Leading Sofa Retailing in the Digital Age 26 September 2019
Today Introduction (Tim Stacey) Introduction (Tim Stacey) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 1
Good strategic progress and financial performance STRATEGIC & OPERATIONAL HIGHLIGHTS KEY STATISTICS £1,287.2m Pro forma gross sales +14.4% Pro forma underlying £90.2m +18.5% EBITDA £50.2m Pro forma underlying +31.1% PBTA £23.7m Cash returned to (11.2p full year shareholders dividend) 34.3% Market share + 3.2 % Good results reflecting underlying growth Well-underway with executing new strategy Income statement numbers represent the pro forma unaudited 52 week trading period to 30 June 2019. Growth rates quoted reflect the 52 weeks to 30 June 2019 relative to 52 weeks to 28 July 2018. 2
Today Introduction (Tim Stacey) Financials (Mike Schmidt) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 3
Financial overview OVERVIEW Pro forma FY 2018 FY 2019 FY 2019 Pro forma revenue growth across 52 weeks 52 weeks 48 weeks all brands (£m) 28-Jul-18 30-Jun-19 30-Jun-19 Revenue 870.5 996.2 901.0 Growth +14.1% +14.4% +3.5% Pro forma profit growth reflecting Comparative growth +2.0% +7.4% n/a operational leverage Underlying EBITDA 76.1 90.2 65.1 Growth (%) -7.6% +18.5% -14.5% Year on year leverage reduced Underlying PBT 38.3 50.2 28.2 through increased pro forma profit Growth (%) -23.7% +31.1% -26.4% Underlying EPS 14.0p 18.4p 10.3p Growth (%) -25.1% +31.4% -26.4% Dividends held at 11.2p per share Leverage 2.09x 1.95x n/a Ordinary DPS 11.2p 11.2p 11.2p Higher pro forma revenues drive strong pro forma profit growth year-on-year Adjusted revenue growth calculated by including Sofology for the full 52 weeks of FY18 and FY17 Underlying PBT excludes brand amortisation charges of £1.1m (FY18), £1.5m (FY19 52 weeks), £1.4m (FY19 48 weeks) 4
Drivers of Group revenue growth REVENUE CONTRIBUTION BY BRAND KEY DRIVERS Revenues (£m) All brands in LFL revenue growth 600 700 800 900 1,000 1H benefitted from deferred purchases, 2H FY18 871 order intake slow down DFS 33 DFS increase driven by +4.2% LFL growth SW & dwell 10 Comparative Full year effect Dwell & Sofa Workshop growth driven by Sofology 57 26 83 +6.2% LFLs and FYE of new showrooms Pro forma FY19* 997 Sofology +10.7% LFL growth FY19 Growing top line across all brands with all achieving LFL growth FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019. Growth rates quoted reflect the 52 weeks to 30 June 2019 relative to 52 weeks to 28 July 2018. 5
PBT progression KEY DRIVERS GBP millions Growing pro forma contribution from 0 20 40 60 80 all brands FY18 Underlying PBT 38.3 DFS, Sofa Workshop and Dwell pro Gross margin +25.1 Property Costs forma contribution up £8.3m Increase in brand Selling & Distribution -11.5 contribution Reduction in pro forma losses in excluding Property costs -0.5 Sofology Netherlands business from £1.8m to + £8.3m Administrative £1.0m -4.8 expenses Sofology +5.8 Sofology pro forma EBITDA £9.3m Depreciation -2.1 Interest -0.1 Depreciation higher due to full year of consolidating Sofology and increase in FY19 Underlying PBT -0.1 50.2 underlying asset base Pro forma Pro forma PBT uplift driven by increased contribution from all brands FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019. 6
Gross margins stable/growing in largest brands KEY DRIVERS 61% Gross Margins stable/growing in largest brands 59% 57% Operational progress and synergies driving Sofology margin growth 55% 53% Dwell & Sofa Workshop margin down on FY18 due to increased promotional activity 51% 49% FX exposure protected via hedges placed 47% up to 18 months in advance of purchase FY15 FY16 FY17 FY18 FY19 pro forma DFS margin held relatively constant over time despite FX rate volatility Sofology margin increasing in line with expectations FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019. Sofology data not available on a consistently calculated basis pre FY17 7
Operating costs as a proportion of revenue down year on year KEY DRIVERS 39% DFS costs relatively stable. Final 37% quarter heat wave and subsequent revenue drop drove FY18 increase 35% 33% Sofology improvement due to synergies and scale benefits 31% 29% Dwell & Sofa Workshop FY17-FY18 27% increase due to cost of establishing new showrooms 25% FY15 FY16 FY17 FY18 FY19 pro forma DFS costs relatively stable and Sofology relative cost dropping due to scale benefits. Opportunities to better utilise Group assets - especially in Supply Chain FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019. Sofology data not available on a consistently calculated basis pre FY17. 8
Property cost savings on track KEY DRIVERS GBP millions New showroom and CDCs largely relate to full year effect of FY18 FY18 Property costs 99.1 openings Sofology full year effect +7.9 £2.1m in year savings from rent Rebased FY18 Property 107.0 costs negotiations, ‘rightsizing’ and closures New showrooms and +1.8 CDCs £2.9m total annualised savings Rates inflation +0.3 secured at June 2019 Average saving of 32% per lease Market rent reviews +0.5 Lease regears* -2.1 On track for £6-8m p.a targeted savings by FY23 FY19 pro forma 107.5 Property costs Rent savings flowing through P&L and clear pipeline for future savings Opportunity to co-locate Sofology alongside DFS with minimal cannibalisation FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019. *Savings from lease re-gears, downsizing and closure of some showrooms that have had no adverse impact on profit.. 9
Non underlying costs incurred as expected. Synergy plan on track FY 2018 2019 £3.3m of Sofology integration costs 52 weeks 28- 48 weeks Total incurred across project Jul-18 30-Jun-19 (£m) management, restructuring, Sofology integration costs 2.0 3.3 5.3 retention and professional fees Sofology and Multiyork 2.6 0.2 2.8 professional fees Other restructuring costs 0.3 0.9 1.2 £0.2m in year costs in relation to L&P fees associated with the acquisition Potential additional Sofology 5.0 - 5.0 consideration of Sofology Total Non-underlying 9.9 4.4 14.3 operating costs £0.9m incurred to effect revised ways of working following Sofology acquisition and technology investments £5.3m of Sofology integration related costs incurred across FY18 and FY19 to support delivery of over £4m of run rate synergies secured as at June-19 10
Continuing to invest in growth opportunities whilst total capex reducing relative to revenue CAPITAL EXPENDITURE (INC. FINANCE LEASES) Capex % of Revenue Post acquisition capex £31.8m 4.5% Capex peaked in FY17 following 4.2% significant Dwell & CDC rollout and 4.0% £26.8m 3.5% international expansion £22.8m £27.1m £31.5m 1.3% 3.5% 3.2% 3.1% 3.1% 3.0% 1.3% 0.9% 0.8% 1.1% 2.5% New showroom investment reduced 0.9% in FY19 with shift to technology 0.5% 2.0% 0.5% 0.7% innovation and supply chain 0.7% 1.5% 1.5% 1.2% 1.3% 0.6% 1.0% 1.2% FY20 guidance of c.£35-37m* 0.5% Investment focused on supply chain, 0.7% 0.5% 0.5% 0.5% 0.4% technology, Sofology showrooms, 0.0% FY15 FY16 FY17 FY18 FY19 pro forma web and maintenance Technology New stores & warehouse conversion Logistics Maintenance & Other Capex mix shifting towards technology assets and Sofology and away from DFS / Dwell / Sofa Workshop new showrooms FY19 numbers quoted are for the pro forma unaudited 52 week trading period to 30 June 2019 *Including finance leases 11
Deleveraging continues LEVERAGE AND NET DEBT LEVELS KEY DRIVERS Pro forma free cash flow of £92.6m 3.5 500 3.0 450 Acquisition 3.0 of Sofology 400 Special Net debt is reducing as the acquisition 2.5 Dividend 350 2.2 consideration is paid down 2.1 300 1.9 1.9 2.0 1.8 1.8 1.7 250 1.5 1.4 Year end change impacts net debt due to trading 1.5 200 seasonality. H2 FY19 avg. net debt 10% lower YoY 150 1.0 100 RCF increased by £20m to support the larger 0.5 50 Group and future investment 0.0 0 Target remains to reduce leverage beneath 1.5x over the short term Leverage Net debt reducing as Sofology acquisition consideration is paid down Leverage calculated using net debt at the period end date divided by underlying EBITDA for the twelve months to that date 12
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