DJ Eve Sleep plc: Final Results
Eve Sleep plc (EVE)
Eve Sleep plc: Final Results
18-March-2021 / 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.
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eve Sleep plc ("eve" the "Company" or the "Group")
Full Year Results
2020 results ahead of twice raised expectations, strong start to 2021
eve, a direct-to-consumer sleep wellness brand operating in the UK, Ireland (together the "UK&I") and France, today
issues its audited results for the year ended 31 December 2020 (the "Period").
Financial Highlights 1
2020 2019
Year ended 31 December Movement
GBPm GBPm
Revenue 25.2 23.9 +6%
Gross profit 14.5 12.7 +14%
Gross profit margin 57.3% 53.1% +418 bps
Marketing contribution2 4.3 (2.5) +GBP6.8m
Underlying EBITDA loss3 (2.0) (10.9) (81%)
Statutory loss for the year (2.0) (12.1) (83%)
Net cash 8.4 8.0 +0.4
Financial Highlights - Revenue increased to GBP25.2m, with year-on-year growth in the second half of 19% - Gross margin improvement of 418 bps enabled by focus on profitable sales - Group marketing efficiency4 improved by 2634 bps to 24.2% (2019: 50.5%) - The UK&I and France generated a positive marketing contribution - Cash flow neutral for the first time, after adjusting for GBP0.3m of tax payments deferred until after the year end
Operational Highlights - Entry into sleep gifts market with launch of 'well slept' range online and in partnership with Boots UK seeing
strong success - UK brand awareness grew 200 bps to 17% in August 2020 and is expected to have remained strong since, with the
launch of eve's latest TV campaign from November - Group conversion rate grew year-on-year by 60 bps, the third consecutive year of improvement - Re-platformed the UK&I websites to Shopify, with the French website also completed post year end, to secure more
stable, scalable and lower maintenance websites - Upgraded supply chains to localise manufacturing ahead of Brexit - Restructured warehousing and distribution to allow shipments to customers to be consolidated into one delivery,
deriving lower costs and better customer experience - Winner of the best two mattresses in the UK according to Which? and 3 of the top 5, and the best mattress in France
according to Que Choisir
Current trading
Revenues in the first two months of the year increased 16%, representing an acceleration from the last quarter of 2020, where growth was held back by some supply constraints.
Cheryl Calverley, CEO of eve Sleep, commented:
"eve's rebuild strategy is essentially complete, six months ahead of plan. We move now to accelerate our business, with a mind to leveraging our strong brand, efficient marketing, high performing products and excellent customer service to allow us to diversify across markets, channels and categories. But we do so carefully. Successful e-commerce businesses win through balancing growth, with customer experience and business resilience, and we will do the same. We seek sustainable, profitable growth and will avoid growth at any cost, and certainly to the detriment of customer experience or business resilience. We're excited about the opportunities the next few years bring, and we now have a business ready to grasp those opportunities."
The management team will be hosting a live presentation with Q&A for retail investors at 13:30 GMT today. The presentation can be accessed via the Investor Meet Company platform. Interested investors can sign up to Investor Meet Company for free and add to meet EVE SLEEP PLC via the link: https://www.investormeetcompany.com/eve-sleep-plc/ register-investor
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 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.
3 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) adding back IFRS16 adjustments for the office lease costs.
4 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.
For further information, please contact:
eve Sleep plc
Cheryl Calverley, Chief Executive Officer via M7 Communications LTD
Tim Parfitt, Chief Financial Officer
finnCap Limited (NOMAD and Broker)
Matt Goode / Ed Whiley (Corporate Finance) +44(0)20 7220 0500
Alice Lane (ECM)
M7 Communications LTD
+44(0) 7903 089 543
Mark Reed
chairman's statement
"eve is now a stronger, more resilient business, with a ready-made platform for future growth." - Paul Pindar
completing the rebuild strategy
In what has been one of the most difficult and unpredictable years for business, eve has exited 2020 in far better shape than it entered the year, through a combination of favourable external factors and sound execution of the strategy. The accelerated transition to online ordering and the strength of the homewares market brought about by the pandemic has provided tailwinds for the business. Whilst the sector remains highly competitive, there has been an improvement in the landscape, with the retrenchment of some online mattress companies, as well as reduced store based competition, from both temporary and permanent shop closures.
The rebuild strategy is largely complete and eve now has a more resilient and efficient technology, logistics and operational platform for future growth. The product ranges have been expanded, alongside a broadening of distribution in both the UK and France, which has had the added benefit of further raising brand awareness. Underpinning the whole business is the quality of the mattresses themselves, which have been widely recognised as best in class. Consumer champion Which? in November 2020 rated eve's original and its premium hybrid the two best mattresses in the UK. The Premium Hybrid has also been awarded 'Meilleur Choix' (best choice) by the French equivalent of Which? - Que Choisir.
eve has continued to build on its differentiated strategy of focusing on the broader sleep wellness category as compared to more mattress focused peers where competition is largely price driven. Existing product categories have been deepened with further products, as well as eve's move into new categories. eve's first foray into gifting with Boots for a 'well slept' range of sleep gifts for the Christmas period sold out and the new partnership with the French homewares retailer Olivier Desforges goes from strength to strength. In tandem with new partnerships, eve has exited those which were not economically viable, including Amazon UK, in order to stay focused on profitable sales growth.
The Company continued its ongoing investment in broadcast TV and supported its existing 'wake up dancing' campaign with an additional new campaign designed to build long term brand presence for eve as a sleep wellness brand. This longer term investment is a sign of increasing confidence in the business and its ongoing growth potential. The new 'switch off with eve sleep' campaign launched in November 2020 and runs every Sunday night across the Channel 4 estate, digital and mobile advertising through until spring 2021. The analytics on the campaign performance so far have been very positive, with payback above projected expectations.
Over the last two years the entire operations and processes of the business have been carefully analysed and restructuring plans put in place. The consumer websites have been re-platformed to Shopify, which, in addition to providing an improved customer experience and a more stable platform, reduces ongoing maintenance costs and is easily replicable across markets. As part of wider Brexit preparations to minimise any trade frictions and stay cost competitive, mattress manufacturing has been largely localised in the UK for the UK and Irish markets and Belgium for sales to the French market. Distribution capability for the UK&I, in terms of both warehousing and carriers has also been upgraded, resulting in an improved customer experience and a reduction in logistics cost through the consolidation of all items in an order into a single delivery.
financial performance ahead of expectations
The central focus of the rebuild strategy has always been to reduce losses and cash burn in order to put the business on a secure and sustainable long term footing. Great progress in 2020 has been made in this regard, with underlying EBITDA[1] losses cut by 81% to GBP2.0m and statutory loss reduced by 83% to GBP2.0m. Cash generation was even stronger, achieving a cash improvement of GBP0.4m, which after adjusting for GBP0.3m of tax payments deferred until post period end, resulted in a maiden cash flow neutral position for the full year. Accordingly, eve closed the year with a healthy statement of financial position, with GBP8.4m (2019: GBP8.0m) of cash and no debt (other than the lease liability for our office premises), without recourse to any further funding.
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DJ Eve Sleep plc: Final Results -2-
The period was dominated by the pandemic, with heightened sales volatility in the early months of the year. Sales from May onwards grew strongly and have remained at elevated levels as a result of the trend to online ordering and the strength of the homewares market. Sales for the full year grew by 6% to GBP25.2m, driven by 19% growth in the second half. This result, which exceeded the Board's twice raised expectations, was achieved on a marketing budget 49% lower than the previous year. Overheads (defined as wages, salaries and other administrative expenses but excluding share based payment charges) were also kept under tight control and 33% lower than the prior year.
The improved financial performance of the business was UK led, with Ireland also benefitting in the fourth quarter from some marketing investment. This is reflected in the UK&I's increased share of total revenues, which has risen from 78% in 2019 to 81% in 2020. The French business, which has been reset during the year with minimal marketing investment, improved its marketing contribution; defined as profit after all direct costs including marketing but before overheads, by GBP1.5m.
acting responsibly
We will continue to evolve our business to minimise our wider impact on the world and be a better corporate citizen. Our major initiative during the year was forming a partnership with TFR Group in the UK, a prominent furniture recycling company, on the removal, rejuvenation and recycling of mattresses. This policy is part of ensuring that 100% of eve sleep's returned mattresses are diverted away from landfill, saving over 100 tonnes of waste, whilst also optimising revenue recovery. A separate partnership with our carriers also encourages customers to have their previous mattress removed and recycled at the point their new mattress is delivered.
all credit to our people
This year has brought about unprecedented change for our team, who have been working through the rebuild strategy since late 2018. During the first national lockdown in May we announced a change in CEO with the promotion of Cheryl Calverley, eve's Chief Marketing Officer at the time, replacing James Sturrock, who has stayed on as a non-executive director. The entire team has once again adapted and stepped up to the challenge, showing great flexibility and fortitude, including making a seamless move to home working from March and ensuring a smooth transition to Cheryl's leadership.
We are proud to have been able to navigate 2020 without the need to announce new redundancies or furlough staff. Having met our targeted performance objectives for the year we have been able to pay a bonus to each and every staff member by way of a thank you to our team for their unswerving commitment to eve. Our team remain our greatest asset and we will continue to invest in their development, safety and well-being.
A brighter outlook
Trading for January and February has continued to be strong, benefitting from the ongoing weekly TV campaign in the UK, the latest Which? ratings and the wider behavioural shift to online purchasing. Revenue growth for the first two months of the year of 16% represents an improvement from the last quarter of 2020 and has been boosted by an easing of supply constraints and improved stock management, which had previously held back the rate of growth in late 2020. Whilst we are still experiencing some challenges in componentry supply and inflationary pressures, we expect these issues to further ease in the coming months.
In the year ahead we will continue to expand and deepen our product offering. These wider categories including gifting and CBD are initially trialled through a license model, which limits both the initial risk but also the financial upside.
We will continue to invest steadily in the UK, with efficient marketing now driving consistent growth and a positive marketing contribution. We anticipate a slowing in our rate of UK progress from around May as a result of tougher comparatives and a likely shift in consumer spending to out of home as the country exits lockdown measures. However, we firmly believe that the recent shift to e-commerce will not reverse, and the underlying trend of sleep wellness, on which the eve brand is built, is a fundamental societal force that will continue in the long term.
We plan to increase investment in France through 2021 and build on the higher profile that our highly successful retail partnership with Olivier Desforges has provided. This will accelerate our growth in the country and provide a more balanced and sustainable growth profile to the wider business. Unlike the UK, France has not experienced such an accelerated shift to e-commerce over the past year, having maintained 'open high streets' through most of the pandemic. We expect good growth from France in 2021 and beyond through a combination of the continued structural shift to online, combined with investment in our own established and award winning proposition.
With the rebuild strategy now largely behind us, eve is now well placed to embrace the future with renewed confidence.
Paul Pindar
Chairman
17 March 2021 strategic report
strategic review
"well placed in a large, fragmented, rapidly changing market"
Sleep is increasingly recognised as an essential element of wellness at a time when wellness has never been more important. There is 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 poll commissioned by eve and taken shortly after the start of the pandemic, as many as 48% of respondents said that they were kept up due to worry about Covid19 and nearly one in four admitted that their quality of sleep was worse than ever. 'Sleep' has now overtaken both 'diet' and 'exercise' as the most searched for term on google (UK) across the 'wellbeing triad' of 'sleep', 'diet' and 'exercise', showing the increased awareness that consumers have of this vital component of wellbeing.
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, they are also willing to spend more on the central element of a good night's sleep; the mattress. The strong sales performance of eve's premium hybrid mattress testifies to this point, generating over 30% of mattress sales by volume. Every customer that purchases an eve mattress is asked at 100 days whether they're sleeping better thanks to their eve, and 80% tell us they are. A strong piece of advocacy for the quality and effectiveness of our products.
Sleep is a huge market, which has evolved substantially since the start of the pandemic. Data from Euromonitor estimates that the European sleep market is worth approximately GBP26bn, with the Core Markets that eve is focused on (UK &I and France) being worth approximately GBP6bn. The advent of the first national lockdown from March 2020 and the consequent switch to working from home, coupled with a lack of leisure spending alternatives, drove a strong increase in industry wide demand for bedding and homewares products. Consumers en masse literally 'bedded down' for lockdown as they sought to renovate their homes and bedrooms. Data from Barclays UK Consumer Spending Reports show that spending in the Household category experienced double digit year-on-year growth each and every month from June 2020 through December 2020.
The growth in spending has been online led, resulting in an acceleration of the trend to ecommerce. Data from the Office for National Statistics shows that non-food retail sales online grew to 25.5% of all sales in Q4 2020, from 12.9% in Q4 2019. Historic data suggests that shifts to online show limited tendency to reverse, and with the country entering 2021 in its third national lockdown and all but essential shops closed, it is reasonable to assume that a substantial element of the shift to online will become permanent.
Whilst the sector remains fragmented and highly competitive the competitive landscape across beds and mattresses has eased, with a number of online mattress providers choosing to retrench from the UK market, alongside a reduction in store based competition, both permanent and temporary as a result of the pandemic. There is also evidence to suggest that the mattress in a box brands are growing their share of the market. Despite the level of ongoing competition in mattresses, there is no company that as yet has established itself as 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, content and support across a range of categories and sales channels.
business model
eve is an agile, 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, without incurring the fixed costs of a large store estate, eve increases its potential sales opportunities and grows its brand awareness and product understanding.
Building a strong brand and customer experience and ultimately therefore enjoying 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, providing the authority and consumer trust to sell a broader range of products at a greater frequency across the category.
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DJ Eve Sleep plc: Final Results -3-
As a DTC focused business, eve has the privilege of vast amounts of first party data from which to better understand customer needs and to evolve both its marketing and its product offering. This enables the business to deliver better targeted incentives for customers to return and buy further products directly from eve. Some 13.2% of customers that purchased an eve product in 2018 have returned to buy further eve products in the subsequent two years.
As a brand led business, resources in terms of investment and talent are focused on the key operations of product development, marketing, operations and customer experience. In-line with many 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 helps to de-risk the business in terms of currency and any potential trade frictions. It has also proved to be highly scalable and flexible, enabling significant seasonal variations in product demand to be met without any noticeable margin impact or variance in stock holding. There is a close working relationship with eve's manufacturing partners to innovate and develop best in class products that out perform competitors in terms of function and design, as evidenced by the high performance of the Premium Hybrid and Original Hybrid ranges in Which? Consumer surveys.
The outsourced manufacturing and fulfilment model, coupled with the DTC led setup, enables a lower and more flexible cost base than a traditional retailer. This has been evident throughout the rebuild strategy, where non-profitable sales have been cut, processes completely overhauled without the negative margin impact and/or incurrence of substantial restructuring costs which would typically be expected from a more asset backed business. For eve, marketing is one of its largest costs, but unlike rent, it is flexible in nature and is quick and easy to scale up and down as well as optimise and accelerate where opportunities arise.
chief executive's report
"we have navigated the many challenges of 2020 well and enter 2021 in good shape thanks to the tireless dedication, creativity and commitment of the entire eve team" - Cheryl Calverley
introduction
Taking on your first CEO role can be daunting at the best of times but add in a global pandemic, an unplanned for acceleration in demand and your entire team working from home and the challenges quickly multiply. However, I am pleased to say that the transition in May 2020 went smoothly, with no noticeable impact on performance. This has been aided by my deep involvement in the rebuild strategy since joining eve in December 2018 as Chief Marketing Officer and the strong culture of dedication, care, creativity and commitment across the entire eve team, something that has been a priceless asset during this remarkable period.
I first joined eve because I could see the unique opportunity to build a sleep wellness brand. A brand of significant size and strength occupying an uncontested territory, meeting a rapidly growing consumer need with a differentiated proposition to the more price led, mattress focused competitors, or generalist homewares retailers. I am pleased to say that the opportunity still remains and during 2020 we've made good progress towards achieving this, as part of our wider rebuild strategy.
Since taking over as CEO the focus has remained on delivering the rebuild strategy, with the central goal of putting the business on a more sustainable, long term financial footing. The improvement in the financial performance is clear to see with underlying EBITDA losses in 2020 reduced by 81% year-on-year to GBP2.0m on revenues 6% higher than 2019, and statutory losses reduced by 83% to GBP2.0m. The improvement in cash generation has been even more dramatic, with the Group reporting its first ever neutral cash flow for the year, after adjusting for GBP0.3m VAT payments from 2020 Q1, which were deferred until after the year-end under the UK Government's Coronavirus support measures. This compares with a net cash outflow of GBP10.1m (excluding GBP12.0m equity funding) in 2019 and an outflow of GBP21.0m in 2018. This means eve exits 2020 with a healthy cash balance of GBP8.4m and no debt, other than the lease liability on our office premises.
The improvements to infrastructure and operations of the business are less visible but of equal, if not greater importance. The restructuring that has taken place to date is about more than just greater efficiency, it is about building a platform and a collection of product and marketing assets that can be readily scaled across markets, without markedly increased overhead or damaging the customer experience. We have been rebuilding in preparation for future growth, and whilst work will remain ongoing, eve now has a tech platform that can be rolled out across new markets without incurring higher overheads. Complementing this more scalable platform is a broader product set, a brand positioning and a marketing strategy that is instantly replicable across markets, supported by a highly scalable logistics and customer service operation.
the rebuild strategy
To best evaluate the performance of the business in 2020 it is necessary to analyse the performance against the three core pillars of the rebuild strategy: - differentiated brand positioning; - expanded product range; and - lower friction customer experience.
differentiated brand positioning
To differentiate eve from the other mattress in a box brands, where competition is largely price led, our strategy is to establish eve as a trusted destination for high quality sleep wellness products. To achieve this, we have refocused our marketing communications on the benefits that eve can bring consumers in sleep wellness. A fine example is where eve partnered with Channel 4 to celebrate World Sleep Day on 13 March 2020 by removing the brain-stimulating blue light from TV ads and replacing it with an amber-coloured filter to lull viewers into a good night's sleep. This initiative was supported by an eve ad, which aired on a Sunday evening time slot on Channel 4 and related channels, providing simple and effective sleep tips to further amplify the eve message.
The concept evolved further with the new UK campaign, 'switch off with eve sleep,' which leant on some of the key themes from the World Sleep Day campaign. The new campaign, which launched in November 2020 and runs every Sunday night on Channel 4 through to spring 2021, revived the iconic 'test Card F', which until 1997, signalled the end of programming in a bid to encourage the nation to switch off their minds and bodies and start winding down for bed. The campaign extends to casual gaming, popping up on the screens of popular gaming apps such as Candy Crush, to remind users that it is time to grab some sleep.
During the first half of the year, we grasped the opportunity offered by the depressed TV market to run our existing, highly effective campaigns in both the UK and France. These drove a strong customer response and further gains in marketing efficiency.
The success of our marketing is demonstrated in our unprompted UK brand awareness, which increased from 15% in August 2019 to 17% at August 2020. This understates the full improvement achieved during the year, with the benefits of the latest TV campaign that launched in November and the brand presence in Boots to come through in the next survey.
Our Irish business, which is now ready for growth, benefited from some increased marketing investment in the fourth quarter of the year, though this was not extended to TV. Marketing investment in France, with the exception of the running of a small amount of TV media utilising an existing TV campaign in May was minimal during the year, as the business is at an earlier stage in its development than the UK.
In addition to refocusing the positioning of our brand, considerable effort has gone into improving marketing efficiency, including the development of enhanced data analytics. Subsequent marketing investment has been evaluated in depth, with the removal of channels that were not generating a sufficient return, in line with our strategy of focusing on profitable sales. The success of this strategy is best evidenced in the efficiency of our marketing spend, which has improved in all three of our markets in tandem with growing awareness in the UK. In the UK&I marketing efficiency has improved from 52.3% in 2019 to 25.1% in 2020. This is the fourth successive year of improvement and we are now confident our marketing efficiency has reached sustainable levels. In France, marketing efficiency improved from 44.1% in 2019 to 21.0% in 2020, though it should be recognised that our ambition is not to sustain these levels, but to invest for further growth in France.
expanded product range
Range expansion offers eve a clear trajectory to leading the sleep wellness space and provides the opportunity to grow the frequency of customer purchases. Mattresses remain at the heart of the business and increased from four to seven products in the year, with the relaunch of the original Hybrid mattress in October a key move in response to the increasing importance of the hybrid category to the mattress market. eve also offers a cot mattress as part of its child and baby offering. Recognition of the quality of the product range is widespread and eve now has the top two most highly rated mattresses in the UK - the original and premium hybrid - and three of the top five mattresses, according to consumer champion Which?. In France the premium hybrid mattress has been awarded the 'Meilleurs Choix' (best choice) by the French equivalent of Which?.
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