eve Sleep plc – Final results

eve Sleep plc – Final results

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, £m 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 theother 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 £34.8m (2017: £27.7m), 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 £29.4m (2017: £21.7m);
  • 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%) andFrance 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 £11.7m (net of expenses) and £0.9m media for equity commitment against future media spend with Channel 4;
  • Closing cash at 28 February 2019 of £17.8m;
  • In a separate announcement released today, certain management changes have been made, including the stepping down of CFO AbidIsmail 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 twelvemonths, 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 £0.8m of staff and country exit costs (2018 only);
4  Results presented from NPS surveys conducted in December 2017 and 2018 respectively.

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