DJ Eve Sleep plc: Final Results
Eve Sleep plc (EVE)
Eve Sleep plc: Final Results
24-March-2020 / 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")
Full Year Results
Benefits of rebuild strategy increasingly evident, operationally profitable4
across last four months of 2019
eve, a direct-to-consumer sleep wellness brand operating in the UK, Ireland
(together the "UK&I") and France, its "Core Markets", today issues its
audited results for the year ended 31 December 2019 (the "Period").
Financial Highlights 1
2019 GBPm 2018 GBPm Movement
Revenue 2 23.9 29.4 -19%
Gross profit 2 12.8 15.5 -18%
Gross profit margin 2 53.4% 52.7% +70 bps
Marketing contribution 2,3,4 (2.6) (5.8) +GBP3.2m
Underlying EBITDA loss 5 (10.7) (19.1) +GBP8.5m
Statutory loss for the year (12.1) (20.1) +GBP8.0m
Cash and cash equivalents 6 8.0 6.0 +GBP2.0m
Financial Highlights
· Sharpened focus on profitable sales, with gross margin in Core Markets2
up 70bps;
· Planned reduction in revenue and focus on move to profitability resulted
in improved underlying EBITDA loss, which reduced by 44% to GBP10.7m (2018:
GBP19.1m loss);
· Reduced operating cash burn by 55%, with further cost savings made in Q4
such that the combined trading performance in the last four months of the
financial year reached the milestone of marketing contribution breakeven4;
· Raised GBP11.7m net of expenses in new equity and GBP0.9m in advertising
credits from Channel Four in February 2019.
Operational Highlights
· 50% increase in UK&I unprompted brand awareness from 10% in January 2019
to 15% in August 2019;
· Increased brand loyalty with the customer repeat rate in the UK&I up
230bps to 16.7% and up 360bps in France to 17.0%;
· eve's premium hybrid mattress, launched June 2019, announced as the top
scoring mattress by Which? in December 2019, giving eve's full adult
mattress range Which? Best Buy ratings;
· Extended ranges, with the contribution of non-mattress products in core
markets up 230bps to 22.0%;
· Extended omni-channel reach with new retail partnerships with Argos,
Homebase and Dunelm;
· Commenced 3 year deal with British Rowing to be their official sleep
partner, supporting the GB Rowing Team as they train and compete at home
and overseas;
· Returns rate in core markets reduced 40bps to 8.9%.
Current trading
Trading in the first two months of the year has started well and is in-line
with the Board's expectations, with demand for the premium hybrid mattress
proving particularly strong. The business has now generated a positive
marketing contribution4 for the six months to 29 February 2020.
Wider market uncertainty increased further in the first two weeks of March
with the advent of COVID-19 but at that time there had been no noticeable
impact on demand, our operations or our supply chain. Over the last week,
since mid-March, we have seen some impact on traffic and consumer demand
attributable to the fast changing COVID-19 situation, and believe it is
reasonable to expect somewhat subdued demand for a period of time whilst the
COVID-19 situation prevails.
The Board has reviewed planning scenarios and has prepared a number of
appropriate measures to conserve the Group's cash balance and ensure the
robustness of the business should it be required. Given eve's business model
as a direct to consumer (DTC) led retailer, its most significant costs are
marketing rather than the costs associated with a store estate, and we have
significant flexibility to control our spending and therefore cash outflows
in this regard. The Company's marketing spend will continue to be kept under
constant review, with adjustments to plans made where appropriate and in
line with the fast changing economic situation.
On 15 March, the Board took the decision to ensure all of the Company's
employees were to work from home. The Company's employees are more than used
to working from home as a result of a flexible working culture and as such
we have not experienced any material issues or disruptions to the Company's
operations as a result of this decision.
To date we have seen only a small impact upon our supply chain, and where we
have seen impact, we have taken precautionary measures including stronger
stock holding of products to ensure adequate coverage for the coming months,
and hence we currently envisage being able to meet customer demand for our
products, albeit at reduced levels. Further interventions by governments in
the jurisdictions in which we operate may have a material impact on our
supply chain and/or delivery capability going forward.
James Sturrock, CEO of eve Sleep, commented:
"We enter 2020 in good shape, with the benefits of the rebuild strategy
becoming increasingly evident. We have award winning products and an
increasingly differentiated, premium brand position in sleep wellness
compared to the more price led, mattress focused peers, underpinned by
upgraded operational capability and a significantly reduced cost base.
Improved financial and operational KPIs demonstrate increased customer
loyalty across our expanding product suite.
I am delighted that in the six months to 29 February 2020 eve has improved
marketing efficiency 7 and reduced central overheads and is on course to
deliver a significant EBITDA improvement in 2020. While there remains
considerable wider market uncertainty over the rest of the financial year,
we have a healthy net cash position of GBP7.8m as at 29 February 2020, no debt
and a rebuild strategy that is delivering."
Footnotes
1 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 or calculations using
such data.
2 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. Thus, this note presents revenue,
gross profit, gross profit margin and marketing contribution attributable to
the Core Markets for the current and prior period.
3 Indirect marketing costs, such as the costs of production of TV campaigns,
were previously presented within overheads but are now included within
marketing costs. 2018 marketing costs have been restated to include these
indirect marketing costs. The impact of this restatement solely impacts
management information (direct and indirect marketing costs being included
in administrative expenses in both the current and prior period) and
therefore there is no impact of the restatement on the statutory statement
of profit and loss and other comprehensive income.
4 Marketing contribution is defined as the profit/loss after marketing
expenditure but before payroll and overhead costs; a measure also referred
to as operational profitability.
5 Underlying EBITDA is defined as earnings before interest, taxation,
depreciation, amortisation, impairment, share-based payment charges
connected with employee remuneration, fundraise-related expenditure (2019
only) and staff and country exit costs (2018 only).
6 In addition to the cash and cash equivalents balance of GBP8.0m at 31
December 2019, the Group also benefits from GBP0.3m in advertising credits
outstanding with Channel 4, following GBP0.9m of credits raised at the fund
raising in February 2019.
7 Marketing efficiency is defined as total reported marketing cost divided
by the reported revenue for the specified segment, thus as the reported
percentage falls marketing efficiency improves.
The information contained within this announcement is deemed by the Company
to constitute inside information stipulated under the Market Abuse
Regulation (EU) No. 596/2014.
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 / Hannah Boros
(Corporate Finance)
Alice Lane / Manasa Patil
(ECM)
M7 Communications LTD +44(0) 7903 089 543
Mark Reed
chairman's statement
"We are confident that we have a winning product, the right strategy and the
team to build a sleep wellness brand of size and strength that delights our
customers and delivers value to all of our stakeholders." - Paul Pindar
delivering the rebuild strategy
The focus in 2019 has been on the continued execution of the rebuild
strategy through the prioritisation of reducing losses and stemming cash
flows, over chasing sales growth at any cost. To effect this we have
sharpened our focus on profitable sales, removing unprofitable channels,
while further improving our marketing efficiency.
We remain confident that this is the right strategy for the business,
particularly given the continued challenging retail backdrop and the ongoing
discount-reliant competition in the mattress market. To fund the execution
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DJ Eve Sleep plc: Final Results -2-
of the strategy and to strengthen the statement of financial position we
successfully raised GBP11.7m (net of expenses) plus GBP0.9m of advertising
credits with Channel 4 in February 2019. As at 31 December 2019 eve has
GBP8.0m of cash and cash equivalents, GBP0.3m of advertising credits available
for use and no debt (excluding the lease liability arising under IFRS 16).
The team has made good strategic and financial progress in the year. Product
development which is central to our aim of building a sleep wellness brand,
was strong in both mattress and wider sleep range products. The eve premium
hybrid mattress, which was launched in June 2019 was announced as the top
scoring mattress by Which? in December 2019, giving eve's full adult
mattress range a Which? Best Buy rating. Good progress was also made with
the expansion of wider sleep products including the launch of new bed frames
and bedding, all of which has driven a 140 bps and 590 bps year-on-year
increase in the contribution from non-mattress sales in the UK&I and France
respectively. Range expansion has also supported an improvement in the
customer repeat rate, increasing 230 bps in the UK&I and 360 bps in France.
We continue to develop our multi-channel offering through partnerships with
leading retailers where the relationship is strategically and commercially
value creating for both parties. During the year we signed and launched
partnerships with Argos, Homebase and Dunelm and in addition to creating
more sales opportunities, these partnerships help to raise eve's brand
awareness.
Elevating the brand position above our peers has always been a core strength
at eve and it remains so. In July 2019 we launched a new and highly
successful brand campaign featuring the eve sloth and in September we signed
a three year deal with British Rowing to be their official sleep partner,
including managing the sleep environment of the GB Rowing Team athletes both
at home and overseas. Together, these marketing initiatives have driven a
50% increase in unprompted brand awareness to 15%.
improving financial performance
As planned, Group revenues from Core Markets reduced year on year, declining
by 19% to GBP23.8m (2018: GBP29.4m) as we optimised our DTC marketing, scaling
back marketing investment by 32% across UK&I and France in order to
prioritise profitable revenues over revenue growth alone. Year-on-year Group
gross profit margin improved from 52.8% to 53.1% reflecting margin
prioritisation over revenue growth. Group underlying EBITDA losses[1]
reduced by 44% to GBP10.7m, supported by a 24% reduction in administrative
expenses (excluding marketing expenses, fundraise-related expenditure,
depreciation, amortisation and impairment charges) for the year. The
reduction in the cash outflow from operating activities was even greater,
down 55% year-on-year.
Our results in the last four months of the year showed further progress on
our path to profit, reaching for the first time break-even at the operating
level, defined as a positive margin contribution after all direct costs and
marketing but before overheads. The attainment of this milestone follows
further significant cost savings in Q4 as well as the benefits flowing
through from earlier initiatives. Accordingly, we see our results for the
final four months of the year as more indicative of our prospects for 2020.
our people
This has been the second year of considerable change for our people, which
has included a move to new local offices as well as an organizational
restructure. Whilst this has been the right course of action strategically
for the business, I understand that it is both difficult and unsettling and
I would like to thank them all personally for their continued loyalty,
positivity and commitment to rebuilding eve.
We are confident that we have a winning product, the right strategy and the
team to build a sleep wellness brand of size and strength that delights our
customers and delivers value to all of our stakeholders.
current trading and outlook
Trading in the first two months of the year has started well and is in-line
with the Board's expectations, with demand for the premium hybrid mattress
proving particularly strong. The business has now generated a positive
marketing contribution[2] for the six months to 29 February 2020.
Wider market uncertainty increased further in the first two weeks of March
with the advent of COVID-19 but at that time there had been no noticeable
impact on demand, our operations or our supply chain. Since mid-March 2020,
we have seen some impact on traffic and consumer demand attributable to the
fast changing COVID-19 situation, and believe it is reasonable to expect
somewhat subdued demand for a period of time whilst the COVID-19 situation
prevails.
The Board has reviewed planning scenarios and has prepared a number of
appropriate measures to conserve the Group's cash balance and ensure the
robustness of the business should it be required. Given eve's business model
as a direct to consumer (DTC) led retailer, its most significant costs are
marketing rather than the costs associated with a store estate, and we have
significant flexibility to control our spending and therefore cash outflows
in this regard. The Company's marketing spend will continue to be kept under
constant review, with adjustments to plans made where appropriate and in
line with the fast changing economic situation.
To date we have seen only a small impact upon our supply chain, and where we
have seen impact, we have taken precautionary measures including stronger
stock holding of products to ensure adequate coverage for the coming months,
and hence we currently envisage being able to meet customer demand for our
products, albeit at reduced levels.
Paul Pindar
Chairman
23 March 2020
strategic report
strategic review
"Building customer loyalty and ultimately driving repeat sales is at the
centre of the eve model and is essential to attaining profitability."
on trend in a large and growing market
Wellness is a mega trend, transcending age and geography. Within the
wellness sphere there is an increasing understanding and recognition that
sleep sits alongside nutrition and physical fitness as the foundations of
wellness. There is also a growing body of research and evidence which
testifies to the importance of sleep and the risks to physical and mental
health of insufficient sleep. In a recent poll of 2,000 UK adults
commissioned by eve, 58% of respondents expressed worry about the potential
impact a lack of sleep can have on mental and physical health and 75% of
customers tell us they are better slept simply by having one of our
products.
With the increasing understanding of the importance of sleep has come
consumer change. Consumers are spending more on wellness and the sleep
market has been a beneficiary of this. Not only are consumers spending more
on sleep wellness related products but they are willing to spend more on the
central element of a good night's sleep; the mattress. The strong sales
performance of eve's most recently launched premium hybrid mattress testify
to this point.
Data from Euromonitor estimates that the European sleep market is worth
GBP26bn, with the Core Markets that eve is focused on (UK&I and France) being
worth GBP6bn. The market is however highly fragmented, populated by many
traditional operators offering a proposition that has changed little in the
last fifty years. 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.
In terms of the competitive landscape there are a limited number of well
branded new digital offerings. However, no company is yet to break through
in terms of establishing a sleep wellness brand which commands widespread
recognition and brand loyalty. 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 digitally native business, with a direct to consumer (DTC) led
proposition, supported by partnerships with leading retailers. This
omni-channel approach reflects how consumers increasingly identify, research
and purchase items, moving seamlessly between online and offline channels.
By being where the customer is, eve increases its potential sales
opportunities and grows its brand awareness and product understanding.
Building customer loyalty and ultimately driving repeat sales is at the
centre of the eve model and is essential to attaining profitability. To
achieve this goal eve is focused on establishing itself as a go to brand for
sleep wellness products, which would provide the authority and consumer
trust to sell a broader range of products in the category.
As a DTC focused business, eve maintains close relationships with its
customers and leverages a rich data set from which to better target repeat
customers and attribute purchases to the many touchpoints eve has in the
marketplace. eve has worked to greatly expand its collection and use of such
data during 2019 culminating in detailed econometric and attribution insight
now at the forefront of the business. The insights gained from customer
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feedback also power new product development and refinements to existing
ranges. The continued growth in eve's customer repeat rate which in the UK
has more than doubled to 17.3% in the second half of 2019 from just 8.0% in
the first half of 2016, demonstrates that eve is succeeding in building
brand loyalty amongst its customers. As a brand led business, resources in
terms of investment and talent are focused on the key operations of product
development, branding, marketing and customer experience. As is common in
the industry, 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 product 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.
The outsourced manufacturing and fulfilment model, coupled with the DTC led
setup, enables a lower and more flexible cost base than a traditional
retailer. Although marketing costs are one of the largest costs for eve,
they are more flexible in nature and it is easy to scale them up and down
quickly and switch between marketing channels.
chief executive's report
"What is certain is that eve has closed out 2019 in a stronger position than
it started the year. There is still much that can and will be done to drive
further improvements and this work will continue through 2020." - James
Sturrock
introduction
In 2019 we completed the restructuring of the management team, made
significant progress in professionalising internal operations, processes and
reporting, optimised our supplier and logistics footprint, and significantly
reduced the operating costs of the business. These things, alongside the
progress of our customer facing rebuild strategy have significantly improved
EBITDA results on the path to profitability and put eve on a steadier
footing to deliver our plans for the long-term health of the business. We
consider that headwinds in the competitor landscape and discounting pressure
will continue, but the premium positioning of the brand and the work we have
completed to create a stable and lean platform, along with a healthy cash
balance, will aid the execution against our plans in order to succeed in the
future.
The first few months of my tenure, which commenced in September 2018, were
spent evaluating the business and formulating what we refer to as the
rebuild strategy. Although implementation of the rebuild strategy commenced
in late 2018, work has continued throughout 2019 on effecting and embedding
change and improvement throughout all areas of the business in order to
attain our stated goal of profitability and positive cash generation in the
near term. There is still much that can and will be done to drive further
improvements and this work will continue through 2020 and beyond.
What is certain is that eve has closed out 2019 in a stronger position than
it started the year. We have a broader, award-winning product range.
Operational KPIs, including the customer repeat rate and the sale of
non-mattress products improved during the year, while our financial
performance strengthened considerably, evidenced by a reduction in
administrative expenses excluding marketing costs, fundraise-related
expenditure, depreciation, amortisation and impairment of 24%. We reduced
our underlying EBITDA losses by 44% and trimmed our cash outflows from
operating activities by 55%, which is all the more pleasing given the
challenging retail backdrop and ongoing price led competition in the
mattress market. Our cash position has also improved, with a year-end net
cash position of GBP8.0m plus GBP0.3m of advertising credits with Channel 4,
compared with GBP6.0m as at 31 December 2018, owing to the fund raising in
February 2019.
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
To differentiate eve from the plethora of mattress in a box brands, where
competition is largely price led, our strategy is to establish eve as a
trusted go to destination for sleep wellness products. To achieve this we
have been refocusing and aligning our marketing investment and
communications on the benefits that eve can bring consumers in sleep
wellness. This is best exemplified in the three-year partnership deal we
signed in 2019 with British Rowing to be their official sleep partner. As
part of the deal we will be managing the sleep environment of the GB Rowing
Team athletes as they train and compete both at home and overseas.
During the first half of the year we ran existing marketing campaigns whilst
testing new promotional strategies and channel mix, as well as carrying out
analysis on a granular level of marketing return on investment. This
supported the development of the new brand, communications and the creative
strategy, which launched in the UK&I at the start of H2 2019 with the 'wake
up dancing' campaign, featuring the eve sloth. The campaign has proved
immensely successful, raising unprompted brand awareness by 50% to 15%
between January 2019 and August 2019. It has also driven increased
engagement with customers, so much so that in response to customer demand we
have produced and sold circa. 6,000 soft toy eve sloths at the close of
2019.
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,
which launched with the 'reborn again each morning' ('renaissez chaque
matin') campaign in July 2019 is designed to elevate eve to be the premium
brand in the nascent direct-to-consumer mattress category in France, premium
mattress sales making up 44.9% of total mattress sales in December 2019.
The success of our marketing to date is demonstrated in our unprompted UK
brand awareness, which has increased from 11.2% in November 2018 to
approximately 15% at August 2019.
In addition to refocusing the positioning of our marketing, considerable
effort has gone into improving marketing efficiency, including the
development of a bespoke-built optimisation model. Subsequently, marketing
investment has been substantially reviewed, with the removal of channels
that were not generating a sufficient return, in line with our strategy of
focusing on profitable sales and margin positive first orders. The success
of this strategy is best evidenced in the efficiency of our marketing spend,
which has improved in all three of our core markets in tandem with growing
awareness. In the UK&I marketing efficiency has improved from 54.1% in 2018
to 52.3% in 2019; marketing efficiency being defined as marketing
expenditure as a percentage of revenue. This is the third successive year of
improvement and we see scope to further reduce this percentage in 2020. In
France, marketing efficiency improved from 82.9% in 2018 to 44.1% in 2019.
To measure our success in delivering on this strategic pillar we will
continue to monitor and report on the KPI of unprompted brand awareness in
the UK and marketing efficiency, given its importance for the pathway to
profitability.
expanded product range
In 2019 we stepped up new product development, building out a range of sleep
products to complement our successful next generation foam mattress. Range
expansion gives eve a clear trajectory to dominating the ecommerce sleep
wellness space in our chosen markets and provides the opportunity to grow
the frequency of customer purchases.
In the mattress category we launched the premium hybrid mattress, which
received a Which? Best Buy rating, scoring the highest rating ahead of all
competitor mattresses in the UK in December 2019. At the close of 2019, eve
now has a suite of four mattress products sold via its DTC channel - the
premium foam, the premium hybrid, the original foam and the hybrid, as well
as the baby mattress.
The rate of new product development increased significantly in the period,
with the launch of new bedframes and expanded ranges of bedding, pillows,
sleep accessories and the baby category. Sales of bedframes, including two
new storage bedframes, have performed particularly well.
The improvements in this pillar of the strategy are evident in our KPIs. In
2019 the customer repeat rate in the UK&I grew 230bps to 16.7% and in France
increased 360bps to 17.0%. This growth was underpinned by an increase in
sales of non-mattress products in each of the core markets. In the UK&I, the
contribution from non-mattress DTC sales increased by 130bps to 24.8% and in
France improved by 590bps to 28.2%.
To measure our success in delivering on this strategic pillar we will
continue to monitor and report on the KPIs of conversion rates and the
growth in non-mattress sales.
lower friction customer experience
Enhancing the customer experience throughout the online journey and in our
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