REG - DFS Furniture PLC - Interim Results
19/03/2024 07:00
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RNS Number : 3153H DFS Furniture PLC 19 March 2024
19 March 2024
Immediate release
DFS Furniture plc ("DFS" and the "Group")
Interim Results Announcement
RESILIENT PERFORMANCE DESPITE CHALLENGING MARKET ENVIRONMENT
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 24 December 2023 (H1 FY24). Prior year comparative period
is the 26 weeks ended 25 December 2022 (H1 FY23).
£m H1 FY24 H1 FY23 Change
Gross sales(1,3) 666.2 705.6 (5.6%)
Revenue(1) 505.1 544.5 (7.2%)
Gross margin 56.0% 53.8% +2.2%pt
Underlying PBT(A)(1,2,3) 8.7 7.1 +1.6
Reported PBT 0.9 6.8 (5.9)
Basic underlying EPS(1,3) 2.8p 2.2p +0.6p
Reported basic EPS 0.2p 2.1p (1.9p)
Interim dividend per share 1.1p 1.5p (0.4p)
Net bank debt(3) 133.9 135.6 (1.7)
Leverage(3) 1.6x 1.7x (0.1x)
(1) Continuing operations excludes the discontinued International operation
which ceased trading in FY23
(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 13 to the
condensed consolidated financial statements
Strategic and operational highlights:
● Good progress on our Cost to Operate programme. Gross margin
improvement from 53.8% in H1 FY23 to 56.0% in the current period and operating
costs £11.5m lower (£22m gross savings more than offsetting inflation and
interest rate headwinds)
● Despite a more challenging and volatile than expected upholstery
market, with order volumes down c-10% year on year versus -5% assumed in
formulating our profit guidance in September, the Group has continued its long
track record of market share gains reaching a record level of 38.5% driven by
the strength of our brands, scale and retail proposition
● Continued improvement in customer NPS measures, with both brands
continuing to grow established customer scores significantly
Financial summary:
● Resilient underlying profit performance, PBT(A)(1,2,3) £8.7m, up
£1.6m on H1 FY23 despite weaker than expected market demand
● Reported profit before tax of £0.9m, after deducting expected
non-underlying costs of £7.1m (£4.2m cash cost), including costs associated
with closure of one our factories and September's refinancing
● Group order intake down -1.1% year on year, outperforming the wider
market
● Gross sales(3) down to a greater extent as expected, -5.6% year on
year (£39.4m) due to the unwind of an elevated opening order bank at the
start of the prior year resulting in a higher level of delivered sales in the
comparator period
● Revenue from continuing operations(1) down -7.2% year on year;
higher than the gross sales reduction due to Bank of England base rate changes
increasing the cost of providing interest free credit (IFC) which we partially
mitigated through amending our IFC proposition
● Gross margin rate (+220 bps) and lower operating costs more than
mitigated the revenue decline and impact of cost inflation on PBT(A)
● Net bank debt(3) reduced from the FY23 year end position of £140.3m
to £133.9m and leverage reduced from 1.9x to 1.6x (H1 FY23 £135.6m and 1.7x)
● Interim dividend of 1.1p approved by the Board
Current trading and FY24 outlook:
● After a solid start to January, market demand has weakened
significantly over the last two months, with market order volumes down c16%
year on year across January and February (H1 -10%)
● The group has not been immune to this and today we provide updated
guidance for the year ending 30 June 2024 (53 weeks)
● Revenues expected to be in the range of £1,000m-£1,015m and PBT(A)
to be in the range of £20-25m, excluding risk of Red Sea delays which we
continue to monitor closely
● This represents a £60-£65m reduction in revenue guidance,
partially mitigated to a £10m reduction in PBT(A) guidance, supported by
strong progress on costs and gross margins
● The guidance assumes H2 market volumes broadly consistent with H1 year
on year, in a range of -8% to -10%, supported by weaker Q4 comparatives and a
level of pent up demand following the weak January and February. We remain
cautious about consumer confidence starting to improve and benefit demand
until FY25
● H2 group year on year order intake of -2% to -4% (H1 -1.1%) is based
on our assumptions for H2 market volumes and our spring trading plans
● If the Red Sea issues continue through to our year end, potential
delivery delays could result in up to £4m of profit being deferred into our
following financial year
Tim Stacey, Group Chief Executive Officer said:
"I want to thank our colleagues for their dedication toward providing a first
class service to our customers. Whilst the current macroeconomic situation has
presented many challenges, we are pleased to have extended our market
leadership while reporting a resilient profit performance through the first
half.
As a result of weaker market demand we have lowered our FY24 profit guidance
to £20-£25m, excluding the potential risk of Red Sea delays which we
continue to monitor closely. This reflects Revenue guidance reducing by
£60-65m, partially mitigated by good progress on our Cost to Operate
programme.
We remain confident in both our long-term growth strategy and the capability
to deliver on our objectives. We remain well positioned to improve our
profit margins without market recovery and remain confident in delivering our
8% PBT target when the market recovers."
Refer to note 13 to the financial statements for definitions and
reconciliations of Alternative Performance Measures.
FY24 Interim Results Presentation
A webcast for analysts and investors will be held at 9.00am (UK time) today to
announce the H1 FY24 results. Webcast link (Password: DFS2024):
https://vimeo.com/event/4135214 (https://vimeo.com/event/4135214)
A copy of the presentation will be made available at:
https://www.dfscorporate.co.uk/ (https://www.dfscorporate.co.uk/)
Enquiries:
DFS (enquiries via Teneo)
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 websites in the United Kingdom and 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".
FY24 Interims CEO statement
Overview
The Group entered the financial year with record market share and operations
in good shape but within a very weak upholstery market heavily impacted by the
cost of living crisis, a subdued housing market and relatively weak consumer
confidence levels. Following a detailed cost review, in September we announced
a £50m annualised cost efficiency programme to be delivered over the next
three years, whilst continuing to pursue our strategy to profitably grow our
market share in the upholstery sector and grow our presence in other furniture
categories.
Market demand in the period was weaker than the assumption we had used in
preparing our profit guidance at the start of the year and we believe market
order volumes are currently at record low levels. The Group has, however,
continued to increase market share whilst improving gross margins and reducing
operating costs, which has enabled us to report year on year underlying profit
growth.
The current macroeconomic situation remains challenging and market demand has
weakened into H2. As a result of weaker market demand we have lowered our FY24
PBT(A) guidance to £20-£25m, excluding the potential risk of Red Sea delays
which we continue to monitor closely. The updated guidance includes a
reduction in Revenues of £60-65m, which we have partially mitigated to a
£10m reduction in PBT(A) as a result of good progress on our Cost to Operate
programme. If our shipping partners continue to avoid using the Red Sea
shipping route, delays to customer deliveries will result in up to £4m of
profit being deferred into the following financial year.
The Group is well positioned for the future - customer service NPS scores are
strong and continue to improve, costs are well controlled and reducing and we
have line of sight to improved profit margins as we deliver our cost
efficiency plans. As the market recovers, our market share, well invested
asset base and P&L operating leverage puts us in a great shape to deliver
our 8% PBT target and, given our negative working capital cycle, generate good
levels of free cash flow when market demand recovers.
Market size update:
Market order volumes in the prior year were at very low levels, c-15%* below
pre-pandemic levels based on our proprietary banking transaction data. At the
start of the current period we had planned for market order volumes to be down
a further -5% year on year given the weak macro outlook at the time. Actual
market demand has been weaker, down -c10%* in volume terms in the first half,
with exceptionally low footfall in the September-October period driven by
record hot weather conditions proving a significant drag on performance.
*Proprietary Barclaycard and CACI banking data
Our three areas of focus:
Below is an update on the three areas of focus I announced in September 2023.
Growth
The Group has grown market share in value terms in the period from 38% at the
end of FY23 to c38.5%* continuing our long track record of growing market
share across the economic cycle due to the strength of our brands, scale and
retail proposition. Market share has continued to be taken from independent
retailers. Across the remainder of the sector we have seen general retailers
pick up share, particularly at low to mid price points.
Gross margins
We have made solid progress increasing our gross margin rate towards our
pre-pandemic historical level of 58%. We have now achieved growth in the last
three half yearly reporting periods growing margins from a low of 52.7% in
FY22 to 56.0% in this period.
Cost to operate efficiencies
During the first six months of our three year Cost to Operate programme we
have made good progress as we target c£50m of savings across our cost base.
H1 operating costs^ reduced £11.5m year on year, with £22.1m gross savings
more than offsetting inflation of c£7.0m and £3.6m of higher interest
charges on our debt facilities. These savings have come from improved
operational performance as well as starting to realise some savings from our
Cost to Operate programme. Further details are provided in the Financial
Review.
^Sales, distribution, administration, depreciation, amortisation and interest,
excluding brand amortisation
An update on our pillars and platforms strategy:
Pillars:
The market share gains described above have been driven by the DFS brand, the
largest in the Group. The brand benefits from a well invested retail estate
and digital assets that support the customer across their buying journey and
from strong, unique brand partnerships. In the period we have partnered with
the Ted Baker brand, launching three ranges and initial sales levels have
surpassed expectations.
The Sofology brand, which has a higher average price point, has not been able
to match DFS's share gains in this environment but good operational cost
control has ensured brand profit contribution levels were maintained year on
year. We are in the process of adapting the brand's price proposition to
ensure it is best positioned for this market environment.
I'm pleased to say that both brands have achieved growth in their NPS scores
to good levels. DFS's NPS established customer scores have improved by +62%,
and are now nearly back to pre-pandemic levels. Sofology has also achieved
strong levels of improvement with its established customer score improving to
record levels over the last few months. Operationally both brands are now in a
much better position recovering the ground lost through the pandemic period
when customer orders were significantly delayed.
In relation to our non-upholstery 'Home' strategic initiative we have
developed a drop ship solution and a new warehouse management system,
providing the foundations to support growth. Due to the weak market demand in
the upholstery segment we took the decision to defer investing in marketing to
build awareness and drive future sales growth and instead focus our resources
on optimising the profitability in our core business over the short term. The
profitability of our Home offer has, however, increased year on year as we
operate with improved gross margins and lower operating costs. We remain
committed to driving sales growth in the Home product category in the future.
Platforms:
Our key platforms sourcing & manufacturing, technology & data,
logistics and people & culture support our pillar brands and all play a
key role in supporting our growth, be it across the top line or through
improving the efficiency of our cost base. We are obtaining and making more
use of data to drive insight and improved decision making across our business.
Our fully integrated two man delivery service is market leading, our sourcing
strategy has helped deliver three half year periods of gross margin rate
improvement and through our People plan our colleagues remain highly engaged
to drive us forward.
Sourcing & Manufacturing: As previously disclosed we entered a
consultation process in September for the potential closure of the smallest of
our three manufacturing sites and one of our wood mills. We concluded this
process and ceased manufacturing at these sites in October. These types of
decisions are never easy and we understand the impact it can have on our
colleagues. Following a consultation with 215 colleagues, we were able to
retain 44 colleagues through providing employment elsewhere in the Group,
including at our recently formed sewing hub. We supported the remaining
workforce through a comprehensive and meaningful outplacement support service.
The ranges that were produced by the manufacturing site that has closed have
been redistributed across our existing supplier base and this has contributed
to reducing our cost of goods.
Technology & Data: To help mitigate the high interest rate environment on
our profit margins we have recently expanded the capabilities of our
Intelligent Lending Platform which we initially launched with our DFS brand,
and developed it for our Sofology brand. This will enable Sofology to work
with a wider Group of lenders, resulting in cost synergies.
These cost savings, in addition to retail price increases that were
implemented in the second half of the prior year supported a further
improvement in our gross margin rate from 55.0% in the second half of the
prior year to 56.0% in the first half of this period.
Operating Costs and Logistics: Despite absorbing significant levels of cost
inflation, our operating costs have reduced £11.5m year on year due to
improved operational performance and we are starting to see the benefits of
some of our 'operate for less' cost initiative projects. Our final mile
logistics business, The Sofa Delivery Company, is performing well having
completed the integration of the two discrete delivery arms of DFS and
Sofology. Sofa orders for both brands are stored and delivered through the
same infrastructure and resources and we are seeing consistently higher van
fill rates, reduced delivery failure rates and improved post-delivery NPS
scores year on year.
ESG: The Group is guided by our purpose to bring great design and comfort into
every home in an
affordable, responsible and sustainable manner. We have developed 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 along with targets covering inclusivity & diversity and our
impact on local communities.
Highlights from the first half of FY24 include meeting our 10% target of an
absolute reduction in Scope 1 emissions measured against our 2018/19 baseline.
This has been achieved in part due to lower delivered volumes but also
through various initiatives, such as moving to gas alternatives across our
real estate and the consolidation of our delivery fleets into The Sofa
Delivery Company. AI route planning tools as well as the investment in our
teams with driver efficiency training have delivered great results and we are
incrementally shifting our company cars and service vehicles to hybrid and
electric models.
We have also made a significant amount of progress in developing our carbon
reduction roadmap and remain on track to submit our net zero strategy to the
Science Based Targets Initiative for approval in June. Over the past six
months, we have engaged our manufacturing partners and raw material suppliers
in our roadmap planning and many have shared their commitment to our net zero
ambition.
Our colleagues remain highly engaged, and we've seen positive results from our
colleague engagement survey, with the overall NPS engagement score increasing
14 points from March to September 2023. We've also made good progress in
developing our inclusive culture where everyone is welcome, adding further
Colleague Networks, bringing our total to five across Gender, Sexuality,
Religion, Race and Disability. Finally, our Workforce Disclosure Initiative
score has also increased from 73% to 80%, well above the UK average of 71% and
the consumer discretionary sector of 60%.
Outlook:
Since our trading update on 19 January, market demand during the winter sale
period has weakened by c-6%ppt compared to the H1 average and we have
experienced a corresponding step back in the Group's order intake performance.
Today we provide some updated guidance for the 53 week period ending 30 June
2024. Order intake and delivery lead times are the two key sensitivities to
our FY24 profit performance.
We expect revenues to be in the range of £1,000-1,015m and PBT(A) to be in
the range of £20-25m, excluding the potential risk of Red Sea delays which we
continue to monitor closely. The £10m reduction in our PBT(A) guidance
represents a resilient profit performance given the £60-65m reduction in
Revenue, supported by the strong progress on costs and margins.
Full year guidance September 2023 March 2024
Revenue £1,060m-£1,080m £1,000m-£1,015m
PBT(A)(3) excl. Red Sea risk* £30m-£35m £20-25m
Cash capex £25m-£30m £25m
Non underlying costs (cash) £4m-£5m £5m
*If Red Sea delays continue, we expect up to £4m of profit to be deferred
into FY25
Whilst forecasting future market demand remains challenging, we expect overall
H2 market demand will be broadly consistent with H1, in a range of -8% to
-10%. This is partly supported by a relatively weak Q4 in the prior year and
some potential for pent up demand following the especially weak market during
the winter sale period. We are also confident that our commercial plan will be
stronger year on year through Easter and Q4, as we annualise price rises and
changes to interest free credit in the prior year. Based on these
assumptions, the Group's year on year order intake performance** is forecast
to be in the range of -2% to -4% for H2 overall, slightly below the H1 level
of -1.1%.
Year end net bank debt is expected to be around £150-155m. As previously
guided, this is artificially elevated due to around £15m of temporary working
capital outflows that occur in the 53rd week of this financial period.
As with our previous guidance, the PBT(A) range of £20-25m assumes that
issues in the Red Sea are resolved, with no delays to delivery lead times. If
the Red Sea issues are not resolved ahead of our year end, then we expect
delays to customer delivery lead times will result in up to £4m of profit
being deferred into FY25.
**Calculated on a 26 week vs 26 week basis (i.e. excludes FY24 order intake in
the 27th week in the second half of this 53 week financial period)
Conclusion:
I want to thank our colleagues for their dedication toward providing a first
class service to our customers. Whilst the current macroeconomic situation has
presented many challenges, we are pleased to have extended our market
leadership while reporting a resilient profit performance through the first
half.
As a result of weaker market demand we have lowered our FY24 profit guidance
to £20-£25m, excluding the potential risk of Red Sea delays which we
continue to monitor closely. This reflects Revenue guidance reducing by
£60-65m, partially mitigated by good progress on our Cost to Operate
programme.
We remain confident in both our long-term growth strategy and the capability
to deliver on our objectives. We remain well positioned to improve our
profit margins without market recovery and remain confident in delivering our
8% PBT target when the market recovers.
Tim Stacey
CEO
19 March 2024
FINANCIAL REVIEW
H1 FY24 reported profit before tax was £0.9m (H1 FY23: £6.8m), after the
deduction of expected non-underlying operating costs of £7.1m (H1 FY23:
£0.4m non-underlying profit).
H1 FY24 underlying profit before tax and brand amortisation (PBT(A))(1) was
£8.7m, slightly ahead of prior year (H1 FY23: £7.1m). This represents a
resilient profit performance despite the tough market conditions, supported by
planned improvements in gross margin rate, lower operating costs and market
share gains, which offset the profit impact of a year on year decline in
revenues.
Non-underlying costs of £7.1m include the costs associated with the planned
closure in the period of the smallest of our UK manufacturing facilities and
one of our wood mills. The closures have enabled us to consolidate volumes
within other UK Group manufacturing sites and further leverage our buying
scale with our external supplier partners, lowering operating costs and
improving the net profitability of the Group. Cash outflow for the period on
non-underlying costs was £4.2m, with the full year expectation remaining in
line with the previous guidance of £5m.
Trading conditions proved to be more volatile and weaker than anticipated
across the period, with H1 market order volumes down c-10% year on year,
versus the -5% reduction assumed in our previous guidance. Although we have
not been immune to the weaker demand, the reduction in Group order intake of
-1.1% year on year was lower than the reduction across the market, resulting
in further market share gains. Proprietary data(2) for H1 shows we increased
market share to 38.5% (38% at FY23 close). We remain in a favourable position
for future growth when market volumes begin to recover.
Net bank debt(1) decreased from £140.3m at the end of FY23, to £133.9m at
the end of H1 FY24, and leverage(1) decreased from 1.9x at the end of FY23 to
1.6x. Over the medium term we remain committed to managing leverage within our
target range of 0.5-1.0x.
Revenue and gross sales
H1 FY24 YoY H1 FY23
£m
£m
Gross sales 666.2 -5.6% 705.6
DFS 525.6 -5.7% 557.2
Sofology 140.6 -5.3% 148.4
Revenue 505.1 -7.2% 544.5
Group gross sales(1), which are recognised on delivery of orders to customers,
decreased by -5.6% to £666.2m (H1 FY23: £705.6m), with both retail brands
reporting a reduction on H1 FY23. As expected, this was a higher rate of
decline than order intake over the same period as a result of the higher order
bank at the start of the comparative period converting into sales in H1 FY23.
Market demand was volatile within the period, with the Group experiencing year
on year order intake growth in July and August, a challenging September and
October driven by very low footfall during unseasonably warm weather, followed
by an improvement in November and December. A shift in product mix towards
models with shorter lead times also meant that we were able to deliver more
orders to customers and convert these to gross sales in the period.
Group average order values have increased year on year as a result of range
innovation and targeted price increases in March 2023, which fed through to
deliveries from May 2023 onwards.
H1 FY24 Group revenue of £505.1m was 7.2% lower than H1 FY23. This is a
higher rate of decline than gross sales due to increased interest free credit
costs, primarily as a result of the higher Bank of England base rates. This
impact was partially mitigated by changing our everyday interest free credit
customer proposition to a maximum of 36 months. We note that this cost will
start to reduce when reductions in base rates are instigated by the Bank of
England.
Gross profit
H1 FY24 Gross profit of £283.0m decreased by £9.9m (3.4%) year on year,
driven by lower revenues.
Gross margin rate improved to 56.0% for H1 FY24 (H1 FY23: 53.8%, H2 FY23:
55.0%), an increase of 220bps year on year. The margin improvement has been
achieved as a result of the benefits of reduced freight rates, targeted price
increases on orders placed from March 2023 onwards, and cost of goods
improvements partly as a result of benefits from the closure of our smallest
factory and one of our woodmills part way through the period. These benefits
were partially offset by adverse hedged foreign exchange movements and the
increased cost of interest free credit.
We have now recorded three consecutive half year periods of year on year gross
margin rate growth, and we expect this trend to continue through H2 FY24.
Selling, distribution, administration, and property costs
H1 FY24 selling, distribution, administration and property costs totalled
£209.5m (H1 FY23: £224.7m), a decrease of £15.2m (6.8%), representing a %
cost of revenue of 41.5% (FY23: 39.9%).
The reduction in delivered volumes contributed £4.0m to the decrease in
costs. We also took the decision to flex our marketing spend down by £3.9m in
response to the tougher market conditions, prioritising spend against our core
upholstery business. Other cost reductions of £14.3m were delivered from
across retail operations, The Sofa Delivery Company, property costs and
central overheads. This was driven by a combination of better service levels
and cost management disciplines, alongside good early progress on our cost
efficiencies programme, all of which helped to mitigate total inflationary
cost increases of c3.1% (£7.0m).
Depreciation, amortisation and interest
H1 FY24 Depreciation of £38.9m decreased by £1.3m year on year, supported by
the benefits of retail property lease regears and the rationalisation of our
legacy warehouse estate into fewer, larger distribution centres. Amortisation
has increased £1.0m year on year due to continued investment in our IT
systems.
H1 FY24 Finance costs of £20.3m increased £4.3m year on year, largely due to
increased interest rates on the Group's borrowings as a result of the higher
Bank of England base rate, and to a lesser extent from a higher average drawn
balance during the period. The higher drawn balance on the Group's borrowings
is due to working capital balances normalising during FY23, principally as the
higher order bank and therefore higher customer deposit levels reduced to be
in line with more historical levels.
Profits and earnings per share
H1 FY24 reported profit before tax for the period was £0.9m (H1 FY23:
£6.8m). Underlying profit before tax and brand amortisation (PBT(A))(1) was
£8.7m compared to £7.1m in H1 FY23, with margin rate improvement and cost
savings mitigating the profit impact of the year on year revenue reduction.
£7.1m of non-underlying costs were incurred in the period which related to
the closure of the Group's smallest UK manufacturing facility and one of our
woodmills (£5.7m), and costs associated with refinancing the Group's
borrowing facilities (£1.9m), partially offset by the annual review and
release of lease guarantee creditors no longer required in relation to
properties leased by a former subsidiary entity (£0.5m).
Underlying basic earnings per share from continuing operations was 2.8 pence
(H1 FY23: 2.2p). H1 FY24 basic earnings per share from continuing operations
was 0.2 pence (H1 FY23: 2.3p).
The tax charge recognised in the interim financial statements has been
calculated using the expected effective tax rate for FY24 of 24.0% (FY23:
21.3%). This is lower than the applicable UK Corporation Tax rate of 25.0%
(FY22: 20.5%), primarily due to the availability of the fully expensing rules
on capital expenditure.
Cash flow, net debt and dividends
Refinancing of our debt facilities was completed in September 2023, which
increased the total amount of funds available from £215m to £250m and
diversified the lending group. 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 US private placement notes, with redemption dates split equally between
September 2028 and September 2030.
Net bank debt(1) decreased from £140.3m at the end of the prior year to
£133.9m at the end of the current period. This includes a timing benefit of
£6.9m in relation to the FY23 final dividend which was paid post period end
in H1 FY24 and pre period end in H1 FY23.
H1 FY24 Cash capex was £14.7m (H1 FY23: £19.6m) and included the opening of
the new DFS Greenwich store, six store refits, and technology related
investments to further strengthen our customer proposition, mid and back
office functions. We expect annual cash capex investment for FY24 to be at the
lower end of the £25-£30m range previously communicated.
H1 FY24 return on capital employed (ROCE)(1) was 14.8% (H1 FY23: 13.5%) as a
result of slightly higher profit on a last twelve months basis, with capital
employed remaining stable. We expect returns to grow over time given i) our
anticipated improved profitability as our product, property and operating cost
reductions continue to be delivered and market volumes recover and ii) our
negative working capital model.
Leverage(1) decreased from 1.9x at the end of FY23 to 1.6x for H1 FY24.
Based on the revised FY24 profit guidance described in the CEO's report, our
year end net bank debt is expected to be in the range of £150m-£155m and
leverage in the range of 2.0x to 2.1x. This includes the impact of a temporary
£15m working capital outflow in the final week of this extended 53 week
financial period. Excluding the temporary working capital outflow, leverage
will be in the range of 1.8x-1.9x. Over the medium term we remain committed to
returning leverage to within our target range of 0.5-1.0x.
Aligned to our capital distribution policy, the Board has declared an interim
dividend for FY24 of 1.1 pence per share, at a total cost of £2.5m. This
dividend will be paid on 30 May 2024 to shareholders on the register on 19
April 2024.
John Fallon
Chief Financial Officer
19 March 2024
(1) Definitions and reconciliations of KPIs including Alternative Performance
Measures ("APMs") are provided at the end of this statement in note 13 to the
condensed consolidated financial statements
(2) Proprietary Barclaycard banking data
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 2023 Annual Report. A summary is provided below:
Risk Impact
Financial risk and liquidity The geopolitical and macroeconomic environment or other events (such as a
future pandemic or expansion of the Ukraine war into other territories) may
impact the Group's working capital requirements, its ability to access debt or
equity financing, the cost of that financing, or the price of purchases in
foreign currencies.
Regulatory The Group is subject to increasing levels of compliance requirements in many
of its activities from regulatory and other authorities, including the
Financial Conduct Authority for its consumer finance offering, the Information
Commissioner's Office in relation to data protection and Health and Safety
Executive and local authorities for the health and safety of its colleagues
and customers. The Group also generates revenue from the sale of product
aftercare insurance, a form of general insurance add-on product.
Cyber A cyber-attack, ransomware or data breach could result in business disruption,
and loss or corruption of customer data, which could adversely impact our
reputation and customer confidence.
Our website and IT infrastructure are key elements of our strategy. A failure
to review and innovate in this competitive area could impact achievement of
the Group's growth plans.
Supply chain and manufacturing resilience Disruption across our supply chain, including shortages of critical materials,
reliance on key manufacturing sites and logistics constraints could result in
supply shortages or delays.
Macro economic uncertainty The Group's products represent a significant discretionary spend for customers
and demand is heavily influenced by factors affecting the economic environment
in which the Group operates including (but not limited to): consumer
confidence, employment levels, real income, the availability of credit and the
level of housing market activity.
Environmental, Key stakeholders, including customers, colleagues, investors and regulators,
social and governance as well as the media, are increasingly focused on the Group's policies and
management regarding Environmental, Social and Governance ('ESG') risks. The
Group is also required to meet increasing non-financial reporting and
disclosure requirements.
Retention of skilled workers due to labour shortage There has been increased pressure within the UK labour market in general with
low levels of unemployment, high levels of vacancies and shortages of skilled
workers across all sectors. The Group needs to attract, retain and develop the
right talent and required capabilities to achieve targeted business
performance and delivery of our strategy.
Consumer Proposition and industry The reputation of, and value associated with, the Group's brands and product
competition offering is central to the success of the business. Failure to maintain a
well-designed, high-quality product range that is priced attractively could
compromise the success of the Group.
Transformation The Group undertakes a number of significant investment or business change
projects that are key to successfully executing its strategy.
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
19 March 2024
INDEPENDENT REVIEW REPORT TO DFS FURNITURE PLC
Conclusion
We have been engaged by DFS Furniture plc ("the Company") to review the
condensed set of financial statements in the half-yearly financial report for
the 26 weeks ended 24 December 2023 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 24 December 2023 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.
Gill Hopwood-Bell
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
19 March 2024
Unaudited condensed consolidated income statement
26 weeks to 24 December 2023 26 weeks to 25 December 2022 52 weeks to 25 June 2023
Underlying Non- underlying Underlying Non- underlying Non- underlying
Total
Total
Underlying
Total
Note £m £m £m £m £m £m £m £m £m
Continuing operations
Gross sales 3 666.2 - 666.2 705.6 - 705.6 1,423.6 - 1,423.6
Revenue 3 505.1 - 505.1 544.5 - 544.5 1,088.9 - 1,088.9
Cost of sales (222.1) - (222.1) (251.6) - (251.6) (496.7) - (496.7)
Gross profit 283.0 - 283.0 292.9 - 292.9 592.2 - 592.2
Selling and distribution costs (175.2) - (175.2) (187.3) - (187.3) (364.6) - (364.6)
Administrative expenses (34.3) (5.2) (39.5) (37.4) 0.4 (37.0) (70.2) 0.5 (69.7)
Operating profit before depreciation and amortisation 73.5 (5.2) 68.3 68.2 0.4 68.6 157.4 0.5 157.9
Depreciation (38.9) - (38.9) (40.2) - (40.2) (80.5) - (80.5)
Amortisation (6.6) - (6.6) (5.6) - (5.6) (11.6) - (11.6)
Impairment - - - - - - (2.0) - (2.0)
Operating profit 4 28.0 (5.2) 22.8 22.4 0.4 22.8 63.3 0.5 63.8
Finance income 0.3 - 0.3 - - - 0.2 - 0.2
Finance expenses 5 (20.3) (1.9) (22.2) (16.0) - (16.0) (34.3) - (34.3)
Profit before tax 8.0 (7.1) 0.9 6.4 0.4 6.8 29.2 0.5 29.7
Taxation 6 (1.5) 1.2 (0.3) (1.0) (0.1) (1.1) (6.6) (0.1) (6.7)
Profit for the period from continuing operations 6.5 (5.9) 0.6 5.4 0.3 5.7 22.6 0.4 23.0
(Loss)/profit for the period from discontinued operations - - - (0.6) - (0.6) (0.3) 3.5 3.2
Profit for the period 6.5 (5.9) 0.6 4.8 0.3 5.1 22.3 3.9 26.2
Statutory earnings per share
Basic 7
- from continuing operations 2.8p (2.6)p 0.2p 2.2p 0.1p 2.3p 9.6p 0.2p 9.8p
- from discontinued operations - - - (0.2)p - (0.2)p (0.2)p 1.5p 1.3p
Total 2.8p (2.6)p 0.2p 2.0p 0.1p 2.1p 9.4p 1.7p 11.1p
Diluted 7
- from continuing operations 2.8p (2.6)p 0.2p 2.2p 0.1p 2.3p 9.5p 0.2p 9.7p
- from discontinued operations - - - (0.2)p - (0.2)p (0.2)p 1.5p 1.3p
Total 2.8p (2.6)p 0.2p 2.0p 0.1p 2.1p 9.3p 1.7p 11.0p
Unaudited condensed consolidated statement of comprehensive income
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Profit for the period 0.6 5.1 26.2
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 1.7 (3.0) (8.7)
Net change in fair value of cash flow hedges reclassified to profit or loss
Recognised in cost of sales (0.1) (9.3) (13.7)
Income tax on items that are or may be reclassified subsequently to profit or (0.5) 3.0 5.9
loss
Other comprehensive income/(expense) for the period, net of income tax 1.1 (9.3) (16.5)
Total comprehensive income for the period 1.7 (4.2) 9.7
Total comprehensive income for the period attributable to the owners of the
parent
- from continuing operations 1.7 (3.6) 6.5
- from discontinued operations - (0.6) 3.2
1.7 (4.2) 9.7
Unaudited condensed consolidated balance sheet
24 December 25 December 25 June
2023
2022
2023
Note £m £m £m
Non-current assets
Property, plant and equipment 10 92.5 107.9 97.4
Right of use assets 10 318.8 314.8 312.6
Intangible assets 10 536.4 534.8 536.7
Other financial assets - 0.1 -
Deferred tax assets 16.6 14.1 15.5
964.3 971.7 962.2
Current assets
Inventories 52.1 56.5 55.8
Other financial assets - 8.2 0.7
Trade and other receivables 10.5 21.2 11.1
Current tax assets 2.2 5.7 2.7
Cash and cash equivalents (excluding bank overdrafts) 13.7 34.4 26.7
78.5 126.0 97.0
Total assets 1,042.8 1,097.7 1,059.2
Current liabilities
Bank overdraft (3.6) - -
Trade payables and other liabilities (232.0) (260.7) (224.9)
Lease liabilities (88.3) (83.3) (84.1)
Provisions 11 (6.7) (12.3) (6.2)
Other financial liabilities (4.1) (2.5) (6.7)
(334.7) (358.8) (321.9)
Non-current liabilities
Interest bearing loans and borrowings (142.1) (168.8) (165.8)
Lease liabilities (325.4) (333.5) (327.3)
Provisions 11 (6.6) (6.0) (6.9)
Other financial liabilities (0.4) (0.6) (0.2)
(474.5) (508.9) (500.2)
Total liabilities (809.2) (867.7) (822.1)
Net assets 233.6 230.0 237.1
Equity attributable to equity holders of the parent
Share capital 24.1 24.1 24.1
Share premium 40.4 40.4 40.4
Merger reserve 18.6 18.6 18.6
Capital redemption reserve 359.6 359.6 359.6
Treasury shares (10.1) (6.1) (10.1)
Shares held by employee benefit trust (6.0) (6.6) (6.6)
Cash flow hedging reserve (3.2) 5.2 (4.9)
Retained earnings (189.8) (205.2) (184.0)
Total equity 233.6 230.0 237.1
Unaudited condensed consolidated statement of changes in equity
Share Share Merger reserve Capital redemption reserve Employee Benefit Trust shares Cash flow hedging Retained Total
reserve
capital premium Treasury earnings equity
shares
£m £m £m £m £m £m £m £m £m
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
Balance at 25 June 2023 24.1 40.4 18.6 359.6 (10.1) (6.6) (4.9) (184.0) 237.1
Profit for the period - - - - - - - 0.6 0.6
Other comprehensive income/(expense) - - - - - - 1.7 (0.6) 1.1
Total comprehensive income for the period - - - - - - 1.7 - 1.7
Dividends - - - - - - - (6.9) (6.9)
Employee benefit trust shares issued - - - - - 0.6 - (0.6) -
Share based payments - - - - - - - 1.7 1.7
Balance at 24 December 2023 24.1 40.4 18.6 359.6 (10.1) (6.0) (3.2) (189.8) 233.6
Unaudited condensed consolidated cash flow statement
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Profit for the period 0.6 5.1 26.2
Adjustments for:
Income tax expense 0.3 1.2 7.1
Finance income (0.3) - (0.2)
Finance expenses 20.3 16.1 34.3
Non-underlying financing costs 1.9 - -
Depreciation of property, plant and equipment 11.3 10.8 22.1
Depreciation of right of use assets 27.6 29.4 58.4
Amortisation of intangible assets 6.6 5.6 11.6
Impairment of assets - - 2.0
Gain on sale of property, plant and equipment (0.9) (0.7) (0.8)
(Gain)/loss on disposal of right of use assets (0.7) 0.7 (1.2)
Settlement of share based payments - (0.2) (0.3)
Share based payment expense 1.7 1.1 1.8
Foreign exchange impact on cash flow hedges - - 1.4
Decrease in trade and other receivables 0.6 3.1 13.2
Decrease in inventories 3.7 7.9 8.6
Increase/(decrease) in trade and other payables 0.2 (20.1) (55.8)
Increase/(decrease) in provisions 0.2 (0.8) (6.0)
Net cash from operating activities before tax 73.1 59.2 122.4
Tax paid (1.5) 0.7 (0.7)
Net cash from operating activities 71.6 59.9 121.7
Investing activities
Proceeds from sale of property, plant and equipment 2.9 0.7 1.3
Interest received 0.3 - 0.2
Acquisition of property, plant and equipment (8.3) (13.0) (20.4)
Acquisition of other intangible assets (6.4) (6.6) (14.5)
Net cash used in investing activities (11.5) (18.9) (33.4)
Financing activities
Interest paid (10.2) (3.8) (10.5)
Interest paid on lease liabilities (12.4) (11.8) (23.5)
Payment of lease liabilities (31.1) (35.4) (61.6)
(Repayment)/drawdown of borrowings (23.0) 75.0 72.0
Purchase of treasury shares - (26.9) (30.9)
Ordinary dividends paid - (8.7) (12.1)
Net cash used in financing activities (76.7) (11.6) (66.6)
Net (decrease)/increase in cash and cash equivalents (16.6) 29.4 21.7
Cash and cash equivalents at beginning of period 26.7 5.0 5.0
Cash and cash equivalents (including bank overdraft) at end of period 10.1 34.4 26.7
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 19 March 2024.
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 24 December 2023, the 26
weeks ended 25 December 2022, and the 52 weeks ended 25 June 2023.
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 25 June 2023 which were
prepared in accordance with international accounting standards ('UK-adopted
IFRS').
The statutory accounts for the 52 weeks ended 25 June 2023 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 24 December 2023 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 £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 16 month
extension. The senior secured notes comprise two tranches: £25.0m maturing in
September 2028 and £25.0m maturing in September 2030. At 13 March 2024,
£72.0m of the revolving credit facility remained undrawn, and £2.2m of the
Group's overdraft facility was utilised.
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 (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; 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 include significantly reduced customer spending,
impacts on gross margin and other costs from inflationary cost pressures, 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.
1. Basis of preparation (continued)
As part of this analysis, the Directors have considered mitigating actions
within the Group's control which could reduce the impact of these severe but
plausible downside scenarios. These mitigating actions include reducing
discretionary operating expenditure, 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.
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 25 June 2023. 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 24
December 2023 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 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 - continuing operations
External gross 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
24 December 25 December 25 June 24 December 25 December 25 June 24 December 25 December 25 June
2023 2022 2023 2023 2022 2023 2023 2022 2023
£m £m £m £m £m £m £m £m £m
DFS 525.6 557.2 1,125.5 - - - 525.6 557.2 1,125.5
Sofology 140.6 148.4 298.1 - - - 140.6 148.4 298.1
Other segments - - - 102.0 105.6 215.6 102.0 105.6 215.6
Eliminations - - - (102.0) (105.6) (215.6) (102.0) (105.6) (215.6)
Gross sales 666.2 705.6 1,423.6 - - - 666.2 705.6 1,423.6
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Total segments gross sales 666.2 705.6 1,423.6
Less: value added and other sales taxes (105.3) (112.1) (226.2)
Less: costs of interest free credit and aftercare services (55.8) (49.0) (108.5)
Revenue 505.1 544.5 1,088.9
Of which:
Furniture sales 466.6 518.1 1,033.3
Sales of aftercare products 38.5 26.4 55.6
Revenue 505.1 544.5 1,088.9
Segment profit - continuing operations
26 weeks to 24 December 2023 - continuing operations DFS Sofology Other Eliminations Total
£m £m £m £m £m
Revenue 397.0 108.1 102.0 (102.0) 505.1
Cost of sales (190.2) (49.3) (27.4) 44.8 (222.1)
Gross profit 206.8 58.8 74.6 (57.2) 283.0
Selling and distribution costs (excluding property costs) (113.1) (29.9) (59.0) 41.9 (160.1)
Brand contribution (segment profit) 93.7 28.9 15.6 (15.3) 122.9
Property costs (15.1)
Underlying administrative expenses (34.3)
Underlying EBITDA 73.5
( )
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
3. Segmental analysis (continued)
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 and 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
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Underlying EBITDA 73.5 68.2 157.4
Non-underlying operating profit items (5.2) 0.4 0.5
Depreciation & amortisation (45.5) (45.8) (94.1)
Operating profit 22.8 22.8 63.8
Net finance expense (20.0) (16.0) (34.1)
Non-underlying finance expense (1.9) - -
Profit before tax 0.9 6.8 29.7
4. Operating profit - continuing operations
Group operating profit is stated after charging/(crediting):
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Depreciation on tangible assets (including depreciation on right of use 38.9 40.2 80.5
assets)
Amortisation of intangible assets 6.6 5.6 11.6
Impairments - - 2.0
Net gain on disposal of property, plant and equipment (0.9) (0.7) (0.8)
Net (gain)/loss on disposal of right of use assets (0.7) 0.7 (1.2)
Cost of inventories recognised as an expense 220.2 264.1 509.1
Write down of inventories to net realisable value 0.4 (1.8) 2.0
Other costs of sales 1.5 (10.7) (14.4)
Release of provisions (1.8) - (0.9)
Government grants received (business rates relief) - (0.2) (0.2)
Operating lease rentals 1.5 0.2 0.2
Non-underlying items:
Restructuring costs 5.7 - -
Release of lease guarantee provision (0.5) (0.4) (0.5)
5.2 (0.4) (0.5)
Restructuring costs of £5.7m includes redundancy and operational costs
associated with the closure of the Group's smallest UK factory. The release of
the lease guarantee provision relates to the property provisions detailed in
note 11.
5. Finance expense - continuing operations
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Interest payable on senior revolving credit facility 6.3 4.0 10.4
Interest payable on senior secured notes 1.3 - -
Bank fees 0.3 0.3 0.4
Unwind of discount on provisions 0.1 - 0.1
Interest on lease liabilities 12.3 11.7 23.4
Total finance expense 20.3 16.0 34.3
Non-underlying finance costs of £1.9m relate to the refinancing of the
Group's borrowing facilities in September 2023. This includes the write off of
unamortised underwriting fees associated with the old revolving credit
facility and professional fees incurred in relation to the arrangement of the
new facilities.
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 53 weeks to
30 June 2024 of 24.0% (52 weeks to 25 June 2023: 19.1%).
7. Earnings per share
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
pence pence pence
Basic earnings/(loss) per share
- from continuing operations 0.2 2.3 9.8
- from discontinued operations - (0.2) 1.3
Total basic earnings per share 0.2 2.1 11.1
Diluted earnings/(loss) per share
- from continuing operations 0.2 2.3 9.7
- from discontinued operations - (0.2) 1.3
Total diluted earnings per share 0.2 2.1 11.0
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Profit attributable to equity holders of the parent company
- from continuing operations 0.6 5.7 23.0
- from discontinued operations - (0.6) 3.1
0.6 5.1 26.1
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
No. No. No.
Weighted average number of shares for basic earnings per share 230,565,203 244,862,812 235,470,857
Dilutive effect of employee share based payment awards 823,593 1,200,789 1,783,365
Weighted average number of shares for diluted earnings per share 231,388,796 246,063,601 237,254,222
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
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Continuing operations
Profit attributable to equity holders of the parent company 0.6 5.7 23.0
Non-underlying items loss/(profit) after tax 5.9 (0.3) (0.4)
Underlying profit attributable to equity holders of the parent company 6.5 5.4 22.6
Discontinued operations
Profit attributable to equity holders of the parent company - (0.6) 3.1
Non-underlying items loss/(profit) after tax - - (3.5)
Underlying profit attributable to equity holders of the parent company - (0.6) (0.4)
26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
pence pence pence
Underlying basic earnings per share
- from continuing operations 2.8 2.2 9.6
- from discontinued operations - (0.2) (0.2)
Total underlying basic earnings per share 2.8 2.0 9.4
Underlying diluted earnings per share
- from continuing operations 2.8 2.2 9.5
- from discontinued operations - (0.2) (0.2)
Total underlying diluted earnings per share 2.8 2.0 9.3
8. Dividends
Pence per ordinary share 26 weeks to 26 weeks to 52 weeks to
24 December 25 December 25 June
2023 2022 2023
£m £m £m
Final ordinary dividend for FY22 3.7p - 8.7 8.7
Interim ordinary dividend for FY23 1.5p - - 3.5
Final ordinary dividend for FY23 3.0p 6.9 - -
6.9 8.7 12.2
The directors have declared an interim dividend for the period ending 30 June
2024 of 1.1p per ordinary share to be paid on 30 May 2024. DFS Furniture plc
shares will trade ex-dividend from 18 April 2024 and the record date will be
19 April 2024.
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. Capital expenditure
Property, plant Right of use Intangible
and equipment asset assets
£m £m £m
Net book value as at 25 June 2023 97.4 312.6 536.7
Additions 8.3 20.7 6.4
Remeasurements - 13.5 -
Disposals (1.9) (0.4) (0.1)
Depreciation, amortisation and impairment (11.3) (27.6) (6.6)
Net book value as at 24 December 2023 92.5 318.8 536.4
Property, plant Right of use Intangible
and equipment asset assets
£m £m £m
Net book value as at 26 June 2022 105.9 338.0 533.8
Additions 13.0 9.2 6.6
Remeasurements - (1.7) -
Disposals (0.2) (1.3) -
Depreciation, amortisation and impairment (10.8) (29.4) (5.6)
Net book value as at 25 December 2022 107.9 314.8 534.8
11. Provisions
Guarantee Property Other Total
provision
provisions
provisions
£m £m £m £m
Balance at 25 June 2023 7.5 4.6 1.0 13.1
Provisions made during the period 1.2 0.4 3.6 5.2
Provisions used during the period - (0.1) (3.1) (3.2)
Released during the period (1.4) (0.4) - (1.8)
Balance at 24 December 2023 7.3 4.5 1.5 13.3
Current 5.0 0.5 1.2 6.7
Non-current 2.3 4.0 0.3 6.6
7.3 4.5 1.5 13.3
Guarantee Property Other Total
provision
provisions
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
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, costs associated
with the Group's exit from the Netherlands and Spain and costs associated with
the closure of the Group's smallest factory and woodmill.
12. Net debt
25 June 2023 Cash flow Other non-cash 24 December 2023
changes
£m £m £m £m
Cash in hand, at bank 26.7 (13.0) - 13.7
Bank overdraft - (3.6) - (3.6)
Cash and cash equivalents 26.7 (16.6) - 10.1
Senior revolving credit facility (165.8) 23.0 50.7 (92.1)
Senior secured notes - - (50.0) (50.0)
Lease liabilities (411.4) 31.1 (33.4) (413.7)
Total net debt (550.5) 37.5 (32.7) (545.7)
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)
13. 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 the cost of interest free credit and aftercare services (for affected by the extent to which customers take up the Group's interest free
which the Group acts as an agent), delivery charges and value added and other credit offering.
sales taxes.
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, adjusted to exclude impairments and non-underlying
items.
13. 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.
Underlying free cash flow to equity holders The change in net bank debt for the period after adding back dividends, Measure of the underlying cash return generated for shareholders in the period
acquisition related consideration, shared based transactions and and a key financial target for Executive Director remuneration.
non-underlying cash flows.
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-22 Last twelve months/52 weeks ended 25 December 2022 (unaudited, pro forma Certain KPIs (e.g. Leverage) are only meaningful when assessed on a full year
period). basis.
LTM Dec-23 Last twelve months/52 weeks ended 24 December 2023 (unaudited, pro forma Certain KPIs (e.g. Leverage) are only meaningful when assessed on a full year
period). basis.
13. Alternative performance measures (continued)
Reconciliations to IFRS measures
EBITDA H1 FY24 H1 FY23 FY23
£m £m £m
Operating profit from continuing operations 22.8 22.8 63.8
Depreciation 38.9 40.2 80.5
Amortisation 6.6 5.6 11.6
Impairments - - 2.0
EBITDA from continuing operations 68.3 68.6 157.9
Underlying EBITDA H1 FY24 H1 FY23 FY23
£m £m £m
EBITDA from continuing operations 68.3 68.6 157.9
Non-underlying operating items 5.2 (0.4) (0.5)
Underlying EBITDA from continuing operations 73.5 68.2 157.4
Underlying profit before tax and brand amortisation - PBT(A) H1 FY24 H1 FY23 FY23
£m £m £m
Profit before tax from continuing operations 0.9 6.8 29.7
Non-underlying items 7.1 (0.4) (0.5)
Amortisation of brand names 0.7 0.7 1.4
Underlying profit before tax and brand amortisation 8.7 7.1 30.6
Net bank debt H1 FY24 H1 FY23 FY23
£m £m £m
Interest bearing loans and borrowings 142.1 168.8 165.8
Unamortised issue costs 1.9 1.2 1.2
Cash and cash equivalents (including bank overdraft) (10.1) (34.4) (26.7)
Net bank debt 133.9 135.6 140.3
Movement in net bank debt H1 FY24 H1 FY23 FY23
£m £m £m
Closing net bank debt (133.9) (135.6) (140.3)
Less: Opening net bank debt 140.3 90.0 90.0
Movement in net bank debt 6.4 (45.6) (50.3)
13. Alternative performance measures (continued)
Underlying free cash flow to equity holders LTM Dec-23 LTM Dec-22 FY23
£m £m £m
Movement in net bank debt 6.4 (45.6) (50.3)
Dividends - 8.7 12.1
Purchase of own shares - 26.9 30.9
Non-underlying cash items included in cash flow statement 4.2 - 0.3
Underlying free cash flow to equity holders 10.6 (10.0) (7.0)
Exclude:
Working capital outflow (4.7) 9.9 40.0
Operating result from discontinued operations - 0.4 (3.6)
Underlying free cash flow to equity holders excluding operating result from 5.9 0.3 29.4
discontinued operations and working capital outflow
Leverage LTM Dec-23 LTM Dec-22 FY23
£m £m £m
Net bank debt (A) 133.9 135.6 140.3
Net cash from operating activities before tax 136.3 140.4 121.7
Add back:
Pre-tax non-underlying items 3.2 11.5 (4.3)
Less:
Movement in trade and other receivables (10.7) 7.9 (13.2)
Movement in inventories (4.4) (7.0) (8.6)
Movement in trade and other payables 35.5 19.5 55.8
Movement in provisions 5.0 (2.7) 6.0
Payment of lease liabilities (57.3) (63.3) (23.5)
Payment of interest on leases (24.1) (24.3) (61.6)
Cash EBITDA (B) 83.5 82.0 72.3
Leverage (A/B) 1.6x 1.7x 1.9x
Underlying return on capital employed from continuing operations LTM Dec-23 LTM Dec-22 FY23
£m £m £m
Operating profit from continuing operations 63.8 73.2 63.8
Non-underlying operating items 5.1 0.2 (0.5)
Pre-tax return 68.9 73.4 63.3
Effective tax rate 23.1% 19.1% 22.6%
Tax adjusted return (A) 53.0 59.4 49.0
Property, plant and equipment 92.5 107.9 97.4
ROU assets 318.8 314.8 312.6
Computer software 22.4 19.4 22.0
433.7 442.1 432.0
Inventories 52.1 56.5 55.8
Trade receivables 5.6 9.7 7.7
Prepayments 4.4 11.2 3.0
Accrued income 0.2 0.3 0.1
Other receivables 0.3 - 0.3
Payments received on account (28.4) (49.5) (39.1)
Trade payables (109.4) (110.8) (97.6)
Working capital (75.2) (82.6) (69.8)
Total capital employed (B) 358.5 359.5 362.2
Underlying ROCE from continuing operations (A/B) 14.8% 16.5% 13.5%
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
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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