DJ 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 +44(0)20 7418 8900
broker)
Dan Webster
George Sellar
Guy Pengelley
M7 Communications LTD +44(0)7903 089 543
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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DJ Eve Sleep plc: Final results -2-
An analysis of the Core Markets performance provides a better reflection of underlying trading trends. The Core Markets revenues in the year grew 35% to GBP29.4m (2017: GBP21.7m), with marketing costs as a percentage of revenues reducing by 360bps to 54.3% in 2018 from 57.9% in 2018. In the UK&I, marketing costs as a percentage of revenues reduced by 840bps to 46.6% in 2018 from 55.0% in 2017. Our people There has been much change this year, which can be unsettling for our people. I have been really impressed with how the entire team has embraced this and I would like to personally thank them for their continued loyalty, professionalism and commitment to eve. Our people are our most valuable asset and we continue to invest in their development and wellbeing. The market opportunity for eve is undiminished and I am confident that we now have the right strategy, funding and team, led by James to deliver value for our shareholders. Paul Pindar Chairman Strategic Report Introduction The European sleep market is estimated to be worth GBP26bn, with the Core Markets that eve is now focused on (UK&I and France) being worth GBP6bn. While there are many traditional operators, in what is a highly fragmented sleep market across Europe, there are limited well branded digital operators of any meaningful size owning the wider sleep category. There is also an increasing willingness on the part of consumers to purchase big ticket items online, with Euromonitor predicting that the online furniture market will be the second fastest growing retail category, with online purchase penetration expected to increase by 55% between 2018 and 2023. There is also an increasing awareness of the importance of sleep for everyday health and wellbeing and the dangers of having insufficient sleep. There is currently no brand in Europe that has established itself as a sleep wellness brand. eve's ambition is to achieve just this; to be seen as the go to brand for sleep wellness products. Business Model eve is a direct to consumer led business supported by retail partnerships. The direct to consumer focus enables greater control over the customer journey and experience and to build an on-going relationship with the customer. The central strategy for the business is to establish eve as a sleep wellness brand. Accordingly, resources in terms of investment and talent are focused on the key operations of product development, branding, marketing and customer experience that will facilitate the achievement of this objective. Manufacturing and fulfilment, which require heavy fixed cost investment are outsourced to leading third party suppliers in the UK and Continental Europe. This set-up has proved to be highly scalable and flexible, enabling significant seasonal variations in monthly product demand to be met without any noticeable margin impact or the requirement to hold large amounts of mattress stock. There is also a close working relationship with eve's manufacturing partners to innovate and develop new products that work better in terms of function and design and that differentiate eve from peers, without a premium price tag. Establishing eve as a sleep wellness brand is a major differentiator to its mattress-only focused peers and will give the Group the authority and trust to sell a broader range of products in the category to its customer base. This in turn is expected to increase the level of repeat purchases and improve marketing efficiency, a key element of the new strategy to building a sustainable and growing business on a clear path to profitability. The increased scale from additional revenues is also expected to drive down overheads as a percentage of revenues. Aligned with the business objectives, unprompted brand awareness, eve's website conversion rate and marketing efficiency are all KPIs of the Group. Trends in all operational KPIs in the Core Markets of UK&I and France have been positive in 2018. The inherent agility in the business model was demonstrated in the year, when the decision to focus on the UK&I and France, withdrawing from other European territories, was achieved at minimal cost and disruption. Chief Executive's Report What attracted me to eve? I joined eve in September 2018 because I believe in eve's mission to bring sleep wellness to the nation. 1 in 5 consumers say they have restless nights due to discomfort or anxiety (YouGov Survey 2017). Sleep grows ever more relevant in a world where wellbeing, wellness and a desire to switch off and de-stress are becoming more and more of a zeitgeist of modern living. eve has not only created beautiful products to give everyone the best possible start to the day but has also simplified the way mattresses and other sleep products are purchased and delivered. Our sleep products are rated highly by consumers as evidenced by our Trustpilot score of 9.4 out of 10 and our recent win of a Which? Best Buy rating. I believe that we are on our way to building a brand that is differentiated and can be the category leader. Business review While there was considerable progress in 2018, including 35% revenue growth in Core Markets and a substantial improvement in UK unprompted brand awareness, our financial performance fell short of our own and the market's expectations. This was due primarily to company specific factors related to over expansion into too many countries too quickly and not helped by the uncertain and challenging retail market backdrop. To address this underperformance, one of my first actions since joining eve was to lead a Board review of the Group's business, which has resulted in an updated, and fully funded, rebuild strategy, with many improvements already made. The central objective of the strategy is to build the team, the systems and the products in order to create a platform enabling sustainable future growth for the business, which has an increased focus on cash generation and profitability. In addition to a territory refocus, to support this central objective, action has been taken to reduce inefficient investment in marketing and reducing overheads in 2019, when compared to 2018. The rebuild strategy The rebuild strategy focuses on three core pillars: · differentiated brand positioning; · expanded product range; and · lower friction customer experience. Differentiated brand positioning We are broadening the Group's current position to become a trusted destination for a wider range of products. To achieve this we are refocusing marketing investment and communications around the benefits that eve can bring consumers in sleep wellness. We start from a good place, having already invested significantly in marketing over the last two years in our Core Markets, including campaigns "Every great day starts the night before" and "Join the Sleep rich". The success of our marketing to date is demonstrated in our unprompted UK brand awareness, which has increased consistently from 1.4% in December 2016 to approximately 10% today. In 2018 eve was the UK's 5th most well-known mattress brand and the most well-known bed-in-a-box brand. In France in 2018, eve was the 8th most well-known mattress brand and the most well-known bed-in-a-box brand. The efficiency of our marketing spend has improved in our Core Markets in tandem with our growing awareness. In the UK&I marketing as a percentage of revenue has fallen from 62.5% in 2016, 55.0% in 2017 to 46.6% in 2018. Notwithstanding this substantial progress, more can be achieved. Our new Chief Marketing Officer, Cheryl Calverley, who has previously worked at the AA and Unilever, joined in December 2018. Cheryl is charged with building a strong brand that consumers can relate to; a brand that will be front of mind when they look at making purchases in the category. To measure our success in delivering on this strategic pillar we will be monitoring and reporting on the KPI of unprompted brand awareness in the UK and marketing costs as a percentage of revenues will continue to be a KPI, given its importance for the pathway to profitability. Expanded product range We are building out a range of sleep products to complement our successful next generation foam mattress, giving eve a clear trajectory to owning the ecommerce sleep wellness space in our chosen markets and encouraging a stronger repeat purchase business model. Recent new products include a baby mattress, a light and premium mattress to address all price points as well as a hybrid mattress (of foam and spring construction) to target a broader range of consumer preferences. During the year we also launched a selection of bed frames and extended our range of bed linens. Range expansion helped to drive a repeat purchase rate of 14% in 2018 in the Core Markets, up from 11% in 2017. In addition, sales from non-mattress products increased in 2018 to 19% of total sales in the Core Markets (2017: 14%). To measure our success in delivering on this strategic pillar we will be monitoring and reporting on the KPIs of product returns rate, conversion rates and the growth in non-mattress sales. Lower friction customer experience Enhancing customer experience throughout the online journey and in our service proposition to enable stronger site conversion and customer satisfaction metrics is core to our rebuild strategy. Improved conversion will not only drive higher revenues but also greater marketing efficiency, which is key to achieving profitability. We have set up specific squads in our Digital Product team tasked with identifying the friction points in the customer research, consideration and purchase journey and implementing solutions to create an optimised experience. A number of improvements to the customer experience have already been made, which have contributed to a positive increase in the conversion rate in the Core Markets. By way of example, we have recently improved our
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DJ Eve Sleep plc: Final results -3-
delivery offering, adding a premium service to complement our free standard
delivery, as well as a greater choice of time slots, including nominated day
delivery and a choice of morning or afternoon slots.
There are additional developments to the online purchasing experience
including improvements to the search, discovery and checkout processes on
the website and plans to further improve post-sales customer relationship
marketing encouraging repeat purchase behaviour.
To measure our success in delivering on this strategic pillar we will be
monitoring and reporting on the KPIs of conversion rates and our Net
Promoter Score (NPS).
2019 focus summary
The focus for the next six to twelve months is to continue to lay the
foundations for the rebuild strategy, embed the changes into the business
and to focus on reducing underlying EBITDA losses, whilst growing revenue in
a sustainable way. Notwithstanding on-going macro headwinds in 2019, I am
confident that we have the team, strategy and product range, combined with
the strength of brand, to build a sustainable and profitable business which
meets the needs of our customers and delivers value for shareholders.
James Sturrock
Chief Executive Officer
Chief Financial Officer Review
In 2018, for approximately seven months of the year, eve was operating in
fifteen territories. Where Group is referred to this relates to trade in all
eve territories. Early in the second half of the year, eve rationalised the
markets in which it operated to focus on UK&I and France and these three
countries are referred to as the Core Markets.
In 2018, the key performance indicators (KPIs) used to evaluate and monitor
the performance of the business were updated to support the three core
pillars of the rebuild strategy (differentiated brand positioning, extended
product range and lower friction customer experience). In 2017, closing cash
and gross margin were financial KPIs of the Group; in 2018, the impact on
cash and gross margin is monitored via the financial KPIs set out below and
therefore these metrics are no longer separate financial KPIs of the
business. There are now three financial KPIs and five operational KPIs.
Financial KPIs1
· Overall revenue growth
· Marketing efficiency
· Underlying EBITDA2
Operational KPIs1
· Non-mattress sales as a proportion of total sales2
· UK brand awareness
· Product return rates
· eve website conversion rate2
· Net Promoter Score2
The results of the KPIs are set out below. Financial KPIs focus on both
Group and Core Markets results whilst the operational KPIs focus on measures
tracked in the Core Markets of UK&I and France. Whilst lower than original
expectations (due to the reasons set out in the Strategic Report), both
financial and operational KPIs show broadly positive trends against 2017:
Group and Core Markets Financial KPIs
· Group revenue increased by 25% to GBP34.8m (2017: GBP27.7m);
· Core Markets revenue increased by 35% to GBP29.4m (2017: GBP21.7m);
· Improvement in Group marketing efficiency of 510bps to 56.8% (2017:
61.9%);
· Improvement in Core Markets marketing efficiency of 360bps to 54.3%
(2017: 57.9%);
· Group underlying EBITDA loss: GBP19.2m (2017: GBP15.1m loss).
Core Markets Operational KPIs
· Increase in non-mattress Core Markets sales as a proportion of total
sales by 500bps to 19% (2017: 14%);
· Unprompted UK brand awareness: 560bps year-on-year increase in
unprompted UK brand awareness (November 2018: 11.2%; November 2017: 6.6%);
· 120bps year-on-year improvement in the returns rate to 9.3% (2017:
10.5%);
· 33bps year-on-year improvement in the conversion rate;
· Net promoter score of 58 in UK and 69 in France (2017: 56 in UK and 61
in France).
1 Definitions of Financial and Operational KPIs:
Overall revenue growth - % change in value of reported revenue for the
specified segment of the latest period vs the previous period
Marketing efficiency - total reported marketing cost divided by the reported
revenue for the specified segment
Underlying EBITDA - Earnings before interest, tax, depreciation and
amortisation, share-based payment charges (2017 and 2018), IPO-related
expenditure (2017 only) and staff and country exit costs (2018 only).
Underlying EBITDA reflects what management believe to demonstrate the
underlying performance of the business in a given year.
Non-mattress sales as a proportion of total sales - % change in value of
reported sales attributable to non-mattress products for the specified
segment of the last period vs the previous period. The Group track this
Operational KPI in addition to the Financial KPI of overall revenue growth
as returns and deferrals are not tracked in isolation for non-mattress
sales. Total sales represents all sales after discounts and VAT and before
deferred revenue, refunds processed and the refunds provision. Non-mattress
sales represents the value of sales from non-mattress products.
UK Brand awareness - when asked question "What mattress brands can you think
of?" the % of total respondents that answer eve (externally assessed using
industry polling agencies)
Product return rates - Return rate % is calculated by dividing the total
value of sales returns by the value of net sales of goods including freight
(all excluding VAT).
eve website conversion rate - the percentage of website traffic in a
specific period that complete a purchase. Calculated by dividing the number
of completed sales orders divided by the total website traffic. This figure
is compared on a bps movement between periods
Net promoter score - calculated based on responses to a single question:
"How likely is it that you would recommend our company/product/service to a
friend or colleague?" The scoring for this answer is based on a 0-10 scale
and KPI is based on % of those that responded with score 9-10 minus the
number of those responding 0-6. NPS scores presented are December 2017 and
2018 results.
2 These financial and operational KPIs are monitored by the Group in 2018
which were not monitored in 2017.
Group Financial Performance3
GBPm 2018 2017 Movement
Revenue 34.8 27.7 +25%
Gross profit 18.4 16.0 +15%
Distribution (4.1) (3.4) (18%)
Profit after distribution 14.3 12.6 +14%
Payment fees (0.7) (0.7) (5%)
Marketing (19.8) (17.2) (15%)
Loss after distribution, payment fees and (6.2) (5.3) (16%)
marketing
Wages & Salaries (excluding share-based (5.4) (4.5) (20%)
payment charges)
Other administrative expenses (8.5) (5.3) (59%)
Share-based payment charges (0.3) (1.8) +83%
Loss before IPO-related expenditure (20.3) (16.9) (21%)
IPO Related Expenditure - (2.1) n/a
Net finance income 0.0 0.0 +79%
Loss before tax (20.3) (19.0) (7%)
Taxation 0.2 - n/a
Loss after tax (20.1) (19.0) (6%)
Reconciliation to underlying EBITDA:
Taxation (0.2) -
Net finance income (0.0) (0.0)
IPO-related expenditure - 2.1
Share-based payment charge 0.3 1.8
Staff and country exit costs 0.8 -
Depreciation and amortisation 0.1 0.0
Underlying EBITDA (19.2) (15.1) (27%)
% of Revenue 2018 2017 Movement
Gross Profit 52.8% 57.7% (490bps)
Distribution (11.6%) (12.4%) +80bps
Profit after distribution 41.1% 45.3% (420bps)
Marketing (56.8%) (61.9%) +510bps
Administrative expenses3 excluding (41.9%) (37.9%) (400bps)
marketing
Administrative expenses3 excluding (39.7%) (37.9%) (180bps)
marketing and staff and country exit
costs (2018 only)
UK&I Financial Performance3
GBPm 2018 2017 Movement
Revenue 22.5 16.1 +40%
Gross Profit 11.8 9.6 +23%
Distribution (1.7) (1.4) (20%)
Profit after distribution 10.1 8.2 +24%
Payment fees (0.4) (0.4) (6%)
Marketing (10.5) (8.9) (18%)
Loss after distribution, payment fees and (0.8) (1.1) +29%
marketing (before overhead allocation)
France Financial Performance3
GBPm 2018 2017 Movement
Revenue 6.8 5.5 +23%
Gross Profit 3.7 3.0 +20%
Distribution (1.2) (0.8) (49%)
Profit after distribution 2.5 2.2 +10%
Payment fees (0.1) (0.1) (14%)
Marketing (5.4) (3.7) (48%)
Loss after distribution, payment fees and (3.1) (1.6) (101%)
marketing (before overhead allocation)
Other Territory Financial Performance3
GBPm 2018 2017 Movement
Revenue 5.5 6.1 (10%)
Gross Profit 2.9 3.4 (14%)
Distribution (1.2) (1.2) +5%
Profit after distribution 1.7 2.2 (19%)
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Payment fees (0.2) (0.2) +4%
Marketing (3.8) (4.6) +17%
Loss after distribution, payment fees and (2.3) (2.7) +15%
marketing (before overhead allocation)
3 Administrative expenses per the Consolidated Statement of Profit and Loss
and Other Comprehensive Income include payment fees, marketing, wages &
salaries (excluding share-based payment charges) and other administrative
expenses.
Financial data has been rounded for presentation purposes. As a result of
this rounding, totals, comparatives and calculations presented in this
document may vary slightly from the arithmetic totals or calculations using
such data.
Revenue
Group revenue increased by 25% to GBP34.8m in 2018 (2017: GBP27.7m). Direct to
consumer remains the dominant revenue channel. However, Group revenues from
omni-channel did grow strongly, representing 22% of revenue in 2018 (2017:
14%), increasing 97% to GBP7.8m in 2018 (2017: GBP4.0m). As a result of
investment in marketing and product expansion, revenue from the Core Markets
of the UK&I and France combined grew by 35% to GBP29.4m (2017: GBP21.7m) with
UK&I revenues growing 40% and France growing 23% respectively.
Gross margin
Group gross margins remained strong however they have been negatively
impacted by both product mix (increasing non-mattress revenues) and channel
mix (increasing omni-channel revenues). As a result, Group gross margin
reduced by 490bps to 52.8% in 2018 (2017: 57.7%). Core Markets gross margin
(UK&I and France) reduced by 550bps to 52.7% in 2018 (2017: 58.2%).
Distribution costs
Distribution costs as a percentage of revenue reduced by 80bps to 11.6% in
2018 (2017: 12.4%), reflecting the exit from European countries and
increased share of revenue from retail, which typically has lower
distribution costs as shipment is often in bulk.
Marketing investment
Effective investment in marketing is an important driver of growth in the
business. In 2018 investment in Group marketing increased by 15% to GBP19.8m
(2017: GBP17.2m). Marketing investment in the Core Markets increased by 27% to
GBP15.9m (2017: GBP12.6m). The efficiency of marketing investment is closely
monitored and is an important KPI for the business. In 2018 Core Markets
marketing efficiency, defined as marketing costs as a percentage of
revenues, improved by 360bps to 54.3% (2017: 57.9%). In the UK&I marketing
efficiency improved by 840bps to 46.6% (2017: 55.0%). In France, which is at
an earlier stage of development than the UK, marketing efficiency reduced by
1330bps to 79.6% (2017: 66.3%).
Administrative expenses (excluding marketing)
Wages & Salaries (excluding share-based payment charges) remain the largest
component of administrative expenses and increased 20% to GBP5.4m (2017:
GBP4.5m) and making up 36.8% of administrative expenses excluding marketing
(2017: 42.6%). Other administrative expenses included GBP0.8m of staff and
country exit costs related to the exit from non-Core Markets in the second
half of 2018.
Underlying EBITDA loss
(earnings before interest, tax, depreciation, amortisation, share-based
payments (2017 & 2018), IPO-related expenditure in 2017, staff and country
exit costs in 2018)
The Directors consider that they are able to monitor Group financial
performance via underlying EBITDA by removing share-based payment charges,
IPO-related expenditure and staff and country exit costs from EBITDA on the
basis that these items do not occur evenly year on year.
The underlying Group EBITDA loss increased by GBP4.1m to GBP19.2m in 2018 (2017:
GBP15.1m loss). The increased loss reflects under performance in the first
half of the year, where Group losses increased year-on-year by GBP6.9m to
GBP11.9m. In the second half of the year underlying EBITDA losses reduced
reflecting the decision to focus on the Core Markets of the UK&I and France
and greater focus on efficiency of marketing spend.
France is at an earlier stage of development for eve compared to UK&I. Its
revenue grew 23% to GBP6.8m (2017: GBP5.5m) driven mainly by higher marketing
spend which resulted in a loss after distribution, payment fees and
marketing (before overhead allocation) of GBP3.1m (2017: GBP1.6m loss).
UK&I performance for the year, whilst below original year on year
expectations, was positive with revenue growth of 40% to GBP22.5m (2017:
GBP16.1m) resulted in a loss after distribution, payment fees and marketing
(before overhead allocation) of GBP0.8m (2017: GBP1.1m loss).
Share-based payment
In accordance with IFRS, a share-based payment charge for 2018 has been
calculated and charged to the income statement. The fair value of options
granted is recognised as an expense over the vesting period with a
corresponding credit being recognised in equity. The charge for 2018 was
GBP0.3m (2017: GBP1.8m).
Loss after tax
The loss after tax increased to GBP20.1m (2017: GBP19.0m loss) and underlying
EBITDA increased to a loss of GBP19.2m (2017: GBP15.1m loss).
Capital expenditure
Due to the Group's outsourced business model, capital expenditure
requirements remain low. The main area of capital expenditure in 2018
related to development cost in respect of the infrastructure for the website
platform and ERP systems. Total capital expenditure in 2018 was GBP0.4m (2017:
GBP0.4m).
Cash position
The Group had net cash of GBP6.0m at the year end (2017: GBP26.9m). Since the
year end the Group has raised an additional GBP11.7m (net of expenses) from
investors through a placing of new shares and secured GBP0.9m in future
advertising with Channel 4, which will be satisfied through the issuance of
new shares when utilised.
Abid Ismail
Chief Financial Officer
Consolidated Statement of Profit and Loss and Other Comprehensive Income
For the year ended 31 December 2018
Note 2018 2017
GBP GBP
Revenue 34,818,260 27,744,995
Cost of sales (16,442,852) (11,749,049)
Gross profit 18,375,408 15,995,946
Distribution expenses (4,056,074) (3,430,085)
Administrative expenses (34,360,477) (27,686,895)
Share-based payment charge 6 (303,281) (1,757,204)
Operating loss before IPO-related (20,344,425) (16,878,238)
expenditure
IPO-related expenditure - (2,124,528)
Operating loss (20,344,425) (19,002,766)
Net finance income 44,822 25,096
Loss before tax (20,299,603) (18,977,670)
Taxation 193,192 -
Loss for the year (20,106,411) (18,977,670)
Other comprehensive income
Foreign currency differences from 98,720 -
overseas operations
Total comprehensive loss for the (20,007,691) (18,977,670)
year
Basic and diluted earnings/(loss) (14.46) (16.17)
per share (pence)
Consolidated Statement of Financial Position
As at 31 December 2018
Note 2018 2017
GBP GBP
Assets
Non-current assets
Property, plant and equipment - 36,458
Intangible Assets 669,742 378,538
669,742 414,996
Current assets
Inventories 1,127,876 691,340
Trade and other receivables 7 4,626,750 4,177,056
Cash and cash equivalents 6,031,936 26,926,389
Current tax receivable 193,192 -
11,979,754 31,794,785
Total assets 12,649,496 32,209,782
Current liabilities
Trade and other payables 4,561,793 4,548,019
Provisions 8 955,949 826,702
5,517,741 5,374,721
Total liabilities 5,517,741 5,374,721
Net assets 7,131,755 26,835,060
Equity attributable to equity
holders of the parent
Share capital 5 139,735 138,631
Share premium 36,716,371 36,716,371
Share-based payment reserve 250,073 138,794
Retained earnings (30,073,145) (10,158,737)
Cumulative translation reserve 98,720 -
Total equity 7,131,755 26,835,060
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
GBP GBP
Cash flows from
operating
activities
Loss for the year (20,106,411) (18,977,670)
IPO-related - 2,124,528
expenditure
Finance income (44,822) (25,096)
Taxation (193,192) -
Adjustments for:
Interest paid 44,822 25,096
Amortisation 120,571 7,945
Impairment 39,608 -
Increase in (436,536) (200,159)
inventories
Increase in trade (449,694) (3,127,395)
and other
receivables
Increase in trade 13,773 2,361,778
and other payables
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March 12, 2019 03:02 ET (07:02 GMT)
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