REG - DFS Furniture PLC - Interim Results
16/03/2023 07:00
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RNS Number : 1372T DFS Furniture PLC 16 March 2023
16 March 2023
Immediate release
DFS Furniture plc ("DFS" and the "Group")
Interim Results Announcement
RECORD MARKET SHARE POSITION
PBT IN LINE WITH MARKET EXPECTATIONS
DFS Furniture plc, the market-leading retailer of living room and upholstered
furniture in the United Kingdom, today announces its interim results for the
26 week period ended 25 December 2022 (prior year comparative periods are the
26 weeks ended 26 December 2021 (H1 FY22) and the 26 week unaudited pro forma
period ended 30 December 2018 (H1 FY19)).
£m H1 FY23 H1 FY22 Change
Revenue from continuing operations(1) 544.5 556.5 (2.2%)
Growth vs H1 FY19(4) +9.4% +11.8% -
Underlying PBT(A) from continuing operations(1,2,3) 7.1 23.3 (16.2)
Reported PBT 6.8 22.8 (16.0)
Basic underlying EPS from continuing operations(1,3) 2.2p 7.3p (5.1p)
Reported EPS 2.1p 7.0p (4.9p)
Ordinary dividend 1.5p 3.7p (2.2p)
Net bank debt(3) 135.6 65.4 70.2
Leverage(3) 1.7x 1.3x 0.4x
(1) Continuing operations excludes the discontinued International operation
and Sofa Workshop which was disposed of in September 2020
(2) PBT(A) - profit before tax, excluding brand amortisation
(3) Definitions and reconciliations of KPIs including Alternative Performance
Measures ("APMs") are provided at the end of this statement in Note 15 to the
condensed consolidated financial statements
(4) H1 FY19 is unaudited pro forma period 26 weeks ended 30 December 2018. In
2019, the group changed its accounting reference date from 31 July to 30 June.
FY19 was therefore a short accounting period, and the half year published
results were prepared for the 22 weeks ended 30 December 2018. To aid
comparability, unaudited pro forma figures are presented for the 26 weeks
ended 30 December 2018.
Strategic and operational highlights:
● Record market share achieved with a c.2%pts increase from our FY22
position to 38%, extending our position as the clear market leader
● First phase of our Home strategy progressing well with the
extension of our upholstery exclusive brand partnerships to bed frames and
completion of IT development and logistics enabling activities contributing to
beds and mattresses year on year online order growth of 70%
● DFS brand successfully broadening its appeal to a wider audience
driving up average order values
● Two new Sofology showrooms opened with the brand now present in 57
locations as we continue our national roll-out plan
● Sofa Delivery Company integration work complete with the same
infrastructure being used to deliver DFS and Sofology orders driving cost
savings
Financial summary:
● Revenue from continuing operations(1) of £544.5m is up 9.4% compared
to the non-Covid disrupted pro-forma FY19 period(4) (down 2.2% on H1 FY22:
£556.5m) ( )
● Higher average order values driven by range innovation as well as some
retail price increases to counter input inflation more than offset the impact
on revenues of a decline in market volumes compared to FY19(1,4)
● PBT(A)(1,2,3) of £7.1m or 1.3% of revenues is reflective of a
weak market environment, particularly in quarter one (H1 FY22 PBT(A): £23.3m)
● Order bank remains elevated (given our made to order model and a
stronger second quarter performance) equivalent to c.£4m of profit which we
expect to realise through H2
● Cost headwinds are abating and profit margins expected to improve
in H2 of FY23 onwards and beyond
● Net bank debt(3) increased to £135.6m from £90.0m at June 2022,
reflecting the relatively low profit in the period, completion of share buy
back programmes announced in March and September 2022 and working capital
balances starting to normalise
● FY23 profit before tax and brand amortisation expected to be in a
range of £30-£35m in line with market consensus^ towards the lower end of
our previous guidance
● Interim dividend of 1.5p approved by the Board reflecting an
anticipated 4.5p total full year dividend, subject to H2 financial performance
Profit growth initiatives:
● We have plans in place to rebuild gross margins with an
anticipated FY23 H2 rate of c.56% (compared to H1 rate of 53.8%) as we target
a c.58% exit rate in FY24
● Cost headwinds are reducing and in some cases reversing. We have
secured freight rates for calendar year 2023 broadly in line with historical
(pre-Covid) levels
● Sofa Delivery Company integration activity and some back office
integration now complete, and we progress to the next stage of our cost
opportunity program
● We are confident in the plans we have in place and our ability to
achieve the financial performance targets announced at our Capital Markets Day
in March 2022 with revenues of £1.4bn and PBT margins of 8%+ over the medium
term
Tim Stacey, Group Chief Executive Officer said:
"I'm pleased to report that the Group has extended its long track record of
achieving market share gains in a challenging market to what are now record
levels. We expect our profit* for the year to be between £30m-£35m in line
with external expectations.
The share gains have gone some way to alleviating the impact of the weaker
market we have observed in 2022 overall. Those gains built throughout the
period with the group delivering strong order intake growth in the second
quarter. The order intake momentum has continued through the important winter
sale period.
Profit margins have reduced over the last year due to a combination of
significant cost increases and our commercial strategy to ensure that we
continued to offer great value for customers in an environment where consumer
discretionary spend was under pressure.
We have however improved our gross margins in the first half of this year from
H2 of FY22 and further still in the second half to date through product
innovation and selected retail price increases. Cost headwinds are reducing
and in some cases reversing and we expect our upward gross margin trajectory
to continue as we execute our margin build back plan.
At our capital markets day in March 2022 we set out our ambitions to grow
revenues to £1.4bn and operate at an 8%+ PBT margin generating post tax free
cash flows of 75%+. We continue to target that level of financial performance
and have solid plans in place to deliver this.
Our disciplined approach to investment, data led innovation, entrepreneurial
culture, scale advantages and strong operational execution will support a
continuation of our long term trend of market share growth."
*Profit before tax and brand amortisation. Refer to note 15 to the financial
statements for definitions and reconciliations of Alternative Performance
Measures.
Enquiries:
DFS (enquiries via Tulchan)
Tim Stacey (Group CEO)
John Fallon (Group CFO)
Phil Hutchinson (Investor Relations)
investor.relations@dfs.co.uk
Tulchan
James Macey-White
Jessica Reid
+44 (0)20 7353 4200
dfs@tulchangroup.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, Sofology and Dwell. 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 three 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".
CHIEF EXECUTIVE'S OPERATING REVIEW
Overview
We have clearly been operating in a challenging macro economic environment
which has led to the upholstery market declining in volume terms, estimated at
-15%, and cost inflation running at double digit growth for the majority of
2022, compared to pre pandemic levels.
As we have experienced historically, the Group has continued its long term
track record of gaining market share when times are tough, adding c.2%pts
since our previous financial year to 38% and extending our position as the
clear UK market leader in upholstery.
We believe that our market share gains are a result of both the underlying
relative strength of our overall consumer proposition and our improved value
as we passed on the cost increases to consumers on a £ for £ basis rather
than with a mark up applied. This has reduced our reported profit margins in
the first half, but we are well set to capitalise on future market recovery
and the recently observed reduction in external cost headwinds.
We have a clear plan that we are implementing to return gross margin to
historical levels more normally achieved by the Group. Alongside the gross
margin rebuild we continue to actively manage our cost base to grow our profit
levels.
Following strong second quarter trading, momentum continued through the
important winter sales trading period. Due to a softening in order intake in
recent weeks we have revised our profit* guidance to £30-35m, towards the
lower end of our previous guidance.
*Profit before tax and brand amortisation. Refer to note 15 to the financial
statements for definitions and reconciliations of Alternative Performance
Measures.
Market context
The consumer environment has been challenging, with upholstery market volumes
significantly down compared with pre pandemic (FY19) levels and we continue to
see the exit of independent sofa retailers and some pureplays.
As demonstrated at our Capital Markets Day last year, we believe that the
winning model for the upholstery market is a combination of the best physical
and digital channels for our customers and, despite the market backdrop, we
have been able to continue to invest in these and our supporting platforms to
drive growth.
Alongside these investments we have developed a culture of using data to
provide insight and support our decision making. These investments and
insight, combined with the benefits our scale brings, enable us to, for
example, attract and establish strong partnerships with leading brands, market
more effectively, buy more efficiently, convert more customers and deliver at
lower cost. These competitive advantages have helped us achieve consistent
market share growth.
We can see a clear path for further growth given the fragmented, long-tail of
independents and other general retailers, as well as our strategy to expand
our share in the c.£5bn (non sofa) home market.
Financial results
We achieved revenue growth compared to the FY19 pre pandemic period(4) across
both our DFS and Sofology brands in the first half of this financial year.
Our data sources indicate market order volumes were down approximately 15%
against FY19 with the DFS Group outperforming in mid single digit decline. We
have offset the volume declines through higher average order values as a
result of range innovation, broadening our appeal to a wider consumer base as
well as some retail price increases.
Underlying profit before tax and brand amortisation(3) of £7.1m and our PBT
margin of 1.3% are below historical levels reflecting very low market wide
demand levels in the first quarter and relatively low gross margin rates to
optimise order intake and profits. We have developed robust plans and are
currently implementing them to improve our profitability.
Detail on our financial performance is included in our CFO's Financial Review.
Our three areas of focus
Growth
We continue to drive market share growth in the upholstery sector across the
economic cycle. Our latest read using our proprietary Barclaycard data set
indicates our share has increased from 36% in FY22 to around 38% in the first
half of this year. We see further opportunity to grow share in the short term
given the tough trading conditions, we are likely to continue to see the exit
from the market of some of the smaller players. We continue to see an
opportunity to gain share in the Home (non-upholstery) sector which is
discussed below.
Gross margins
The Group averaged gross margins of 58% up to FY19; these dropped in recent
years to 52.7% in FY22 due to a variety of factors including increased
shipping rates, cost of goods and general inflation. We have a clear plan to
drive gross margins back to historical levels and have secured shipping rates
for calendar year 2023 inline with pre Covid levels. Our first half gross
margin has recovered to 53.8% and we are on track to deliver a second half
margin of c.56%.
Costs and inflation
We are reviewing the full spectrum of our cost base across our operations and
support functions to ensure we operate more efficiently. We will however
ensure that areas critical to our growth agenda receive an appropriate level
of investment.
Our Pillars
DFS: strong on-going performance
The brand has successfully transitioned its proposition to appeal to a broad
customer base through enhancements to its product offering and innovative
marketing.
Our new marketing campaign 'What's Your Thing?' is driving a record Brand
Connection Score and we continue to invest in our showroom format with our
transformation programme now rolled out across 50 locations. We are pleased
that we continued to see as strong sales uplifts (+5%) and short payback
periods (under two years) on the most recently refurbished showrooms as we did
on the high priority locations we refurbished when we launched the program.
Our strategic range development continues at pace and we have seen innovative
models with hidden storage, heated seats and reclining memory functions
perform well. We have seen a trend develop for large corner group sofas with
our higher price point "Storeaway" ranges a good example of broadening the DFS
brands appeal.
The brand's market share is at an all time high and we see opportunities to
grow this further.
Sofology: continued growth & development
The Sofology brand has become a household name following sustained marketing
investment since our acquisition of the business in 2017. Using well known
celebrities in its advertisements, such as Owen Wilson and more recently
Helena Bonham Carter in the 'Bring Imagination to Life' campaign, has helped
contribute to Sofology achieving its highest ever brand awareness.
Sofology has also started to collaborate with TV stars such as the architect
George Clark to create sustainable, design-led ranges such as the Gaia and
Midland Hill ranges. These have added to the growing number of sustainable
based ranges in the 'sustainable edit collection' which feature fabrics made
from recycled pre and post consumer waste, fillings that are recycled or
recyclable to support a circular economy, as well as wooden frames from
sustainable sources.
We have continued to integrate the brand into the Group and develop shared
platforms. For instance the Sofa Delivery Company which was formed from the
consolidation of the warehouse and logistics operations of the DFS and
Sofology brands now delivers on behalf of both brands following the successful
integration of the workforce and IT systems. This has enabled scale benefits
and lower delivery costs for the Group.
Home: sustained investment in building the foundations
We have made good progress in developing our strategy to grow our share of the
Home market.
The first phase is to grow our share in the £3bn beds and mattresses market.
We have been able to utilise our existing upholstery exclusive brand
partnerships with the likes of French Connection, Grand Designs, Joules and
Cath Kidston to expand these offerings to bed frames. We have targeted sales
of our beds and mattress ranges through our online channel and through the use
of digital tools such as our 'swoosh' large format screens and tablets in our
showrooms. In a select number of showrooms we have also utlised some space to
include a beds and mattresses section. We have expanded our partnership with
Wincanton to develop a drop-ship solution for beds and mattresses which went
live in January of this year. This has involved IT system development and
integration to enable an end to end view of customer orders and stock
management.
Our beds and mattresses online order intake in the first half is up 70% year
on year, in line with our expectations. Having now established the supply
chain foundations and developed the product proposition, we plan to accelerate
our investment in marketing to drive awareness and growth in the the beds and
mattresses market, focused on our digital channels.
Our platforms
Our four group platforms enable growth in our DFS and Sofology brands and Home
pillars.
Technology and Data:
We continue to see the collection and use of data as critical to maintain and
develop our market leading position in the sector. Our recent initiatives aim
to drive improvements from attracting and converting customers through to
driving efficiency through the process of delivering orders to customers
homes.
Recent examples include the development of our Integrated Retail Intelligence
System which brings together numerous data sources to create one unified view
of the customer and the ongoing development of our integrated lending platform
(ILP) to work across our Sofology brand. ILP speeds up the process and
likelihood of customers gaining the credit that is right for them and helps
enable increased conversion at busy trading times. We have developed middle
mile software which helps enable the sale of cancelled customer orders or
returned stock across the country in an efficient manner via our national
distribution centre and there remain further opportunities to develop this
solution to use with our manufacturing operations.
Our digital marketing efforts have been recognised by some global digital
powerhouses. We are the only retailer across the globe in 2022 to have been
recognised by Meta/Facebook as a standout partner and had a case study written
about our best-in-class approach. We have developed a robust profit-driven
demand-led approach to digital marketing, enabling us to target potential
customers with the right messaging at the right time at a hyper local level to
increase our marketing ROI.
We are also investing in internal capability across both IT development as
well as colleague training which puts us in a great position to take advantage
of future opportunities.
Sourcing and Manufacturing
We have been manufacturing sofas for over 50 years, have established
relationships with the major upholstery suppliers across the world and we can
source at preferential rates given our scale. Following the Group's growth in
share and with Sofology now an established major player in the market we are
revisiting our supplier mix with a view to evolving and optimising it. ESG
considerations will play a crucial part in the decision-making process.
People and Culture
The DFS Group is a people business. Attracting and retaining the right
colleagues, developing them and ensuring they enjoy and get satisfaction from
their work is imperative for us.
We are constantly evolving our employee value proposition to ensure we remain
an attractive employer to work for. Whilst ensuring our pay levels are
competitive we also provide a plethora of other benefits which include our
recently launched subsidised private health offering which is accessible to
all our workforce, free flu vaccinations, mental health support, access to
discounts with major retailers and support for the menopause and mens' health
issues, to name but a few.
We have sought to share best practice across the Group, create consistency in
service and increase our efficiency by integrating back office support
functions across finance, HR & technology, health & safety, and legal
& compliance and there remains further opportunity to generate additional
synergies.
Logistics
The Sofa Delivery Company operated through an incredibly challenging period in
the last two financial years due to the unpredictability of manufacturing
& inbound freight and a high absence rate, both driven by Covid. The
operation also had to deal with very high levels of orders to deliver and a
UK-wide shortage in delivery drivers. The external environment has stabilised
somewhat and after a successful IT integration each of our distribution
centres now receives and delivers out both brands orders using the same
workforce and fleet to drive efficiencies and cost savings for the Group.
Following the opening of two super warehouses in 2022 and optimisation of the
post codes each distribution centre delivers to, we have reassessed our
property requirements and will be closing a small number of distribution
centres in this financial year driving property cost savings in FY24 onwards.
Looking ahead
The Group has extended its long track record of achieving market share gains
in a challenging market to what are now record levels. We expect our profit*
for the year to be between £30m-£35m in line with external expectations
This has gone some way to alleviating the impact of the weaker market we have
observed in 2022 overall. Those share gains built throughout the period with
the group delivering strong order intake growth in the second quarter. The
order intake momentum has continued through the important winter sale period.
Whilst profit margins have taken a step backwards due to inflationary
pressures and a much softer trading environment, the cost headwinds are
subsiding and in some cases reversing. Our gross margin FY23 H2 rate is
expected to be c.56% and we are targeting an FY24 exit rate of 58%.
At our capital markets day in March 2022 we set out our ambitions to grow
revenues to £1.4bn and operate at an 8%+ PBT margin generating post tax free
cash flows of 75%+. We continue to target that level of financial performance
and have solid plans in place to deliver this.
Our disciplined approach to investment, data led innovation, entrepreneurial
culture, scale advantages and strong operational execution will support a
continuation of our long term trend of market share growth.
Tim Stacey
Group Chief Executive Officer
*Profit before tax and brand amortisation. Refer to note 15 to the financial
statements for definitions and reconciliations of Alternative Performance
Measures.
FINANCIAL REVIEW
The Group is in a strong position having delivered market share gains to
record levels to 38% (FY22 36%). This is supported by both the proprietary
Barclaycard market data that we track and Global Data.
Through the period, we have continued to invest to support future growth, with
expenditure on new and existing stores, our beds and mattresses ranges and in
our market leading digital capabilities.
This leaves the Group well positioned to grow revenues, profits and generate
strong levels of free cash flows as a result of initiatives underway which
will be bolstered when market volumes return to more normal levels.
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 26 weeks
ended 25 December 2022, the residual order book of these discontinued
operations has been delivered and the operations wound down, resulting in
small amounts of income and costs relating to these discontinued operations
being recognised in the period. Unless otherwise indicated the commentary
below relates to continuing operations.
Revenue and gross sales
Group gross sales(1,3), which are recognised on delivery of orders to
customers, decreased by 1.1% for the period to £705.6m (FY22 H1: £713.2m).
Compared to the pre-pandemic FY19 proforma period(4), Group gross sales
increased by 9.6% (FY19 H1(4): £644.0m).
Continuing operations 26 weeks ended 25 December 2022
£m H1 FY23 YoY v.H1 FY19(4)
Gross Sales 705.6 (1.1%) +9.6%
DFS (inc Dwell) 557.2 (1.9%) +10.5%
Sofology 148.4 +2.5% +6.1%
Digital % Sales^ 24.0% +1.0%pts +6.5%pts
Revenue 544.5 (2.2%) +9.4%
^ Digital % Sales represents the Gross Sales for orders completed online and
via telephone sales as a percentage of total Gross Sales
Gross sales performance in the half was supported by a high opening order bank
and order intake growth** of 10.6%. Market demand in quarter one was
relatively low resulting in the order bank unwinding to normal levels. Quarter
two order intake performance was much stronger (+16.3% vs FY19, +18.8% year on
year), supported by market share gains. Due to this order intake profile and
our made to order model, our order bank remained elevated at the end of the
half, equivalent to c.£4m in profit terms.
We saw growth coming from increases to average order values, driven by range
innovation as well as some retail price increases, partly offset by order
volumes down slightly.
We delivered growth in both stores and online, with digital linked sales now
making up 24.0% of total sales, lower than the peaks of the pandemic, but up
6.5%pts compared to FY19(4).
We saw strong growth in the DFS brand of +10.5% vs FY19(4) and growth in the
Sofology brand of +6.1% vs FY19(4), with the logistics and manufacturing
issues experienced in FY22 and FY21 now largely stabilised.
Within Home categories, sales of our Beds & Mattresses ranges continued to
grow strongly, up 57% in the period, in line with our expectations, including
online growth of c70%. Across our sofa ranges those with added features such
as charging points, recliners with memory settings and hidden storage have
performed well.
Group revenue of £544.5m was 2.2% lower than prior year (£556.5m), but 9.4%
ahead of H1 FY19(4) (£497.8m). This was slightly below the growth in gross
sales due to an increase in the subsidy costs of our interest free credit
(IFC) offering which is deducted from gross sales in arriving at reported
revenue.
IFC costs increased as a result of increases to underlying interest rates,
together with an increase in credit participation levels back towards
historical averages after a period of reduced uptake during the pandemic
period. IFC remains an important part of our overall customer value
proposition and in March 2023 we reduced the maximum term from 48 months to 36
months to reduce the impact of rising subsidy costs while maintaining a
compelling offer.
**Order intake growth for the period calculated using weeks 1-25 of the
financial period (and for the second quarter using weeks 14-25) to remove the
impact of the different number of days in each financial year falling into the
post Christmas sale trading period.
Gross profit
Gross profit of £292.9m decreased by £4.9m (1.6%) year on year. As a
percentage of revenue, gross profit in the period was 53.8%, representing an
improvement of 30bps year on year and 110bps compared to the FY22 financial
year. The Group has continued to pass on cost price increases £ for £,
without a retail mark-up and this approach has helped to optimise customer
order intake and support the market share gains we have seen across the
period.
Whilst the macro economic outlook remains uncertain, we expect gross margin
rate to continue to improve back toward pre-pandemic levels over the course of
the second half and FY24. This will be supported by lower freight rates
already secured for calendar year 2023 which are more in line with
pre-pandemic rates, and the delivery of other sourcing, ranging and pricing
initiatives to strengthen margin.
Selling, distribution and administration costs
Selling, administrative and distribution costs, excluding property costs, were
£206.6m (H1 FY22: £204.8m), representing a cost % of revenue of 37.9% (H1
FY22: 36.8%). The increase year on year was a result of inflationary cost
pressures and additional marketing investment to support the growth in our
Beds & Mattresses ranges. This was partly mitigated by a reduction in
prior year costs associated with inbound logistics disruption and
Covid-related absence, together with efficiency savings from The Sofa Delivery
Company which now delivers on behalf of both the DFS and Sofology brands.
Property costs were £18.1m (H1 FY22: £12.9m), with the year on year increase
due to a combination of the cessation of business rates relief (benefit of
£2.0m in H1 FY22), new Sofology showroom openings and investments in the
capacity of our warehouse estate.
Continuous improvement of our operating models and cost base remains central
to our pillars and platforms strategy, and we are currently undertaking a
further comprehensive review of operating costs. We expect additional
opportunities remain to improve productivity and lower the cost to operate
across the Group, which will support our future revenue and PBT(A)(3) growth
targets.
Depreciation, amortisation and interest
Depreciation and amortisation charges (excluding brand amortisation) increased
year on year by 5.6% to £45.1m (H1 FY22: £42.7m) as a result of capital
investment in expanding the Sofology showroom estate, investment in one of our
manufacturing facilities and continued investment in digital initiatives.
Interest for the period was £16.0m (H1 FY22: £14.1m) with the increase
arising due to a higher average drawdown on the senior revolving credit
facility in the period, and higher applicable interest rates following the
increases to the Bank of England base rate.
Profits and earnings per share
Underlying profit before tax and brand amortisation(3) for the 26 week period
to 25 December 2022 was £7.1m, compared to £23.3m in the prior period,
reflecting the lower year on year gross sales and the net increase in
operating costs due to inflationary pressures and investments to support
future growth.
Reported profit before tax for the period was £6.8m (H1 FY21: £22.8m).
The tax charge recognised in the interim financial statements has been
calculated using the expected effective tax rate for the full year of 19.1%
(FY22: 29.9%). This is lower than the applicable UK Corporation Tax rate of
20.5% (FY22: 19.0%), primarily due to the availability of the super deduction
on capital expenditure. The FY22 effective tax rate was higher than normal for
the Group due to the differential in rates between current and deferred taxes
along with the effect of overseas branch exemptions.
Underlying basic earnings per share from continuing operations was 2.2 pence
(H1 FY22: 7.3 pence). Total reported earnings per share was 2.1 pence (H1
FY22: 7.0 pence).
Discontinued operations
Results for the discontinued operations, being the DFS operations in the
Netherlands and Spain amounts to a trading loss of £0.6m on revenue of
£1.9m. Trading in both these businesses has ceased and we have now delivered
the last of the associated order book. Further details of the results of
discontinued operations are presented in note 14 to the condensed consolidated
financial statements.
Cash flow and net debt
Net bank debt(3) increased by £45.6m to £135.6m in the period. This reflects
the relatively low level of profit performance for the half year, working
capital unwind of £9.9m, payment of the FY22 final dividend (£8.7m) and
£26.9m of share buybacks announced in March and September 2022. The September
buy back program completed in January 2023.
Cash capital expenditure for the period was £19.6m (H1 FY22: £25.2m). This
included spend on two new Sofology showrooms opened in the period, as well as
refits of a further three DFS stores and investments to optimise Beds &
Mattresses selling space in 6 showrooms. We also invested in one of our three
manufacturing sites to reconfigure the layout to improve the production
process and increase storage capacity to reduce the risk of materials
shortages. We continued to invest in digital initiatives to support future
sales and cost efficiencies as Tim described in his review.
We expect annual cash capital investment to be c.£35m for FY23.
The Group's return on capital employed (ROCE(3)) for the period was 16.5%,
down from 18.7% in FY22 due to the relatively low profits in H1 FY23 and a
relatively consistent level of capital employed. We expect that this return
should grow over time as i) we drive profitability through gross margin
improvements, cost base initiatives and further market share gains and ii)
market volumes recover.
The Group has signed a one-year extension to its ESG-linked senior revolving
credit facility consistent with the terms of the original agreement. This
facility now has a December 2025 maturity (previously December 2024) and will
reduce from its current £215.0m to £193.5m in December 2024. The financial
covenants remain at 3.0x maximum net debt / underlying EBITDA and minimum 1.5x
fixed charge cover, both measured on an IAS17 basis.
Capital distribution policy and dividends
We have updated our capital distribution policy which can be found on our
corporate website.
The previous policy included an adjusted free cash flow based approach for
ordinary dividends which was introduced in order to ensure the transition to
IFRS 16 (which had no cash flow impact) did not impact on dividend payments.
The updated policy takes a dividend cover based approach which is more closely
aligned with market practice. We have set a cover of 2.25-2.75x basic
underlying EPS to calculate ordinary dividends in the full year in which the
dividend is declared. Our target leverage remains unchanged at 0.5x to 1.0x
(measured as net bank debt / last twelve month cash EBITDA(3)).
The Board has declared an interim dividend for FY23 of 1.5 pence per share
(£3.5m total cost). This is based on an expected full year total dividend of
4.5 pence per share subject to meeting the midpoint of our £30-35m PBT profit
expectation and reflects a 2.5x EPS cover. This dividend will be paid on 25
May 2023 to shareholders on the register on 14 April 2023. We expect to pay
a dividend in the middle of the range subject to profit growth in FY24
onwards, until our leverage returns to our target range.
The updated policy also enables the Board to consider returning surplus cash
to shareholders by way of a special distribution if average net bank debt
remains below our target leverage range for a sustained period, subject to the
anticipated capital needs of the business and the overall outlook for the
Group.
Looking forward
The Group is in a strong position in the upholstery market having extended its
market share to a record 38%. There remains opportunities to grow share
further given the fragmented market and the Group is making progress in
growing its share in the £3bn beds and mattresses market.
Our gross margin rate has improved year on year and we are on track to grow
this to 56% for H2 and then back towards historical levels of c58% as we exit
FY24. Alongside the gross margin improvement plan, we are undertaking a
further review of our total cost base which we expect to support additional
efficiency improvements.
John Fallon
Chief Financial Officer
(1) Continuing operations excludes the discontinued International operation
and Sofa Workshop which was disposed of in September 2020
(2) PBT(A) - profit before tax, excluding brand amortisation
(3) Definitions and reconciliations of KPIs including Alternative Performance
Measures ("APMs") are provided at the end of this statement in Note 15 to the
condensed consolidated financial statements
(4) H1 FY19 is unaudited pro forma period 26 weeks ended 30 December 2018. In
2019, the Group changed its accounting reference date from 31 July to 30 June.
FY19 was therefore a short accounting period, and the half year published
results were prepared for the 22 weeks ended 30 December 2018. To aid
comparability, unaudited pro forma figures are presented for the 26 weeks
ended 30 December 2018.
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks that could threaten the Group's business model, future
performance, solvency or liquidity remain consistent with those described in
the 2022 Annual Report. A summary is provided below:
Risk Impact
Supply chain and manufacturing resilience Elevated or volatile order volumes that could place pressure on the Group's
own manufacturing capability and those of our external raw material and
finished product suppliers. Infrastructure investment and the requirement to
recruit and train less experienced colleagues could temporarily impact
manufacturing efficiency
Cyber The Group's operations depend upon the continued availability and integrity of
its IT systems, including the security of customer and other data held by the
Group, and attacks on retailers are common
Consumer Proposition and industry competition Maintaining the reputation of, and value associated with, the Group's brands
and product offering is central to the success of the business. Increased
customer concerns, falls in actual product quality or poor customer service
could have a negative effect on the reputation of our brands, leading to loss
of revenue and profits
Financial risk and liquidity A significant downturn in the macro economic environment, further disruption
to our international supply chain, or additional uncertainty arising from, for
example, the Covid-19 pandemic or conflict in Ukraine, may impact the Group's
ability to obtain debt or equity financing
Regulatory Changes to the regulatory environment surrounding product aftercare insurance
could impact the sales of these products, which currently account for a high
single digit percentage share of Group gross profits, and the Group's
reputation could be negatively impacted if the sales process for these
products does not ensure that customers have adequate information to make
appropriate buying choices. Changes in other legislation which may have
significant retrospective or future economic effects could also impact
operating results
Environmental, social and governance A failure to manage the business in accordance with high ESG standards could
expose the Group, or its key third party suppliers, to adverse financial
consequences, reputational damage, and difficulties in retaining or attracting
employees. Failure to adapt to growing public interest in social and
environmental concerns may deter customers or demotivate colleagues
Transformation Failure to execute transformation projects successfully could reduce the
Group's operational efficiency, erode the Group's market leadership position
and have a negative impact on financial performance. A lack of sufficient
management resources or excessive complexity in the various work streams could
limit the Group's ability to deliver anticipated benefits within the original
time horizon
Retention of skilled workers due to labour shortage Failure to attract and retain high quality colleagues could negatively impact
operational performance and customer service levels. Excessive wage inflation
could increase the Group's cost base, reducing profitability
Macro economic uncertainty Any deferral of purchases by customers caused by factors including (but not
limited to): consumer confidence, employment levels, real income, the
availability of credit and the level of housing market activity would affect
our revenues and profits. Significant cost inflation in raw materials, fuel
and freight costs, exacerbated by the consequences of the war in Ukraine and
other geo-political events, could reduce the Group's profitability or
necessitate increases in product selling prices, discouraging customer
purchases. Increases in interest rates and associated higher costs of
borrowing may further reduce levels of discretionary spend and also result in
lower housing market activity
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the UK;
• the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of
important events that have occurred during the first six months of the
financial year and their
impact on the condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of the year;
and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
By order of the Board
Tim Stacey John
Fallon
Chief Executive Officer Chief Financial
Officer
16 March 2023
INDEPENDENT REVIEW REPORT TO DFS FURNITURE PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the 26 weeks ended 25
December 2022 which comprises Condensed Consolidated Income Statement,
Condensed Consolidated Statement of Comprehensive Income, Condensed
Consolidated Balance Sheet, Condensed Consolidated Statement of Changes in
Equity, Condensed Consolidated Cash Flow Statement and the related explanatory
notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the 26 weeks ended 25 December 2022 is not prepared, in
all material respects, in accordance with IAS 34 Interim Financial Reporting
as adopted for use in the UK and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the
UK. A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures. We read the other
information contained in the half-yearly financial report and consider whether
it contains any apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK-adopted international accounting standards.
The directors are responsible for preparing the condensed set of financial
statements included in the half-yearly financial report in accordance with IAS
34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Frances Simpson
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
16 March 2023
Unaudited condensed consolidated income statement
26 weeks to 25 December 2022 26 weeks to 26 December 2021* 52 weeks to 26 June 2022
Underlying Non- underlying Total Underlying Non- underlying Total Underlying Non- underlying Total
Note £m £m £m £m £m £m £m £m £m
Continuing operations
Gross sales 3 705.6 - 705.6 713.2 - 713.2 1,474.6 - 1,474.6
Revenue 3 544.5 - 544.5 556.5 - 556.5 1,149.8 - 1,149.8
Cost of sales (251.6) - (251.6) (258.7) - (258.7) (543.9) - (543.9)
Gross profit 292.9 - 292.9 297.8 - 297.8 605.9 - 605.9
Selling and distribution costs (187.3) - (187.3) (181.2) - (181.2) (368.0) - (368.0)
Administrative expenses (37.4) 0.4 (37.0) (36.5) 0.2 (36.3) (62.0) (0.4) (62.4)
Operating profit before depreciation and amortisation 68.2 0.4 68.6 80.1 0.2 80.3 175.9 (0.4) 175.5
Depreciation (40.2) - (40.2) (38.3) - (38.3) (77.7) - (77.7)
Amortisation (5.6) - (5.6) (5.1) - (5.1) (10.5) - (10.5)
Operating profit/(loss) 4 22.4 0.4 22.8 36.7 0.2 36.9 87.7 (0.4) 87.3
Finance expenses 5 (16.0) - (16.0) (14.1) - (14.1) (28.8) - (28.8)
Profit/(loss) before tax 6.4 0.4 6.8 22.6 0.2 22.8 58.9 (0.4) 58.5
Taxation 6 (1.0) (0.1) (1.1) (4.2) - (4.2) (14.3) - (14.3)
Profit/(loss) for the period from continuing operations 5.4 0.3 5.7 18.4 0.2 18.6 44.6 (0.4) 44.2
Loss for the period from discontinued operations (0.6) - (0.6) (0.9) - (0.9) (1.5) (11.3) (12.8)
Profit/(loss) for the period 4.8 0.3 5.1 17.5 0.2 17.7 43.1 (11.7) 31.4
Statutory earnings per share
Basic 7
- from continuing operations 2.2p 0.1p 2.3p 7.3p 0.1p 7.4p 17.5p (0.2)p 17.3p
- from discontinued operations (0.2)p - (0.2)p (0.4)p - (0.4)p (0.6)p (4.4)p (5.0)p
Total 2.0p 0.1p 2.1p 6.9p 0.1p 7.0p 16.9p (4.6)p 12.3p
Diluted 7
- from continuing operations 2.2p 0.1p 2.3p 7.2p 0.1p 7.3p 17.4p (0.2)p 17.2p
- from discontinued operations (0.2)p - (0.2)p (0.4)p - (0.4)p (0.6)p (4.4)p (5.0)p
Total 2.0p 0.1p 2.1p 6.8p 0.1p 6.9p 16.8p (4.6)p 12.2p
*Results for the 26 weeks to 26 December 2021 have been re-presented to
reflect the classification of operations in Spain and the Netherlands as
discontinued in accordance with IFRS 5.
Unaudited condensed consolidated statement of comprehensive income
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Profit for the period 5.1 17.7 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 (3.0) 4.5 23.6
Net change in fair value of cash flow hedges reclassified to profit or loss
Recognised in cost of sales (9.3) 3.8 1.9
Income tax on items that are or may be reclassified subsequently to profit or 3.0 (2.1) (6.4)
loss
Other comprehensive income/(expense) for the period, net of income tax (9.3) 6.2 19.1
Total comprehensive income for the period (4.2) 23.9 50.5
Total comprehensive income for the period attributable to the owners of the
parent
- from continuing operations (3.6) 24.8 63.3
- from discontinued operations (0.6) (0.9) (12.8)
(4.2) 23.9 50.5
*Results for the 26 weeks to 26 December 2021 have been re-presented to
reflect the classification of operations in Spain and the Netherlands as
discontinued in accordance with IFRS 5.
Unaudited condensed consolidated balance sheet
25 December 2022 26 December 2021 26 June
2022
Note £m £m £m
Non-current assets
Property, plant and equipment 11 107.9 100.2 105.9
Right of use assets 11 314.8 355.7 338.0
Intangible assets 11 534.8 535.8 533.8
Other financial assets 0.1 1.4 4.8
Deferred tax assets 14.1 23.1 10.8
971.7 1,016.2 993.3
Current assets
Inventories 56.5 63.5 64.4
Other financial assets 8.2 1.2 12.8
Trade and other receivables 21.2 13.3 24.3
Current tax assets 5.7 6.6 7.8
Cash and cash equivalents (excluding bank overdrafts) 34.4 19.1 17.3
126.0 103.7 126.6
Total assets 1,097.7 1,119.9 1,119.9
Current liabilities
Bank overdraft - (9.5) (12.3)
Trade payables and other liabilities (260.7) (279.9) (280.7)
Lease liabilities (83.3) (86.7) (89.0)
Provisions 12 (12.3) (9.1) (12.8)
Other financial liabilities (2.5) (2.1) -
(358.8) (387.3) (394.8)
Non-current liabilities
Interest bearing loans and borrowings (168.8) (73.5) (93.5)
Lease liabilities (333.5) (371.7) (356.4)
Provisions 12 (6.0) (6.5) (6.3)
Other financial liabilities (0.6) (0.1) -
(508.9) (451.8) (456.2)
Total liabilities (867.7) (839.1) (851.0)
Net assets 230.0 280.8 268.9
Equity attributable to equity holders of the parent
Share capital 24.1 25.9 25.9
Share premium 40.4 40.4 40.4
Merger reserve 18.6 18.6 18.6
Capital redemption reserve 359.6 357.8 357.8
Treasury shares (6.1) (0.7) (4.9)
Shares held by employee benefit trust (6.6) (7.3) (6.9)
Cash flow hedging reserve 5.2 0.3 17.5
Retained earnings (205.2) (154.2) (179.5)
Total equity 230.0 280.8 268.9
Unaudited condensed consolidated statement of changes in
equity
Share Share Merger reserve Capital redemption reserve Employee Benefit Trust shares Cash flow hedging reserve Retained Total
capital premium Treasury 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 - - - - - - - 17.7 17.7
Other comprehensive income/(expense) - - - - - - 8.3 (2.1) 6.2
Total comprehensive income for the period - - - - - - 8.3 15.6 23.9
Dividends - - - - - - - (19.0) (19.0)
Purchase of shares held by Employee Benefit Trust - - - - - (8.2) - - (8.2)
Employee benefit trust shares issued - - - - - 1.1 - (1.1) -
Settlement of share based payments - - - - - - - (2.6) (2.6)
Share based payments - - - - - - - 2.2 2.2
Balance at 26 December 2021 25.9 40.4 18.6 357.8 (0.7) (7.3) 0.3 (154.2) 280.8
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 - - - - - - - 5.1 5.1
Other comprehensive income/(expense) - - - - - - (12.3) 3.0 (9.3)
Total comprehensive income for the period - - - - - - (12.3) 8.1 (4.2)
Dividends - - - - - - - (8.7) (8.7)
Purchase of own shares - - - - (26.9) - - - (26.9)
Employee benefit trust shares issued - - - - - 0.3 - (0.3) -
Settlement of share based payments - - - - - - - (0.2) (0.2)
Share based payments - - - - - - - 1.1 1.1
Shares purchased for cancellation (1.8) - - 1.8 25.7 - - (25.7) -
Balance at 25 December 2022 24.1 40.4 18.6 359.6 (6.1) (6.6) 5.2 (205.2) 230.0
Unaudited condensed consolidated cash flow statement
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021 2022
£m £m £m
Profit for the period 5.1 17.7 31.4
Adjustments for:
Income tax expense 1.2 3.9 13.4
Finance expenses 16.1 14.3 29.1
Depreciation of property, plant and equipment 10.8 10.0 20.7
Depreciation of right of use assets 29.4 29.1 58.5
Amortisation of intangible assets 5.6 5.1 10.5
Impairment of assets - - 6.0
Gain on sale of property, plant and equipment (0.7) (0.3) (1.1)
Loss/(gain) on disposal of right of use assets 0.7 0.1 0.1
Settlement of share based payments (0.2) (2.6) (2.7)
Share based payment expense 1.1 2.2 2.6
Decrease/(increase) in trade and other receivables 3.1 3.8 (7.2)
Decrease/(increase) in inventories 7.9 (2.4) (3.3)
Decrease in trade and other payables (20.1) (17.2) (16.6)
Decrease in provisions (0.8) (5.2) (1.7)
Net cash from operating activities before tax 59.2 58.5 139.7
Tax paid 0.7 (4.1) (6.8)
Net cash from operating activities 59.9 54.4 132.9
Investing activities
Proceeds from sale of property, plant and equipment 0.7 1.5 1.8
Acquisition of property, plant and equipment (13.0) (19.5) (36.8)
Acquisition of other intangible assets (6.6) (5.7) (10.6)
Net cash used in investing activities (18.9) (23.7) (45.6)
Financing activities
Interest paid (3.8) (1.8) (3.8)
Interest paid on lease liabilities (11.8) (12.5) (25.0)
Payment of lease liabilities (35.4) (35.6) (63.5)
Drawdown of borrowings 75.0 50.0 70.0
Purchase of own shares - (8.2) (8.2)
Proceeds from sale of own shares - - 0.4
Purchase of treasury shares (26.9) - (4.4)
Ordinary dividends paid (8.7) (19.0) (28.4)
Special dividends paid - - (25.4)
Net cash used in financing activities (11.6) (27.1) (88.3)
Net increase/(decrease) in cash and cash equivalents 29.4 3.6 (1.0)
Cash and cash equivalents at beginning of period 5.0 6.0 6.0
Cash and cash equivalents (including bank overdraft) at end of period 34.4 9.6 5.0
1. Basis of preparation
These unaudited condensed consolidated interim financial statements for DFS
Furniture plc ("the Company") and its subsidiaries (together, "the Group")
were approved for release on 16 March 2023.
The condensed consolidated interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted for use in the
UK, and comprise the results for the 26 weeks ended 25 December 2022, the 26
weeks ended 26 December 2021, and the 52 weeks ended 26 June 2022.
The condensed consolidated interim financial statements do not constitute
statutory accounts within the meaning of Section 435 of the Companies Act
2006. As required by the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority, the condensed consolidated interim financial
statements have been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's published
consolidated financial statements for the year ended 26 June 2022 which were
prepared in accordance with international accounting standards ('UK-adopted
IFRS').
The statutory accounts for the 52 weeks ended 26 June 2022 have been reported
on by the Company's auditor and delivered to the Registrar of Companies. The
auditor's report for those accounts was unqualified, did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and did not contain a statement under
Section 498(2) or (3) of the Companies Act 2006. The auditor's review report
for the 26 weeks ended 25 December 2022 is attached.
Going concern
The condensed consolidated interim financial statements are prepared on a
going concern basis, which the directors believe to be appropriate for the
following reasons.
The Group has a £215.0m revolving credit facility with a consortium of banks
which has been extended to mature in December 2025 (previously December 2024).
This facility is due to be reduced to £193.5m from 21 December 2024. At 14
March 2023, £40.0m of the revolving credit facility remained undrawn, in
addition to cash in hand, at bank of £3.4m.
Covenants applicable to the revolving credit facility are: 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 for the Group covering a
period of at least twelve months from the date of approval of these interim
condensed consolidated financial statements, 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; average order values; inflationary impacts on gross margin and other
costs; 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 period as the base case. These scenarios
include sustained market declines of up to 10%, leading to reduced customer
spending combined with negative impacts on gross margin whether from
inflationary cost pressures, constraints on selling prices or increases in
interest rates. The Directors have also performed reverse stress-testing
analysis to confirm that circumstances resulting in a covenant breach were
beyond those considered plausible.
1. Basis of preparation (continued)
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 forecast period.
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 the
foreseeable future and at least twelve months from the date of approval of
these condensed consolidated interim financial statements. Accordingly, the
condensed consolidated interim financial statements are prepared on a going
concern basis.
2. Principal accounting policies
As required by the Disclosure Guidance and Transparency Rules of the Financial
Conduct Authority, the accounting policies adopted in preparing the condensed
consolidated interim financial statements are consistent with the policies in
the Group's financial statements for the 52 weeks ended 26 June 2022, these
are consistent with IFRS, as issued by the International Accounting Standards
Board and adopted by the UK Endorsement Board for use in the United Kingdom.
There are no new standards, amendments to existing standards or
interpretations that are effective for the first time in the period ended 25
December 2022 that have a material impact on the Group's results.
3. 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 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: the manufacture of
upholstered furniture and the supply of contract logistics.
3. Segmental analysis (continued)
Segment revenue and profit - continuing operations
External sales Internal sales Total gross sales
26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to 26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June 25 December 26 December 26 June 25 December 26 December 26 June
2022 2021* 2022 2022 2021* 2022 2022 2021* 2022
£m £m £m £m £m £m £m £m £m
DFS 557.2 568.1 1,169.1 - - - 557.2 568.1 1,169.1
Sofology 148.4 144.8 304.9 - - - 148.4 144.8 304.9
Other segments - 0.3 0.6 105.6 94.2 187.9 105.6 94.5 188.5
Eliminations - - - (105.6) (94.2) (187.9) (105.6) (94.2) (187.9)
Gross sales 705.6 713.2 1,474.6 - - - 705.6 713.2 1,474.6
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Total segments gross sales 705.6 713.2 1,474.6
Less: value added and other sales taxes (112.1) (113.7) (233.8)
Less: costs of interest free credit and aftercare services (49.0) (43.0) (91.0)
Revenue 544.5 556.5 1,149.8
Of which:
Furniture sales 518.1 531.1 1,096.8
Sales of aftercare products 26.4 25.4 53.0
Revenue 544.5 556.5 1,149.8
26 weeks to 25 December 2022 - continuing operations DFS Sofology Other Eliminations Total
£m £m £m £m £m
Revenue 428.4 116.1 105.6 (105.6) 544.5
Cost of sales (213.7) (54.8) (29.7) 46.6 (251.6)
Gross profit 214.7 61.3 75.9 (59.0) 292.9
Selling and distribution costs (excluding property costs) (116.3) (32.7) (64.2) 44.0 (169.2)
Brand contribution (segment profit) 98.4 28.6 11.7 (15.0) 123.7
Property costs (18.1)
Underlying administrative expenses (37.4)
Underlying EBITDA 68.2
( )
26 weeks to 26 December 2021* - continuing operations DFS Sofology Other Eliminations Total
£m £m £m £m £m
Revenue 441.4 114.9 94.4 (94.2) 556.5
Cost of sales (216.3) (59.1) (29.9) 46.6 (258.7)
Gross profit 225.1 55.8 64.5 (47.6) 297.8
Selling and distribution costs (excluding property costs) (104.8) (32.9) (67.6) 37.0 (168.3)
Brand contribution (segment profit) 120.3 22.9 (3.1) (10.6) 129.5
Property costs (12.9)
Underlying administrative expenses (36.5)
Underlying EBITDA 80.1
3. Segmental analysis (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 and 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
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Underlying EBITDA 68.2 80.1 175.9
Non-underlying items 0.4 0.2 (0.4)
Depreciation & amortisation (45.8) (43.4) (88.2)
Operating profit 22.8 36.9 87.3
Finance expense (16.0) (14.1) (28.8)
Profit before tax 6.8 22.8 58.5
A geographical analysis of revenue is presented below:
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
United Kingdom 536.5 546.0 1,129.3
Europe 8.0 10.5 20.5
Total revenue 544.5 556.5 1,149.8
*Results for the 26 weeks to 26 December 2021 have been represented to reflect
the classification of operations in Spain and the Netherlands as discontinued
in accordance with IFRS 5. These discontinued operations were previously
included within the DFS segment.
Segment assets and liabilities
Assets Liabilities
25 December 26 December 26 June 25 December 26 December 26 June
2022 2021 2022 2022 2021 2022
£m £m £m £m £m £m
DFS 953.5 957.0 948.4 (583.1) (628.5) (625.0)
Sofology 176.4 172.4 167.6 (149.3) (156.5) (142.6)
Other segments 41.3 57.2 30.0 (65.0) (67.9) (52.2)
Total segments 1,171.2 1,186.6 1,146.0 (797.4) (852.9) (819.8)
Loans and financing - - - (168.8) (83.0) (93.5)
Financial assets/(liabilities) 8.3 2.6 17.6 (3.1) (2.2) -
Current tax 5.7 6.6 7.8 - - -
Deferred tax 14.1 23.1 10.8 - - -
Eliminations (101.6) (99.0) (62.3) 101.6 99.0 62.3
Total Group 1,097.7 1,119.9 1,119.9 (867.7) (839.1) (851.0)
3. Segmental analysis (continued)
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 impairments
26 weeks to 25 December 26 weeks to 26 December 52 weeks to 26 June 26 weeks to 25 December 26 weeks to 26 December 52 weeks to 26 June
2022 2021 2022 2022 2021 2022
£m £m £m £m £m £m
DFS 19.0 45.9 72.0 33.4 33.1 66.0
Sofology 6.2 9.4 14.8 9.4 8.6 17.3
Other segments 3.6 6.4 12.5 3.0 1.7 4.9
Total Group 28.8 61.7 99.3 45.8 43.4 88.2
Additions to non-current assets include both tangible and intangible
non-current assets but exclude amounts arising on acquisition.
4. Operating profit - continuing operations
Group operating profit is stated after charging/(crediting):
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Depreciation on tangible assets (including depreciation on right of use 40.2 38.3 77.7
assets)
Amortisation of intangible assets 5.6 5.1 10.5
Net gain on disposal of property, plant and equipment (0.7) (0.3) (1.1)
Net loss/(gain) on disposal of right of use assets 0.7 0.1 0.1
Cost of inventories recognised as an expense 264.1 260.4 548.1
Write down of inventories to net realisable value (1.8) 1.2 4.6
Other costs of sales (10.7) (2.9) (8.8)
Release of provisions - (0.2) (2.1)
Government grants received (business rates relief) (0.2) (0.5) (2.0)
Operating lease rentals 0.2 1.8 0.7
Non-underlying items:
Restructuring costs - 0.2 0.9
Acquisition costs - (0.2) (0.2)
Release of lease guarantee provision (0.4) (0.2) (0.3)
(0.4) (0.2) 0.4
The release of the lease guarantee provision relates to the property
provisions detailed in note 12. During the period ended 26 June 2022
restructuring costs arose from significant changes to the Group's operating
model and the associated consolidation of central activities. The release of
acquisition costs relate to the Group's November 2017 acquisition of Sofology;
deferred consideration relating to the acquisition was finalised and settled
on 11 August 2021, with the residual of the related provision credited to
profit and loss.
In addition to the non-underlying costs for continuing operations above,
during the period ended 26 June 2022 a further £11.3m of non-underlying costs
were recognised in respect of discontinued operations. These costs related to
the impairment of tangible and intangible assets and employee compensation and
other closure costs associated with the termination of discontinued
operations. Further details are presented in note 14.
*Results for the 26 weeks to 26 December 2021 have been represented to reflect
the classification of operations in Spain and the Netherlands as discontinued
in accordance with IFRS 5. These discontinued operations were previously
included within the DFS segment.
5. Finance expense - continuing operations
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Interest payable on senior revolving credit facility 4.0 0.8 2.5
Bank fees 0.3 0.9 1.5
Unwind of discount on provisions - 0.1 -
Interest on lease liabilities 11.7 12.4 24.7
Other interest - (0.1) 0.1
Total finance expense 16.0 14.1 28.8
*Results for the 26 weeks to 26 December 2021 have been represented to reflect
the classification of operations in Spain and the Netherlands as discontinued
in accordance with IFRS 5. These discontinued operations were previously
included within the DFS segment.
6. Taxation
The tax charge recognised in the interim financial statements has been
calculated on the basis of the expected effective tax rate for the 52 weeks to
25 June 2023 of 19.1% (52 weeks to 26 June 2022: 18.24%).
7. Earnings per share
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021 2022
pence pence pence
Basic earnings/(loss) per share
- from continuing operations 2.3 7.4 17.3
- from discontinued operations (0.2) (0.4) (5.0)
Total basic earnings per share 2.1 7.0 12.3
Diluted earnings/(loss) per share
- from continuing operations 2.3 7.3 17.2
- from discontinued operations (0.2) (0.4) (5.0)
Total diluted earnings per share 2.1 6.9 12.2
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021 2022
£m £m £m
Profit attributable to equity holders of the parent company
- from continuing operations 5.7 18.6 44.2
- from discontinued operations (0.6) (0.9) (12.8)
5.1 17.7 31.4
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021 2022
No. No. No.
Weighted average number of shares for basic earnings per share 244,862,812 252,617,478 254,675,661
Dilutive effect of employee share based payment awards 1,200,789 3,030,052 1,220,492
Weighted average number of shares for diluted earnings per share 246,063,601 255,647,530 255,896,153
7. Earnings per share (continued)
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.
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
£m £m £m
Continuing operations
Profit attributable to equity holders of the parent company 5.7 18.6 44.2
Non-underlying items (profit)/loss after tax (0.3) (0.2) 0.4
Underlying profit attributable to equity holders of the parent company 5.4 18.4 44.6
Discontinued operations
Profit attributable to equity holders of the parent company (0.6) (0.9) (12.8)
Non-underlying items (profit)/loss after tax - - 11.3
Underlying profit attributable to equity holders of the parent company (0.6) (0.9) (1.5)
26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021* 2022
pence pence pence
Underlying basic earnings per share
- from continuing operations 2.2 7.3 17.5
- from discontinued operations (0.2) (0.4) (0.6)
Total underlying basic earnings per share 2.0 6.9 16.9
Underlying diluted earnings per share
- from continuing operations 2.2 7.2 17.4
- from discontinued operations (0.2) (0.4) (0.6)
Total underlying diluted earnings per share 2.0 6.8 16.8
*Results for the 26 weeks to 26 December 2021 have been represented to reflect
the classification of operations in Spain and the Netherlands as discontinued
in accordance with IFRS 5. These discontinued operations were previously
included within the DFS segment.
8. Dividends
Pence per ordinary share 26 weeks to 26 weeks to 52 weeks to
25 December 26 December 26 June
2022 2021 2022
£m £m £m
Final ordinary dividend for FY21 7.5p - 19.0 19.0
Interim ordinary dividend for FY22 3.7p - - 9.4
Special dividend 10.0p - - 25.4
Final ordinary dividend for FY22 3.7p 8.7 - -
8.7 19.0 53.8
The directors have declared an interim dividend for the period ending 25 June
2023 of 1.5p per ordinary share to be paid on 25 May 2023. DFS Furniture plc
shares will trade ex-dividend from 13 April 2023 and the record date will be
14 April 2023.
9. 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 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.
10. Seasonality of operations
The Group's business is subject to sales order peaks due to the effects of
promotional periods and, historically, a significant proportion of its annual
revenue has been derived from orders generated during specific promotional
periods. Promotional periods are generally aligned with periods over which
consumers seek to make more purchases. In recent years the timing of revenue
has also been impacted by periods of Covid-related store closures and other
restrictions.
The Group's most important trading periods in terms of order volumes have
historically been in the promotional periods during the post-Christmas winter
sale, Easter, the pre-Christmas guaranteed delivery period, and other public
bank holidays. These increases in its order volumes (as opposed to its
revenue, which is recognised upon completion of delivery, typically between
three and 12 weeks after orders are placed) have generally been influenced,
inter alia, by increases in the Group's spending on marketing and promotions
in the period immediately prior to, and during, these promotional periods.
As a result of this seasonality of operations the results for the first half
of the financial year have typically been smaller than the second half.
11. Capital expenditure
Property, plant Right of use Intangible
and equipment asset assets
£m £m £m
Net book value as at 27 June 2022 105.9 338.0 533.8
Additions 13.0 9.2 6.6
Remeasurements - (1.7) -
Disposals (0.2) (1.3) -
Reclassifications - - -
Depreciation, amortisation and impairment (10.8) (29.4) (5.6)
Net book value as at 25 December 2022 107.9 314.8 534.8
Property, plant Right of use Intangible
and equipment asset assets
£m £m £m
Net book value as at 28 June 2021 91.6 345.1 535.4
Additions 19.5 36.5 5.7
Remeasurements - 3.4 -
Disposals (1.1) (0.2) -
Reclassifications 0.2 - (0.2)
Depreciation, amortisation and impairment (10.0) (29.1) (5.1)
Net book value as at 26 December 2021 100.2 355.7 535.8
12. 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 5.2 1.2 - 6.4
Provisions used during the period (5.1) (0.1) (1.6) (6.8)
Released during the period - (0.4) - (0.4)
Balance at 25 December 2022 8.8 4.7 4.8 18.3
Current 6.2 1.7 4.4 12.3
Non-current 2.6 3.0 0.4 6.0
8.8 4.7 4.8 18.3
Guarantee provision Property provisions Other Total
provisions
£m £m £m £m
Balance at 27 June 2021 9.1 3.7 8.0 20.8
Provisions made during the period 4.5 0.2 0.2 4.9
Provisions used during the period (4.2) - (5.5) (9.7)
Released during the period - (0.2) (0.2) (0.4)
Balance at 26 December 2021 9.4 3.7 2.5 15.6
Current 6.3 0.7 2.1 9.1
Non-current 3.1 3.0 0.4 6.5
9.4 3.7 2.5 15.6
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).
Property provisions relate to potential obligations under lease guarantees
offered to former subsidiary companies, the majority of which expire in 2025,
and wear and tear 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 at 27 June 2021
included deferred consideration payable on the Group's November 2017
acquisition of Sofology. The deferred consideration was finalised and settled
on 11 August 2021 with the difference between the provision and the amount
payable, including costs, being credited to profit and loss during the period
ended 26 December 2021 (see note 4). Other provisions also include costs
associated with the exit from the Netherlands and Spain, see note 14 for
details.
13. Net debt
26 June 2022 Cash flow Other non-cash changes 25 December 2022
£m £m £m £m
Cash in hand, at bank 17.3 17.1 - 34.4
Bank overdraft (12.3) 12.3 - -
Cash and cash equivalents 5.0 29.4 - 34.4
Senior revolving credit facility (93.5) (75.0) (0.3) (168.8)
Lease liabilities (445.4) 35.4 (6.8) (416.8)
Total net debt (533.9) (10.2) (7.1) (551.2)
27 June 2021 Cash flow Other non-cash changes 26 December 2021
£m £m £m £m
Cash in hand, at bank 22.7 (3.6) - 19.1
Bank overdraft (16.7) 7.2 - (9.5)
Cash and cash equivalents 6.0 3.6 - 9.6
Senior revolving credit facility (23.1) (50.0) (0.4) (73.5)
Lease liabilities (454.1) 35.6 (39.9) (458.4)
Total net debt (471.2) (10.8) (40.3) (522.3)
14. Discontinued operations
During the period ended 26 June 2022 the Group took the decision to exit its
operations in the Netherlands and Spain, and details of the decision can be
found in the Group's published consolidated financial statements for the year
ended 26 June 2022. The revenues and expenses of the discontinued operations
have been eliminated from the condensed consolidated income statement for the
Group's continuing operations and are shown as a separate single post-tax line
item. Prior to being classified as discontinued operations, these operations
were included within the DFS segment of the Group's segmental analysis.
26 weeks to 25 December 2022 26 weeks to 26 December 2021 52 weeks to 26 June 2022
Underlying Non- underlying Total Total Total
Results from discontinued operations
£m £m £m £m £m
Revenue 1.9 - 1.9 4.6 9.0
Cost of sales (1.1) - (1.1) (2.2) (4.6)
Gross profit 0.8 - 0.8 2.4 4.4
Selling and distribution costs (1.1) - (1.1) (2.6) (5.0)
Administrative expenses (0.1) - (0.1) - (5.3)
Operating profit before depreciation, amortisation and impairment (0.4) - (0.4) (0.2) (5.9)
Depreciation - - - (0.8) (1.5)
Impairment - - - - (6.0)
Operating profit/(loss) (0.4) - (0.4) (1.0) (13.4)
Finance expenses (0.1) - (0.1) (0.2) (0.3)
Profit/(loss) before tax (0.5) - (0.5) (1.2) (13.7)
Taxation (0.1) - (0.1) 0.3 0.9
Profit/(loss) for the period from discontinued operations (0.6) - (0.6) (0.9) (12.8)
26 weeks to 25 December 2022 26 weeks to 26 December 2021 52 weeks to 27 June 2022
Non-underlying items from discontinued operations
£m £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 costs - - 5.3
- - 11.3
14. Discontinued operations (continued)
In the 52 weeks to 26 June 2022 the impairment of right of use assets arose
due to the closure of leased showrooms and warehouses in Spain and the
Netherlands. Other assets, mostly inventory, were impaired to their net
realisable value following the closure. Goodwill and other intangibles held in
the condensed consolidated balance sheet in relation to DFS Spain were
impaired. Other closure costs relate to staff redundancy and other costs such
as legal costs.
15. 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 UK adopted International Financial Reporting
Standards ("IFRS").
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 glossary and definitions
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 extent to which customers take up the Group's interest free
delivery charges and value added and other sales taxes. 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.
EBITDA Earnings before interest, taxation, depreciation and amortisation. A commonly used profit measure.
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.
15. Alternative performance measures (continued)
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 (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 activities, 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.
LTM Dec-21 Last twelve months/52 weeks ended 27 December 2021 (unaudited, pro forma Certain KPIs (e.g. Leverage) are only meaningful when assessed on a full year
period). basis.
LTM Dec-22 Last twelve months/52 weeks ended 26 December 2022 (unaudited, pro forma Certain KPIs (e.g. Leverage) are only meaningful when assessed on a full year
period). basis.
15. Alternative performance measures (continued)
Reconciliations to IFRS measures
EBITDA H1 FY23 H1 FY22 FY22
£m £m £m
Operating profit from continuing operations 22.8 36.9 87.3
Depreciation 40.2 38.3 77.7
Amortisation 5.6 5.1 10.5
EBITDA from continuing operations 68.6 80.3 175.5
Underlying EBITDA H1 FY23 H1 FY22 FY22
£m £m £m
EBITDA from continuing operations 68.6 80.3 175.5
Non-underlying operating items (0.4) (0.2) 0.4
Underlying EBITDA from continuing operations 68.2 80.1 175.9
Underlying profit before tax and brand amortisation - PBT(A) H1 FY23 H1 FY22 FY22
£m £m £m
Profit before tax from continuing operations 6.8 22.8 58.5
Non-underlying items (0.4) (0.2) 0.4
Amortisation of brand names 0.7 0.7 1.4
Underlying profit before tax and brand amortisation 7.1 23.3 60.3
Net bank debt H1 FY23 H1 FY22 FY22
£m £m £m
Interest bearing loans and borrowings 168.8 73.5 93.5
Unamortised issue costs 1.2 1.5 1.5
Cash and cash equivalents (including bank overdraft) (34.4) (9.6) (5.0)
Net bank debt 135.6 65.4 90.0
Movement in net bank debt H1 FY23 H1 FY22 FY22
£m £m £m
Closing net bank debt (135.6) (65.4) (90.0)
Less: Opening net bank debt 90.0 19.0 19.0
Movement in net bank debt (45.6) (46.4) (71.0)
15. Alternative performance measures (continued)
Leverage LTM Dec-22 LTM Dec-21
FY22
£m £m £m
Net bank debt (A) 135.6 65.4 90.0
Net cash from operating activities before tax 140.4 176.3 139.7
Add back:
Pre-tax non-underlying items 11.5 1.3 11.7
Less:
Movement in trade and other receivables 7.9 (10.9) 7.2
Movement in inventories (7.0) (4.6) 3.3
Movement in trade and other payables 19.5 (18.1) 16.6
Movement in provisions (2.7) 4.8 1.7
Payment of lease liabilities (63.3) (73.7) (63.5)
Payment of interest on leases (24.3) (25.5) (25.0)
Cash EBITDA (B) 82.0 49.6 91.7
Leverage (A/B) 1.7x 1.3x 1.0x
Underlying return on capital employed from continuing operations LTM Dec-22 LTM Dec-21
FY22
£m £m £m
Operating profit from continuing operations 73.2 80.0 87.3
Non-underlying operating items 0.2 0.8 0.4
Pre-tax return 73.4 80.8 87.7
Effective tax rate 19.1% 18.2% 24.3%
Tax adjusted return (A) 59.4 66.1 66.4
Property, plant and equipment 107.9 100.2 105.9
ROU assets 314.8 355.7 338.0
Computer software 19.4 17.5 17.7
442.1 473.4 461.6
Inventories 56.5 63.5 64.4
Trade receivables 9.7 4.4 12.6
Prepayments 11.2 8.5 11.4
Accrued income 0.3 0.4 0.3
Payments received on account (49.5) (99.6) (72.2)
Trade payables (110.8) (92.3) (122.5)
Working capital (82.6) (115.1) (106.0)
Total capital employed (B) 359.5 358.3 355.6
Underlying ROCE from continuing operations (A/B) 16.5% 18.4% 18.7%
Unaudited pro-forma 26 weeks ended 30 December 2018 DFS (inc Dwell) Sofology Total from continuing operations exc. Sofa Workshop Sofa Total from continuing operations Discontinued operations Total
Workshop
£m £m £m £m £m £m £m
Gross sales 504.1 139.9 644.0 17.8 661.8 7.0 668.8
Revenue 387.2 110.6 497.8 14.1 511.9 5.7 517.6
Cost of sales (155.6) (54.2) (209.8) (6.6) (216.4) (2.5) (218.9)
Gross profit 231.6 56.4 288.0 7.5 295.5 3.2 298.7
Selling and distribution costs (excluding property costs) (120.3) (28.9) (149.2) (4.3) (153.5) (3.1) (156.6)
Brand contribution 111.3 27.5 138.8 3.2 142.0 0.1 142.1
Property costs (51.9) (1.3) (53.2) (0.4) (53.6)
Underlying administrative expenses (29.2) (1.3) (30.5) (0.1) (30.6)
Underlying EBITDA 57.7 0.6 58.3 (0.4) 57.9
Depreciation, amortisation and impairments (excluding brand amortisation) (13.5) (0.7) (14.2) (0.4) (14.6)
Underlying operating profit 44.2 (0.1) 44.1 (0.8) 43.3
Interest (5.3) - (5.3) - (5.3)
Underlying PBT excluding brand amortisation 38.9 (0.1) 38.8 (0.8) 38.0
Brand amortisation (0.5) (0.1) (0.6) - (0.6)
Underlying PBT 38.4 (0.2) 38.2 (0.8) 37.4
Underlying items (2.0) - (2.0) - (2.0)
PBT 36.4 (0.2) 36.2 (0.8) 35.4
This interim report, 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 interim 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
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intentions; or by their context. No representation is made that any of these
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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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