DJ Eve Sleep plc: Interim Results
Eve Sleep plc (EVE)
Eve Sleep plc: Interim Results
26-Sep-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to
REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
eve Sleep plc ("eve" the "Company" or the "Group")
Interim Results
Halving of EBITDA losses, rebuild strategy progressing, new retail partnerships now live
eve Sleep, a direct-to-consumer sleep wellness brand operating in the UK, Ireland
(together the "UK&I") and France, today issues its results for the six months ended 30
June 2019 (the "Period").
Financial Highlights8
2019 H1 GBPm 2018 H1 GBPm Movement
Revenue (UK&I and France) 1 12.9 14.1 -8%
Gross profit 2 6.7 7.8 -13%
Gross profit margin 2 52.3% 54.8% -250 bps
Marketing costs as a % of revenue 51.0% 70.6% -1960
2,3 bps
Marketing contribution 2,3,4 (1.6) (3.9) +GBP2.3m
Underlying EBITDA Loss 5 (5.9) (11.9) +GBP6.0m
Statutory loss before tax 6 (6.7) (12.0) +GBP5.3m
Net Cash 7 12.5 16.7 -GBP4.2m
Business Highlights
· Sales of non-mattress products now contributing 24% of revenues (H1 2018: 21%)
· Customer repeat rate increased to 19% (H1 2018: 16%)
· Marketing efficiency improved in all markets and whilst revenue was lower the
marketing contribution has improved by GBP2.3m
· Conversion rate up 20 bps reflecting upgrades to the customer journey
· Raised GBP11.7m net of expenses in new equity and GBP0.9m in advertising credits from
Channel Four
Post Period End
· Retail partnership with Next Home expanded in August 2019 by 104 stores to cover 158
sites
· Three new retail partnerships announced in July 2019: Argos now live alongside Dunelm
with Homebase due to launch imminently
· Unprompted brand awareness in the UK&I grew from 10% in January 2019 to 15% in August
2019 (ahead of all D2C competitors), with awareness also up in France on the back of a
new marketing campaign launched in June 2019
· Signed deal with British Rowing to be their official sleep partner
Current trading
As set out in the Company's trading update of 20 September 2019 eve has revised revenue
guidance for the current financial year to between GBP25m and GBP27m as a result of the
worsening macro-economic conditions and near permanent heavy discounting by competitors.
The revision in revenue expectations is expected to have some flow through to the EBITDA
loss, though a substantial year-on-year reduction in H2 losses and the full year loss is
still expected.
James Sturrock, CEO of eve Sleep, commented:
"We are making good progress with our strategic focus to build a sleep wellness brand, as
a key differentiator to peers and to secure the foundations for a profitable and
sustainable future for eve. There has been a step-up in the depth and breath of product
ranges, a 50% increase in brand awareness and improvements to our technology and systems
to ensure the best experience for customers, all of which have driven a meaningful
improvement in the customer repeat rate. In tandem, costs and cash are better managed,
which is evident in the H1 reduction in losses and the cash outflow.
While the headwinds have increased, we have a flexible and adaptable business model,
alongside a strategy that will clearly differentiate eve in the longer term from peers.
We will continue to focus on the rebuild strategy through a combination of organic
improvements and inorganic opportunities as and when they arise."
Footnotes
1 In July 2018, the Board reviewed the number of territories that eve traded from,
deciding to focus on the Core Markets of the UK&I and France, and withdrawing from the
other territories. The headline revenues for 2019 and 2018 cover the UK&I and France. In
the first half of 2018 the total reported revenue for all markets was GBP18.8m.
2 Gross profit, gross profit margin, marketing costs and marketing contribution are all
shown for the Core Markets of the UK, Ireland and France for the current and prior
period.
3 Indirect marketing costs, such as the cost of production for TV campaigns, were
previously included in overheads but are now included within marketing costs. 2018
marketing costs have been restated to include these indirect costs.
4 Marketing contribution is defined as the profit after marketing expenditure but before
payroll and overhead costs
5 Underlying EBITDA is defined as earnings before interest, tax, depreciation,
amortisation, share-based payment charges (2018 and 2019) and fundraise-related
expenditure (2019 only).
6 Included within the Statutory loss before tax is EBITDA, fund raising expenses,
interest income, depreciation and amortisation.
7 In addition to the cash balance of GBP12.5m as at 30 June 2019 eve has GBP0.9m of
advertising credits outstanding with Channel 4, following GBP0.9m of credits raised at the
fund raising in February 2019
8 Financial data has been rounded for presentation purposes. As a result of this rounding
the totals, comparatives and calculations presented in this document may vary slightly
from the arithmetic totals, calculations using such data.
For further information, please contact:
eve Sleep plc via M7 Communications LTD
James Sturrock, Chief
Executive Officer
Tim Parfitt, Chief Financial
Officer
finnCap Limited (NOMAD and +44(0)20 7220 0500
broker)
Matt Goode (Corporate
Finance)
Hannah Boros (Corporate
Finance)
Alice Lane (ECM)
M7 Communications LTD +44(0) 7903 089 543
Mark Reed
Summary
The focus for the first half of 2019 has been to reset the business, putting eve onto a
more stable and secure long-term footing, with the intention of targeting sustainable and
profitable sales growth in the second half of the year. Considerable progress has been
made in this regard, most notably the successful fund raising in February 2019, which
secured fresh equity of GBP11.7m net of expenses and an additional GBP0.9m of advertising
credits with Channel Four, both of which are being used to fund the rebuild strategy.
Across the business good progress has been made with the rebuild strategy. At the Group
level, this is most evident in the 50% year-on-year reduction in the underlying EBITDA
loss. Unprofitable business has been cut and the level of promotional activity is now
better optimised to drive contribution margin. Media investment was pared back during the
Period compared to the prior year, while the marketing and brand strategy was being
rebuilt, resulting in a 34% reduction in spend and a 1960 bps improvement in marketing
efficiency, defined as marketing costs as a percentage of revenues. In tandem cost
control has been tightly managed leading to a 22% year-on-year reduction in overheads.
The above improvements have been achieved against a highly challenging retail backdrop
and an increasingly competitive mattress market, with deep discounts on a near permanent
basis witnessed since January 2019.
In the UK&I trading in the period was broadly flat, with revenues of GBP10.2m, down 0.9%
year-on-year. Sales of non-mattress products increased, contributing 23% of revenues in
the Period (2018 H1: 20%), helped by a substantial increase in new products and strong
demand for bedframes. The broader product range has also driven an improvement in the
customer repeat rate to 19.4% (2018 H1: 16.4%). Marketing investment in the UK&I was 27%
lower year-on-year.
The French business has required greater management focus to localise and reposition the
brand. The 29% reduction in French revenues in the Period was predominantly driven by
management's decision to focus on net contribution margin over sales growth, accompanied
by a substantial reduction in marketing spend. Despite the large revenue reduction, the
French contribution margin improved by GBP0.9m, to a loss of GBP1.2m. A new marketing
campaign launched in France during the second half of June 2019.
Developments since the period end
Since the period end progress has continued, with major new marketing campaigns having
been launched in the UK&I. The campaigns are distinct from peers and have been well
received, driving a substantial uplift in brand awareness. In the UK unprompted brand
awareness has risen from 10% at the start of the year to 15% in August 2019.
The Company has also signed three new retail partnerships with Argos, Homebase and
Dunelm, and an extension to the Next Home partnership, with the addition of a further 104
Next stores. The Argos and Dunelm partnerships have already gone live, with Homebase
expected to launch imminently.
eve has also signed a partnership agreement with British Rowing, and the sleep wellness
brand will now be "Official Sleep Partner" to the national governing body for rowing. eve
will support British Rowing in managing the sleep environment of the GB Rowing Team
athletes, helping them perform at their best each day. The deal also includes exclusive
offers for British Rowing club members.
eve has undergone considerable change in the last 12 months. It is pleasing and testament
to the professionalism and commitment of the team that the quality of the customer
offering and service levels have remained high, as evidenced by the returns rate, which
has held steady at c12% and a market leading 4.7 out of 5.0 rating on Trustpilot.
Market overview and the macro backdrop
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 fewer,
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well-branded digital operators of any meaningful size, competing in the wider sleep
category. As the market continues to shift 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, eve is well
placed to benefit.
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.
While eve is insulated from the structural challenges currently facing 'bricks and
mortar' retailers, the Company is not immune from the cyclical threats of a slowing
economy and declining consumer confidence. The current level of uncertainty caused in
part by Brexit is unprecedented and is having a meaningful impact on the housing market
and 'big ticket' consumer purchases including furniture and bedding. These cyclical
challenges are being compounded by the particular dynamics of the mattress market.
eve's strategy is to differentiate itself from peers, based on building a brand around
the wider sleep wellness category. This can be seen in its advertising and eve's focus on
building out a broader product range than its competitors.
Progressing the rebuild strategy
The progress made on each of the three pillars of the rebuild strategy is set out below:
1) Differentiated brand positioning
Key to creating shareholder value is to provide a differentiated position from peers. To
achieve this the Company aims to become a trusted destination for a wider range of sleep
wellness related products, supported by a new marketing strategy, refocused on the
benefits that eve can provide consumers in sleep wellness.
During the period the company ran existing marketing campaigns whilst testing new
promotional strategies and channel mix, as well as carrying out econometric analysis and
modelling. This supported development of the new brand, communications and the creative
strategy, which launched at the start of H2 2019.
The new UK&I campaign, 'wake up dancing' delivers the eve brand positioning more clearly
and resonantly with consumers thanks to a distinctive and ownable brand asset (the
dancing sloth) as well as a distinctive creative. In France, the investment and media
strategy has been adapted to make better use of the peak sales periods, driving more
efficient spend with an optimised creative strategy and revitalised positioning. This
positioning, 'reborn again each morning' (renaissez chaque matin) is designed to elevate
eve to be the premium brand in the nascent direct-to-consumer mattress category in
France.
Marketing spend was 34% lower than the comparable period and whilst revenue was slightly
softer, marketing efficiency improved significantly by 1960bps.
2. Expanded product range
The Company continues to build out a range of sleep wellness products to complement the
increased range of next generation mattresses which currently include the original, the
premium, the hybrid (springs and memory foam), the premium hybrid as well as the entry
level light, in order to cover more price points and consumer preferences.
The rate of new product development stepped up in the period, with the launch of new
bedframes and expanded ranges of bedding, pillows and the baby category. Sales of
bedframes, including the new storage bedframe, have performed particularly well.
The benefits to the business of the increased ranges are evident in the Company's KPIs.
In the UK&I sales of non-mattress products in the period increased to 24% of total
revenues (H1 2018: 21%). The broader range also drove a 300 bps improvement in the
customer repeat rate, a good demonstration of increasing brand stickiness.
3) Lower friction customer experience
Enhancing customer experience throughout the online journey and in the service
proposition to drive stronger site conversion and customer satisfaction metrics is
central to the rebuild strategy. Improved conversion will not only result in higher
revenues but also greater marketing efficiency, which is key to achieving profitability.
The entire customer journey prior to purchase has been substantially upgraded, including
a 50% plus improvement in the speed of loading the website, a redesigned home page with
more focus on inspiring customers, building out category pages to help users discover
products within our expanded ranges and new imagery, with copy/zoom functionality.
Improvements have also been made to how promotions are presented on the website and
subsequently accessed via digital media searches.
To improve the purchase process the cart and checkout have been rebuilt to make them
faster and more intuitive, resulting in an improvement in the cart completion rate. The
delivery proposition has also been improved with a move to a new carrier portfolio and
warehouse consolidation. In addition to better communications with customers around
confirmation, delivery tracking and product care guides, customers are now able to select
a nominated delivery day for larger orders.
The changes made to the website and customer proposition have driven a 20 bps improvement
in the conversion rate.
Alongside improvements to the website it has always been an important element of the
strategy to expand the touch points where consumers can experience and purchase the eve
product range. eve's omni-channel approach continues to be focused on retail
partnerships. Considerable work was performed during the Period to pave the way for new
retail partnerships, which were secured in early July with Argos, Dunelm and Homebase.
Consolidated Statement of Profit and Loss and Other Comprehensive Income
6 month 6 month 12 month
period ended period ended period
30 June 2019 30 June 2018 ended 31
December
2018
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Revenue 2 12.9 18.8 34.8
Cost of sales 2 (6.2) (8.6) (16.4)
Gross profit 6.7 10.2 18.4
Distribution 2 (1.2) (2.3) (4.1)
expenses
Administrative (11.5) (19.9) (34.4)
expenses
Share-based payment 5 (0.4) (0.1) (0.3)
charges
Operating loss (6.4) (12.0) (20.3)
before
fundraise-related
expenditure
Fundraise-related (0.3) - -
expenditure
Operating loss (6.7) (12.0) (20.3)
Net finance income 0.0 0.0 0.0
Loss before tax (6.7) (12.0) (20.3)
Taxation - - 0.2
Loss for the period (6.7) (12.0) (20.1)
Other comprehensive
income
Foreign currency 0.1 - 0.1
differences from
overseas operations
Total comprehensive (6.6) (12.0) (20.0)
loss for the period
Basic and diluted 3 (2.88p) (8.66p) (14.46p)
loss per share
Consolidated Statement of financial Position
6 month period 6 month period 12 month
ended 30 June ended 30 June period ended
2019 2018 31 December
2018
Note (Unaudited) (Unaudited) (Audited)
GBPm GBPm GBPm
Non-current
assets
Property, plant - 0.0 -
and equipment
Intangible 0.8 0.6 0.7
assets
Other - 0.4 -
non-current
assets
0.8 1.0 0.7
Current assets
Inventories 1.2 1.0 1.1
Trade and other 3.3 2.8 4.6
receivables
Cash and cash 12.5 16.7 6.0
equivalents
Current tax - - 0.2
receivable
17.0 20.4 12.0
Total assets 17.9 21.5 12.6
Current
liabilities
Trade and other 4.2 5.6 4.6
payables
Provisions 0.7 1.0 1.0
4.9 6.6 5.5
Total 4.9 6.6 5.5
liabilities
Net assets 12.9 14.9 7.1
Equity
attributable to
the equity
holders of the
parent
Share capital 4 0.3 0.1 0.1
Share premium 48.6 36.7 36.7
Share-based 5 0.5 0.1 0.3
payment reserve
Retained (36.6) (22.1) (30.1)
earnings
Foreign 0.2 - 0.1
currency
translation
reserve
Total equity 12.9 14.9 7.1
Consolidated Statement of Changes in Equity
For the 6 months ended 30 June 2019
Share Share Share-based Retained Foreign Total
capital premium payment earnings currency equity
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