DFS Furniture (LSE:DFS) — Preliminary Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the DFS FURNITURE PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll and your participation, I'm sure, will be warmly welcomed by the company. I'd now like to hand over to CEO, Tim Stacy. Good afternoon. Good afternoon, everyone, and thank you for joining us. I've got a few slides to take you through. So I'll take you through some slides on the company, a bit of background, where are we on our strategy, and what we've been up to in the last twelve months, and how things are looking at the moment. And then I'll hand over to our CFO, Mike Schmidt, who's with us to take you through some of the latest financials.

0:56 I imagine that'll take, say, fifteen, twenty minutes to go through all of that, and then happy to, get into any, questions you may have. So,

1:03 if we click the slides along a couple. So just to give you a bit of a if you don't for those of you who may not know us that well, but just to stand back and give you a bit of a company snapshot, really. So our group was founded just over fifty years ago in 1969 by Lord Kirkham through one store and one workshop in Doncaster, and we've now grown to a business with over 5,800 colleagues. We're a fully integrated business in the sense that we have retail, websites, marketing, etcetera, but also our own manufacturing, which we're very proud of in The UK, and our own logistics delivery business as well. So a fully integrated business focused primarily on sofas. 96, 97% of our business is is all sofas.

1:49 Split in terms of agenda, we've been working very hard on our male female split. You can see there. We work incredibly hard on engagements, and our engagement service with our colleagues places in the top 10 of big companies. So so ifology number two, DFS FURNITURE seven, and we have over a thousand colleagues engaged and participating in our save as you earn schemes of a a well engaged team. Looking at f y twenty two, sort of the middle bar pie chart there. So DFS is the well known the biggest retailer in the in the industry accounts for about 79% of our revenues, and softology is growing to just nearly 21%. And we've in terms of presenting the most recent set of results, which is financial year '22, so that's year ended June 22, we've sort of based that against the last thing in the commerce clean year we had, which is pre pandemic, so financial year 2019, so year ended June 19. And our revenue growth was strong at nearly 20%.

2:53 Our underlying profit growth of nearly 14.6%. And in the last calendar year, twelve months, we've returned nearly £75,000,000 to shareholders by way of special dividend, ordinary dividend, and share buybacks. So incredibly cash generative business that you'll see as we go forward in the slides. And we've also grown our market share. So since pre pandemic times, our share has now grown to nearly 36%, so a three percentage point increase since FY '19. And part of the reason we do that is our is our brands, and we have exclusive product on our shop floors and our website catering for pretty much every type of customer that would be interested in sofas from the top end of Halo, and you'll see that if you can hopefully see in the top left corner there, Halo Luxe, which is our top end leather brand through to partnerships that we have with the likes of Jewels and Country Living and House Beautiful and French Connection.

3:49 Most recently, we've launched, for example, sofa sofa balls and store away in DFS, which is catering for a more modern, customer, looking for storage, but also looking for modular furniture. In Sophology, we've also launched, partnership with George Clark, their well known designer, TV presenter. So one of the the key differentiators of our business is that we're selling product that you can't buy anywhere else, which is important to us. So that's a bit of a snapshot. Moving on to the next slide. We launched, on on our corporate website, you'll see that at Capital Markets Day we had in the middle of March. And our vision is to lead furniture retailing in the digital age, and we recognize firmly we're in the digital age, and we invest a huge amount of time and money and thought into what that means for the for our business as we've gone forward. And from a digital perspective, the way we use data, the way we collect data, and drive our business forward for growth and for efficiency is key.

4:50 And where how we express our strategy is through what we call our pillars and platforms. So our retail pillars, our DFS retail brand, softology retail brand, and home we sell through both DFS and Sophology. So it's not a separate brand in its own right. It's just the retail channel. And underneath that, our platforms, and these are these enable us to have scale in the market. So sourcing and manufacturing, we source from around the world with the biggest manufacturers in the world, in the Far East, in Europe, and in The UK. From a technology and data platform, we work with world class partners in terms of our web platforms and our data platforms. Our logistics platform is, something we're very proud of where we have something called the sofa delivery company, which are our own fleet of, seven and a half ton, three and a half ton vehicles operating out of nearly 30 distribution centers around The UK and Ireland, delivering seven days a week to customers.

5:45 And people and culture, you know, in the end, we we're very, very focused on our colleagues, our development, our engagement, and the culture that we build based on some core values. And wrapping around that is the ESG agenda, which as the market leader, we see that as an opportunity to really differentiate and lead and innovate in the in this industry. Industry. Stepping back, one of the things that we've said, clearly, there's a lot of noise around the short term, the last sort of four, five months, particularly last couple of months. And one of the things we said at our recent annual results presentation a couple of weeks ago was just to step back and just to think about the fact that we are a very strong and robust market leader.

6:26 We believe we have the best customer proposition in terms of the brands that I mentioned before, not just DFS and Sophology, but all the partner brands we work with, and we are gaining share. We've got very strong platforms, which enable us to to access that the scale benefits and, therefore, highest operating margins and cash generation. We've got a very proven and resilient business, including a strong balance sheet that Mike will touch on, plus a well invested business. And we are investing for growth in the future despite the short term headwinds. So we see opportunities for growth in the home sector and using our digital assets and data assets to drive further growth for the business. And in the end, we see short term opportunities to gain share in the sector. DFS, when times have been tough, and I'll come on to this in a second, has always gained share as the market leader. We continue to invest. We've got the highest operating margin so we can weather the storms.

7:21 Longer term, it underpins our financial ambitions that Mike will talk about. And in the end, from a shareholder point of view, we've been floated since 2015 with a very strong cash generation and returned nearly £200,000,000 gross to shareholders over that period of time. Next slide. I talked about gaining share in tough environments, and this chart on the left bar chart shows you the value the estimated value share of of UK upholstery. So it's around about 3,200,000,000 at this point in time to 2022. That's an estimate. And you can see how it oscillates from sort of two thousand and nine, ten around 3,200,000,000, drops down a bit, and then it rose to the heady heights of 3,300,000,000, which is pre Brexit.

8:11 It's been fairly flat for two thousand seventeen, eighteen, a big drop in 2020, obviously, with COVID. So you can see the market, and we've looked at the CAGR of the market over the last sort of ten years, and it's about a two and a bit percent. So half of that is volume and half of that is value, and that's before all the inflationary pressures. So this gives you a sense of how the market has been reasonably stable over the last few years. But what you'll see is the blue line, and that's our market share. And the market share has grown over this period of time to now record levels of 36% at value level. And part of that is to do with the exit of certain competitors back in the global financial crisis, the likes of course and land of leather. Acquisitions, we acquired Sophology back in 2017, and then some exits most notably over COVID where Harvey's demise. And since then, we've seen continued structural change in the market where independent businesses have declined by nearly 5% according to ONS data, through the challenging environment that we face. So as we stand today, the pie chart, you know, the DFS group, which is so following DFS primary adds together, 36% value share. And then you can see on the other side, there's about 32% that's still in the independent sector, which is in structural decline.

9:27 And then you've got competitors a, b, and c, some of the traditional shared competitors, but also the likes of Next and M and S and John Lewis in there. So you can see we're three times bigger than the the nearest or three and a half times bigger than the nearest competitor, which gives us a tremendous scale advantage and opportunity in the next sort of twelve months or so to gain share. Next slide, please. So just a brief update on some of the strategic, elements that we've touched on before. So next slide. This is the strategy I outlined earlier. And if you go to the first pillar, which is about DFS. So DFS is their most well known and most profitable biggest brand in the in the sector. And this over the last financial year, we've done a number of things, but the callouts will be around some new brand marketing that we've launched,

10:16 which has driven real strong connection and positive shifts in the connection with the brand, and this is how consumers feel about our brand. And we're now in the top three in terms of connected brands in The UK. So this shift in tone of marketing is all about style and helping you find the right thing for you, the right sofa for you, and you'll see new adverts coming out in the next few weeks that drive that forward, but that's definitely driven brand closeness and moved us away from some of the promotional activity that I'm sure you've seen over many years where we've talked about half price and on sale. So we're now becoming a much more a brand about style and product, which then links the next piece where we've we continue to launch exclusive products that fit with our consumers' lifestyles and their needs. So we've just launched a range called Store Away in partnership with the largest furniture manufacturer in the world. We've taken all of their learnings from the best selling ranges around the world.

11:09 We've applied that to The UK market, and it's been the best launch we ever had.

11:12 It's a top end fabric and leather recliner with storage and USB and music. It's an amazing range in our stores and our websites. And then most recently launched the DFS vegan range signed off by Petter, but a a very applicable range to to lots of young consumers coming through who who who value those attributes. In terms of our stores, we very much believe in a combination of stores and web for this sector. We know that 90% of transactions in in our sector are influenced by customers coming into the store and sitting on the product. In the end, getting the right sit is important, and it's a tactile natured product. So what we've been doing is rolling out new formats to DFS. So upgrading all the stores, nearly 50 stores now have been done with a clear, at least, 5% like for like growth versus control, an investment of about £300,000, which pays back within twenty four months. And nearly half the estate has now been reformatted, modernized, more sofa bays, improved lighting,

12:18 much better visual merchandising, and we'll keep driving that forward as we continue to invest in the website. Finally, on the right hand side, something called intelligent lending platform. And just for history, you know, DFS and Sophology, a high penetration of interest free credit transactions. Historically, nearly nearly two thirds of our business will be done through interest free credit. It's a little bit less than that at the moment. Given some of the cash balances that people acute

12:44 accumulated during COVID. But the intelligent lending platform is a piece of proprietary technology we've developed that sits between our customers and our finance providers, and it helps us direct customers to the right finance provider, but it also helps reduce the transaction time in store by nearly fifteen minutes, which is very important at busy times, Saturdays, Sundays, bank holiday Mondays, and it gives our colleagues more time to engage more customers, but it also gives customers a much better experience. It has a soft search credit facility as well. And it's an example, I guess, of how we're using technology to improve the customer experience, but also improve efficiency.

13:24 Next slide. Sophology is a very distinct brand, which we acquired in 2017 when we found that when a new Sophology store opens right next to a DFS store, the cannibalization is is very low between 57%. And, therefore, we know it's very complementary in terms of acquiring new customers. It's been a successful growth story, and we're trying to drive distinctiveness through partnerships with a well known TV actress

13:53 and and film actress, Helena Bonham Carter. It's been incredibly successful in terms of creating that distinctive and unique style. As I mentioned before, we're investing in the product range and pushing higher and working with excellent partners like George Clark. And one of the big opportunities for growth is new stores. And so we're now at 55 at the end of financial year '22. We opened seven new stores in '22 at really good terms, and we're planning for a couple more this financial year and ultimately aiming for between sixty five and seventy stores. So follow g also leverages our group platform. So sofa delivery company, which does what it says on the tin, is now fully integrated. So previously, we had two separate networks at DFS and Sophology. We now have one, which allows us to deliver to customers seven days a week, but also drives very good variable cost per order. So much greater postcode densities, which topology are benefiting from in terms of cost per order of delivery.

14:51 Next slide. So on home, we're building the foundations for our home offer. We are very much focused on beds and mattresses. We know that the market for beds and mattresses in The UK is about 3,000,000,000, and our aim is to get to about a 4% share of that over the coming years. We need to drive awareness, and we've been very much focused on digital advertising, but we have launched our first ever TV advert for nonsofas for beds in DFS.

15:19 And we're very focused on online, and so we've nearly doubled our online sales by developing our range and our website and our digital marketing. And that's our focus at this moment in time. In the background, building our supply chain capability to be able to deliver this through our network. And so we consolidate the beds and the mattresses into one location and deliver once for customers, which is a good customer offer. We we see this as a a very exciting opportunity to increase our addressable market over the coming years. Next slide. Just to touch on some of the platforms I mentioned earlier. So sourcing and manufacturing, you know, we've been manufacturing, as I said, when law Kirkham first started back in fifty years ago, and we've just refurbished we're in the middle of refurbishing our Doncaster factory, or we have some other factories in the East Midlands.

16:08 We are very much focused on optimizing our mix. So we have about a third of our business is made in The UK, a third in Europe, and a third in the Far East. And we're always looking to to work with partners to develop and optimize where's the best place to manufacture in terms of cost of goods and quality and style. But as the market leader in The UK, we benefit from scale and so the best cost of goods, but also in terms of access to the best designs around the world.

16:35 So a really strong platform, which we're leveraging despite the headwinds of freight rates and the dollar and raw material cost increases. On technology and data, we something called Iris we've launched this year, which is basically integrated retail intelligence solutions. Integrates nearly 35 data sources externally and internally, and it gives us a 306 degree six degree view of our business from attracting customers to engaging them, converting in store or online, delivering, and then from a customer service point of view at the end. So we use that data to develop new tools, such as the intelligent lending platform, to optimize our workforce, our colleagues in store to make sure we have the right colleagues at the right time, but also to make sure we have the range distribution right in all of our stores to make sure we are getting the right sales per square foot effectively.

17:26 On logistics, it's been probably the most challenging year for logistics for eighteen months. Actually, think about it 2.5 since COVID started. And it's since then, we've we've really increased our space. We've increased in certain locations, put some new warehouses down, new hubs. We're unable to we're able to offer our customers seven day delivery with a new four on, four off shift pattern. What that means is our our drives and warehouse colleagues work for four days, and they're off for four days. It's good from a work life balance point of view, helps us attract and retain colleagues in logistics side of things. And I'm pleased to say that,

18:02 certainly, from an end to end supply chain point of view, life's settled down quite considerably since probably February, March this year. So looking for calmer waters ahead there. Finally, in terms of people and culture, integrated all of the central teams in terms of finance, HR, and technology, and that drives our employer value proposition in terms of, attractiveness to work as a place to work and in terms of how we pay people, how we look after people, and the values that we have as a business.

18:34 Turning to ESG, the final slide that I'll have here before I sum up. We have, as a PLC and a big company, reported under the new TCFD requirements, but essentially making lots of progress in this area. And we have actually mapped now our carbon footprint as a business,

18:54 including all of the scopes one, two, and three for the last four years that enables us to create a really strong foundation on which to create some science based targets to get to our ambitions in the in the coming years. We have very strong on the social side of things in terms of our inclusion and well-being programs. And as you'd imagine, being PLC, we have a very strong governance and have recently set up

19:18 responsible and sustainable business committee, which is to focus on some of the environmental and sustainability challenges that our industry faces. And as a market leader, we're determined to innovate in that space, and try and move the agenda forward. So I think that's the kind of the background to the business. Before I hand over to Mike, I I guess I'd just say, yes. There are absolutely short term headwinds.

19:44 We can all see that in terms of consumer confidence and cost of living, etcetera. But what I do know is three things. One is our group is is the the clear market leader, with an opportunity to leverage its scale. Secondly, that when times are tough historically, and we know in terms of playing to win that we do win market share and gain. So as we come through whatever this latest cycle is, we know we'll come out stronger. And thirdly, you know, we stand by the the medium term financial ambitions that that Mike's gonna take you through because of our the strength that we have and competitive advantage that we have that enable us to get there. So with that,

20:22 hand over to Mike to take you through some of the financials. Thanks, Tim. I'm gonna start with some context on the whole year we've just reported. So overall, we saw the value of our revenues increasing by 20.1% versus the pre pandemic comparator with three key factors behind this revenue growth. So firstly, a very strong opening order bank entering the year, which was beneficial during the year. Secondly, we saw positive order intake volume growth relative to financial year 2019. So that's a growth in the number of transactions. And then thirdly, we also actually drove average order value growth as well through price increases that offset cost of inflation coming through and also new premium product ranges introduced, as Tim touched on, and things like the store away range.

21:15 So against these materially higher revenues, we also did see increased operating costs in the business, really caused by the macro environment and also by the volatile pattern of trading across quarters with highs and lows of demand that made smooth manufacturing logistics flow quite difficult to achieve. Now as many retailers have said, this has been the most operationally challenging period that they can recall, and I think our leadership team is no different in having that view. But actually, those challenges, our overall reported profit performance is positive relative to those pre pandemic levels with an underlying profit before tax and brand amortization of £60,300,000 from continuing operations. So that's 14.6% higher than the pre pandemic comparator.

22:02 And we also do close the year with a strong and efficient financial position, with net bank debt of £90,000,000 and leverage of around 1.1 times our cash earnings. So this means that we have over £100,000,000 of undrawn bank facilities available to us, which gives us full coverage for all of the negative working capital balance that we carry as a business and we utilize to maintain capital efficiency. And it's around half the level of debt that we've traded with since the IPO. So with this resilient balance sheet and profitable performance, this has supported the declaration of our final dividend of 3.7p and also an extension to our ongoing current buyback program of 10,000,000 So moving on to the next slide.

22:47 These results once again demonstrate how we're delivering on the fundamental financial principles that we consistently target. Firstly, we believe as a business market leader, it's important to be driving sales growth and taking share as part of our value creation. So growth in the revenue since pre pandemic has been largely driven by a 3% growth in market share. In topology, this has been due to new store openings. In DFS, it's been driven by like for like gains, which has been aided by store refits as well. Moving on to underlying profit before tax. That's increased by 14.6%, as I've said, driven by the increased scale of the group. So that's the revenues dropping through to increased profits. And looking beyond 2023, we do believe that an 8% profit margin is still achievable, driven by those higher volumes coming through and underpinned by the efficient platform strategy that Tim's touched on.

23:42 Thirdly, we do focus on return on capital employed as a business to ensure that we're investing our resources wisely and we're achieving returns at our targeted high teens percentage levels. And finally, on capital returns, we do have a history of returning funds to shareholders with approximately a gross GBP 200,000,000 returned or declared since our IPO. And so we're continuing that trend with the announcement of 3.7p final dividend alongside full year results, but also by extending the ongoing share buyback. The switch to a buyback for approximately £10,000,000 that otherwise we would have sought to return as a larger final ordinary dividend is worth dwelling on a little bit. So through to our results announced with the fortnight ago, the group had spent just over GBP 21,000,000 on share buybacks, which reduced the number of shares in issue by 5.8% and led to similar earnings per share accretion.

24:41 The post tax trading return on investment on those buybacks to date is 11.9%. And based on reasonable medium term projections that we have as a Board, we estimate an internal return rate of return and IRR for the program of over 30%, which really emphasizes to us the highly attractive returns we believe are available to our shareholders. So while it's been an incredibly challenging year, we're pleased that we've grown our profits and revenues relative to pre pandemic levels. And while the current environment is difficult with the risk of consumer demand weakness, we do believe that we're going to emerge stronger relative to others. So moving on to the next slide, building on that point, I thought it would be helpful to offer flexible way our cost base will move with volumes.

25:33 So 59% of our gross sales, so that's our VAT inclusive sales value, is directly variable. So that's either product costs, finance subsidy, inbound freight costs, or VAT. So that that about 59% will move directly with any changes in the top line of the business. Around a further 25% semi variable or discretionary within our cost base. So in particular, sales commission in store, bonus influence pay centrally, marketing spend, and final mile logistics, which we can flex up or down the capacity of. And so that all means we're well placed to mitigate reductions in revenues in order to limit the impact on profitability. I also call out the right hand side of this page the number of cost drivers that we receive questions on from investors commonly and that I believe we're well positioned for.

26:25 However, stepping back from the detail there, the overall message that I highlight is that we do have a big opportunity from operating more efficiently following lower levels of COVID disruption. And we monitor and tightly manage the other moving cost based factors to make sure we're protecting our profits and protecting our customer proposition. And so despite the environment, we do also have a solid outlook for financial year 2023, which is on the next slide. And our profit expectations for this year have been significantly influenced by sector volume declines as a result of the wider economic uncertainty we're currently seeing in The UK. And we show here three scenarios on what that might mean, the uncertainty might mean for our business.

27:12 Now we're showing different levels of sector wide decline ranging between a 15% volume decline and a 5% volume decline. And it's always hard to extrapolate short term sector trends into the future. But to be transparent, what we've seen so far in quarter one is definitely weaker volumes compared to pre pandemic levels, which we'd regard as a pretty normal sort of, you know, baseline level. Most recently, we've seen reasonable recovery actually in sector volumes in September to date, probably towards or even potentially slightly above the high end of the range shown on this page. But July and August, however, were towards the low end of these scenarios.

27:58 We do believe some of that July August factor was factors driving that were transient. You know, things like higher high levels of consumer uncertainty on domestic energy prices, the reopening, the restart to the holiday travel season, and then the relatively hot weather we had. All of those factors seem to be lifting and that might be linking into the better September performance. But we're always cautious about extrapolating potentially short term demand patterns. And so we're really presenting these wide scenarios, wide range of scenarios as our most informed view of the range of outcomes that we do have at this stage of the financial year. It is worth noting, however, that the worst we've ever seen in the market in recent years was back in the financial crisis of two thousand and eight, nine, where the market contracted by 12%.

28:50 DFS actually outperformed significantly during that period given the competitor exits that occurred back then. And DFS' revenues actually only stepped down by 4.5% in comparison to that 12% sector wide decline. The other thing that is worth calling out here is that while we make sense for assumptions in coming up these scenarios around retail margin percentages staying similar in each scenario and, you know, taking advantage of sensible self help leaders that we can and are pulling, you know, Across all of these scenarios, we see the businesses remaining operationally profitable, operationally cash generative, and resilient, ultimately. And so, you know, that brings us to the final slide just to sum up then. You know, although short term current trading conditions are challenging and do impact trading results as as we've, you know, shown, you know, as Tim has already stated in times of market downturns, DFS is the market leader, does emerge in a stronger position with greater market share, and we really expect this time to be no different.

29:58 So our well underpinned medium term ambition remains to grow revenues to $1,400,000,000 by no later than 2027 financial year, depending on consumer environment. Secondly, we do expect greater profit margins with the higher revenues leveraging our efficient platforms in order to deliver an 8% profit before tax margin in the medium term. And thirdly, we are confident on continued strong free cash generation underpinned by conversion of our profit before tax into post tax cash flow at least 75%. So that was all I was gonna say from the financial perspective. Tim, I don't know if there's anything else that you would add up as closing remarks or if we should move straight to q and a. Well, I think we should I'm taking up maybe half an hour. So maybe if we move straight to Q and A, I'm sure that's hopefully That's great, Tim, Mike. Thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen, which is why Tim might take a few moments to review those questions submitted already. I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard.

31:11 It might be an appropriate time, Peter, if I may, just to hand back to you. You'll see on that Q and A tab, you received a number of questions from investors this afternoon. If I could just ask you to read out those questions and direct them as appropriate to do so, and I'll pick up from you at the end. Yep. Thanks, Mark. Okay. So the first question comes from Steve Kay. How do you see the split of in store versus online sales moving forward? Yeah. So it's a good question. So we today, our the percentage of business that is completed online is about 23%. Pretty similar across both brands, a little bit higher in DFS, a bit lower in psychology. But across the group, it's about 23. But what I would say is that half of those sales are influenced by an in store activity. So customers coming into stores, sitting on the product, and then going home, and then completing online.

32:04 So the actual pure play element of ecommerce is around about eleven, twelve percent for our business. And we've seen that grow by maybe one, one and a bit percentage points every year. Obviously, COVID had a bit of an impact, but post COVID, it settled back down to this twenty two, twenty three percent. And I don't see a huge increase over the next few years, which kinda means our stores. We talk about integrated retail, which is about how we have our stores and our website close together. Because in the end, as I said before, 90% of of transactions for our business are influenced by that in store experience to sit the tactile nature of it. And comfort is one of the main reasons why you you do or you don't purchase a sofa. And for any of those who bought online directly, haven't sat on it, and then the the sofa arrives in your home, it's a pretty difficult thing to return. So I think hopefully, that answers the question, Steve. I think gradual increase, but nothing dramatic from where we are today.

33:02 And we and in the end, it's important to say we are the number one player from online sofas by quite some way as well. Do I yeah. I can read them, Peter, unless you wanna read them out so that everybody hears them clearly. Yeah. Yeah. We'll do so. Next question from David s. Given the inflationary pressures and your ambitions went to the beds and mattresses market, would you look to build a brand organically or do it through acquisitions? A number of brands are struggling like Eve Sleep. Yeah. So we we the way we're approaching the beds and mattress market is is using some of the relationships that we already have to develop unique upholstered bed frames. So Jules bed frames or French Connection, Gram Designs, and then our own sort of in house designs as well. So we're trying to create unique upholstered bed frames and broaden our range of beds.

33:56 And from a mattress point of view, we have a great working partnership commercial partnership with Silent Night who offer good, better, best in in the spirit of mattresses and everything you could want. So we are working with them, which is a win win for both of us. It's negative working capital model. I think in terms of acquisitions, partnerships, it is something we look at, but they'd have to add something to the brand to what we're doing. So it it's not the most immediate thing that we're looking at. Okay. Next question is from John John a. So could you talk about your share buyback policy? Reason being that I think you're a well run company that's undervalued, and the market overreacts due to the cyclical nature of the market.

34:44 I just wondered whether you wanted to tactically step up repurchase in time like these to increase shareholder value. Should I take that one, Tim? Yeah. Yeah. So, I mean, I think the first thing to say is that, you know, and it's probably what every management team, particularly in retail, saying at the moment is, you know, we agree that there's very strong returns available based on the share price today. However, we can't control where the share price sits ultimately. What we can do is control our direction of our capital allocation policy in response to the opportunities available to us. And so what we have done already, what we aim to do is operate with an efficient but resilient balance sheet, which we believe is trading between 0.5x and 1x net debt to EBITDA, so that we're resilient and very strong financially to cope with a potentially cyclical market.

35:42 But then actually, secondly, within that, we do have the ability then to choose where we direct our capital returns. And so we did announce a twenty five million share buyback back in March, which we've seen very strong returns on. As I mentioned in my opening remarks, 11.9% on a trailing basis, but actually on a prospective basis based on where we think the earnings of business should be over time, we see it as a 30% plus IRR. And so with those returns in mind, we did make a decision to move some of a payment that otherwise would have been considered as part of our ordinary dividend into an enlarged share buyback, buying back another £10,000,000 worth of shares. And I think although we do understand that a large percentage of our shareholder base, reasonable percentage of our shareholder base does value a steady dividend income stream, we do believe that it's right for us to allocate capital to make sure that we're taking advantage of the opportunities and offer. And clearly, our shares at this point in time are a really attractive opportunity for us.

36:51 Okay. The next question is from Sam E. So in terms of store opening, what's the planned rollout and what investment is required? What's your view on investing more in the business rather than share buybacks and special dividends to push the growth rates? Yes. So our our first priority in terms of capital investment is in the business, and we believe we've set out in our annual results that our ongoing capital investment in the business is around 35 to 40,000,000 of cash CapEx and then about 10,000,000 of lease CapEx. And we think that's the right amount based on maintaining our assets at the right level. So that's, you know, from a store's perspective, warehouses, trucks, etcetera, through to growth opportunities. And so we don't feel as though we're cash constrained in terms of investing in the business. We invest what we think is the right amount to generate the right returns.

37:40 In terms of stores, I think from a DFS point of view across The UK and Ireland, we're a 118. And then what we're doing there is, as I mentioned previously, investing in the stores from a look and feel and format point of view. And within our CapEx last year and also this year, and probably in the remain in in FY '24, we'll be investing in the region of 300,000 a store to for on average to refurbish the stores, and that with that, we believe, will make them market leading in terms of customer proposition. I don't necessarily but there'll be a few ins and outs of stores that will depend on conversation with landlords in the coming in the coming years. From a softology point of view, at the year end, we have 55 stores. Our ambition is to get to somewhere between sixty five and seventy over the next few years. So on average, we'll open three, four stores a year in the right locations. We know exactly where to go because we obviously have all the data about how DFS trades in certain cities and certain parks.

38:38 So it's just a question of finding the right opportunities. And so I think that's our first priority investing in the business. The second around around shareholder returns, we know our investor base is very strong. They've been with us for a long time, value dividends, but also, as Mike alluded to earlier, you know, where where the share price is depressed as it is today and recognize that share buybacks is an efficient capital allocation decision. So, hopefully, that answers the question. It's it's business first, and then we make sure that we've got we generate enough cash for to to rep to give back to shareholders in the appropriate way. K, Peter? K. Yep. So another question from Sam e.

39:26 What do you know about Adriana SA, a shareholder that now owns circa 8% of the company? Yeah. So Adriana are our largest supplier and have been for a while. We supply about 30% of the group's sofas out of Poland, limited company out of Poland, long term strategic and good relationship with them. And I think they've just decided to to invest from their perspective. We're quite an important part of their of their business. So they've decided to invest from a security point of view, but also an investment point of view. I think they recognize and have said to us it's a vote of confidence in the value of the business, and they see the value, the share price as being a bit dislocated from from what they believe the value of the business is. So we have a very good relationship with them. We keep this conversations very separate in terms of shareholder conversation and commercial conversation.

40:17 And so, you know, we look forward to working with them going forward. Okay. John a asks, what percentage of the market do you realistically think you can capture from your current position? Yeah. So so our our long term ambition I mean, what I say, medium term ambition is to get towards 40% value share organically. That will be achieved through two or three ways. One is new softology stores. As I mentioned, there's probably another 10 to go at, and we know the locations that we'd like to be in, and we know that it's very good new business for us, and very low cannibalization with DFS, so that becomes a new market share opportunity between 12%. Secondly, we know that the online growth is definitely there from a double digit growth point of view over the last sort of five or six years with DFS, and then Sophology also performing well. So we know that continue to invest in online and broadening our offer from a sofa point of view is a is a good opportunity.

41:17 And then thirdly, I think structurally, it's very challenging for the independent and smaller businesses in this climate to survive. And, I think, unfortunately, the ONS has, looked at I think there's been about maybe a 5% decline in those businesses in the last couple of years as a result of some of the, you know, cost of goods inflation and freight and challenges in the market. And I think that'll give us a natural little shift that was in terms of market share. So I think we can get to 40% in the next few years, and that would be the plan. Okay. This is the last question we have. So from John a again. Could you discuss who are your key shareholders? How much of the share capital is owned by management? Could you address concerns that DFS could could be be a a takeover target due to the depressed nature of the share price because of the market conditions?

42:09 Mike, do you wanna take the first one in terms of the key shareholders? Yeah. So I think we've we've got a very high quality shareholder base with a number of shareholders who've invested either at the time of IPO or shortly thereafter. So they've been with us a number of years. And I think within that mix, there's a number that are publicly disclosed because of the size of our holdings, which are sort of larger UK institutions, you know, either with a income focus, a value growth focus, or indeed, there's some with an ESG focus. You you support us from that perspective as well and like what we're up to on that journey. And I think actually, I think probably one of the of the recent trends has been that they're starting to reach their sort of maximum size in terms of individual shareholding limit levels. And so that does mean that there's the opportunity for businesses such as Adriana to step in and to seek to acquire shares in the market at current levels. And so we've touched on Adriana as a key as a key shareholder.

43:15 And, clearly, that's, you know, an interesting addition, a useful positive long term focused addition within that sort of overall UK long term focused mix. Yeah. In terms of shares owned by management, I don't have the percentage to hand, Mike, but I can make an estimate. It'd be very low single digits, I think. Yes. Yes. I mean, it would be. I think the management team roles of professional executives have joined the business. Tim and myself have both bought shares at the time of the most recent capital raising, at the time of the pandemic. We've also bought shares in the market since then, and then we also hold our stakes through LTIP awards as part of our overalls and pay packages as well.

44:04 Yeah. I think it's declared in the remuneration report in the annual results for certainly Mike and I, but there's quite a number of the management team will hold shares. I guess the last piece is around DFS. We take up. Mean, look. All all we can focus on is, a, is delivering our strategy and delivering the results. We try and tell and explain the strategic story and what's happening in the market as best we can. And I think that's all I can focus on at this moment in time. And, you know, we have have a track record of of delivering returns for shareholders and and creating a a fantastic business, we believe. So I can't really comment on being a takeover target. I I thought you could say that about most retailers in The UK given the depressed nature of the evaluations.

44:55 Probably all I can say on that one. That's great. If I may, Tim, Mike, just jump in and thank you for addressing all the questions from investors that you would have seen this afternoon. If any further questions, do come through and make those available to you post today's meeting. Tim, Mike, I know investor feedback will be important to you and to the company, and I'll shortly redirect those investors on the call to give you their thoughts and expectations. But I guess before doing so, if I may, Tim, just ask you just for a couple of closing comments to wrap up with, after which I'll send investors to give you their feedback. Yeah. Well, look. Thank you for the opportunity to talk on this platform and this forum to to you. Hopefully, you get a sense that we feel pretty positive about the where our business is at. Obviously, there are many things in the world that we can't control, but the things we can, we feel very confident that we've got, a, a very strong market leading position and a good market share of 36% with an opportunity to grow.

45:48 B, that we know that when times are tough, customers and our business, customers turn to us, and our business does well relatively. And so we can grow our market share through that. But I think the most important thing is is c, which is our business is well set for the long term, and we do stand by the the the medium term targets that we set out in our Capital Markets Day. We have lots of data points and evidence that says that is very achievable once we get through this short term cycle. And I guess looking through the short term is always challenging, but that's what we do and try and focus on building a bigger, stronger, and more resilient and and and fantastic business for our colleagues and and stakeholders. And so that's how we see it, and we feel we've got more than enough levers, more than enough things for us to pull in order to navigate the short term headwinds, but certainly see opportunities in the next four, five years to to to get to the targets that we outlined there.

46:44 That's great. Tim, Mike, thank you once again for updating investors this afternoon. Can I please ask those on the call not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations? This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team at DFS FURNITURE PLC, we'd like to thank you for attending today's presentation, and I wish you all a very pleasant afternoon.