Dfs Furniture Plc · LSE:DFS
Dfs Furniture — FY2019 Earnings Presentation
38 slides from Dfs Furniture's earnings presentation, Sep 26, 2019
Slide 1: Leading Sofa Retailing in the Digital Age
Leading Sofa Retailing in the Digital Age 26 September 2019
Slide 2: Today
Today Introduction (Tim Stacey) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 1
Slide 3: Good strategic progress and financial performance
Good strategic progress and financial performance KEY STATISTICS STRATEGIC & OPERATIONAL HIGHLIGHTS £1,287.2m Pro forma gross sales +14.4% £90.2m Pro forma underlying +18.5% EBITDA £50.2m Pro forma underlying +31.1% PBTA £23.7m (11.2p full year Cash returned to dividend) shareholders 34.3% Market sh
Slide 4: Today
Today Introduction (Tim Stacey) Financials(Mike Financials (Mike Schmidt) Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 3
Slide 5: Financial overview
Financial overview OVERVIEW Pro forma FY 2018 FY 2019 FY 2019 Pro forma revenue growth across 52 weeks 52 weeks 48 weeks (£m) 28-Jul-18 30-Jun-19 30-Jun-19 all brands Revenue 870.5 996.2 901.0 Growth +14.1% +14.4% +3.5% Pro forma profit growth reflecting Comparative growth +2.0% +7.4% n/a operationa
Slide 6: Drivers of Group revenue growth
Drivers of Group revenue growth REVENUE CONTRIBUTION BY BRAND KEY DRIVERS Revenues (£m) All brands in LFL revenue growth 600 700 800 900 1,000 FY18 871 1H benefitted from deferred purchases, 2H order intake slow down DFS 33 DFS increase driven by +4.2% LFL growth SW & dwell 10 Comparative Full year
Slide 7: PBT progression
PBT progression KEY DRIVERS GBP millions 0 20 40 60 80 Growing pro forma contribution from all brands FY18 Underlying PBT 38.3 Gross margin +25.1 DFS, Sofa Workshop and Dwell pro Property Costs Increase in forma contribution up £8.3m Selling & Distribution brand -11.5 contribution excluding Reductio
Slide 8: Gross margins stable/growing in largest brands
Gross margins stable/growing in largest brands KEY DRIVERS 61% Gross Margins stable/growing in largest 59% brands 57% Operational progress and synergies driving 55% Sofology margin growth 53% Dwell & Sofa Workshop margin down on 51% FY18 due to increased promotional activity 49% FX exposure protecte
Slide 9: Operating costs as a proportion of revenue down year on year
Operating costs as a proportion of revenue down year on year KEY DRIVERS 39% DFS costs relatively stable. Final 37% quarter heat wave and subsequent revenue drop drove FY18 increase 35% 33% Sofology improvement due to 31% synergies and scale benefits 29% 27% Dwell & Sofa Workshop FY17-FY18 increase
Slide 10: Property cost savings on track
Property cost savings on track KEY DRIVERS GBP millions New showroom and CDCs largely FY18 Property costs 99.1 relate to full year effect of FY18 openings Sofology full year effect +7.9 Rebased FY18 Property 107.0 £2.1m in year savings from rent costs negotiations, ‘rightsizing’ and closures New sho
Slide 11: Non underlying costs incurred as expected. Synergy plan on track
Non underlying costs incurred as expected. Synergy plan on track FY 2018 2019 52 weeks 28- 48 weeks Total £3.3m of Sofology integration costs (£m) Jul-18 30-Jun-19 incurred across project Sofology integration costs 2.0 3.3 5.3 management, restructuring, retention and professional fees Sofology and M
Slide 12: Continuing to invest in growth opportunities whilst total capex reducing
Continuing to invest in growth opportunities whilst total capex reducing relative to revenue CAPITAL EXPENDITURE (INC. FINANCE LEASES) Capex % of Revenue £31.8m Post acquisition capex 4.5% 4.2% Capex peaked in FY17 following 4.0% £26.8m significant Dwell & CDC rollout and 3.5% £22.8m 1.3% £27.1m £31
Slide 13: Deleveraging continues
Deleveraging continues LEVERAGE AND NET DEBT LEVELS KEY DRIVERS 3.5 500 Pro forma free cash flow of £92.6m 3.0 450 Acquisition 3.0 of Sofology 400 Special 2.5 Dividend 350 Net debt is reducing as the acquisition 2.2 2.1 consideration is paid down 1.9 1.9 300 2.0 1.8 1.8 1.7 250 1.5 1.4 1.5 200 Year
Slide 14: Return on capital
Return on capital LEASE ADJUSTED ROCE KEY TRENDS Return on capital has -0.5% increased due to higher profit 16.6% -0.8% 15.6% +1.8% Return on capital remains an important focus FY18 Change in post-tax Change in lease FY19 pro forma Focus on driving returns operating profit adjusted capital employed
Slide 15: IFRS 16 - Leases
IFRS 16 - Leases FY19 Exclude Add Add Income statement Post IFRS 16* IFRS 16 adopted for FY20. pro forma Rent Amort'n Interest Revenue 996 996 Operating lease commitments Gross profit 575 575 capitalised and amortised Operating costs (514) 80 (57) (491) Underlying Op. profit 61 80 (57) - 84 Modified
Slide 16: IFRS 16 - Leases: capital and distribution policy
IFRS 16 - Leases FUTURE CAPITAL & DISTRIBUTION POLICY – REVISED METRICS New calculation to be based on bank net debt (i.e. ex-leases) relative to annual underlying cash generation Annual underlying cash generation calculated as: Targeted – Net cash flow from operating activities before tax leverage
Slide 17: Key financial metrics
Key financial metrics METRIC TARGET FY19 Above market growth Underlying Gross Sales Growth Pro forma +7.4% of -1% to -2% Growth from increased usage Pro forma +64bps to PBT Margin of Group assets 5.0% Pro forma 1.95x Cash Generation Reduce to 1.5x in short term (FY18 2.09x) Growth in Lease Adjusted
Slide 18: Today
Today Introduction (Tim Stacey) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 17
Slide 19: Leading sofa retailing in the digital age
Leading sofa retailing in the digital age Our strategy will transform our Group in the medium term by focusing on three inter-related pillars: 1. Drive DFS Core 2. Build the Platforms 3. Unlock New Growth A renewed focus Build platforms to Unlock and on driving the core enable profitable deliver new
Slide 20: Leading sofa retailing in the digital age
Leading sofa retailing in the digital age 1. Drive DFS Core 2. Build the Platforms 3. Unlock New Growth 1. Omni-channel: 1. Cost effectiveness and property 1. Sofology: develop seamless customer cost reduction: develop to a nationwide business journey across channels reduce our relative cost base 2.
Slide 21: Drive DFS Core – Overview
1 Drive DFS Core – Overview KEY METRICS £942.1m Pro forma gross revenues Solid top line growth, particularly in the first half +4.9% Pro forma growth in online 16.2% gross sales Digital and technology investments supporting double digit web growth Pro forma LFL revenue 4.2% growth Well invested show
Slide 22: Drive DFS Core – Omni-channel
1 Drive DFS Core – Omni-channel PRODUCT LOCATOR RESULTS New improved search Mobile website Forsee customer engine satisfaction score of 79% in the top quartile (retailer benchmark 69%) Increased user generated Unique web visitors + 9% content, vlog and blog partnerships M-commerce transactions repre
Slide 23: Drive DFS Core – Product and service innovation
1 Drive DFS Core – Product and service innovation Simplified sofa buying experience following market research findings to ease decision making process through launch of ‘So Simple’ New exclusive brand models launched for French Connection, House Beautiful and Joules New product innovation in the pip
Slide 24: Build the platforms – Property
2 Build the platforms – Property LEASE RENEWAL OPPORTUNITY Old Belfast showroom: 42 leases expiring over 5 years £2.9m annualised property savings secured as at June 2019 £6-8m Cumulative annual savings opportunity Timing of renewal for leases driven FY20 – FY23 by opportunity to maximise savings fu
Slide 25: Build the platforms – Leveraging our scale & vertical integration
2 Build the platforms – Leveraging our scale & vertical integration £4m run rate synergies secured for Sofology with further savings identified Common media agency on TV advertising Custom delivery route planning software adapted for after sales service teams Sofa Workshop website re-platformed via
Slide 26: Unlock new growth – Sofology
3 Unlock new growth – Sofology New leadership team in place Double digit LFL growth New showroom in Plymouth trading - limited LFL Gross Sales cannibalisation of existing Group business +10.7% At least 3 new showrooms planned for FY20 Brand Contribution +23.2% (FY18 21.6%)* FY19 pro forma revenues o
Slide 27: Unlock new growth – Dwell, Sofa Workshop and International
3 Unlock new growth – Dwell, Sofa Workshop and International DWELL & SOFA WORKSHOP NETHERLANDS Sofa Workshop brand awareness increase from Total pro forma gross sales growth +42% V&A partnership and Sky TV sponsorship LFL growth +12.8% £0.8m reduction in operating losses to £1.0m. New leadership tea
Slide 28: Segment shares - Sofas
Segment shares - Sofas SEGMENT SHARE GROUP SHARE CAPTURE 34.3% 3.9 DFS * 27.0% 3.7 3.8 3.6 3.7 3.5 Sofology 7.3% 3.4 3.3 3.2 3.2 3.2 3.2 3.2 3.0 3.0 ScS 10.1% 2.9 2.9 2.9 2.9 2.8 24.0% IKEA 5.7% 2.4 2.2 Furniture 5.7% Village 2.0 2.0 Harveys 5.5% 1.7 18.0% 16.6% Next 3.9% John Lewis 2.4% Argos 1.9%
Slide 29: Today
Today Introduction (Tim Stacey) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 28
Slide 30: Market drivers
Market drivers 20 +3.1 0 -12.6 August Consumer -20 -6.2 -2.6 -3.3 -18.6 -8.8 -9.5 -12.6 YTD average Confidence -40 -26.0 (%)1 (August -7 points year on year to -14) 2,000 1,644 1,500 1,068 1,223 1,226 1230 1224 1189 -3.2% 898 Housing 1,000 -3.2% July 2019 YTD 500 Transactions 0 (July month down ('00
Slide 31: Summary, outlook and approach
Summary, outlook and approach SUMMARY Good trading performance in challenging market conditions All brands and channels in like-for-like growth Market share growth to a record high as we celebrate Online channel and Sofology continue to perform strongly DFS’s 50th anniversary Good progress in implem
Slide 32: Today
Today Introduction (Tim Stacey) Financials (Mike Schmidt) Strategic and Operational update (Tim Stacey) Summary / Outlook (Tim Stacey) Q&A (Tim Stacey / Mike Schmidt) 31
Slide 33: APPENDICES
t So dfs dwell SOFA WORKSHOP FA ‘sofology
Slide 34: Basis of preparation
Basis of preparation Change of year end to June Audited results for the 48 week period to 30 June 2019 To aid understanding of performance on annualised basis this presentation focuses on the unaudited pro forma 52 weeks to 30 June 2019 Reference to year on year performance reflects the pro-forma 52
Slide 35: Cost base
Cost base Pro forma cost base (52 weeks) Comments Cost of Sales DFS margin up on prior year due to FX rate benefit DFS Margin includes manufacturing benefit 40.0% 42.3% 46.2% 49.3% Some Sofology product manufactured internally in H2 and plans in place to increase volume in FY20 Variable, Semi-Variab
Slide 36: Group showroom profile
Group showroom profile AS AT 30 JULY 2019 (VS. 28 JULY 2018) UK ROI Holland Spain TOTAL Large Format (c. 15,000sq.ft.+) 94 (-1) 2 2 1 99 Medium Format (c. 10,000sq.ft.) 15 (+3) 2 3 - 20 Small Format (c. 5,000sq.ft.) 4 (-1) - 1 - 5 Other (5,000sq.ft.) - - - 1 1 DFS TOTAL 113 (+1) 4 6 2 125 (+1) Sofol
Slide 37: Performance for the 52 weeks to 30 June 2019 and 28 July 2018
Performance for the 52 weeks to 30 June 2019 and 28 July 2018 Group Ex Total 48 weeks 52 weeks to 30 June 2019 DFS Other brands Sofology Sofology Total to June-19 Gross sales 942.1 84.4 1,026.5 260.7 1,287.2 1,165.0 Revenue 721.7 68.6 790.3 205.9 996.2 901.0 Cost of sales (288.4) (31.7) (320.1) (101
Slide 38: Disclaimer
Disclaimer: This presentation contains statements that constitute forward-looking statements relating to the business, financial performance and results of the Company and the industry in which the Company operates. These statements may be identified by words such as “may”, “will”, “shall”, “anticip