DFS Furniture PLC · LSE:DFS
DFS Furniture — Investor Day (May 2018)
71 slides from DFS Furniture's investor day presentation, May 2, 2018
Slide 1: Capital Markets Day 2 May 2018
Capital Markets Day 2 May 2018
Slide 2: Introduction
Introduction Ian Filby - CEO 1
Slide 3: Our Journey
Our Journey … to DFS Group as the Growing from Leading Sofa and Living Room DFS as Mass-Market Leader … Furniture Specialists By Leveraging our Efficient Operating Platform which : The right brand and proposition for all major customer segments Best value at every price point Outstanding customer ex
Slide 4: The Management Team Here Today
The Management Team Here Today Ian Filby Nicola Bancroft Nick Collard Scott Fishburn CEO CFO Chief Commercial Chief People Officer Officer Gill Stewart Tim Stacey Toni Wood Mike Schmidt CEO, Sofa Workshop Chief Operating Chief Marketing Corporate Finance Officer Officer Director 3
Slide 5: Our Agenda
Our Agenda Topic Presenter Timing Introduction & Context Ian Filby 10:45 – 11:00 Marketing Strategy Toni Wood 11:00 – 11:15 Commercial Strategy Nick Collard 11:15 – 11:30 Sofa Workshop Gill Stewart 11:30 – 11:40 Retail Strategy Tim Stacey 11:40 – 11:55 Tea Break - 11:55 – 12:15 People Strategy Scott
Slide 6: Approach to Questions Today
Approach to Questions Today ? ? ? ? ? 5
Slide 7: Our Position Today
Our Position Today UK UPHOLSTERY SHARE – 2016A (%) LATEST REPORTED / ESTIMATED UK FURNITURE SALES FOR ONLINE PLAYERS Estimated proportion 32.1 of UK furniture sales 5.5 that are sofas/upholstery DFS Group Very high Online Sales (2) Wayfair Likely low 26.6 (2) Made.com Likely low 10.1 (1) Medium 6.3
Slide 8: Long-Term Progress in all Environments
Long-Term Progress in all Environments Including Sofology c. 32% 3.92 3.82 3.65 3.72 3.66 3.52 3.38 3.30 3.26 3.20 3.20 3.04 3.05 2.89 2.88 2.94 2.79 2.86 26.6% 24.0% 2.41 2.23 1.95 2.00 26.4% 1.73 18.0% 25.5%25.7% 16.6% 18% 15% 9% 9% 1994A 1995A 1996A 1997A 1998A 1999A 2000A 2001A 2002A 2003A 2004A
Slide 9: The Three S's That Make us Different
The Three “S”s That Make us Different Sales per store (including Dwell, SW, Sofology) over Sales 50% higher than next nearest competitor Intensity Over 700,000 two-man deliveries per year Scale Intensity Scale buying benefits in finished goods, advertising Buying and insurance/interest-free-credit A
Slide 10: Levers of Growth Remain the Right Long-Term Choice
Levers of Growth Remain the Right Long-Term Choice 5 Growth levers International drive 2-3% sales growth in addition to market 4 Retail space & cost efficiency Financial payback 3 UK on incremental stores investment is short 2 Broadening our appeal These investments also typically drive an 1 Omnicha
Slide 11: Key Themes for the Day
Key Themes for the Day 1. WHY WE ARE BROADENING OUR APPEAL 2. STAYING AHEAD IN ONLINE 3. THE SOFOLOGY OPPORTUNITY 4. MATERIAL FINANCIAL UPSIDE AVAILABLE £££ We are pleased to have this opportunity to outline the opportunity we see ahead 10
Slide 12: Marketing Strategy
Marketing Strategy Toni Wood – Chief Marketing Officer 11
Slide 13: Our DFS Brand Appeals Strongly Across the Market
Our DFS Brand Appeals Strongly Across the Market DFS LEADS WITH ALL CUSTOMER GROUPS… …HOWEVER A SIGNIFICANT OPPORTUNITY EXISTS WITH CONSUMERS CLOSED TO DFS Affluence #1 #1 32% Aware of DFS but would not consider £3.3bn 68 % #1 #1 Life-stage Upholstery Consumers While DFS leads with all customer grou
Slide 14: Evolving With the Changing Market Whilst Retaining our Core Customers
Evolving With the Changing Market Whilst Retaining our Core Customers MARKET VOLUME BY SEGMENT 21% 21% 20% 19% 18% 15% 15% 16% 16% 16% Bargain Hunters 26% Quicker Delivery 22% 23% 25% 29% Convenience Shoppers Value Seekers 15% 13% 11% 13% 12% Quality Seekers 26% 27% 26% 26% 30% 2013 2014 2015 2016 2
Slide 15: Changing Consideration and Call to Action With Ever Stronger Advertising
Changing Consideration and Call to Action With Ever Stronger Advertising DFS BRAND & PROMOTIONAL DFS BRAND TRACKING RESULTS Team GB 2016/17 2017/18 2015/16 2016/17 YTD Brand Awareness 93% 94% 93% GXD 2016/17 Brand Consideration 29% 34% 36% Brand Acceptability 57% 63% 65% Brand Love 25% 29% 30% Winte
Slide 16: Our Group Brands are Complementary and Enable Even Broader Appeal
Our Group Brands are Complementary and Enable Even Broader Appeal National Average income families Above average income families with older children / with young children empty nesters. Typically aged 40+, working in Typically aged 25-45 working in an office executive and managerial positions. Femal
Slide 17: Shifting Marketing Investment to reflect Omnichannel Journey
Shifting Marketing Investment to reflect our Customers’ Omnichannel Journey 18% 21% 23% 25% 20% 18% 57% 59% 59% 2015/16 2016/17 2017/18 TV Press Digital Through econometric modelling we manage our channel spend to maximise our return on investment. Digital spend has grown over time, however remains
Slide 18: Accelerating our Digital Marketing with Customer Data at the Core
We are Accelerating our Digital Marketing with Customer Data at the Core Signals & Segments Driven Marketing 1 2 3 Lead Capture & conversion Beta Partner with Data Innovation Partner with Tech programme Specialists leaders While TV spend remains key at present, we are working to develop digital mark
Slide 19: Questions
Questions ? ? ? ? ? 18
Slide 20: Commercial Strategy
Commercial Strategy Nick Collard – Chief Commercial Officer 19
Slide 21: DFS Commercial Process
DFS Commercial Process Group Sourcing & Merchandising DFS Manufacturing Design Product briefs Supplier selection Supplier Partners Category Insights Supplier terms Competitor analysis FREIGHT COGs programme Price & Promotions management Macro trends Range management Designer pool Our commercial proc
Slide 22: Group Sourcing Map
Group Sourcing Map UK c. 40% Total Production 7 sites inc. DFS Southern & Eastern Europe (Poland & Italy) c. 35% Total production 5 sites Far East(China) 25% Total production 2 sites Our sourcing mix is designed to give an optimum balance of Cost, Quality & Lead time 21
Slide 23: Group Design Capability
Group Design Capability ‘BRIDGE MILLS’ NOTTINGHAM KEY FACTS Design centre of excellence in Nottingham 6 Designers – across upholstery & fabric 17 within the Development team (Prototypes) Originally developed to support DFS factory development Now working with partner suppliers Produce approx. 100 ra
Slide 24: DFS UK Manufacturing
DFS UK Manufacturing GEOGRAPHICAL PRESENCE KEY FACTS DFS Manufacturing Factory ‘Top 3’ UK manufacturer of sofas and other upholstered furniture DFS Wood Mill Site 5 sites employing c.950 colleagues across 2 shifts Northern Experienced long-serving management team Upholstery (c.40%) Experts in compon
Slide 25: Why is our Vertical Integration Valuable?
Why is our Vertical Integration Valuable? Shorter Lead Times Manufacturing to meet customer needs, not to maximise manufacturing efficiency Trend Responsiveness Able to rapidly bring new ranges to market to follow key fashion trends, or respond to retail insights Cost Insight Greater negotiation pow
Slide 26: British Standards Institute Accreditation
British Standards Institute Accreditation Well-recognised by consumers as the endorsement for quality All ranges within DFS have been tested and carry the mark, following development of the standard for upholstery through a partnership approach with the BSI Requires annual audits of all our own fact
Slide 27: Joules
Joules 40 Joules stores across UK – 2 bays per store – up from an initial 11 trial stores Brand values – Colour, Family, Humour, Quality & British Well positioned in the large and growing premium lifestyle market Majority of Joules customers are female Our Joules partnership has seen a successful la
Slide 28: Exclusive Brand Relative Positioning
Exclusive Brand Relative Positioning Traditional Classic/ Neutral Style Modern Segment Starting out Families Post Family We have developed our exclusive and partnership brand portfolios to cover the style and consumer life-stage spectrum
Slide 29: Questions
Questions ? ? ? ? ? 28
Slide 30: Sofa Workshop
Sofa Workshop Gill Stewart – CEO, Sofa Workshop 29
Slide 31: Sofa Workshop: What We Do
Sofa Workshop: What We Do We design and craft the highest quality sofas that are handmade to order in our exclusive British workshops Our creative expertise and upholstery knowledge ensure we can co-create your perfect sofa without overwhelming you with a bewildering catalogue of options We exist to
Slide 32: Sofa Workshop: Our Customer
Sofa Workshop: Our Customer We overindex in Lavish Lifestyles, Executive Wealth, City Sophisticates and Countryside Communities. Customers typically travel up to 60 minutes to visit a store 31
Slide 33: Sofa Workshop: Our 31 Stores
Sofa Workshop: Our 31 Stores 32
Slide 34: Sofa Workshop: Opportunities for Growth
Sofa Workshop: Opportunities for Growth 1 - Online Growth 2 - DFS Co Locations 3 - Standalone Stores Capture fair share of Exploit existing Group Space Build a national store consumer spend in online to drive Group Sales network while achieving segment Densities short paybacks Foundational Pillars B
Slide 35: Questions
Questions ? ? ? ? ? 34
Slide 36: Retail
Retail Tim Stacey – Chief Operating Officer 35
Slide 37: Omni-Channel Customer Journey
Omni-Channel Customer Journey Our customer journey now commonly starts with digital research – and continues across multiple channels through to purchase 36
Slide 38: Omni-Channel Customer Journey – Inspirational Imagery
Omni-Channel Customer Journey – Inspirational Imagery 37
Slide 39: Omni-Channel Customer Journey – In Store Technology
Omni-Channel Customer Journey – In Store Technology Technology is used to assist the customer journey in-store 38
Slide 40: Group Retail Formats – Evolving but Attractive Picture for all Channels
Group Retail Formats – Evolving but Attractive Picture for all Channels Showrooms View in Showroom, Pure Online Complete Online % of DFS Upholstery Sales Currently 84% 5% 11% Typical Rate of Market growth Gross Sales Growth (%) less 1-2% Double-digit DFS Contribution Margin (%) (1) c. 24% c. 40% (pr
Slide 41: Group Retail Formats – Showroom Transformation
Group Retail Formats – Showroom Transformation Our estate is generally well-invested and we are driving sales intensities through the introduction of group co-located formats in existing retail space 40
Slide 42: UK Showroom Network Overview
UK Showroom Network Overview Number of 109 standard format 34 co-located stores 21 standalone stores 41 standard format Showrooms 5 small format trials 3 standalone stores 10 co-located stores 10-15k sq.ft. of ground Retail park co- Typically 3k sq.ft. 12k sq.ft. of ground Typical Locations floor re
Slide 43: Supply Chain Transformation – CDC Network Complete
Supply Chain Transformation – CDC Network Complete Our network of 19 UK CDCs is now complete driving operational cost and customer service advantages 42
Slide 44: Supply Chain Transformation – new AI Software
Supply Chain Transformation – new AI Software Supporting Supply Chain Our bespoke Apollo software created through a development partnership with a leading AI pioneer is driving our logistics optimisation 43
Slide 45: Retail Strategy - Summary
Retail Strategy - Summary Focus - Omni-channel customer journey Continued investment in on line channels… …and in store technology On line channels – margin accretive and growing double digit Utilisation of retail space – opportunity – Dwell / Sofa Workshop Enabled by CDC programme – opening program
Slide 46: Questions
Questions ? ? ? ? ? 45
Slide 47: People Strategy
People Strategy Scott Fishburn – Chief People Officer 46
Slide 48: People Strategy – Linked to our Customer Experience Outcomes
People Strategy – Linked to our Customer Experience Outcomes 1. Experienced and skilled teams 4. Giving something Customer 2. Strong back in our local Experience Leadership communities 3. Engaging Place to Work 47
Slide 49: Experienced and Skilled Teams
1. Experienced and Skilled Teams Number of c. 3,800 c. 400 c. 200 c. 1,100 employees Annual Labour c.25% c.29% c. 31% c. 52% Turnover CONTINUALLY BUILDING CAPABILITY DEVELOPING THE NEXT GENERATION All sales people experience 6 days of 76 apprentices recruited over the last 3 years development to bui
Slide 50: Strong Leadership
2. Strong Leadership Long Tenured Furniture Long average tenure of our top 30 management team Retail Experience and New Longest serving leader is Graham Mould – Operations Director with Hires With Proven Retail 35 years service Backgrounds Nick Smith – Retail Director DFS – previously 25 years at DS
Slide 51: Engaging Place to Work
3. Engaging Place to Work Over 80% of our employees gave us their views in our annual employee survey. We were delighted to be externally recognized based on their feedback 50
Slide 52: Giving Something Back in our Local Communities
4. Giving Something Back in our Local Communities £1.9m raised in total & £16m raised a pledge to raise £1m this year Sponsoring the DoE awards and all apprentices put British Retail Consortium, Better Retail, through their Gold Award Better World initiative signee adopting 5 UN Sustainable Developm
Slide 53: Customer Experience
Customer Experience REWARD IS ALIGNED TO MEASURED CUSTOMER EXPERIENCE ACROSS THE BUSINESS Post Post Established Post Purchase Delivery Customer Service Focuses on: The buying Arranging of delivery and The furniture and end- Arranging of service experience delivery experience to-end experience and ex
Slide 54: Questions
Questions ? ? ? ? ? 53
Slide 55: Sofology Overview
Sofology Overview Mike Schmidt – Corporate Finance Director 54
Slide 56: Sofology Overview
Sofology Overview STORE NETWORK OVERVIEW KEY FACTS £160m of annual revenues LTM with a made-to-order business model 41 stores at present, with six regional CDCs Large, modern stores typically displaying c. 70 ranges Design-led product ranging, c. 30% of models refreshed per annum Technology-led cust
Slide 57: Differentiated Ranging, Advertising and Store Environment
Differentiated Ranging, Advertising and Store Environment 56
Slide 58: Efficiency Opportunity
Efficiency Opportunity COST BASE SPLIT – LAST 12 MONTHS Cost of Sales 40.4 Access for Sofology to DFS preferred suppliers with cost / lead-time benefits % 51.1 % Better purchasing terms for interest free credit and product warranties Longer term opportunity to utilise internal DFS manufacturing acro
Slide 59: National Roll-out and Lease Negotiation Opportunity
National Roll-out and Lease Negotiation Opportunity DFS REVENUE BENCHMARKING OPPORTUNITY SUMMARY Significant gaps within Sofology store network DFS CACI model currently being developed to No local support analysis of Sofology store catchments Sofology Sofology store: store Implied opportunity of at
Slide 60: Conclusion – The Sofology Opportunity
Conclusion – The Sofology Opportunity Our Targets: Short-term buying synergies of £4m – £1m of annualised benefits now secured National Roll-out Medium-term industry level margins of 6%-8% EBITDA Roll-out opportunity to add at least two thirds to top- line Efficiency Benefits Longer-term management
Slide 61: Questions
Questions ? ? ? ? ? 60
Slide 62: Financial Model
Financial Model Nicola Bancroft – Chief Financial Officer 61
Slide 63: Financial Overview
Financial Overview REVENUES (£M) UNDERLYING PBT (£M) Sofology Dwell/SW DFS 65 30 42 54 55 54 50 32 45 714 709 694 674 (1) FY15 FY16 FY17 LTM18 FY15 FY16 FY17 LTM18 PBT BRIDGE FY16 TO LTM18 (£M) 64.5 -11.8 6.4 -6.0 -2.3 4.6 -5.7 -4.4 1.2 -1.5 45.0 Underlying Operating Underlying Dwell & SW Dwell & SW
Slide 64: 31% Drop-Through to EBITDA
Our Flexible Cost Base Can Offsets a Proportion of Market Declines LIMITED PERCENTAGE OF FIXED COSTS DFS BRAND CONTRIBUTION HIGHLIGHTS DESPITE RECENT GROUP ACQUISITION IMPORTANCE OF FLEXIBILITY DFS Brand Only 1H18 vs. 1H17 31% Drop-Through to EBITDA Change in revenue -15.2 EBITDA Fixed costs Gross p
Slide 65: Structural Profit Improvements in the Near-Term
Structural Profit Improvements in the Near-Term DFS GROSS MARGIN (%) DFS DISTRIBUTION COSTS Delivery cost per order (£) 59.7% 59.8% 59.8% 59.9% 59.9% Start of CDC Programme 59.1% 59.2% 1H15 FY15 1H16 FY16 1H17 FY17 1H18 FY13 FY14 FY15 FY16 FY17 1H18 DWELL / SW OPERATING LEVERAGE GROUP PROPERTY COSTS
Slide 66: Consistent Cashflow Generation
Consistent Cashflow Generation CONSISTENTLY STRONG CASH CONVERSION 120 91.4% 100% 76.6% 77.8% 79.2% 80.1% Adjusted EBITDA Cash Conversion (% of EBITDA) 100 69.2% 69.6% 80% 80 60% 60 40% 81.2 83.8 82.3 89.2 94.4 82.4 79.5 40 20% FY12 FY13 FY14 FY15 FY16 FY17 LTM18 FY15-FY17 OPERATING CASH GENERATION
Slide 67: Questions
Questions ? ? ? ? ? 66
Slide 68: Concluding Remarks
Concluding Remarks Ian Filby - CEO 67
Slide 69: Our Key Messages
Our Key Messages 1. We are broadening our appeal. We are not “moving upmarket” 2. Online is a key opportunity, with strong margins and ROCE, and we already have developed the clear leading position to work from. However our store estate is highly profitable and a critical asset – we are however evol
Slide 70: The Group - Our Medium-Term Potential
The Group - Our Medium-Term Potential £40m+ PBT Growth Cost Sofology Growth Levers Drivers Opportunity Market Stronger Continued Growth Customer Cash Resuming Proposition Generation 69
Slide 71: Questions
Questions ? ? ? ? ? 70