Eve Sleep plc: Final results

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Eve Sleep plc (EVE) 
Eve Sleep plc: Final results 
 
12-March-2019 / 07:00 GMT/BST 
Dissemination of a Regulatory Announcement, transmitted by EQS Group. 
The issuer is solely responsible for the content of this announcement. 
 
  eve Sleep plc 
 
  Full Year Results 
 
  Rebuild strategy progressing and funds secured to deliver it 
 
eve Sleep plc (AIM: EVE), a sleep brand focused on the UK & Ireland ("UK&I") 
and France (the "Core Markets"), today announces its full year results for 
the 12 months ended 31 December 2018. 
 
Group1, GBPm                   2018   2017 Movement 
Revenue                      34.8   27.7     +25% 
Gross Profit                 18.4   16.0     +15% 
Gross Profit margin         52.8%  57.7%   490bps 
Underlying EBITDA loss2    (19.2) (15.1)    (4.1) 
Statutory loss before tax3 (20.3) (19.0)    (1.3) 
Net Cash                      6.0   26.9   (20.9) 
 
1 In July 2018, the Board reviewed the number of territories that eve traded 
  from, deciding to focus on the Core Markets and withdrawing from the other 
     territories. As a result, Group revenue for 2018 includes approximately 
    seven months of trading from fifteen territories, and approximately five 
  months of trading only in the Core Markets. The 2017 comparatives have not 
     been restated and reflect trading for the twelve months across a larger 
     European footprint. 
 
     Financial highlights 
 
· Group revenue increased by 25% to GBP34.8m (2017: GBP27.7m), reflecting the 
lower than anticipated performance in the year and the refocus on the Core 
Markets in H2 2018; 
 
· Revenue in the Core Markets increased by 35% to GBP29.4m (2017: GBP21.7m); 
 
· Marketing costs as a percentage of revenues in eve's most significant 
market, UK&I, reduced by 840bps to 46.6% (2017: 55.0%) demonstrating 
efficiency coming through; 
 
· Core Markets gross profit margin of 52.7% (2017: 58.2%) and UK&I gross 
profit margin of 52.5% (2017: 59.4%) remain strong, with the reduction 
primarily a result of planned changes in the channel mix and increased 
sales of non-mattress products. 
 
     Operational highlights 
 
· To address the financial performance which fell short of the Board's and 
the market's expectations, a full review was undertaken by the new CEO 
James Sturrock which has resulted in a rebuild strategy which focuses the 
business on three core pillars: i) differentiated brand positioning, ii) 
expanded product range, iii) lower friction customer experience; 
 
· Extended non-mattress range and increased mattress range totalling 21 
products (2017: 15); 
 
· Non-mattress sales as a proportion of total sales in the Core Markets 
increased 500bps to 19% (2017: 14%); 
 
· Repeat customer rate in the Core Markets increased 270bps to 14% (2017: 
11%) with UK&I increasing 300bps to 14% (2017: 11%) and France increasing 
200bps to 13% (2017: 11%); 
 
· Returns rate in the Core Markets reduced by 120bps to 9.3% (2017: 
10.5%); 
 
· Conversion rate in the Core Markets improved 33bps; 
 
· NPS score4 of 58 in UK (2017: 56) and 69 in France (2017: 61); 
 
· Trustpilot rating of 9.4 out of 10 and a Which? Best Buy rating; 
 
· UK unprompted brand awareness increased to 10% at February 2019 (March 
2018: 6.3%). 
 
     Post-period end 
 
· Completion of share placing with investors, raising GBP11.7m (net of 
expenses) and GBP0.9m media for equity commitment against future media spend 
with Channel 4; 
 
· Closing cash at 28 February 2019 of GBP17.8m; 
 
· In a separate announcement released today, certain management changes 
have been made, including the stepping down of CFO Abid Ismail as a 
Director of the Company. To effect a seamless transition, Abid has agreed 
to stay on with the Company until the summer. 
 
Current trading and future prospects 
 
   2019 will be the first full year of trading in the Core Markets only. The 
  Group's focus in 2019 is to deliver growth but in a sustainable manner. As 
  such, we expect the revenue growth rate for the Core Markets to be broadly 
 in line with the Group revenue growth rate for 2018, but with a substantial 
     reduction in underlying EBITDA losses. 
 
     Marketing investment will be weighted towards H2 2019. This, alongside 
revenue benefits from the execution of the rebuild strategy, therefore means 
    we expect the majority of the revenue growth to be delivered in H2 2019. 
 
    The UK&I is more advanced in its development than France and accordingly 
will be the main focus for marketing investment over the next twelve months, 
   whilst in France we will be focused on optimising marketing investment to 
improve profitability. As such, we expect revenue growth in 2019 in the UK&I 
     to be significantly higher than in France. 
 
     In the announcement on 23 January 2019, the Group stated that it was 
  reviewing its retail and partnership strategy and, as part of that, Dreams 
     had engaged with the Group to renegotiate certain commercial terms in 
connection with their partnership with eve. These discussions have concluded 
  and both parties have agreed to exit the arrangement as the Board believes 
    there are other more profitable opportunities to be pursued instead. The 
  impact of this step on 2019 performance is not expected to be material due 
    to the low levels of revenue and profitability which were expected to be 
 delivered from the arrangement, alongside the impact of other opportunities 
     mentioned above. 
 
     The first two months of trading have been in line with the Board's 
     expectations. 
 
     James Sturrock, CEO of eve Sleep commented: 
 
   "We have made some good early progress with our rebuild strategy and have 
 secured the funds to execute on it. As part of our pathway to profitability 
plan we have taken decisive action on our cost base, including a significant 
reduction in administrative expenses compared to 2018 along with a refocused 
    and reduced marketing investment strategy removing inefficient activity. 
     When combined with the expected benefits of our rebuild strategy, we 
     anticipate a significant reduction in losses in 2019." 
 
"The opportunity to create a sleep wellness brand remains undiminished and I 
   am confident that eve's rebuild strategy, centred around a differentiated 
     brand positioning, expanded product range, lower friction customer 
     experience, combined with increasing brand awareness will win out over 
  peers. Our new approach focuses on sustainable growth and sets out a clear 
   path to building a profitable business, which delivers for shareholders." 
 
     Further Notes 
 
     2 Underlying EBITDA is before share-based payment charges, IPO-related 
     expenditure (2017 only), staff and country exit costs (2018 only), 
     depreciation and amortisation; 
 
   3 Included within Statutory loss before tax is GBP0.8m of staff and country 
     exit costs (2018 only); 
 
    4 Results presented from NPS surveys conducted in December 2017 and 2018 
     respectively. 
 
For further information, please contact: 
 
eve Sleep plc                via M7 Communications LTD 
 
James Sturrock, Chief 
Executive Officer 
 
Abid Ismail, Chief Financial 
Officer 
Peel Hunt LLP (NOMAD and     [phone] 
broker) 
 
Dan Webster 
 
George Sellar 
 
Guy Pengelley 
M7 Communications LTD        [phone] 
 
Mark Reed 
 
Chairman's Statement 2018 
 
Overview 
 
2018 was a tough year for the business but I am pleased to state that 
following substantial restructuring in the second half of the year we enter 
2019 in better shape and on a sounder financial footing. It became apparent 
in the first half of 2018 that the costs of rapid international expansion 
across Europe were too great and that there were more profitable 
opportunities for growth in the Core Markets in which eve had growing brand 
awareness and was experiencing more efficient growth in revenue. Swift and 
decisive action was taken, including a change in CEO and, following a 
country-by-country review, a refocus, for now, on our most developed markets 
of the UK&I and France, resulting in the withdrawal from other European 
territories and the US over the summer months. As a result we now operate 
from a materially lower cost base. 
 
There was also much to be proud of in 2018, with considerable progress made 
in many key elements of the strategy, which we will build upon in 2019 and 
beyond. Product development remains a key focus and in 2018 eve extended the 
mattress range from the original, adding a hybrid mattress (of foam and 
spring construction) as well as a premium and an entry price offering. In 
tandem, additional non-mattress sleep products were added, with the result 
that the total range has increased to 21 products (2017: 15) by the end of 
the year, with Core Markets non-mattress sales accounting for 19% of total 
Core Markets sales in 2018 (2017: 14%). 
 
We have always believed that we should be where the consumer shops and as 
such we remain committed to our ecommerce led, multi-channel approach, 
working with leading retail partners. This approach, along with our 
marketing investment has driven a substantial improvement in brand awareness 
in the Core Markets and substantial revenues. As at February 2019 eve was 
the 5th most recognised mattress brand in the UK and the most well-known of 
the "mattress in a box" brands. This is an impressive achievement in just 
four years since launch. 
 
Performance 
 
Group revenues in the year grew 25% to GBP34.8m, with gross profit increasing 
15% to GBP18.4m. The gross profit margin reduction from 57.7% to 52.8% year on 
year was primarily due to the planned shift in channel mix to omni-channel 
and increased sales of typically lower margin non-mattress products. Group 
underlying EBITDA losses increased 27% to GBP19.2m on the GBP15.1m reported in 
2017, primarily reflecting a 24% increase in administrative expenses and the 
reduction in gross margin. 
 

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