REG - DFS Furniture PLC - FY23 Preliminary Results
21/09/2023 07:00
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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).
£m FY23 FY22 Change
Revenue from continuing operations¹ 1,088.9 1,149.8 (5.3%)
Gross margin¹ 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 £5bn 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 £1,088.9m, 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 operations³ of £30.6m 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 c£50m annualised savings by FY26.
● Free cash flow(1), excluding working capital normalisation, of
£29.4m.
● Increase in net bank debt(1) from £90.0m to £140.3m 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 £30m-£35m), 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 £1.4bn 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 £250m refinancing. The facility is a combination of a £200m
Revolving Credit Facility, provided by members of the previous banking
syndicate and £50m 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 £30.6m 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 £29.7m and underlying profit before tax and
brand amortisation(1) of £30.6m 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 £5bn 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 £5bn Home market and are seeing early signs of success through
increased sales levels.
We are targeting the £3bn 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 £1.4bn 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 £1,423.6m (FY22: £1,474.6m) 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
£m 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 £1,088.9m was 5.3% lower than prior year (£1,149.8m). 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 c£6m
increase in costs for the Group, if unmitigated.
Gross profit
Gross profit of £592.2m decreased by £13.7m, (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 (c£13m in cash terms).
Selling, distribution and administration and property costs
Selling, distribution and administration costs totalled £434.8m (FY22:
£430.0m), 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 £30.2m (FY22: £29.6m). 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
£2.2m 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 £11.2m to
£128.2m (FY22: £117.0m). The increase is driven by three components.
Firstly, £6.6m 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 £1.8m increase in depreciation and amortisation charges as a
result of our higher tangible and intangible asset base.
Thirdly, a £2.0m 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 £29.7m
(FY22: 58.5m). Underlying profit before tax and brand amortisation(1) (PBTa)
was £30.6m, compared to £60.3m 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 £26.2m is inclusive of £1.4m
brand amortisation charge, a £7.1m tax charge, a £3.6m 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 £0.5m non-underlying credit on continuing
operations. Reported profit after tax in FY22 was £31.4m which included a
£12.8m 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 £90.0m to £140.3m. This included special
returns paid to shareholders in respect of cash generated in prior periods
(£30.9m) and net working capital outflows of £40.0m 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 £29.4m was generated in FY23.
Cash capital expenditure for the period was £33.6m (FY22: £45.6). 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, £8.7m was incurred
on leased motor vehicle additions (FY22: £7.7m), 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 £250m from
£215m. The new facilities were secured at competitive rates and consist of
£200m from existing banking partners which runs to September 2027 (with a 16
month extension option) and £50m 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 £1,060m - £1,080m
PBTa(1) £30m - £35m
Cash Capex £25m - £30m
Cash capex will reduce slightly to £25-30m 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 c£15m 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 c£50m
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)
£20-£25m 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: £20-£25m 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: £6-£8m 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 c£4-5m 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.£2m 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 2023 52 weeks to 26 June 2022
Underlying Non- underlying Total Underlying Non- underlying Total
Note £m £m £m £m £m £m
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 profit/(loss) 2, 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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 5.9 (6.4)
loss
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
£m £m
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
Share Share Merger reserve Capital redemption reserve Cash flow hedging reserve Retained Total
capital premium Treasury shares Employee Benefit Trust shares earnings equity
£m £m £m £m £m £m £m £m £m
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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 £215.0m revolving
credit facility maturing in December 2025. On 1 September 2023 the Group
refinanced its borrowing facilities, replacing the previous £215.0m facility
with a combination of a new £200.0m revolving credit facility with a
consortium of lending banks maturing in September 2027 and £50.0m of private
placement debt, £25.0m of which matures in September 2028 and £25.0m in
September 2030. At 18 September 2022, £65.2m of the revolving credit facility
remained undrawn, in addition to cash in hand, at bank of £2.4m.
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 sales Inter-segment sales Total gross sales
52 weeks to 52 weeks to 52 weeks to 52 weeks to 52 weeks to 52 weeks to
25 June 2023 26 June 2022 25 June 2023 26 June 2022 25 June 2023 26 June 2022
£m £m £m £m £m £m
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
£m £m
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
£m £m £m £m £m
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
£m £m £m £m £m
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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 2023 26 June 2022 25 June 2023 26 June 2022
£m £m £m £m
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 assets Depreciation, amortisation and impairment
52 weeks to 52 weeks to 52 weeks to 52 weeks to
25 June 2023 26 June 2022 25 June 2023 26 June 2022
£m £m £m £m
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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
Depreciation on tangible assets (including depreciation on right of use 80.5 77.7
assets)
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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 £3.8m 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 to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 to 52 weeks to
25 June 2023 26 June 2022
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 to 52 weeks to
25 June 2023
26 June 2022
£m £m
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 to 52 weeks to
25 June 2023 26 June 2022
Continuing operations £m £m
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 22.6 44.6
company from continuing operations
52 weeks to 52 weeks to
25 June 2023 26 June 2022
Discontinued operations £m £m
Profit/(loss) for the year attributable to equity holders of the parent 3.1 (12.8)
company
Non-underlying loss after tax (3.5) 11.3
Underlying loss for the period attributable to equity holders of the parent (0.4) (1.5)
company from discontinued operations
6 Dividends
Pence per ordinary share 52 weeks to 52 weeks to
25 June 2023 26 June 2022
£m £m
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 £6.9m.
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 £45.6m (2022:
£88.7m). Additions of intangible assets (computer software) totalled £14.5m
(2022: £10.6m).
At 25 June 2023 the Group had contracted capital commitments of £9.1m (2022:
£11.8m) for which no provision has been made in the financial statements.
9 Provisions
Guarantee provision Property provisions Other Total
provisions
£m £m £m £m
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 £0.8m. 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 2022 Cash flow Other non-cash changes 25 June 2023
£m £m £m £m
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 2021 Cash flow Other non-cash changes 26 June 2022
£m £m £m £m
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 £25.3m
(2022: £51.9m), lease remeasurements of £7.0m (2022: £5.4m), disposals of
leases of £4.7m (2022: £2.5m) and the amortisation of capitalised debt issue
costs of £0.3m (2022: £0.4m).
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 25 June 2023 52 weeks to 26 June 2022
Underlying Non-underlying Total Total
£m £m £m £m
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 to 25 June 2023 52 weeks to 26 June 2022
Total Total
Non-underlying items from discontinued operations £m £m
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 to 25 June 2023 52 weeks to 26 June 2022
£m £m
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 (http://www.dfscorporate.co.uk) .
13 Subsequent events
Refinancing
On 1 September, the Group successfully completed a refinancing of its £215.0m
revolving credit facility, replacing it with a new £200.0m revolving credit
facility and £50.0m of senior secured notes. The £200.0m 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: £25.0m maturing September 2028
and £25.0m 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 £1.9m
will be recognised in the income statement in FY24 comprising £0.8m in
associated professional fees and the write-off of £1.1m of unamortised issue
costs on the previous £215.0m 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
£5.5m, 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 customers for goods and services supplied by the Key measure of overall sales performance which unlike IFRS revenue is not
Group, including aftercare services (for which the Group acts as an agent), affected by the cost of or the extent to which customers take up the Group's
delivery charges and value added and other sales taxes. interest free credit offering.
Brand contribution Gross profit less selling and distribution costs, excluding property and Measure of brand-controllable profit as it excludes shared Group costs.
administration costs.
Adjusted EBITDA Earnings before interest, taxation, depreciation and amortisation adjusted to A commonly used profit measure.
exclude impairments.
Non-underlying items Items that are material in size, unusual or non-recurring in nature which the Clear and separate identification of such items facilitates understanding of
Directors believe are not indicative of the Group's underlying performance. underlying trading performance.
Underlying EBITDA Earnings before interest, taxation, depreciation and amortisation from Profit measure reflecting underlying trading performance.
continuing operations, as adjusted for non-underlying items.
Underlying profit before tax and brand amortisation PBT(A) Profit before tax from continuing operations adjusted for non-underlying items Profit measure widely used by investors and analysts.
and amortisation associated with the acquired brands of Sofology and Dwell.
Underlying earnings per share Post-tax earnings per share from continuing operations as adjusted for Exclusion of non-underlying items facilitates year on year comparisons of the
non-underlying items. key investor measure of earnings per share.
Net bank debt Balance drawn down on interest bearing loans, with unamortised issue costs Measure of the Group's cash indebtedness which supports assessment of
added back, less cash and cash equivalents (including bank overdrafts). available liquidity and cash flow generation in the reporting period.
Cash EBITDA Net cash from operating activities before tax less movements on working Measure of the non-underlying operating cash generation of the business,
capital and provisions balances and payments made under lease obligations, normalised to reflect timing differences in working capital movements.
adding back non-underlying items before tax.
Leverage (or gearing) The ratio of period end net bank debt to cash EBITDA for the previous twelve Key measure which indicates the relative level of borrowing to operating cash
months. generation, widely used by investors and analysts.
Underlying return on capital employed (underlying ROCE) Underlying post-tax operating profit, from continuing operations expressed as Represents the post-tax return the Group achieves on the investment it has
a percentage of the sum of: property, plant & equipment, computer made in its business.
software, right of use assets and working capital.
Reconciliations to IFRS measures
Adjusted EBITDA FY23 FY22
Note £m £m
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 £m £m
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 amortisation - PBTa FY23 FY22
Note £m £m
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
£m £m
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 holders FY23 FY22
Note £m £m
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 29.4 37.2
discontinued operations and working capital outflow
14 Alternative Performance Measures (continued)
Leverage FY23 FY22
£m £m
Net bank debt (A) 140.3 90.0
Net cash from operating activities before 121.7 139.7
tax
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 from continuing operations FY23 FY22
£m £m
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 (http://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 therefore be
placed on such forward-looking statements.
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