DFS Furniture PLC · LSE:DFS
DFS Furniture — FY2018 Earnings Presentation
33 slides from DFS Furniture's earnings presentation, Oct 4, 2018
Slide 1: Full Year Results
Full Year Results 4 October 2018
Slide 2: Highlights
Highlights Ian Filby
Slide 3: Good strategic progress in a challenging market
Good strategic progress in a challenging market KEY FINANCIALS STRATEGIC AND OPERATIONAL HIGHLIGHTS £1,125.6m Gross sales +13.6% £76.1m Underlying EBITDA -7.6% £38.3m Underlying PBT before -23.7% brand amortisation £60.4m Free cashflow 79.4% generation cash conversion Good progress made against stra
Slide 4: Financials
Financials Nicola Bancroft dfs
Slide 5: Financial Overview
Financial Overview FY 2017 FY 2018 FY 2018 OVERVIEW 52 weeks Pre 52 weeks (£m) 29-Jul-17 acquisitions 28-Jul-18 Revenue 762.7 747.7 870.5 Weather and shipping issues impacting final quarter Growth (%) +0.9% -2.0% +14.1% Underlying EBITDA 82.4 72.6 76.1 Growth (%) -12.7% -11.9% -7.6% Strategic invest
Slide 6: Drivers of Group Revenue Growth
Drivers of Group Revenue Growth REVENUE CONTRIBUTION BY CHANNEL KEY DRIVERS Revenues (£m) Group LFL revenue decline of -2.4% reflecting 600 650 700 750 800 850 900 market environment, with Group online growth of +15.1% FY17 763 DFS LFL revenue down -3.9% due to market DFS (20) decline and shipping d
Slide 7: DFS Gross Margin Trends and Drivers
DFS Gross Margin Trends and Drivers DFS-ONLY GROSS MARGIN EVOLUTION KEY DRIVERS 61.0% 1.7 £6m of US Dollar related cost pressure in FY18 (relative to FY17, 60.5% 1.6 £21m in total) more than offset by margin initiatives GBP:USD exchange rate 60.0% 59.9% 1.5 Gross Margin % 59.9% 59.8% 59.5% 1.4 Futur
Slide 8: EBITDA Progression
EBITDA Progression COST PROGRESSION KEY DRIVERS GBP millions 0 20 40 60 80 100 Gross profit impacted by lower revenues but partially offset by FY17 Underlying EBITDA 82.4 higher margin % from initiatives Gross profit -3.4 Lower selling & distribution costs Selling & Distribution +1.3 reflect marketi
Slide 9: Cost Base Responsiveness
Cost Base Responsiveness Cost Base – LTM (Sofology on pro forma basis1) Responsiveness of costs to market environment Cost of Sales Finished goods cost will move in line with revenues c.1/3rd of purchases in USD – hedged for 18 months 40.1% 44.3% 42.3% No minimum volume commitments 49.7% Variable, S
Slide 10: Non-Underlying Costs
Non-Underlying Costs OVERVIEW COMMENTARY (£m) FY 2018 £2.6m professional fees primarily driven by Sofology CMA process Sofology & Multiyork professional fees 2.6 Strong trading towards end of the Sofology Potential additional Sofology consideration recognised 5.0 earn-out period may result in additi
Slide 11: Investment in Infrastructure for Future Growth
Investment in Infrastructure for Future Growth CASH CAPITAL EXPENDITURE 30 £28.3m Other (inc. commercial £24-26m 25 vehicles) 8.5 £22.0m Capital Expenditure (£m) • Full year of Sofology offset by 20 vehicles funded through leasing Store refurbishment 2.3 7.1 • Similar investment levels to 2.4 mainta
Slide 12: Excellent Cash Generation Continues
Excellent Cash Generation Continues COMMENTARY (£m) FY 2017 FY 2018 Disciplined approach to Underlying EBITDA 82.4 76.1 growth investments with short payback periods Capex (28.3) (22.0) Change in working capital 2.9 6.3 Stable underlying working Free cash flow(2) 57.0 60.4 capital trends. Sofology b
Slide 13: Return on Capital
Return on Capital LEASE ADJUSTED ROCE KEY TRENDS 18.7% -0.5% +0.1%p Return on capital remains an -2.1%p important focus -1.1%p 15.6% Returns impacted by lower FY17 Decrease in Decrease in Acquisitions FY18 operating profit and post-tax lease adjusted acquisition of Sofology and operating profit capi
Slide 14: Change of Year End to June 2019
Change of Year End to 30 June 2019 RATIONALE YEAR END DATES May Mar Nov Aug Dec Feb Sep Apr Oct Jun Jan Jul Jul Manufacturing operations benefits FY18 and earlier (12 months to July) H1 (6 months to January) Improved comparability of period ends H2 (6 months to July) FY19 (11 months to June) Timing
Slide 15: Summary: Market Environment and Acquisitions Reflected in KPIs
Summary: Market Environment and Acquisitions Reflected in KPIs GROSS SALES (£M) UNDERLYING EBITDA (£M) 980.4 990.8 1,125.6 89.2 94.4 913.1 82.4 76.1 FY15 FY16 FY17 FY18 FY15 FY16 FY17 FY18 FREE CASH FLOW (£M) CASH CONVERSION (%) LEASE ADJUSTED ROCE (%) 80.1 79.4 21.2 75.6 69.2 18.7 60.4 57.0 15.6 FY
Slide 16: Operational Update
Operational Update Ian Filby
Slide 17: Levers of Growth, Underpinned by an Efficient Operating Platform
Levers of Growth, Underpinned by an Efficient Operating Platform 5 International 4 Retail space & cost efficiency 3 UK stores 2 Broadening our appeal 1 Omnichannel growth Strong platform benefiting from Scale, Flexible Cost Base and Vertical Integration 16
Slide 18: Omnichannel – Continued Progress Driven by Fundamental Advantages
1 Omnichannel – Continued Progress Driven by Fundamental Advantages KEY METRICS Substantial traffic, reputation and presence £184m Group annual online gross driving quality scores and reduced CPC sales1 Shift in marketing investment to digital to +15.1% Growth In Group online revenues match consumer
Slide 19: Omnichannel – Impact of Online Channel Shift
1 Omnichannel – Impact of Online Channel Shift OVERVIEW DFS.CO.UK CHANNEL SHIFT IMPACT (‘Worst case’ - assumes that the ‘same’ types of customer currently complete online as in-store and no improvement to online AOV) > 80% of customers conduct online research £1 spent in store before making a purcha
Slide 20: Omnichannel – Mobile Customers
1 Omnichannel – Mobile Customers MOBILE CUSTOMERS ARE DIFFERENT AND WE ARE ALREADY GROWING AOV Store Mobile Online AOV +5.9% Age < 39 Age > 39 Age < 39 Age > 39 Store Mobile FY15 FY16 FY17 FY18 Key Initiatives: Grade A - B Grade C1 - E Grade A - B Grade C1 - E Site Optimisation Store Mobile Outbound
Slide 21: Ongoing Broadening of Group Appeal
2 Ongoing Broadening of Group Appeal TAILORED PROPOSITIONS ATTRACTING WIDE AUDIENCE Ever evolving our marketing investment by channel to deliver the right brand and sales activation messaging Sofology adds a complementary proposition relevant for incremental customer groups DFS brand acceptability a
Slide 22: Store Network Development
3 Store Network Development OPERATIONAL UPDATE NEW STORE OPENINGS • DFS opening programme continues to generate sub-21 months cash payback and predictable returns 24 stores opened in year across the Group DFS Rugby Sofa Workshop Epping • 5 DFS (including 1 former Multiyork site) SOFOLOGY ESTATE • 2
Slide 23: Retail Space and Cost Efficiency
4 Retail Space and Cost Efficiency RETAIL SPACE UTILISATION HIGHLIGHTS Cost per order benefit in FY18 CDC programme complete with delivery cost savings being realised £1 relative to FY13 despite material cost inflation Further opportunity exists to optimise space Growth in Retail ‘box’ sales +10% fr
Slide 24: Retail Space and Cost Efficiency: Lease Renewal Opportunity
4 Retail Space and Cost Efficiency LEASE RENEWAL OPPORTUNITY COMMENTARY 42 leases expiring over 5 years Terms renegotiated on 5 leases resulting £6-8m in net savings of 38-45% per lease, in-line with target of 25-45% Cumulative annual savings opportunity FY20 – FY23 further £4-6m opportunity Potenti
Slide 25: International Development – Netherlands & Spain
5 International Development – Netherlands & Spain THE NETHERLANDS TV CAMPAIGN THE NETHERLANDS – NEXT STEPS Material uplift in bookings during national TV campaign and VAT free promotion Long term impact difficult to gauge due to hot weather Rolling L6W LFL Bookings Growth Trial to be extended for 6
Slide 26: Planning for the UK/EU Exit
Planning for the UK/EU Exit FIVE KEY AREAS OF FOCUS ON THREE KEY OPERATIONAL GROUPS Consumer Demand Border Delays UK retail Regulatory Burden EU Retail (RoI, NL and ES) Tariffs UK manufacturing Exchange Rates We continue our preparations for all likely outcomes as part of our regular risk mitigation
Slide 27: Summary and Outlook
Summary and Outlook SUMMARY Results reflected a challenging market and were compounded by unexpected and protracted adverse weather and shipping issues in the final quarter Investment has been maintained to strengthen our position for the long term Proud of our progress OUTLOOK Bookings since July h
Slide 28: Appendix
APPENDIX
Slide 29: Long-Term Progress in Group Share Capture
Long-Term Progress in Group Share Capture 3.92 31.1% 3.82 3.65 3.72 3.66 3.52 3.38 3.31 3.26 3.26 3.20 3.20 3.04 3.05 2.89 2.88 2.94 2.79 2.86 24.0% 2.41 2.23 1.95 2.00 26.4% 25.5%25.7% 1.73 18.0% 16.6% 18% 15% 9% 9% 1994A 1995A 1996A 1997A 1998A 1999A 2000A 2001A 2002A 2003A 2004A 2005A 2006A 2007A
Slide 30: Group Store Profile
Group Store Profile AS AT 28 JULY 2018 (VS. 29 JULY 2017) UK ROI Holland Spain TOTAL Large Format (c. 15,000sq.ft.+) 95 (-2) 2 2 (+1) 1 100 Medium Format (c. 10,000sq.ft.) 12 (+3) 2 3 - 17 Small Format (<5,000sq.ft.) 5 (+2) - 1 - 6 Other (5,000sq.ft.) - - - 1 1 DFS TOTAL 112 (+3) 4 6 (+1) 2 124 (+4)
Slide 31: Historical performance for the new half year and full year end dates
Historical performance for the new half year and full year end dates Other Existing 52 weeks ending 30 June 2018 DFS brands Group Sofology* Total £m £m £m £m £m Gross sales 902.0 71.4 973.4 132.1 1,105.5 Revenue 691.3 58.1 749.4 104.6 854.0 Cost of sales (277.0) (25.7) (302.7) (52.6) (355.3) Gross p
Slide 32: Historical performance for the new half year and full year end dates
Historical performance for the new half year and full year end dates Other Existing 48 weeks ending 30 June 2018 DFS brands Group Sofology* Total £m £m £m £m £m Gross sales 806.7 64.7 871.4 132.1 1,003.5 Revenue 618.0 52.6 670.6 104.6 775.2 Cost of sales (249.6) (23.3) (272.9) (52.6) (325.5) Gross p
Slide 33: Disclaimer
Disclaimer: This presentation 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”, “anticip