, we have seen steady improvement to 53.8% in H1
FY23 and 55.0% in H2 FY23, with the exit rate for the year being
higher.
We anticipate that the margin rate will improve further through
FY24 as we target an exit rate approaching 58% supported by the
full year benefit of reduced Far East shipping rates (which have
now returned to pre-pandemic levels), retail price increases
implemented in March 2023, raw material input costs that are now
reducing and improved sourcing strategies which I elaborate on
further below. These will more than offset a headwind from Bank of
England base rate increases that result in higher costs for
providing our interest free credit (IFC) proposition. We took the
decision to alter our IFC proposition in March to mitigate the cost
increase by reducing the maximum credit term from 48 months to 36
months and our proposition still remains industry leading.
Led by our new CFO, John Fallon, and supported by external
advisors, we have carried out a full review of the operating cost
base. A number of quick win opportunities have been enacted to date
and the Group Leadership Team are each taking ownership to deliver
projects which will drive multi-year cost improvements, starting in
FY24, through operating more efficiently and effectively. More
detail can be found in John's CFO report.
Strategic update
Our vision is to lead furniture retailing in the digital age. To
achieve this vision our strategy is to profitably and sustainably
grow our core upholstery brands across both our physical and online
propositions and also our share of the GBP5bn non upholstery Home
market. This growth is based on utilising and enhancing our
enabling platforms; technology and data, logistics, sourcing and
manufacturing, and people and culture.
Our brands
Our two retail brands, DFS and Sofology, have both performed
relatively well in the period, each growing their market share.
During the year the DFS brand performed well, extending its
leadership position as the largest UK upholstery retailer through
focusing on the customer experience and expanding its proposition
to appeal to a wider audience. Utilising our customer and marketing
segmentation data the brand developed and launched ranges to appeal
more to customer segments where we were under indexing. We've seen
the benefits coming through via increased conversion rates and
increases in our average order values.
Our new store format initiative has progressed well in the year
with 11 DFS showroom refurbishments taking place. We have now
refurbished our 58 top priority showrooms over the last four years
and payback periods for the more recent investments remain strong
at under two years.
During the year we opened three new Sofology showrooms, bringing
the total to 58 (from 38 showrooms at acquisition). The new
showrooms are performing well and the average return on investment
of recent stores trading over 12 months is over 65%. We continue to
see opportunities for a total of 65-70 showrooms across the UK and
Ireland for the brand. The new leadership team at Sofology has also
refined and developed a new three-year growth plan called 'Drive to
25' that has been approved by the Board and launched internally and
which builds on the recent progress on performance and customer
satisfaction. The ambition is for Sofology to become the UK's
number 2 sofa retailer, behind DFS.
NPS performances across DFS and Sofology have improved through
FY23 following a decline across the pandemic. This decline was
driven by lead time delays due to factory lockdowns, global
logistics challenges, raw material shortages and a drop in customer
service levels driven by high levels of demand. We have since
invested to improve our customer service levels which have
contributed to DFS's established customer satisfaction NPS
improving from 12 in FY22 to 19 in FY23 and in Sofology, which was
materially impacted by COVID disruption, from -49 to -6 and we
expect the improving trend to continue through FY24.
Both brands continue to build and strengthen their integrated
retail business models, enabling our customers to shop seamlessly
across all channels, online, in store and at every stage of their
journey: from early-stage researching, to advice and support across
their purchase decisions through to delivery, installation and
after-sales support.
The home market opportunity
We have made good progress in laying the foundations to support
the Group's growth in the GBP5bn Home market and are seeing early
signs of success through increased sales levels.
We are targeting the GBP3bn beds and mattresses market first and
have expanded our exclusive brand partnerships in the upholstery
market with high quality brands such as French Connection, Grand
Designs and Joules to cover bed frames. We have targeted sales of
our ranges through our online channels and through dedicated spaces
in a select number of showrooms. To fulfil these orders we have
developed a drop-ship solution for beds and mattresses with
Wincanton which went live in January of this year. Our beds and
mattresses online sales have been in line with our expectations, up
69% year on year.
Our supporting platforms
Sourcing & Manufacturing : To support the gross margin
improvements discussed above we have reviewed the relative end to
end cost of sourcing products across our supplier base, including
from potential new suppliers in alternative geographies. This
review covered the cost of producing and shipping products along
with risk and quality considerations and ESG matters such as
suppliers' ability to align with our raw material sourcing
requirements and ethical working practices.
Following investment in our larger UK sites in recent years, we
have determined that the Group will benefit from consolidating its
UK manufacturing operations. As a result, in early September 2023
we commenced a consultation with our colleagues employed at our
smallest manufacturing site and one of our wood mills. As part of
that process we are working with colleagues to identify
opportunities at our other manufacturing sites and within the wider
Group if that becomes necessary.
We are continuing to build good relationships with partners
internationally and there are opportunities to optimise our global
supplier mix.
Data and technology : Data-backed decision making and
utilisation of technology to support efficient operations across
the business remains a critical enabler in supporting the Group's
continued market share growth and driving bottom line
profitability.
We are making good progress in developing our customer data
platform that brings together data from a myriad of systems across
the Group to provide a detailed customer view. Examples of where we
are utilising this include multiple touchpoints from the initial
purchase through to the delivery experience, where we are able to
support and guide each customer, with timely communications that
are personalised to their unique journey. We are also developing
our Intelligent Lending Platform used by DFS to be used by our
Sofology brand. This increases the likelihood of customers
obtaining the interest free credit that meets their requirements
and speeds up the process of completing orders, enabling increased
conversion rates at times of high demand.
To help ensure our colleagues utilise the data that is
available, we have launched a data apprenticeship programme.
Starting with the Sofa Delivery Company we have 40 people enrolled
on the course which is run in conjunction with a third party. Over
the 13 month course our colleagues are developing their skills to
utilise and transform data into insights to drive appropriate
action.
Logistics : Following the formation of the Sofa Delivery Company
in June 2021 that brought together the logistics functions of our
two brands we now deliver all the Group's sofa sales through the
same systems and physical infrastructure. Scale benefits are now
being realised as a result of improved fleet utilisation, van fill
and labour productivity. As part of this process, through the year
we have also rationalised the number of distribution centres we
operate from which will drive further savings over the short to
medium term as a result of lower property costs.
People : Our colleagues are fundamental to the success of the
Group. Looking after their wellbeing as well as their personal
development has been a key focus in FY23. In what is a challenging
time for many, given the cost of living crisis, our 'winter wise'
support scheme was designed to support colleagues in a number of
ways, for example through thank you vouchers at Christmas that
could be used at a number of retail stores and access to a
discounted health care scheme available to all employees. We have
also seen 140 colleagues attend our leadership academies - these
are targeted at middle management to provide the skills to develop
into future leaders. Our sustainability report has further details
on how we are supporting and developing our colleagues.
Sustainability
We have a dedicated section in our annual report that covers
sustainability in detail. The key elements I want to highlight here
are in relation to: culture and governance; where we are on our net
zero journey; and employee development.
The Group is guided by our purpose to bring great design and
comfort into every home in an affordable, responsible and
sustainable manner and has pledged to achieve net zero by 2040.
In the previous financial year we completed the model to capture
our full carbon footprint. Like many other businesses, the majority
of our carbon footprint sits within our scope 3 emissions (c90%).
Throughout this year a significant amount of progress has been made
in developing our carbon reduction roadmap and we are on track to
submit science based targets to the SBTI for approval by June 2024.
We have developed a number of policies and targets to help reduce
our impact on the environment covering key elements of the
materials that make up the sofas we sell, for example leather,
textiles and timber.
A sustainability mindset is now fully embedded across the
business and our sustainability and responsibility champions have
proved to be a real driving force in developing ideas and
initiatives, cultivating a diverse and open environment for all our
colleagues from the ground up. We have a well-developed and
effective governance structure. This helps ensure we have a clear
strategy, act with integrity and with transparency and hear a wide
range of views with committee members representing all areas of our
business.
Colleague wellbeing and development is very important to the
Group to nurture and retain talent. One specific example that I am
very proud of is the Sofa Delivery Company Driver School. This was
launched late in the previous financial year and to date we have
had nearly 70 colleagues graduate. The driver school provides
career progression and improved pay for our colleagues, principally
warehouse operatives and 3.5T drivers by funding their training to
become 7.5T HGV drivers whilst addressing a business issue of
recruiting this role given the competitive labour market.
Outlook
As mentioned above, upholstery market volumes are down 15%
relative to pre-pandemic levels. We expect a further decline in the
upholstery market order volumes in FY24 before they start to
recover given the ongoing pressures on the consumer.
Based on all the data points we can see, our baseline assumption
is that the market will decline by a further 5% in volume terms in
FY24 with the Group continuing to outperform the market leveraging
the strength of our brands, operating platforms and scale. Despite
the continued pressure on revenues, we are targeting a modest
year-on-year increase in underlying profit before tax and brand
amortisation(1) supported by the continued delivery of our gross
margin improvement plan and operating cost savings.
Following a mid-single digit year on year decline in the final
quarter of FY23 in part linked to the hot weather, across the FY24
period to date order intake has strengthened back into positive
growth in line with our expectations and helped by the expected
opportunity from weaker prior year comparatives
Conclusion
I want to sincerely thank our colleagues for their truly
outstanding and consistently high level of determination and
dedication to deliver at their best for the Group, and for their
help in getting us to the strongest position we have ever been in
terms of market share.
The Group is operating in one of the toughest economic climates
we have experienced. Whilst we are confident the upholstery market
will recover, forecasting the specific timing and pace of the
recovery is challenging.
We do, however, expect to generate a modest year on year
increase in profit before tax in FY24 despite a relatively weak
market in which we expect volumes will continue to decline across
the next 12 months. Looking to the future as market volumes
recover, we remain confident in achieving the financial performance
set out at our Capital Markets Day in 2022 of GBP1.4bn of revenues
at an 8% PBT margin.
Tim Stacey
Chief Executive Officer
21 September 2023
FINANCIAL REVIEW
Overview
The Group has operated through a challenging trading environment
in FY23, influenced by reductions in consumer disposable income and
increased market volatility. Against this backdrop, we delivered
strong market share gains despite Group revenue being towards the
lower end of our expectations coming into the year. There was good
progress on gross margin rate and this together with disciplined
cost control helped to underpin profit conversion and ensured that
full year profits were delivered within the guidance range we
shared at our interim results.
Looking to the future, the Group remains financially secure and
we continue to strengthen our foundations for future growth. We
recently completed the successful refinancing of our debt
facilities, which has resulted in increased funding for an extended
period, supported by a more diversified lending group. After a
comprehensive review of the Group's cost base, we have also
established a cost efficiencies programme across our product,
property and operating cost models.
Basis of preparation
As detailed in the FY22 annual report, following the decision to
close the Group's operations in the Netherlands and Spain, the
results from these businesses have been presented as discontinued
operations. During the first half of the period, the residual order
book of these discontinued operations has been delivered and the
operations wound down. Unless otherwise indicated the commentary
below relates to continuing operations.
Revenue and gross sales
Group gross sales(1) , which are recognised on delivery of
orders to customers, decreased by 3.5% for the period to
GBP1,423.6m (FY22: GBP1,474.6m) with both retail brands reporting a
reduction on prior year.
The decrease is partly reflective of the challenging market
environment in FY23, compared with more favourable market
conditions in FY22 when the market benefited from higher volumes
linked to the pandemic. The Group partially mitigated this by both
brands growing their market share(*) .
*Market share sources: GlobalData July 2023, Barclaycard
proprietary data
Relative to the pre-pandemic FY19 period, Group gross sales(1)
increased by 15.0% supported by higher average order values.
Continuing operations 52 weeks ended 25 June 2023
GBPm FY23 YoY
------------- --------------
Gross Sales 1,423.6 (3.5%)
------------- --------------
DFS (inc Dwell) 1,125.5 (3.7%)
------------- --------------
Sofology 298.1 (2.2%)
------------- --------------
Digital % Sales^ 24.0% +0.7%pts
------------- --------------
Revenue 1,088.9 (5.3%)
------------- --------------
^ Digital % Sales represents the Gross Sales for orders
completed online and via telephone sales as a percentage of total
Gross Sales
The Group has invested ahead of its competitors in both digital
and showroom sales channels and we remain the clear market leader
in both. In FY23, 24.0% of sales were completed digitally, lower
than the peaks of the pandemic, but up from 17% in FY19. We
continue to be channel agnostic, supported by our market research
which consistently reinforces that a significant majority of
customers prefer to utilise both channels in their shopping journey
as part of a seamless experience and transaction.
Sales of our beds & mattresses ranges continued to grow,
with online gross sales up 69% in the period. Across our upholstery
ranges, those sofas with added features such as recliners with
memory settings, charge points and hidden storage performed
relatively better.
Group revenue of GBP1,088.9m was 5.3% lower than prior year
(GBP1,149.8m). This included an increase in the subsidy costs of
our interest free credit (IFC) offering as a result of the steadily
increasing Bank of England base rates and credit participation
levels moving back to historical averages after slightly reducing
during the pandemic period. We partially mitigated this impact
through the change in our IFC proposition that Tim mentioned in his
CEO report, which will also go some way to mitigating the increased
IFC costs we are expecting to incur through FY24. Following the
change to our IFC maximum term, every 1% increase in Bank of
England rate would result in a cGBP6m increase in costs for the
Group, if unmitigated.
Gross profit
Gross profit of GBP592.2m decreased by GBP13.7m, (2.3%), driven
by the lower revenues.
We have made good progress improving our gross margin rate
across the period. As a percentage of revenue, gross margin in the
period was 54.4% (FY22: 52.7%), an increase of 170 bps year on
year.
Prior to the pandemic, the Group consistently achieved a gross
margin rate in the region of 58%, but this reduced through the
pandemic period as a result of i) higher levels of goodwill
gestures; ii) an increased level of cancelled orders sold at
discounted levels; iii) a shortage in supply of raw materials
resulting in higher costs, and iv) a large increase in container
shipping rates.
Gross margin rate reached a low of 51.9% in H2 FY22 and since
then we have seen steady improvement. The rate improved to 53.8% in
H1 FY23 and 55.0% in H2 due to the majority of the pandemic
disruption impacts falling away, the impact of selective retail
price increases being realised on orders delivered from May 2023
and a reduction in freight rates which started to return close to
pre-pandemic levels in our final quarter. These improvements more
than offset the dilutive effect on gross margin of the increased
IFC costs mentioned above.
Whilst the macroeconomic outlook remains uncertain, we expect
gross margin to continue to improve. The FY24 gross margin rate is
expected to be above 57% as a result of freight rates now
contracted at pre-pandemic levels, the full year effect of FY23
retail price increases, and cost price benefits from our product
sourcing strategy mentioned in Tim's CEO statement. These benefits
will more than offset the higher IFC costs and a hedged USD FX rate
that is 10 cents adverse to the FY23 average rate paid (cGBP13m in
cash terms).
Selling, distribution and administration and property costs
Selling, distribution and administration costs totalled
GBP434.8m (FY22: GBP430.0m), representing a cost % of revenue of
39.9% (FY22: 37.4%).
The increase year on year was a result of inflationary increases
across the operating cost base and investments in marketing to
support growth in our beds & mattresses ranges. These increases
were mostly mitigated by a reduction in prior year costs associated
with inbound logistics disruption and Covid related absence,
together with ongoing efficiency improvements from the Sofa
Delivery Company and retail workforce optimisation tools. In
addition, variable costs associated with delivery volumes and
commission levels reduced.
Property costs, which include business rates and a small amount
of rental costs that fall outside the scope of IFRS 16 remained
broadly flat year on year at GBP30.2m (FY22: GBP29.6m). The end of
business rates relief which benefitted FY22 has been partially
offset by business rate revaluations effective April 2023 and empty
property rates relief (see below), netting to a GBP2.2m cost
increase. This increase was partially offset by a lower amount of
rental costs that fall outside the scope of IFRS16.
Depreciation, amortisation and interest
Depreciation, amortisation and interest charges have increased
by GBP11.2m to GBP128.2m (FY22: GBP117.0m). The increase is driven
by three components.
Firstly, GBP6.6m from higher interest costs on our RCF facility
due to higher SONIA rates and a higher average drawn balance,
compared to limited utilisation of the facility through FY22.
Secondly, a GBP1.8m increase in depreciation and amortisation
charges as a result of our higher tangible and intangible asset
base.
Thirdly, a GBP2.0m right of use asset impairment charge. This
charge is associated with the rationalisation of operational
distribution centres following completion of the integration of the
DFS and Sofology logistics functions and from closing temporary
storage sites opened in the pandemic period.
We have seen continued success in securing lower rents on retail
leases that were approaching expiry (average of over 30% annualised
saving per lease) and these savings have almost fully offset the
full year impact from opening two large distribution centres mid
way through FY22.
Profits and earnings per share
Reported profit before tax for the 52 week period to 25 June
2023 was GBP29.7m (FY22: 58.5m). Underlying profit before tax and
brand amortisation(1) (PBTa) was GBP30.6m, compared to GBP60.3m in
FY22, mainly reflecting lower revenues, inflationary cost increases
and costs linked to interest rate increases.
The tax charge recognised in the financial statements has been
calculated using an effective tax rate for the year of 21.3%,
broadly in line with the average applicable UK Corporate tax rate
of 21.5% across the period. This effective rate of 21.3% is below
the rate for FY22 (29.9%) which was high due to the differential in
rates between current and deferred taxes along with the effect of
overseas branch exemptions.
Reported profit after tax for the period of GBP26.2m is
inclusive of GBP1.4m brand amortisation charge, a GBP7.1m tax
charge, a GBP3.6m credit in relation to profit before tax on
discontinued operations that arose due to a release of a provision
booked in FY22 in relation to closing our operations in the
Netherlands and Spain and a GBP0.5m non-underlying credit on
continuing operations. Reported profit after tax in FY22 was
GBP31.4m which included a GBP12.8m loss associated with the closure
of those international operations.
Basic underlying earnings per share from continuing operations
was 9.6 pence (FY22 17.5 pence).
Cash flow, net debt and dividends
Net bank debt increased from GBP90.0m to GBP140.3m. This
included special returns paid to shareholders in respect of cash
generated in prior periods (GBP30.9m) and net working capital
outflows of GBP40.0m as creditor balances and customer deposit
levels reduced to more normal levels.
Working capital has now normalised following a significant
inflow in FY21 through the pandemic period as a result of increased
sales demand leading to higher trade creditors and accruals and
extended supply chain lead times leading to a higher level of
customer deposits being held. Excluding the working capital
outflow, free cash flow of GBP29.4m was generated in FY23.
Cash capital expenditure for the period was GBP33.6m (FY22:
GBP45.6). This included spend on three new Sofology showrooms
taking the total to 58 as we continue our national roll-out
programme, 11 DFS showroom refurbishments (58 showrooms completed
over the last four years) and technology investments to enhance the
customer experience and support operational performance as Tim
explained in his CEO statement. The year on year reduction in spend
is due to a lower number of Sofology showroom openings (FY22: 7)
and the opening of two large distribution centres in the prior
year. In addition, GBP8.7m was incurred on leased motor vehicle
additions (FY22: GBP7.7m), which includes company cars and
commercial vehicles.
The Group's return on capital employed for the period was 13.5%,
lower than that achieved in FY22 of 18.7% due to the reduced profit
in the period and to a lesser extent from higher capital employed
as a result of working capital normalisation. We expect returns to
grow over time given i) our anticipated improved profitability as
our product, property and operating cost reductions are delivered
and market volumes recover and ii) our negative working capital
model.
Leverage increased to 1.9x at the end of FY23, compared to 1.0x
at FY22, reflecting our higher net debt levels and lower profit.
Over the medium term we remain committed to managing leverage
within our target range of 0.5-1.0x.
Post year end, in September we completed the refinancing of our
debt facilities, increasing the total amount of funds available to
GBP250m from GBP215m. The new facilities were secured at
competitive rates and consist of GBP200m from existing banking
partners which runs to September 2027 (with a 16 month extension
option) and GBP50m from the addition of U.S. private placement
notes with redemption dates split equally between September 2028
and September 2030. The covenants and other facility terms remain
unchanged from the previous facility: 3.0x maximum leverage and
1.5x minimum fixed charge cover. The increased facility is an
endorsement of the continued confidence and support the Group
maintains with our lending partners and provides liquidity headroom
and flexibility to continue investing in our strategy.
Aligned to our capital distribution policy we are proposing a
final FY23 dividend of 3.0p per share, bringing the total dividend
to 4.5p per share (an underlying EPS cover of 2.3x based on share
count post completion of the share buy back program). This is in
line with guidance at the interim results in March.
Looking forward
FY24 Guidance
Forecasting sales performance accurately over the next year is
difficult. In particular, we cannot accurately predict how the
forecasts for inflation and higher borrowing costs will affect
consumer behaviours. In that context, we currently forecast that
the upholstery market will see further declines over the next 12
months of c5%, but this assumption remains a key sensitivity.
FY24 PBTa is budgeted to increase slightly year on year,
supported by progress on gross margin rate and operating cost
efficiencies, mitigating cost inflation and interest rate
headwinds.
FY24 Guidance
Group Revenue GBP1,060m - GBP1,080m
---------------------
PBTa(1) GBP30m - GBP35m
---------------------
Cash Capex GBP25m - GBP30m
---------------------
Cash capex will reduce slightly to GBP25-30m with the range
dependent on whether potential new Sofology showrooms are opened
towards the end of FY24 or fall into FY25.
FY24 will be a 53 week period. Whilst underlying working capital
has normalised and is expected to be stable year on year,
significant rent and tax payments are scheduled to fall due in the
53rd week, resulting in a working capital outflow of cGBP15m for
the FY24 period.
In a year when we expect limited opportunities for growth, we
are increasing our focus on the actions we can take to strengthen
the foundations of the business, both to support short term share
gains and to ensure we are strongly positioned for profitable
growth in future years. This includes the 'Cost to Operate'
efficiencies programme described below as well as capital
investments being prioritised into areas with proven returns.
Cost to Operate Efficiencies programme
Following a full review of our cost base completed earlier this
year, supported by external benchmarks and insight, we have
established a Cost to Operate efficiencies programme that is
targeting annualised savings of cGBP50m by FY26.
Whilst we expect to start to see savings from this year, some
projects will require longer periods of planning, or investment in
new systems and processes. Approximately half of the targeted
benefits are expected to come from our product related strategies,
which will underpin delivery of our 58% gross margin target. The
other benefits will lower our operating costs, helping to offset
future inflationary headwinds and overall supporting the growth we
are targeting in our profit margins. The three main programmes are
summarised below.
1. Product costs (manufacturing and sourcing): Cost of goods
(COGs) GBP20-GBP25m annualised saving
Better leveraging of our scale to lower COGs and develop a best
in class sustainable supplier portfolio. COGs opportunity will
support our target Gross Margin of 58%
2. Operating cost models: GBP20-GBP25m annualised saving opportunity
Improving productivity and lowering our cost to operate through
a combination of projects:
-- Group operating models that are more efficient. Initial
opportunities are in customer services & repairs and marketing,
in addition to realising the remaining logistics benefits via The
Sofa Delivery Company.
-- Goods not for resale procurement savings from consolidating
the supplier base, retendering contracts across key spend areas,
supported by better systems & controls.
-- 'Operate for less' programme focused on simplifying,
centralising and automating other key processes (utilising
technology) to unlock fixed and variable cost savings across
showrooms, logistics and central support centres
3. Property costs: GBP6-GBP8m annualised saving opportunity
Continuing to optimise our store estate, taking full advantage
of our covenant strength to maximise lease re-gear savings.
We have also introduced a robust project governance structure to
support planning, decision-making and implementation of the
programme, led by the Group Leadership Team.
We expect to deliver around a quarter of these savings in FY24
with the remainder split evenly over the following two years and
estimate cGBP4-5m per year in non-underlying cash charges in FY24
and FY25 to access the benefits for the first two years (P&L
charge likely to be c.GBP2m per year higher due to asset
write-downs).
Profit margin growth
Although we are preparing for the macro outlook and consumer
demand to be weak over the short term, we are confident the Group
is well placed to achieve our 8% PBT margin target in the medium
term.
We expect market volumes will recover back to pre-pandemic
levels (volumes expected to be down by c20% by end of FY24 versus
FY19), but it is difficult to predict how quickly and over what
period that recovery will take place. In that context, we see a
route to a PBT margin of 5% without market recovery, increasing
further to our 8% CMD target as and when market volumes recover,
supported by benefits from our gross margin and cost to operate
programmes, together with incremental PBT contribution from growth
in our Home business.
John Fallon
Chief Financial Officer
21 September 2023
Consolidated income statement
52 weeks to 25 June 52 weeks to 26 June
2023 2022
Underlying Non- Total Underlying Non- Total
underlying underlying
Note GBPm GBPm GBPm GBPm GBPm GBPm
================= ==== ============== ================= ============== ============== ================= ==============
Gross sales(1) 2 1,423.6 - 1,423.6 1,474.6 - 1,474.6
================= ==== ============== ================= ============== ============== ================= ==============
Revenue 2 1,088.9 - 1,088.9 1,149.8 - 1,149.8
Cost of sales (496.7) - (496.7) (543.9) - (543.9)
================= ==== ============== ================= ============== ============== ================= ==============
Gross profit 592.2 - 592.2 605.9 - 605.9
Selling and
distribution
costs (364.6) - (364.6) (368.0) - (368.0)
Administrative
expenses 3 (70.2) 0.5 (69.7) (62.0) (0.4) (62.4)
================= ==== ============== ================= ============== ============== ================= ==============
Operating
profit before
depreciation
and
amortisation 157.4 0.5 157.9 175.9 (0.4) 175.5
Depreciation 3 (80.5) - (80.5) (77.7) - (77.7)
Amortisation 3 (11.6) - (11.6) (10.5) - (10.5)
Impairment 3 (2.0) - (2.0) - - -
Operating 2,
profit/(loss) 3 63.3 0.5 63.8 87.7 (0.4) 87.3
Finance income 4 0.2 - 0.2 - - -
Finance
expenses 4 (34.3) - (34.3) (28.8) - (28.8)
================= ==== ============== ================= ============== ============== ================= ==============
Profit/(loss)
before
tax 29.2 0.5 29.7 58.9 (0.4) 58.5
Taxation (6.6) (0.1) (6.7) (14.3) - (14.3)
================= ==== ============== ================= ============== ============== ================= ==============
Profit/(loss)
for the
period from
continuing
operations 22.6 0.4 23.0 44.6 (0.4) 44.2
================= ==== ============== ================= ============== ============== ================= ==============
Profit/(loss)
for the
period from
discontinued
operations 11 (0.3) 3.5 3.2 (1.5) (11.3) (12.8)
Profit/(loss)
for the
period 22.3 3.9 26.2 43.1 (11.7) 31.4
================= ==== ============== ================= ============== ============== ================= ==============
Earnings per share
Basic 5
* from continuing operations 9.6p 0.2p 9.8p 17.5p (0.2)p 17.3p
* from discontinued operations (0.2)p 1.5p 1.3p (0.6)p (4.4)p (5.0)p
============================================== ====== ==== ===== ====== ====== ======
Total 9.4p 1.7p 11.1p 16.9p (4.6)p 12.3p
============================================== ====== ==== ===== ====== ====== ======
Diluted 5
* from continuing operations 9.5p 0.2p 9.7p 17.4p (0.2)p 17.2p
* from discontinued operations (0.2)p 1.5p 1.3p (0.6)p (4.4)p (5.0)p
============================================== ====== ==== ===== ====== ====== ======
Total 9.3p 1.7p 11.0p 16.8p (4.6)p 12.2p
============================================== ====== ==== ===== ====== ====== ======
(1) Refer to note 14 to the condensed consolidated financial
statements for definitions and reconciliations of alternative
performance measures
Consolidated statement of comprehensive income
52 weeks 52 weeks
to to
25 June 26 June 2022
2023
GBPm GBPm
========================================================== ======== =============
Profit for the period 26.2 31.4
Other comprehensive income
Items that are or may be reclassified subsequently
to profit or loss:
Effective portion of changes in fair value
of cash flow hedges (8.7) 23.6
Net change in fair value of cash flow hedges
reclassified to profit or loss
Recognised in cost of sales (13.7) 1.9
Income tax on items that are/may be reclassified
subsequently to profit or loss 5.9 (6.4)
========================================================== ======== =============
Other comprehensive expense for the period,
net of income tax (16.5) 19.1
========================================================== ======== =============
Total comprehensive income for the period 9.7 50.5
========================================================== ======== =============
Total comprehensive income for the period attributable
to owners of the parent
* from continuing operations 6.5 63.3
* from discontinued operations 3.2 (12.8)
========================================================== ======== =============
9.7 50.5
========================================================== ======== =============
Consolidated balance sheet
Note 25 June 2023 26 June 2022
GBPm GBPm
========================================= ==== ============ ============
Non-current assets
Property, plant and equipment 97.4 105.9
Right of use assets 312.6 338.0
Intangible assets 536.7 533.8
Other financial assets - 4.8
Deferred tax assets 15.5 10.8
========================================= ==== ============ ============
962.2 993.3
========================================= ==== ============ ============
Current assets
Inventories 55.8 64.4
Other financial assets 0.7 12.8
Trade and other receivables 11.1 24.3
Current tax assets 2.7 7.8
Cash and cash equivalents 26.7 17.3
========================================= ==== ============ ============
97.0 126.6
========================================= ==== ============ ============
Total assets 1,059.2 1,119.9
========================================= ==== ============ ============
Current liabilities
Bank overdraft - (12.3)
Trade payables and other liabilities (224.9) (280.7)
Lease liabilities (84.1) (89.0)
Provisions 9 (6.2) (12.8)
Other financial liabilities (6.7) -
========================================= ==== ============ ============
(321.9) (394.8)
========================================= ==== ============ ============
Non-current liabilities
Interest bearing loans and borrowings 10 (165.8) (93.5)
Lease liabilities (327.3) (356.4)
Provisions 9 (6.9) (6.3)
Other financial liabilities (0.2) -
========================================= ==== ============ ============
(500.2) (456.2)
========================================= ==== ============ ============
Total liabilities (822.1) (851.0)
========================================= ==== ============ ============
Net assets 237.1 268.9
========================================= ==== ============ ============
Equity attributable to equity holders
of the parent
Share capital 24.1 25.9
Share premium 40.4 40.4
Merger reserve 18.6 18.6
Capital redemption reserve 359.6 357.8
Treasury shares (10.1) (4.9)
Employee Benefit Trust shares (6.6) (6.9)
Cash flow hedging reserve (4.9) 17.5
Retained earnings (184.0) (179.5)
========================================= ==== ============ ============
Total equity 237.1 268.9
========================================= ==== ============ ============
Consolidated statement of changes in equity
Employee
Capital Treasury Benefit Cash
Share Share Merger redemption shares Trust flow hedging Retained Total
capital premium reserve reserve shares reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================= ======== ======== ======== ========== ========== ========== ============= ========= =======
Balance at 27
June 2021 25.9 40.4 18.6 357.8 (0.7) (0.2) (8.0) (149.3) 284.5
Profit for the
period - - - - - - - 31.4 31.4
Other
comprehensive
income/(expense) - - - - - - 25.5 (6.4) 19.1
================= ======== ======== ======== ========== ========== ========== ============= ========= =======
Total
comprehensive
income
for the period - - - - - - 25.5 25.0 50.5
Dividends - - - - - - - (53.8) (53.8)
Purchase of own
shares - - - - (4.4) - - - (4.4)
Treasury shares
issued - - - - 0.2 - - (0.2) -
Purchase of
shares held by
Employee Benefit
Trust - - - - - (8.1) - - (8.1)
Employee Benefit
Trust shares
issued - - - - - 1.4 - (1.0) 0.4
Settlement of
share based
payments - - - - - - - (2.7) (2.7)
Share based
payments - - - - - - - 2.6 2.6
Tax recognised
directly in
equity - - - - - - - (0.1) (0.1)
================= ======== ======== ======== ========== ========== ========== ============= ========= =======
Balance at 26
June 2022 25.9 40.4 18.6 357.8 (4.9) (6.9) 17.5 (179.5) 268.9
Profit for the
period - - - - - - - 26.2 26.2
Other
comprehensive
income/(expense) - - - - - - (22.4) 5.9 (16.5)
================= ======== ======== ======== ========== ========== ========== ============= ========= =======
Total
comprehensive
income
for the period - - - - - - (22.4) 32.1 9.7
Dividends - - - - - - - (12.1) (12.1)
Purchase of own
shares - - - - (30.9) - - - (30.9)
Employee Benefit
Trust shares
issued - - - - - 0.3 - (0.3) -
Settlement of
share based
payments - - - - - - (0.3) (0.3)
Share based
payments - - - - - - - 1.8 1.8
Shares purchased
for cancellation (1.8) - - 1.8 25.7 - - (25.7) -
Balance at 25
June 2023 24.1 40.4 18.6 359.6 (10.1) (6.6) (4.9) (184.0) 237.1
================= ======== ======== ======== ========== ========== ========== ============= ========= =======
Consolidated cash flow statement
52 weeks 52 weeks
to to
25 June 26 June
2023 2022
GBPm GBPm
======================================================== ======== ========
Profit for the period 26.2 31.4
Adjustments for:
Income tax expense 7.1 13.4
Finance expenses 34.3 29.1
Finance income (0.2) -
Depreciation of property, plant and equipment 22.1 20.7
Depreciation of right of use assets 58.4 58.5
Amortisation of intangible assets 11.6 10.5
Impairment of assets 2.0 6.0
Gain on sale of property, plant and equipment (0.8) (1.1)
Loss/(gain) on disposal of right of use assets (1.2) 0.1
Settlement of share based payments (0.3) (2.7)
Share based payment expense 1.8 2.6
Foreign exchange impact on cash flow hedges 1.4 -
Decrease/(increase) in trade and other receivables 13.2 (7.2)
Decrease/(increase) in inventories 8.6 (3.3)
Decrease in trade and other payables (55.8) (16.6)
Decrease in provisions (6.0) (1.7)
======================================================== ======== ========
Net cash from operating activities before
tax 122.4 139.7
Tax paid (0.7) (6.8)
======================================================== ======== ========
Net cash from operating activities 121.7 132.9
Investing activities
Proceeds from sale of property, plant and
equipment 1.3 1.8
Interest received 0.2 -
Acquisition of property, plant and equipment (20.4) (36.8)
Acquisition of other intangible assets (14.5) (10.6)
======================================================== ======== ========
Net cash used in investing activities (33.4) (45.6)
Financing activities
Interest paid (10.5) (3.8)
Interest paid on lease liabilities (23.5) (25.0)
Payment of lease liabilities (61.6) (63.5)
Drawdown/(repayment) of borrowings 72.0 70.0
Purchase of own shares - (8.2)
Proceeds from sale of own shares - 0.4
Purchase of treasury shares (30.9) (4.4)
Ordinary dividends paid (12.1) (28.4)
Special dividends paid - (25.4)
======================================================== ======== ========
Net cash used in financing activities (66.6) (88.3)
Net increase/(decrease) in cash and cash equivalents 21.7 (1.0)
Cash and cash equivalents at beginning of
period 5.0 6.0
======================================================== ======== ========
Cash and cash equivalents (including bank
overdrafts) at end of period 26.7 5.0
======================================================== ======== ========
Notes to the condensed consolidated financial statements
1 Basis of preparation
The condensed consolidated financial statements have been
prepared and approved by the Directors in accordance with UK
adopted international accounting standards and applicable law. The
financial information is derived from the Group's consolidated
financial statements for the period ended 25 June 2023. The
financial statements are prepared on the historical cost basis
except for certain financial instruments and share based payment
charges which are measured at their fair value. The financial
statements are for the 52 weeks to 25 June 2023 (last year 52 weeks
to 26 June 2022) and were approved by the Directors on 21 September
2023.
The financial information set out above does not constitute the
Company's statutory accounts for the periods ended 25 June 2023 or
26 June 2022 but is derived from those accounts. Statutory accounts
for the period ended 26 June 2022 have been delivered to the
registrar of companies, and those for the period ended 25 June 2023
will be delivered in due course. The auditor has reported on those
accounts; their reports were (i) unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by
way of emphasis without qualifying their report and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
Going concern
The financial statements are prepared on a going concern basis,
which the directors believe to be appropriate for the following
reasons.
The Company heads a group which at 25 June 2023 had a GBP215.0m
revolving credit facility maturing in December 2025. On 1 September
2023 the Group refinanced its borrowing facilities, replacing the
previous GBP215.0m facility with a combination of a new GBP200.0m
revolving credit facility with a consortium of lending banks
maturing in September 2027 and GBP50.0m of private placement debt,
GBP25.0m of which matures in September 2028 and GBP25.0m in
September 2030. At 18 September 2022, GBP65.2m of the revolving
credit facility remained undrawn, in addition to cash in hand, at
bank of GBP2.4m.
Covenants applicable to both the new revolving credit facility
and the private placement debt are unchanged from the previous
facility, being: 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 and performed a
going concern assessment for the Group covering a period of at
least twelve months from the date of approval of these financial
statements (the 'going concern assessment period'), which indicate
that the Group will be in compliance with these covenants. These
forecasts include a number of assumptions in relation to: market
size and the Group's order intake volumes; inflationary impacts on
gross margin and other costs; further increases in UK interest
rates; sector-wide manufacturing and supply chain capacities; 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 going concern assessment
period as the base case. These scenarios included: significantly
reduced customer spending; impacts on gross margin and other costs
from inflationary cost pressures; increases in interest rates, and
a combination of these scenarios. The Directors have also performed
reverse stress testing analysis to confirm that circumstances
resulting in a covenant breach were beyond those considered
plausible.
As part of this analysis, mitigating actions within the Group's
control should these severe but plausible scenarios occur have also
been considered. Should these severe but plausible scenarios occur,
the Directors could implement these actions to help reduce the
impact on the Group. These mitigating actions include reducing
discretionary advertising and other expenditure, retail price
increases, a pause on expansionary capital investment, a reduction
or pause in dividend payments, 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 going concern assessment 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
current economic and political environment, and are confident that
the Group has adequate resources to continue to meet all
liabilities as and when they fall due for at least twelve months
from the date of approval of these financial statements.
Accordingly, the financial statements are prepared on a going
concern basis.
2 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, tax, depreciation, amortisation,
impairments 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 retailing of upholstered 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.
Other segments comprises the manufacture of upholstered
furniture and the supply of contract logistics.
2 Segmental Analysis (continued)
Segment revenue and profit - continuing operations
External gross Inter-segment Total gross sales
sales sales
52 weeks 52 weeks 52 weeks 52 weeks 52 weeks 52 weeks
to to to to to to
25 June 26 June 25 June 26 June 25 June 26 June
2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm
================== ======== ======== ======== ======== ========= ========
DFS 1,125.5 1,169.1 - - 1,125.5 1,169.1
Sofology 298.1 304.9 - - 298.1 304.9
Other segments - 0.6 215.6 187.9 215.6 188.5
Eliminations - - (215.6) (187.9) (215.6) (187.9)
=================== ======== ======== ======== ======== ========= ========
Gross sales 1,423.6 1,474.6 - - 1,423.6 1,474.6
=================== ======== ======== ======== ======== ========= ========
52 weeks to 52 weeks to
25 June 2023 26 June 2022
GBPm GBPm
======================================== ============= =============
Total segments gross sales 1,423.6 1,474.6
Less: value added and other sales taxes (226.2) (233.8)
Less: costs of interest free credit and
aftercare products (108.5) (91.0)
======================================== ============= =============
Revenue 1,088.9 1,149.8
======================================== ============= =============
Of which:
Furniture sales 1,033.3 1,096.8
Sales of aftercare products 55.6 53.0
======================================== ============= =============
Revenue 1,088.9 1,149.8
======================================== ============= =============
52 weeks to 25 June 2023 - continuing operations
DFS Sofology Other Eliminations Total
GBPm GBPm GBPm GBPm GBPm
============================= ======= ======== ======= ============ =======
Revenue 858.5 230.4 215.6 (215.6) 1,088.9
Cost of sales (424.8) (106.8) (61.6) 96.5 (496.7)
============================= ======= ======== ======= ============ =======
Gross profit 433.7 123.6 154.0 (119.1) 592.2
Selling & distribution costs
(excluding property costs) (229.0) (64.5) (129.3) 88.4 (334.4)
============================= ======= ======== ======= ============ =======
Brand contribution (segment
profit) 204.7 59.1 24.7 (30.7) 257.8
Property costs (30.2)
Underlying administrative
expenses (70.2)
============================= ======= ======== ======= ============ =======
Underlying EBITDA 157.4
============================= ======= ======== ======= ============ =======
Segment revenue and profit - continuing operations
(continued)
52 weeks to 26 June 2022 - continuing operations
DFS Sofology Other Eliminations Total
GBPm GBPm GBPm GBPm GBPm
============================= ======= ======== ======= ============ =======
Revenue 906.3 242.9 188.5 (187.9) 1,149.8
Cost of sales (452.9) (121.6) (59.8) 90.4 (543.9)
============================= ======= ======== ======= ============ =======
Gross profit 453.4 121.3 128.7 (97.5) 605.9
Selling & distribution costs
(excluding property costs) (210.1) (65.9) (137.1) 74.7 (338.4)
============================= ======= ======== ======= ============ =======
Brand contribution (segment
profit) 243.3 55.4 (8.4) (22.8) 267.5
Property costs (29.6)
Underlying administrative
expenses (62.0)
============================= ======= ======== ======= ============ =======
Underlying EBITDA 175.9
============================= ======= ======== ======= ============ =======
52 weeks 52 weeks to
to 26 June 2022
25 June 2023
GBPm GBPm
============================ ============= =============
Underlying EBITDA 157.4 175.9
Non-underlying items 0.5 (0.4)
Depreciation & amortisation (94.1) (88.2)
Operating profit 63.8 87.3
Finance expenses (34.1) (28.8)
Profit before tax 29.7 58.5
============================ ============= =============
A geographical analysis of revenue is presented below:
52 weeks 52 weeks to
to 26 June 2022
25 June
2023
GBPm GBPm
=============== ======== =============
United Kingdom 1,067.7 1,129.3
Europe 21.2 20.5
=============== ======== =============
Total revenue 1,088.9 1,149.8
=============== ======== =============
2 Segmental Analysis (continued)
Segment assets and liabilities
Assets Liabilities
25 June 26 June 2022 25 June 26 June 2022
2023 2023
GBPm GBPm GBPm GBPm
=============================== ======= ============ ======= ============
DFS 942.9 948.4 (537.3) (625.0)
------- ------------ ------- ------------
Sofology 146.0 167.6 (135.3) (142.6)
------- ------------ ------- ------------
Other segments 26.4 30.0 (51.8) (52.2)
=============================== ======= ============ ======= ============
Total segments 1,115.3 1,146.0 (724.4) (819.8)
------- ------------ ------- ------------
Loans and financing - - (165.8) (93.5)
------- ------------ ------- ------------
Financial assets/(liabilities) 0.7 17.6 (6.9) -
------- ------------ ------- ------------
Current tax 2.7 7.8 - -
------- ------------ ------- ------------
Deferred tax 15.5 10.8 - -
------- ------------ ------- ------------
Eliminations (75.0) (62.3) 75.0 62.3
=============================== ======= ============ ======= ============
Total Group 1,059.2 1,119.9 822.1 (851.0)
=============================== ======= ============ ======= ============
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
comprise trade payables and current and non-current other
liabilities and provisions.
Additions to non-current Depreciation, amortisation
assets and impairment
52 weeks 52 weeks 52 weeks 52 weeks
to to to to
25 June 26 June 2022 25 June 26 June 2022
2023 2023
GBPm GBPm GBPm GBPm
=============== ========== ============== ========== ================
DFS 42.7 72.0 70.1 66.0
---------- -------------- ---------- ----------------
Sofology 11.4 14.8 17.6 17.3
---------- -------------- ---------- ----------------
Other segments 6.0 12.5 6.4 4.9
=============== ========== ============== ========== ================
Total Group 60.1 99.3 94.1 88.2
=============== ========== ============== ========== ================
Additions to non-current assets include both tangible and
intangible non-current assets.
3 Operating profit - continuing operations
Group operating profit is stated after charging/(crediting):
52 weeks 52 weeks to
to 26 June 2022
25 June 2023
GBPm GBPm
============================================= ============= =============
Depreciation on tangible assets (including
depreciation on right of use assets) 80.5 77.7
------------- -------------
Amortisation of intangible assets 11.6 10.5
------------- -------------
Impairments 2.0 -
------------- -------------
Net gain on disposal of property, plant and
equipment (0.8) (1.1)
------------- -------------
Net gain on disposal of right of use assets (1.2) 0.1
Cost of inventories recognised as an expense 509.1 548.1
Write down of inventories to net realisable
value 2.0 4.6
Other cost of sales (14.4) (8.8)
Release of provisions (note 9) (0.9) (2.1)
Government grants received (business rates
relief) (0.2) (2.0)
Operating lease rentals 0.2 0.7
============================================= ============= =============
Non-underlying items 52 weeks 52 weeks to
to 26 June 2022
25 June
2023
GBPm GBPm
===================================== ======== =============
Release of lease guarantee provision (0.5) (0.3)
Restructuring costs - 0.9
Acquisition costs - (0.2)
===================================== ======== =============
(0.5) 0.4
===================================== ======== =============
The release of the lease guarantee provision relates to the
property provisions detailed in note 9.
In addition to the non-underlying items for continuing
operations above, a further GBP3.8m of non-underlying credits were
recognised in respect of discontinued operations. This amount
related to the closure costs of discontinued operations. Further
details are presented in note 11.
4 Finance income and expense - continuing operations
52 weeks 52 weeks to
to 26 June 2022
25 June 2023
GBPm GBPm
============================================ ============= =============
Finance income
Interest income on bank deposits 0.2 -
============================================ ============= =============
Total finance income 0.2 -
============================================ ============= =============
Finance expense
Interest payable on senior revolving credit
facility (10.4) (2.5)
Bank fees (0.4) (1.5)
Unwind of discount on provisions (0.1) -
Interest on lease liabilities (23.4) (24.7)
Other interest - (0.1)
============================================ ============= =============
Total finance expense (34.3) (28.8)
============================================ ============= =============
5 Earnings per share
52 weeks 52 weeks to
to 26 June 2022
25 June 2023
pence pence
================================================ ============= =============
Basic earnings/(loss) per share
* from continuing operations 9.8 17.3
* from discontinued operations 1.3 (5.0)
================================================ ============= =============
Total basic earnings per share 11.1 12.3
================================================ ============= =============
Diluted earnings/(loss) per share
* from continuing operations 9.7 17.2
* from discontinued operations 1.3 (5.0)
================================================ ============= =============
Total basic earnings per share 11.0 12.2
================================================ ============= =============
52 weeks 52 weeks to
to 26 June 2022
25 June 2023
GBPm GBPm
================================================ ============= =============
Profit/(loss) attributable to equity holders
of the parent company
* from continuing operations 23.0 44.2
* from discontinued operations 3.1 (12.8)
================================================ ============= =============
26.1 31.4
================================================ ============= =============
25 June 2023 26 June 2022
No. No.
================================================ ============= =============
Weighted average number of shares for basic
earnings per share 235,470,857 254,675,661
Dilutive effect of employee share based payment
awards 1,783,365 1,220,492
================================================ ============= =============
Weighted average number of shares for diluted
earnings per share 237,254,222 255,896,153
================================================ ============= =============
Underlying earnings per share
Underlying basic earnings per share and underlying diluted
earnings per share are calculated by dividing the profit for the
period attributable to ordinary equity holders of the parent
company, as adjusted to exclude the effect of non-underlying items,
by the same weighted average numbers of ordinary shares above used
for basic and diluted earnings per share respectively.
52 weeks 52 weeks to
to 26 June 2022
25 June
2023
Continuing operations GBPm GBPm
======================================================== ======== =============
Profit for the year attributable to equity holders
of the parent company 23.0 44.2
Non-underlying (profit)/loss after tax (0.4) 0.4
======================================================== ======== =============
Underlying profit for the period attributable to
equity holders of the parent company from continuing
operations 22.6 44.6
======================================================== ======== =============
52 weeks 52 weeks to
to 26 June 2022
25 June
2023
Discontinued operations GBPm GBPm
======================================================== ======== =============
Profit/(loss) for the year attributable to equity
holders of the parent company 3.1 (12.8)
Non-underlying loss after tax (3.5) 11.3
======================================================== ======== =============
Underlying loss for the period attributable to
equity holders of the parent company from discontinued
operations (0.4) (1.5)
======================================================== ======== =============
6 Dividends
Pence 52 weeks 52 weeks to
per ordinary to 26 June 2022
share 25 June 2023 GBPm
GBPm
=================================== ============= ============= =============
Final ordinary dividend for FY21 7.5p - 19.0
Interim ordinary dividend for FY22 3.7p - 9.4
Special dividend 10.0p - 25.4
Final dividend for FY22 3.7p 8.6 -
Interim ordinary dividend for FY23 1.5p 3.5 -
==================================== ============= ============= =============
12.1 53.8
=================================== ============= ============= =============
The Directors recommend a final dividend of 3.0p in respect of
the financial period ended 25 June 2023, resulting in a total
proposed dividend of GBP6.9m. Subject to shareholder approval it is
intended that this dividend will be paid on 29 December 2023. DFS
Furniture plc shares will trade ex-dividend from 30 November 2023
and the record date will be 1 December 2023. This dividend has not
therefore been recognised as a liability in these financial
statements.
7 Financial instruments
All derivatives are categorised as Level 2 under the
requirements of IFRS 7 as they are valued using techniques based
significantly on observed market data.
The Directors have reviewed for expected credit losses and
consider the amount of any such losses to be immaterial.
The Directors consider that the fair values of each category of
the Group's financial instruments are the same as their carrying
values in the Group's balance sheet.
8 Capital expenditure
For the 52 weeks to 25 June 2023, additions of property, plant
and equipment (including those acquired under finance leases)
totalled GBP45.6m (2022: GBP88.7m). Additions of intangible assets
(computer software) totalled GBP14.5m (2022: GBP10.6m).
At 25 June 2023 the Group had contracted capital commitments of
GBP9.1m (2022: GBP11.8m) for which no provision has been made in
the financial statements.
9 Provisions
Guarantee Property Other
provision provisions provisions Total
GBPm GBPm GBPm GBPm
=========================== ========== =========== =========== =====
Balance at 26 June 2022 8.7 4.0 6.4 19.1
=========================== ========== =========== =========== =====
Provisions made during the
period 3.8 1.7 - 5.5
Provisions used during the
period (5.0) (0.6) (1.2) (6.8)
Provisions released during
the period - (0.5) (4.2) (4.7)
=========================== ========== =========== =========== =====
Balance at 25 June 2023 7.5 4.6 1.0 13.1
=========================== ========== =========== =========== =====
Current 5.2 0.3 0.7 6.2
Non-current 2.3 4.3 0.3 6.9
=========================== ========== =========== =========== =====
7.5 4.6 1.0 13.1
=========================== ========== =========== =========== =====
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. In calculating this provision the key areas of
estimation are the number of future claims, average cost per claim
and the expected period over which claims will arise (nearly all
claims arise within two years of delivery). The Group has
considered the sensitivity of the calculation to these key areas of
estimation, and determined that a 10% change in either the average
cost per claim or the number of expected future calls would change
the value of the calculated provision by GBP0.8m. The Directors
have therefore concluded that reasonably possible variations in
estimate would not result in a material difference.
Property provisions relate to potential obligations under lease
guarantees offered to former subsidiary companies, the majority of
which expire in 2025, and dilapidation costs for Group properties
based on anticipated lease expiries and renewals, which will
predominantly be utilised more than five years from the reporting
date.
Other provisions relate to payment of refunds to customers for
payment protection insurance policies and other regulatory costs,
and also costs associated with the exit from Spain and the
Netherlands, see note 11 for details.
10 Net debt
26 June Other non-cash 25 June
2022 Cash flow changes 2023
GBPm GBPm GBPm GBPm
================= ========== ================= ============== ==========
Cash in hand,
at bank 17.3 9.4 - 26.7
Bank overdraft (12.3) 12.3 - -
================== ========== ================= ============== ==========
Cash and cash
equivalents 5.0 21.7 - 26.7
Senior revolving
credit facility (93.5) (72.0) (0.3) (165.8)
Finance lease
liabilities (445.4) 61.6 (27.6) (411.4)
================== ========== ================= ============== ==========
Total net debt (533.9) 11.3 (27.9) (550.5)
================== ========== ================= ============== ==========
27 June Other non-cash 26 June
2021 Cash flow changes 2022
GBPm GBPm GBPm GBPm
========================== ========== ================= ============== ==========
Cash in hand, at
bank 22.7 (5.4) - 17.3
Bank overdraft (16.7) 4.4 - (12.3)
=========================== ========== ================= ============== ==========
Cash and cash equivalents 6.0 (1.0) - 5.0
Senior revolving
credit facility (23.1) (70.0) (0.4) (93.5)
Finance lease liabilities (454.1) 63.5 (54.8) (445.4)
=========================== ========== ================= ============== ==========
Total net debt (471.2) (7.5) (55.2) (533.9)
=========================== ========== ================= ============== ==========
Non-cash changes include the addition of leases within the
period of GBP25.3m (2022: GBP51.9m), lease remeasurements of
GBP7.0m (2022: GBP5.4m), disposals of leases of GBP4.7m (2022:
GBP2.5m) and the amortisation of capitalised debt issue costs of
GBP0.3m (2022: GBP0.4m).
11 Discontinued operations
During the period to 26 June 2022 the Group took the decision to
exit its operations in the Netherlands and Spain. The cessation of
these operations was completed in the year ended 25 June 2023, with
the order book at the point of closure being delivered during this
year. The revenues and expenses of the discontinued operations have
therefore been eliminated from the consolidated income statement
for the Group's continuing operations and are shown as a separate
single post-tax line item, consistent with the presentation adopted
for the year ended 26 June 2022. Prior to being classified as
discontinued operations, these operations were included within the
DFS segment of the Group's segmental analysis.
Results from discontinued operations:
52 weeks
to 26 June
52 weeks to 25 June 2023 2022
Underlying Non-underlying Total Total
GBPm GBPm GBPm GBPm
=============================== ========== ============== ===== ===========
Revenue 2.0 - 2.0 9.0
Cost of sales (1.1) - (1.1) (4.6)
================================ ========== ============== ===== ===========
Gross profit 0.9 - 0.9 4.4
Selling and distribution costs (1.1) - (1.1) (5.0)
Administrative expenses - 3.8 3.8 (5.3)
================================ ========== ============== ===== ===========
Operating (loss)/profit before
depreciation, amortisation
and impairment (0.2) 3.8 3.6 (5.9)
Depreciation - - - (1.5)
Impairment - - - (6.0)
================================ ========== ============== ===== ===========
Operating (loss)/profit (0.2) 3.8 3.6 (13.4)
Finance expenses - - - (0.3)
================================ ========== ============== ===== ===========
(Loss)/profit before tax (0.2) 3.8 3.6 (13.7)
Taxation (0.1) (0.3) (0.4) 0.9
================================ ========== ============== ===== ===========
(Loss)/profit for the period
from discontinued operations (0.3) 3.5 3.2 (12.8)
================================ ========== ============== ===== ===========
52 weeks 52 weeks
to 25 June to 26 June
2023 2022
Total Total
Non-underlying items from discontinued GBPm GBPm
operations
======================================= =========== ===========
Impairment of right of use assets - 3.1
Impairment of other assets - 1.4
Impairment of goodwill and intangible
assets - 1.5
Other closure (credits)/costs (3.8) 5.3
========================================== =========== ===========
(3.8) 11.3
======================================= =========== ===========
The closure credits in the year relate to the release of
provisions made in FY22 for costs associated with the closure of
these operations where the actual costs incurred were lower than
had been expected when the provision was made.
11 Discontinued operations (continued)
Cash flows from discontinued operations:
52 weeks 52 weeks
to 25 June to 26 June
2023 2022
GBPm GBPm
========================================== =========== ===========
Net cash from operating activities (0.6) 1.1
Net cash used in investing activities - -
Net cash used in financing activities (0.4) (1.4)
--------------------------------------------- ----------- -----------
Net decrease in cash and cash equivalents (1.0) (0.3)
Cash and cash equivalents at beginning
of period 1.3 1.6
============================================= =========== ===========
Net cash and cash equivalents (including
bank overdraft) at end of period 0.3 1.3
============================================= =========== ===========
12 Annual General Meeting
The Annual General Meeting will be held on 10 November 2023 at 1
Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster,
DN6 7NA. The Annual Report and Accounts and Notice of Meeting will
be sent to shareholders and copies will be available from the
Company's registered office: 1 Rockingham Way, Redhouse
Interchange, Adwick-le-Street, Doncaster, DN6 7NA and on the
Company's website at www.dfscorporate.co.uk .
13 Subsequent events
Refinancing
On 1 September, the Group successfully completed a refinancing
of its GBP215.0m revolving credit facility, replacing it with a new
GBP200.0m revolving credit facility and GBP50.0m of senior secured
notes. The GBP200.0m revolving credit facility is held with a
syndicate of banks and matures in September 2027, with the option
of a one year extension, and attracts variable rate interest
(credit spread adjusted SONIA plus a margin). The senior secured
notes attract fixed rate interest and comprise two tranches:
GBP25.0m maturing September 2028 and GBP25.0m maturing September
2030.
Both of the new debt facilities are subject to the same
financial covenants as the previous facility, being: 3.0x net Debt
/ EBITDA and 1.5x Fixed Charge Cover, and are assessed on a
six-monthly basis at June and December.
As a consequence of the refinancing, non-underlying finance
costs of GBP1.9m will be recognised in the income statement in FY24
comprising GBP0.8m in associated professional fees and the
write-off of GBP1.1m of unamortised issue costs on the previous
GBP215.0m loan.
Restructuring
On 11 September, a consultation process was commenced on the
potential closure of the smallest of the Group's UK factories. If
the closure goes ahead, it is expected to result in non-underlying
restructuring costs of approximately GBP5.5m, including redundancy
costs and asset impairment.
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 under EU-adopted
International Financial Reporting Standards ("IFRS"). APMs are not
IFRS measures, nor are they intended to be a substitute for IFRS
measures.
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.
APM Definition Rationale
====================== =================================== ==================================
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 cost
aftercare services (for of or the extent to which
which the Group acts customers take up the
as an agent), delivery Group's interest free
charges and value added credit offering.
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.
====================== =================================== ==================================
Adjusted EBITDA Earnings before interest, A commonly used profit
taxation, depreciation measure.
and amortisation adjusted
to exclude impairments.
====================== =================================== ==================================
Non-underlying Items that are material Clear and separate identification
items in size, unusual or non-recurring of such items facilitates
in nature which the Directors understanding of underlying
believe are not indicative trading performance.
of the Group's underlying
performance.
====================== =================================== ==================================
Underlying EBITDA Earnings before interest, Profit measure reflecting
taxation, depreciation underlying trading performance.
and amortisation from
continuing operations,
as adjusted for non-underlying
items.
====================== =================================== ==================================
Underlying profit Profit before tax from Profit measure widely
before tax and continuing operations used by investors and
brand amortisation adjusted for non-underlying analysts.
PBT(A) items and amortisation
associated with the acquired
brands of Sofology and
Dwell.
====================== =================================== ==================================
Underlying earnings Post-tax earnings per Exclusion of non-underlying
per share share from continuing items facilitates year
operations as adjusted on year comparisons of
for non-underlying items. the key investor measure
of earnings per share.
====================== =================================== ==================================
Net bank debt Balance drawn down on Measure of the Group's
interest bearing loans, cash indebtedness which
with unamortised issue supports assessment of
costs added back, less available liquidity and
cash and cash equivalents cash flow generation
(including bank overdrafts). in the reporting period.
====================== =================================== ==================================
Cash EBITDA Net cash from operating Measure of the non-underlying
activities before tax operating cash generation
less movements on working of the business, normalised
capital and provisions to reflect timing differences
balances and payments in working capital movements.
made under lease obligations,
adding back non-underlying
items before tax.
====================== =================================== ==================================
Leverage (or gearing) 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.
====================== =================================== ==================================
Underlying return Underlying post-tax operating Represents the post-tax
on capital employed profit, from continuing return the Group achieves
(underlying ROCE) operations expressed on the investment it
as a percentage of the has made in its business.
sum of: property, plant
& equipment, computer
software, right of use
assets and working capital.
====================== =================================== ==================================
Reconciliations to IFRS measures
Adjusted EBITDA FY23 FY22
Note GBPm GBPm
================================= ==== ===== =====
Operating profit from continuing
operations 2 63.8 87.3
Depreciation 3 80.5 77.7
Amortisation 3 11.6 10.5
Impairments 3 2.0 -
Adjusted EBITDA from continuing
operations 157.9 175.5
================================= ==== ===== =====
Underlying EBITDA FY23 FY22
Note GBPm GBPm
=========================================== ==== ===== =====
Adjusted EBITDA from continuing operations 157.9 175.5
Non-underlying operating items 3 (0.5) 0.4
=========================================== ==== ===== =====
Underlying EBITDA from continuing
operations 157.4 175.9
=========================================== ==== ===== =====
Underlying profit before tax and brand FY23 FY22
amortisation - PBTa
Note GBPm GBPm
============================================= ==== ===== ====
Profit before tax from continuing operations 2 29.7 58.5
Non-underlying items 3 (0.5) 0.4
Amortisation of brand names 1.4 1.4
============================================= ==== ===== ====
Underlying profit before tax and brand
amortisation 30.6 60.3
============================================= ==== ===== ====
14 Alternative Performance Measures (continued)
Net bank debt FY23 FY22
GBPm GBPm
====================================== ====== =====
Interest bearing loans and borrowings 165.8 93.5
Unamortised issue costs 1.2 1.5
Cash and cash equivalents (including
bank overdraft) (26.7) (5.0)
======================================== ====== =====
Net bank debt 140.3 90.0
======================================== ====== =====
Closing net bank debt (140.3) (90.0)
Less: Opening net bank debt 90.0 19.0
Movement in net bank debt (50.3) (71.0)
=============================== ======== =======
Underlying free cash flow to equity FY23 FY22
holders
Note GBPm GBPm
======================================= ==== ====== ======
Movement in net bank debt (50.3) (71.0)
Dividends 5 12.1 53.8
Purchase of shares by Employee Benefit
Trust - 8.2
Proceeds from sale of own shares - (0.4)
Purchase of own shares 30.9 4.4
Non-underlying cash items included
in cash flow statement 0.3 -
======================================= ==== ====== ======
Underlying free cash flow (from)/to
equity holders (7.0) (5.0)
less:
Working capital outflow 40.0 28.8
Operating result from discontinued
operations 10 (3.6) 13.4
========================================== ===== ====
Underlying free cash flow to equity
holders excluding operating result
from discontinued operations and working
capital outflow 29.4 37.2
========================================== ===== ====
14 Alternative Performance Measures (continued)
Leverage FY23 FY22
GBPm GBPm
======================================== ====== ======
Net bank debt (A) 140.3 90.0
Net cash from operating activities
before tax 121.7 139.7
add back:
Pre-tax non-underlying items (4.3) 11.7
less:
Movement in trade and other receivables (13.2) 7.2
Movement in inventories (8.6) 3.3
Movement in trade and other payables 55.8 16.6
Movement in provisions 6.0 1.7
Payment of interest on lease
liabilities (23.5) (25.0)
Payment of lease liabilities (61.6) (63.5)
========================================== ====== ======
Cash EBITDA (B) 72.3 91.7
Leverage (A/B) 1.9x 1.0x
========================================== ====== ======
Underlying return on capital employed FY23 FY22
from continuing operations
GBPm GBPm
============================================ ====== =======
Operating profit from continuing operations 63.8 87.3
Non-underlying items (0.5) 0.4
============================================== ====== =======
Pre-tax return 63.3 87.7
Effective tax rate for continuing
operations 22.6% 24.3%
Tax adjusted return (A) 49.0 66.4
Property, plant and equipment 97.4 105.9
ROU assets 312.6 338.0
Computer software 22.0 17.7
============================================== ====== =======
432.0 461.6
Inventories 55.8 64.4
Trade receivables 7.7 12.6
Prepayments 3.0 11.4
Accrued income 0.1 0.3
Other receivables 0.3 -
Payments received on account (39.1) (72.2)
Trade payables (97.6) (122.5)
============================================== ====== =======
Working capital (69.8) (106.0)
Total capital employed (B) 362.2 355.6
Underlying ROCE (A/B) 13.5% 18.7%
============================================== ====== =======
This preliminary results statement, the full text of the Stock
Exchange announcement and the results presentation can be found on
the Company's website at www.dfscorporate.co.uk
This 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
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END
FR UAOVROWUKURR
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