Eve Sleep plc (EVE) Eve Sleep plc: Final Results 24-March-2022 /
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
Third consecutive year of UK&I revenue growth, aiming to
create the World's first digital sleep wellness retailer
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 2021 (the
"Period").
Financial Highlights 1
2021 GBPm 2020 GBPm 2019 GBPm Mvmt 2021v 2019
Group revenue 26.6 25.2 23.9 +11%
Gross profit 14.7 14.4 12.7 +GBP2.0m
Gross profit margin 55.4% 57.3% 53.1% +230bps
Marketing costs as % of revenue 27.0% 24.2% 50.5% -2350bps
Marketing contribution 3.1 4.3 (2.5) +GBP5.6m
Underlying EBITDA loss3 (3.0) (2.0) (10.9) +GBP7.9m
Statutory loss before tax (3.4) (2.4) (12.5) +GBP9.1m
Net cash at period end 4.5 8.4 8.0 -GBP3.5m
Financial Highlights
-- Third consecutive year of UK&I revenue growth, increasing
22% on two-year comparatives
-- Second consecutive year of Group revenue growth, up 11% on
two-year comparatives
-- Group EBITDA losses increased to GBP3.0m on higher marketing
investment in France but reduced 73% on 2019
-- Improved H2 performance with EBITDA losses of just GBP1.1m
and a cash outflow of GBP0.7m
-- GBP4.5m closing net cash balance is sufficient to execute the
business plan for 2022
Operational Highlights
-- Extended range to operate in six categories
-- Premium ranges account for over 40% of revenue
-- Continued expansion into gifting and wellness, with over 50
SKUs
-- Robust supply chain, with average delivery lead times for
large items below 10 days
Post period developments
-- Launched new retail partnership with DFS, which went live on
the dfs.co.uk website in early March 2022,with plans to extend to
the showroom estate later in the year
-- Launch of Channel 4 TV campaign from April, sponsoring 'late
nights on 4' for 12 months
Current trading and outlook
Trading in Q1 last year was eve's strongest quarter, as a result
of extensive lockdown restrictions, with comparatives normalising
from the start of May. In this context, trading for January and
February has been softer than the prior period last year, but 6% up
on 2020. Whilst there are heightened geopolitical uncertainties and
the path for consumer spending is currently unclear for the year,
our targets on growth and UK&I profitability remain.
Cheryl Calverley, CEO of eve Sleep, commented:
"Delivering a third year of growth in revenues and marketing
contribution in our core UK&I business, notwithstanding the
many external challenges faced during the period, demonstrates
clearly the sustainability of our recovery and the success of the
rebuild strategy. We have managed and mitigated inflationary
pressures and supply chain disruption throughout 2021, whilst the
Q4 issue of covid related labour supply shortages primarily in our
delivery proposition has now abated. There is no denying the
challenges we will face in 2022 but the restructured business is in
good shape, our offering greatly enhanced and our team as strong as
ever.
Our push into the sleep wellness space will continue at pace in
2022, including the launch of our first digital services. Sleep
wellness is a large, fragmented and growing market, where we have a
substantial lead over our more mattress focused competitors. There
is a real opportunity to create the world's first digital sleep
wellness retailer."
The management team will be hosting a live presentation with
Q&A for retail investors at 10am 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 Ltd (NOMAD and Broker)
Matt Goode / Teddy Whiley - Corporate Finance +44 (0)20 7220 0500
Alice Lane / Charlotte Sutcliffe - Equity Capital Markets
M7 Communications LTD
+44 (0)7903 089 543
Mark Reed chairman's statement
"eve is well placed to carve out a leadership position in the
huge, growing and untapped market of sleep wellness." Mike Lloyd,
Chairman
The attractions of eve
I was delighted to be appointed Chairman in May 2021.
We are a business that has built strong capabilities, in a
market that is ripe with opportunity.
The near-term opportunity is to continue to grow our strong
UK&I Direct-To-Consumer (DTC) mattress business. The
longer-term opportunity is carving out a unique set of products and
services in sleep wellness. This is a market that no-one has truly
captured yet and is fast-emerging in the mainstream of public
consciousness.
Eve was one of the first DTC mattress companies when we were
founded in 2015. It was soon joined by a large number of other
start-ups with a similar model - in the UK, Europe and North
America. This created a level of intense and unprofitable
competition. Many players have now been shaken out with a small
number remaining. We decided ourselves to reset and rebuild in 2018
with a new leadership team - which now has Cheryl at its helm.
Since this time, the new team has established a record of
strategic and financial progress, including the delivery of the
rebuild strategy. The most marked result of this is that in our
UK&I DTC business over the last two years, sales are up 49%
while we spent 44% less on marketing.
Last year, our UK&I business performed well with revenues up
10% year on year and profit before group overheads also up 5% to
GBP3.7m. Within the UK&I, the largest area is our DTC business
which performed strongly and offset a decline in our smaller B2B
business. In B2B, we have just started a new relationship with DFS,
giving support to the attainment of our growth targets for
2022.
The French market has been more challenging. In 2019, we decided
to reassess where we stood in France. As a result, we stopped any
material investment in broadcast advertising - which has a payback
period over several years. Whilst the resulting savings over 2020
allowed our French business to deliver a profit before group
overheads, our top line in this market began to decline. We sought
to re-establish growth in our French business in 2021, investing
again in brand advertising from mid-year. The immediate result of
this has been to swing France from contributing a GBP0.6m profit in
2020 to a GBP0.6m loss in 2021. While the top-line decline has been
reducing, it is fair to say we'd hoped for a quicker turn-around
than we have seen, in the face of unexpected market headwinds, with
both increased competition and softening consumer demand
ameliorating the growth.
Our Group overheads reduced slightly by GBP0.2m in the year.
This plus the improvement in UK&I contribution did not offset
the swing in profitability in France. Consequently, our Group
EBITDA loss increased from GBP2.0m in 2020 to GBP3.0m in 2021.
It is clear we have a strong UK&I business. Our brand
commands a premium and we have invested in it continuously since
2015. Our mattresses top the Which? Best Buy tables. Our service
and operations are strong. Our HQ and core production is in the UK
and we have a strong management team and wider set of
colleagues.
The rebuild strategy has also given us a stronger platform to
extend this momentum. It has given us a robust data set-up we did
not have. This is critical to being effective at digital marketing.
It has also given us a more scalable and resilient website
platform. Having now got these in place there is more to be gained
from both in 2022.
The rebuild strategy has also given us a product development and
content capability to expand beyond mattresses and ultimately to
become a true sleep wellness business. We are doing this in natural
steps from where we started. In 2021 product development was
stepped up. This included the creation of a range of 'sleep-away'
products and we have accelerated the development of our gifting and
wellness ranges, spanning everything from weighted blankets, sleep
aids and candles, through to night lights and CBD oils.
Second consecutive year of revenue growth
Looking at the numbers in more detail: this was another year of
financial progress towards our goal of building a profitable and
sustainable business.
Group revenue increased year-on-year by 5% to GBP26.6m (2020:
GBP25.2m). On two-year pre-Covid comparatives, revenue has grown
11% in tandem with a 40% reduction in marketing spend over the same
period.
Revenue growth was led by the UK&I market, which achieved
its third consecutive year of improvement. UK&I revenues grew
10% year-on-year and 22% on two-year pre-Covid comparatives. Within
that the DTC revenues grew 21% year-on-year and 49% on two-year
comparatives. The UK&I business generated a positive net
contribution, defined as profit before overhead costs, for the
second consecutive year, reporting a profit of GBP3.7m in 2021
(2020: GBP3.6m), an increase of 5% year-on year and an improvement
of GBP5.4m on the 2019 loss.
We have reset the French business as I outlined. Here revenues
declined 13% in the year to GBP4.0m. However, there are early signs
of improvement including a growing conversion rate, which increased
in the fourth quarter.
At the Group level EBITDA losses increased year-on-year to
GBP3.0m (2020: loss GBP2.0m) reflecting the additional investment
in France. This is 73% below 2019 pre-Covid loss levels of
GBP10.7m. The increased EBITDA loss, compounded by a GBP1.0m cash
outflow in H1 2021 for one-off factors relating to increased stock
holding, payment of deferred VAT and other working capital
movements, reduced the net cash position to GBP4.5m at 31 December
2021 (31 December 2020: GBP8.4m).
We are of course cognisant of how we are using our cash going
into 2022, and a key objective this year is for the UK &I
business to reach breakeven after covering its share of group
overheads while building top-line growth.
All credit to our people
Coming into eve, I have been impressed by the culture and
openness in the business. It is a creative, fun place to work, and
an organisation with strong values and real purpose. For
shareholders, this is an asset for our long-term success.
And in terms of our team: whilst often said, it is deeply felt -
they have endured two unprecedented years. They have managed Covid
induced uncertainty as well as working systematically through the
challenging rebuild strategy. Throughout these trying times they
have demonstrated incredible levels of resilience and flexibility.
During the Christmas period, where Covid brought challenges to our
delivery network and our own team capacity, all members of the
team, irrespective of seniority jumped in to help resolve some of
the resulting customer challenges.
I would also like to thank Paul Pindar for his service as
Chairman to eve over many years. He has done a sterling job,
overseeing both the appointment of a new and first-class management
team as well as the delivery of the rebuild strategy. At the same
time, I welcome Masood Choudhry, who was appointed to the board as
a Non-Executive director in February 2021. Masood's 20-year
background in logistics and supply chain (he is currently VP of
logistics at Zalando) has and will prove invaluable in an
environment where global supply chains are being disrupted.
outlook
The priorities we set out for this year are twofold. First, to
build on the momentum we have in our UK&I business to deliver a
breakeven result. Second, to accelerate our move to be a wider
sleep wellness business.
As I write this, it is three weeks since Russia invaded Ukraine.
The Bank of England has just put up interest rates and said they
expect inflation to be hitting over 8% soon. Consumer sentiment has
clearly turned since Christmas.
Trading in Q1 last year was eve's strongest quarter, as a result
of extensive lockdown restrictions, with comparatives normalising
from the start of May. In this context, trading for January and
February has been softer than the prior period last year, but up 6%
on 2020. Whilst there are heightened geopolitical uncertainties and
the path for consumer spending is currently unclear for the year,
our targets on growth and UK&I profitability remain.
With the invasion of Ukraine, we have entered a period of more
intense uncertainty. Just as we did when COVID kicked-off, we will
respond as things develop and seek to capture opportunities as they
arise. Our direction and objectives remain unchanged however.
Mike Lloyd
Chairman
23 March 2022 strategic report strategic review
Sleep wellness is a large, growing, global industry
Consumers en masse have woken up to the fact that sleep is an
essential element of wellness that should be taken as seriously as
diet and exercise. The pandemic has brought this issue to the fore,
with reports of a substantial rise in sleep disruption, caused by
anxiety, stress and lockdowns. Not getting enough sleep is
correlated with many conditions including but not limited to an
increased risk of depression, anxiety, weight gain, diabetes, heart
disease and strokes.
In a survey undertaken for eve in 2021 nearly two thirds of
respondents say that they worry about the amount of sleep they are
getting and that nine in ten consumers asked had suffered some form
of sleep disruption in the last three months. In the same eve
survey, almost 75% of respondents had purchased or would consider
purchasing a product or service to help them sleep.
With the increasing understanding of the importance of sleep has
come consumer change. Consumers are spending more on wellness and
the sleep wellness market has been a beneficiary of this. Data from
the marketing intelligence and consulting firm P&S Intelligence
estimates that the global sleep wellness market was worth USUSD79bn
in 2019 and is expected to grow at a compound annual growth rate
(CAGR) of 7.1% between 2020 and 2030. The key drivers of this
projected growth include: the stress of modern life, ageing
populations, increased use of caffeine, alcohol and screens, all of
which impede a good night's sleep.
With the advent of lockdown restrictions from March 2020 in the
UK and the switch to working from home, coupled with the lack of
opportunities for travel and leisure activities, bedding and the
wider homewares market has seen a significant and sustained
increase in consumer spending. Whilst year-on-year comparatives are
distorted by the timing of Covid restrictions and the associated
closure of high street competition, data from Barclays UK Consumer
Spending Reports show that retail spending in the household
category increased each and every month through 2021 against
two-year, pre-Covid comparatives. Furthermore, with the exception
of January 2021, the two-year growth rate was in double digits
every month.
eve experienced this trend in their own product categories. Not
only did consumers spend more on sleep wellness related products
but they also invested more on the central element of a good
night's sleep: the mattress. The strong sales of eve's premium
hybrid mattress testify to this point, generating over 23% of Group
mattress sales by volume in 2021. As one of the Company's KPIs
every customer that purchases an eve mattress is asked at 100 days
whether they're sleeping better thanks to their eve, and over 8/10
of them tell us that they are. A strong piece of advocacy for the
quality and effectiveness of our products.
Ecommerce has held onto much of the lockdown gains
The pandemic accelerated the already established structural
shift to online ordering and although the proportion of online
sales was for a while artificially high, boosted by the enforced
temporary closure of physical store-based competition, ecommerce
has held onto a significant proportion of the gains. Data from the
Office for National Statistics shows that ecommerce sales
represented 15.5% of total non-food retail sales in December 2019
before the pandemic, rising to 35.2% by December 2020, following
the return of lockdown restrictions in the month. By December 2021
ecommerce's share of total non-food retail sales was 23.3%, a 780
bps increase from pre-Covid levels of December 2019.
Fragmented market, with most pursuing a volume driven, mattress
focused strategy
Whilst the sector remains fragmented and highly competitive the
landscape has changed through the pandemic. There has been a number
of online mattress providers choosing to retrench from the UK
market over the last two years, alongside a reduction in
store-based competition, as some estates are parred back and other
retailers fail to survive.
The evidence suggests that the mattress-in-a-box brands are
growing their share of the market given their rates of growth and
in eve's case the fact that they own the two most highly rated
mattresses by Which? in the UK. Whilst competition remains intense
it is clear that many online brands are largely focused on price
driven, volume sales of mattresses, with eve adopting a
differentiated strategy, aiming to be the go-to brand for high
quality 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 DTC led
proposition, supported by selected partnerships with leading
retailers. This omni-channel approach reflects how consumers
increasingly discover, choose and buy 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, its customer reach and
grows its brand awareness and product understanding.
Building a strong brand and customer experience, developing
direct customer relationships with first party data and ultimately
therefore enjoying repeat sales of wider sleep wellness products 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, underpinning
its offering with the authority and consumer trust to sell a
broader range of products at a greater frequency across the
category.
As a primarily DTC 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 offer a more complete sleep
solution to suit each customer.
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 are outsourced to
leading third party suppliers in the UK and Continental Europe.
Mattresses for the UK&I market are made in the UK and those for
France are manufactured in Belgium. This set-up helps to de-risk
the business in terms of currency and post Brexit 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 ranges in the Which? and
Que Choisir consumer surveys in the UK and France respectively.
As eve continues to expand into new and adjacent product
categories, there is a consequent evolution in the business model.
In addition to selling products developed by eve, there is a
growing focus on leveraging the brand strength of eve and its
ecommerce capability to build a position in the eyes of consumers
as a sleep retailer. To support this goal eve has started working
with innovative partner brands, such as eym, Morphee, Three Spirit
and Rescue Remedy who bring a unique breadth to the overall eve
sleep wellness offering, whilst retaining eve's reputation for
quality.
The outsourced manufacturing and fulfilment model, coupled with
the DTC led setup, enables a lower and more flexible cost base than
a traditional store-based 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 manufacturing, it is flexible in nature and is relatively
quick to scale up and down as well as optimise and accelerate where
opportunities arise, once core advertising assets have been
invested in and developed. chief executive's report
"We are creating the world's first digital sleep wellness
retailer" - Cheryl Calverley
Our journey
To fully understand the progress made in the year, as well as
the end destination and how we plan to get there, we must first
set-out the wider context and the improvements made to date that
make this vision achievable.
Where we have come from
Three years ago eve kicked off a rebuild strategy designed to
turn around the business and put it on a more sustainable long term
footing. EBITDA losses, which peaked at GBP19m in 2018, and the
resulting cash burn needed to be stemmed fast by addressing their
underlying causes. The causes were multiple but included chasing
sales growth in too many markets at any cost, a lack of discipline
and control in marketing investment, an inflated cost base built
for a far larger scale, a narrow product set with limited
opportunity to drive basket value, repeat purchase or margin
enhancement, and a creaking technology platform. Strategically eve
was competing head-on with numerous DTC competitors focused on high
volume mattress sales and needed to differentiate itself, targeting
wider, untapped market opportunities. These issues and our
subsequent progress can be categorised into four key elements:
-- Unit economics
-- Marketing efficiency
-- Competitive position
-- Infrastructure and operations
Over the last three years there have been extensive changes to
the management team, to lead and deliver the rebuild strategy. In
addition to my own appointment as CEO in 2020, Tim Parfitt joined
as CFO in 2019, having previously held the same position at the
profitable ecommerce furniture operator Loaf. Most recently we
secured the services of Mike Lloyd as Chairman, whose background
includes director level roles at The AA and McCarthy & Stone
and Masood Choudhry, currently VP of logistics at Zalando, as a
non-executive director. For a company of eve's size, we have a
heavy weight team, with a wealth of experience and relevant
expertise, all of whom believe in the opportunity of building a
sustainably profitable digital sleep wellness retailer.
Our progress to date:
Unit economics have significantly improved with a higher gross
margin
We have improved our unit economics by focusing on driving
profitable sales rather than chasing topline growth as an objective
in its own right. Low margin sales channels including Amazon and
some other retail partnerships have been terminated. Products have
been reviewed and redeveloped, ranges refined, and logistics and
supply chains improved throughout. The resulting impact on gross
margin has been significant with the UK&I gross margin in 2021
improving to 55.9%, an increase of 347bps on the 52.5% reported in
2018. We are comfortable that margins at or around this level give
us appropriate headroom for long term profitable growth.
Marketing efficiency has more than doubled
Marketing costs were poorly controlled in 2018 with little
understanding as to the effectiveness of the investment. I joined
the business at the end of the 2018 financial year as CMO, when
marketing costs peaked at GBP22.2m for the Group, representing 64%
of total revenues. Since then we have developed a more thorough
understanding of the marketing mix and creative effectiveness,
allowing us to focus investment on marketing channels with the
strongest financial return.
The results have been impressive. In 2021 marketing investment
totalled GBP7.2m, with marketing efficiency, defined as marketing
costs as a percentage of revenues, falling to 27.0%, an improvement
of 58% on the 2018 result, reflecting a reduction of marketing
costs between 2018 and 2021 of GBP15.0m, with the associated fall
in sales limited to GBP8.2m. 2020 was an anomalous year in this
journey where media pricing, notably the costs of social media,
search and TV fell ahead of plan across the industry, due to the
impact of lock downs. 2021 marketing costs are more normalised, and
in line with our rebuild plan.
Competitive position and product set is now highly
differentiated to peers
Two of the three pillars of the rebuild strategy were
essentially about moving eve forward from being a pure play
mattress seller towards becoming a sleep wellness retailer, through
a differentiated market position which could support a broader
product suite. The new positioning has been built through a series
of marketing campaigns since the start of 2019 onwards, and a
growing amount of digital content highlighting the benefits that
eve can bring consumers in sleep wellness.
The updated market positioning is reinforced with the focus on
new product ranges. Bedframes, which were one of the earlier new
categories, have grown to become a significant business in their
own right, generating 7% of Group revenues in 2021. Gifting and
wellness ranges were initially introduced as a test in late 2020
and have enjoyed further development in 2021. We now have some 50
products on the UK&I website spanning the Morphee Sleep aid, a
range of eym candles, Rescue Remedy balms, capsules and droppers,
nightlights and even a non-alcoholic nightcap drink to soothe
consumers into a deep and restful sleep.
The sleepovers category was introduced in the year, with a range
of sleep away products including a mattress that rolls up and has
its own carry handle. Early indications for this category are
extremely positive with sales in the first six months surpassing
GBP0.2m, and due to its initial success we have listed this product
with Argos in addition to our own site.
Infrastructure and operations are now more robust, effective and
efficient
All aspects of operations from manufacturing, warehousing,
couriers and the website platform have been restructured over the
last three years. Manufacturing has been consolidated from three to
two locations, one in the UK, serving the domestic market and one
in Belgium for European orders. This has given us greater cost
efficiency, lower risk and flexibility to scale-up and down
production with demand.
Warehouse operations have been consolidated in both the UK and
France. We now have a more reliable warehouse operation, which
allows us to maintain greater stock levels more efficiently - key
in these times of supply chain disruption and unpredictability.
At the start of the rebuild strategy we ran our own website
platform, designed and managed in-house. But it was not
sufficiently robust, with site downtime running at excessive levels
and costly to maintain. We have since migrated the UK, Irish and
French sites to Shopify, and developed a high performing and
efficient technology team in India to support further development
of this platform. The combination of the Shopify platform and new
couriers has also enabled us to improve the customer delivery
experience and reduce costs, with the ability to combine all items
in an order into a single delivery which previously was not
possible.
The financial benefits of these changes to our operations are
clear to see. Administrative costs (excluding marketing) as a % of
revenue have fallen from a peak of 41.8% in 2019 to 24.7% in
2021.
Where we are now
The rebuild strategy has worked and the benefits are coming
through strongly in the UK&I market. The brand and product
range are highly differentiated to peers and are developing in
alignment with our sleep wellness vision, all supported by a more
robust, effective and efficient infrastructure and operations. This
is clearly evident in our 2021 financial performance in the
UK&I with the third consecutive increase in net contribution,
despite the disruption to global supply chains and labour
shortages. Our average delivery time in the UK&I in 2021 was
just ten days.
Informed by in depth consumer research, early in 2022 we
extended our risk-free trial from 100 nights to one whole year.
This is an industry leading proposition, made possible by the
quality of our award-winning mattresses and their very low return
rates. We calculate that the additional sales secured through this
offer will more than compensate for any increase in the number of
returns.
In 2021 we passed an important milestone on the path to
sustainable profitability in the UK&I, achieving a positive
marketing contribution for the second consecutive year. Profit
after marketing costs but before overheads in the UK&I grew by
5% to GBP3.7m (2020: GBP3.6m). Only two years ago the UK&I
business reported a loss after marketing costs of GBP1.7m in 2019,
demonstrating a GBP5.4m improvement in profitability over the
period.
We estimate that the French business is some 18 months behind
the UK&I in its development, with the market place some 2-3
years behind the UK in terms of its transition to online. But the
same business improvements seen in the UK&I have also been made
in France, with the unit economics restructured and the
infrastructure and operations re-engineered to provide a more
robust, effective and efficient platform. By way of example the
French gross margin, which stood at 48.5% in 2019, increased to
52.2% in 2021.
The new French marketing campaign which launched in May 2021 is
the first significant investment in the brand since 2018. It is
bespoke to the French market but reflects the same differentiated
brand proposition in sleep wellness as the UK&I equivalent. As
we know from our history in the UK, this will take time to build
and pay back through increased sales. Our initial focus is
returning brand awareness to growth and establishing confidence in
the core product. Despite a challenging and highly competitive
market in France during the year, there are some early signs of
encouragement in terms of an improving conversion rate in the
fourth quarter. The profile of eve is further supported by our
partnership with homewares retailer Olivier Desforges, which
delivered GBP166k of revenue into the business in 2021,
significantly ahead of expectations.
The eve product range in France is more limited than in the UK,
in part reflecting the business' earlier stage of development and
the importance of first establishing the core mattress product in
the minds of consumers. However, in tandem with building momentum
in mattress sales, ranges will continue to be developed that are
aligned with the sleep wellness vision and localised for the French
customer.
Where we are going
Sustainable profitability
Our near-term focus is moving eve into sustainable
profitability, reaching a position where the business is growing
and achieving both a profit and a positive cashflow each year.
Anything less than this is not sustainable in the long term. Our
initial focus is in reaching breakeven in the UK&I, returning
to growth in France, and building an increasingly broad sleep
wellness offering to engender ever improving customer repeat rates,
fuelling organic underlying growth for the long term.
With the benefits of the rebuild strategy now coming through we
expect to reach breakeven in the UK&I in the current financial
year, though we are cognisant of the financial pressures facing UK
consumers. It is a rapidly changing economic and socio-political
picture, so we are retaining our focus on business resilience and
flexibility. In France we expect a return to topline growth and an
improvement in the bottom line performance compared to 2021,
however again this is cast against a rapidly changing market place
with strong and somewhat unexpected headwinds, and we will invest
according to the circumstances we see before us.
Our improving margins and premium ranges give us the opportunity
to drive stronger growth through maintaining our price position of
'accessible premium' to customers, despite inflationary cost
pressures. This is particularly vital over the next 6-12 months
when we anticipate consumer confidence maybe weaker and price will
become a more significant factor than usual in buyers' decision
making. The hard work over the past two years in driving efficiency
puts us in a strong position to be able to offer great value to
customers at a time they need it most, with no need to further
expand margins.
We will achieve our financial goals through the continuation of
our strategy of further product development, improving customer
experience, backed up by a robust and efficient infrastructure,
data and technology platform.
Growing the ranges
Our new product categories including gifting, wellness and
sleepovers, have been well received and we expect strong growth in
both consideration and purchases as our customer base becomes more
aware of our wider ranges and we develop our marketing
communications around them. It takes time to build momentum in new
ranges, particularly with an eye to marketing efficiency, but the
retail model we are working to allows for gradual and careful new
category entry and range development with minimal risk.
We are planning further new product development during the year
as we move towards the goal of becoming a 'sleep retailer' with
further developments in core and supporting categories. eve has
adopted a new model for developing its ranges as it seeks to move
towards a more retail lead mindset, using a combination of in-house
development and partner branded products, supported with a
licensing model that allows us to trial and test new products in a
low-risk way.
As we develop our knowledge in new categories, ranges and
products, we will continually assess our 'make, buy or brand'
decisions, allowing us to balance margin, growth and risk in each
new category and product range we enter.
Leveraging data to enhance the customer experience
There are significant plans to further advance the customer
experience in the current year. Historically we have not had the
bandwidth to leverage our data set in any meaningful way, but that
is now changing. In early 2022 we brought on board an experienced
Data Director to help guide the business in developing a strong
data capability. We see this as a key growth enabler, through the
ability to better understand and personalise our offering to
customers, acquiring and serving customers ever more efficiently,
and delivering stronger repeat rates and customer lifetime value as
a result. This will drive further improvements in our marketing
efficiency, conversion rate and the number of repeating customers.
Whilst seven years old, many parts of the business remain immature,
and moving to a more data driven, automated model in many areas is
at the top of our priority list to facilitate improving customer
service as we scale, beginning with our customer returns management
process.
Creating a content and digital experience led strategy - the
'well slept club'
To further improve our marketing efficiency we will continue
reducing our reliance on paid search and high marginal marketing
costs to acquire customers. We have made our first steps towards a
more content and digital experience led strategy with the launch of
the 'well slept club', a personalised platform of sleep advice,
articles and support. This is currently in beta and will formally
launch during the spring. This not only supports marketing
efficiencies, but allows us to generate an additional, positive
contribution from marketing channels that were previously a drain
on eve's resources, for example, social media. This will integrate
more fully with our e-commerce experience over time, allowing
customers to find the help and advice they need to improve their
sleep alongside the products that will make a difference. The well
slept club creates a sleep wellness presence for eve more widely on
Google, and there are over 1,000 sleep related words that customers
might search for (from 'helping kids sleep' to 'am I a night owl or
a lark') that eve's content will now appear alongside.
In 2023 we will further accelerate our focus on the digital
experience for customers. We will build on the well slept club and
develop new digital innovations and services to enhance the digital
experience, moving ever closer to becoming the world's first
digital sleep wellness business.
As with many retailers over the early part of the year, Covid
created challenges in our logistics operation and customer service.
We have now moved through this period and back to the more normal,
high levels of service we expect to deliver to our customers. We
see no reason for further upsets to our service and are working to
build ever more resilience into our operation to handle any future
turmoil.
responsible business
As a business we recognise our responsibility to our
stakeholders and the wider community at large. We continue to make
improvements throughout our operations in order to reduce our
environmental footprint. Our localised production facilities mean
that we are not trucking or airfreighting long distances, while our
mattress packaging boxes are produced in the UK and made from
Forest Stewardship Council (FSC) approved card. During the year we
have been able to make improvements to our mattress plastic
packaging in the UK&I, which is now made from a minimum of 40%
recycled materials.
Since early 2020 eve has partnered with TFR Group in the UK, a
prominent furniture recycling company, on the removal, rejuvenation
and recycling of mattresses. The partnership includes taking them
through stringent sanitisation and quality-check processes before
rolling and boxing, saving on CO2 emissions, storage and
re-delivery. This also lets the end refurbished mattress customer
enjoy the benefits of a rolled mattress. To date the partnership
has achieved a rejuvenation rate of approximately 60%. Remaining
mattresses that are not capable of being rejuvenated are broken
down and each material individually recycled. This policy is part
of ensuring that 100% of eve sleep's returned mattresses are
diverted away from landfill, saving 125 tonnes of waste per annum,
whilst also optimising revenue recovery. A separate partnership
also encourages customers to have their previous mattress removed
and recycled at the point their new mattress is delivered.
Culture and diversity
We thrive on individuality at eve. We believe that irrespective
of age, gender, ethnic origin, religion, sexual orientation, gender
identity, gender expression, or disability, eve should be a place
of opportunity, respect and support for individuals to be
themselves, allowing them to do their best work. We understand that
our people, capability and culture are one of the most powerful
competitive advantages that we have, and a focus on developing
talent, retaining high performers and attracting a diverse intake
are core to our future success. I, and my executive team are
seeking to build the business that we would have thrived in when we
were earlier in our careers, giving our team the opportunity to
develop to their greatest potential.
There continues to be significant investment in the development
of our leadership team, with leadership skills training and
individual coaching core to this. To widen our positive impact on
development further, we work with 'You Can Now' giving students of
design globally the opportunity to learn their craft on a live
'eve' brief to further develop our products and brand. Our business
wide investment in learning was recently recognised by the Campaign
for Learning for its impact.
Retaining and motivating our key talent whilst engaging the
whole eve business with the challenges at hand remains top of our
mind. To this end we redesigned our rewards and benefits scheme in
2020, awarding our extended leadership team share options so they
can share in the success they bring to the business. At the same
time, we have moved to a flat bonus structure, meaning everyone in
the business, regardless of salary, tenure or experience receives
the same cash reward at year end, should we achieve our aims.
Our desire for team inclusivity and fair pay for all is also in
evidence in our pay ratio, which measures the ratio of the CEO's
total remuneration to that of the lowest paid full-time member of
eve. In 2021 this ratio was 7.9x and whilst there is limited data
against which to accurately benchmark eve's performance, the
Company is of the view that this compares favourably with the wider
market. This further fosters our culture of transparency, equality
and openness, whilst showing real respect for the efforts each and
every one of the team put in to help us achieve our mission of
sleep wellness.
Our focus on diversity continues with two key initiatives.
Firstly an evolution to our approach to recruitment to ensure we
recruit purely on capability and blind to background, through the
introduction of the 'beapplied.com' blind recruitment software. And
secondly, 2021 saw us take on our first apprentice in the marketing
department, in partnership with the Marketing Academy.
The concerted efforts that we are making with regards to
employee well-being and fairness are evident in our employee survey
scores. Using the Peakon employee survey, our employee scores for
health and well-being have increased from 8.0 in 2020 to 8.2 in
2021, which compares favourably with the industry benchmark of 7.8.
In addition our diversity and inclusion score has improved
substantially from 7.9 to 8.4 in the year.
eve is pleased to present the following metrics relating to
gender balance as at 31 December 2021. The following breakdown
shows the number of persons of each sex who were:
(i) directors of the company;
(ii) senior managers of the company (other than those falling
within category (i)); and
(iii) employees of the company.
Male Female
Directors 5 1
Senior managers 3 2
Employees 14 31
Cheryl Calverley
Chief Executive Officer
23 March 2022 key performance indicators
In 2021 the key performance indicators (KPIs) used to evaluate
and monitor the performance of the business and measure the
effectiveness of the three pillars of Growth (increasing revenue
and profitability), Customer Obsession (offering customers an
increasingly better service and range of products) and Resilience
(structuring the business to ensure it can flex and adapt to
external changes) are listed below.
Financial KPIs:
-- Overall revenue growth;
-- Marketing efficiency; and
-- Underlying EBITDA[1].
Operational KPIs:
-- UK brand awareness;
-- Product return rates;
-- eve website conversion rate;
-- eve customer sleep wellness score; and
-- Repeat customers.
Operational KPIs relate to group performance across all three
markets unless otherwise stated.
Unprompted Brand Awareness is calculated by an external
consultancy. The methodology for calculating the score was amended
in the year and the August 2020 figure has been rebased.
Both the financial and operational KPIs on the face of it show a
mixed performance year-on-year. Whilst Group revenue has continued
to grow year-on-year by 5%, Group marketing efficiency declined by
274bps. However, Covid distorted some underlying trends in 2020 and
alongside consumers essentially being forced to shop online and a
marked increase in TV viewing, the costs of google search, social
media and other marketing costs were artificially lower in 2020
than they ordinarily would have been, with on-site conversion rates
higher than planned. On a two-year, pre-Covid basis, Group
marketing efficiency in 2021 improved by 2355 bps from 50.5% in
2019 to 27.0% in 2021 and the conversion rate, which declined
year-on-year by 32 bps in 2021, is still ahead of 2019
comparatives. As we move to a broader content strategy on site,
with many more pages dedicated to educating and supporting our
customers in improving their sleep, this 'site conversion rate'
metric will become an increasingly unclear metric, and we will
introduce alongside the more nuanced 'product conversion rate'
metric, which reflects the % of customers that purchase having
visited a website page featuring one of our products.
The decline in brand awareness in the year was planned and
reflects the maturing of the marketing strategy, which evolved from
an early focus on raising awareness to a concentration on building
familiarity, consideration and purchase. The success of this shift
in focus can be seen in the 200 bps increase in familiarity from 5%
in August 2020 to 7% in September 2021, the achievement of a third
consecutive year of UK&I revenue growth and the improvement in
the marketing contribution, which rose to GBP3.7m (2020: GBP3.6m)
in the year.
Financial KPIs
-- Group revenue increased by 5% to GBP26.6m (2020:
GBP25.2m);
-- Decrease in Group marketing efficiency by 279bps to 27.0%
(2020: 24.2%); and
-- Group underlying EBITDA losses increased by 48% to GBP3.0m
loss (2020: GBP2.0m loss).
Operational KPIs
-- Unprompted UK brand awareness: 400bps decline in unprompted
UK brand awareness to 8% at August 2021(August 2020 rebased:
12.0%);
-- 27 bps year-on-year improvement in the returns rate to 7.5%
(2020: 7.8%);
-- 32 bps year-on-year reduction in the eve websites conversion
rate;
-- eve customer sleep wellness score: 8/10 (2020: 8/10); and
-- The percentage of mattress customers who have gone on to buy
another product within two years: 12.4%(2020: 12.4%).
Update to KPIs for 2022
To reflect the current UK focus on prioritising brand
familiarity, consideration and purchase over brand awareness, eve
will for 2022 report UK brand familiarity alongside unprompted
brand awareness as a KPI. This new KPI is measured externally.
To reflect the evolution of the website to deliver content
alongside commerce, going forward eve will report 'product
conversion rate' alongside 'site conversion rate'. glossary
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, thus as the
reported percentage falls marketing efficiency improves.
Underlying EBITDA - earnings before interest, tax, depreciation,
amortisation and impairment, share-based payment charges connected
with employee remuneration (2021 and 2020), adding back IFRS16
depreciation relating to lease costs. Underlying EBITDA reflects
what management believe to best demonstrate the underlying
performance of the business in a given year.
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 by the total website
traffic. This figure is compared on a bps movement between
periods.
eve customer sleep wellness score - the average number of
customers out of every ten customers that report improved sleep as
a result of purchasing an eve mattress (internally assessed using
post-purchase email campaigns, sent to all customers who have
purchased a mattress in the period).
repeat customers - the percentage of mattress customers who have
made a second purchase within two years of their initial order.
financial review
"Delivered topline growth over a restructured financial model" -
Tim Parfitt
group financial performance
GBPm 2021 2020 Movement
Group revenue 26.6 25.2 +5%
Gross profit 14.7 14.4 +2%
Distribution expenses (3.7) (3.5) +7%
Profit after distribution expenses 11.0 10.9 +0%
Payment fees (0.7) (0.5) +19%
Marketing costs (7.2) (6.1) +17%
Profit after distribution expenses, payment fees and marketing costs 3.1 4.3 (27%)
Wages & Salaries (excluding share-based payment charges) (3.2) (3.3) (2%)
Other administrative expenses (3.1) (3.2) (2%)
Share-based payment charges connected to employee remuneration (0.2) (0.2) (27%)
Operating loss (3.4) (2.4) (40%)
Loss before tax (3.4) (2.4) (40%)
Taxation 0.3 0.4 (14%)
Loss after tax (3.1) (2.0) (51%)
Reconciliation to underlying EBITDA:
Taxation (0.3) (0.4) (14%)
Share-based payment charges connected to employee remuneration 0.2 0.2 (27%)
Depreciation and amortisation 0.6 0.7 (1%)
Application of IFRS 16 to lease for serviced office (0.4) (0.5) (11%)
Underlying EBITDA (3.0) (2.0) (48%)
group financial performance as a % of revenue
% of Revenue 2021 2020 Movement
Gross Profit 55.4% 57.3% (193bps)
Distribution expenses (14.1%) (13.9%) (20bps)
Profit after distribution expenses 41.3% 43.4% (213bps)
Marketing (27.0%) (24.2%) (274bps)
Administrative expenses excluding marketing (26.5%) (28.0%) 148bps
Administrative expenses excluding marketing, fundraise-related expenditure, depreciation, (24.1%) (25.5%) 134bps
amortisation and impairment expenditure
Wages & Salaries (excluding share-based payment charges) (12.5%) (13.2%) 75bps
UK&I financial performance
GBPm 2021 2020 Movement
Revenue 22.6 20.5 +10%
Gross Profit 12.6 11.8 +7%
Distribution expenses (2.9) (2.7) +10%
Profit after distribution expenses 9.7 9.1 +6%
Payment fees (0.6) (0.5) +29%
Marketing (5.4) (5.0) +5%
Profit after distribution expenses, payment fees and marketing 3.7 3.6 +5%
Marketing costs as % of revenue (23.9%) (25.1%) 118bps
France financial performance
GBPm 2021 2020 Movement
Revenue 4.0 4.6 (13%)
Gross Profit 2.1 2.5 (17%)
Distribution expenses (0.8) (0.8) (2%)
Profit after distribution expenses 1.3 1.7 (24%)
Payment fees (0.1) (0.1) +11%
Marketing (1.8) (1.0) +82%
Profit after distribution expenses, payment fees and marketing (0.6) 0.6 (196%)
Marketing costs as % of revenue (44.5%) (21.0%) (2352bps)
revenue
Group revenue was up 5% to GBP26.6m (2020: GBP25.2m), 11% above
pre-Covid revenue (2019: GBP23.9m).
UK&I grew 10% to GBP22.6m (2020: GBP20.5m), 22% above
pre-covid levels (2019: GBP18.5m). More specifically, the UK&I
direct-to-consumer business increased revenue by 21% to GBP19.1m
(2020: GBP15.8m) and was 49% higher than two years previously
(2019: GBP12.8m).
France declined 13% to GBP4.0m (2020: GBP4.6m). Prior to the
launch of a new TV campaign in May 2021, there had been very
limited marketing investment in France for two years and revenue
had declined as a result.
gross margins
Gross margins declined 193bps to 55.4% (2020: 57.3%) but were
229bps above 2019 (2019: 53.1%). This was in part due to cost
pressure and partly due to sales discounting. In 2020 supply
constraints prevented the Group from offering the normal
promotional prices at certain points in the year as this would have
created demand which could not be fulfilled. In 2021 inventory was
increased to mitigate against supply chain disruption and this
allowed promotional pricing to be offered thus driving higher
revenue.
distribution expenses
Distribution expenses lifted 20 bps to 14.1% (2020: 13.9%). This
marginal increase was the result of taking more warehouse space
early in the year to facilitate the increased inventory
holding.
marketing investment
Group marketing investment increased by 17% to GBP7.2m (2020:
GBP6.1m). In UK&I marketing efficiency improved 118 bps to
23.9% (2020: 25.1%). France efficiency reduced 2352 bps to 44.5%
(2020: 21.0%). The low level of investment in France in 2020
constrained revenue, as noted above. In 2021 a TV campaign was
developed and launched contributing to the bulk of the 82% increase
in spend to GBP1.8m (2020: GBP1.0m). The images and video created
for the TV campaign will be reused in future years so whilst there
will be airtime costs, the creative and production costs will not
re-occur.
profit after distribution, payment fees and marketing
UK&I achieved a 5% improvement in profit after distribution,
payment fees and marketing with GBP3.7m (2020: GBP3.6m). France
fell to a loss of GBP0.6m after distribution, payment fees and
marketing (2020: GBP0.6m profit).
administrative expenses
(excluding marketing)
Group administrative costs reduced 5% to GBP6.4m (2020:
GBP6.7m). Wages & salaries (excluding share-based payment
charges connected with employee remuneration) were unchanged at
GBP3.3m (2020: GBP3.3m).
Other administration costs reduced 1% to GBP3.1m (2020:
GBP3.2m).
underlying EBITDA loss
(Defined as: earnings before interest, tax, depreciation,
amortisation, impairment charges, share-based payment charges
relating to employee remuneration, unrealised currency gains and
losses, adding back IFRS16 adjustments to office lease costs)
The Directors consider that this is the most useful method of
monitoring Group performance as it closely correlates to movements
in cash.
EBITDA losses widened to GBP3.0m (2020: GBP2.0m). The main
difference was the increase in marketing investment in France, as
noted above.
share-based payment
In accordance with IFRS, a share-based payment charge for 2021
has been calculated and charged to the statement of profit and
loss. 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 2021 was GBP0.2m (2020:
GBP0.5m) of which GBP0.0m (2020: GBP0.3m) related to equity issued
in exchange for marketing services and GBP0.2m (2020: GBP0.2m)
relating to employee remuneration.
loss after tax
The loss after tax was GBP3.1m (2020: GBP2.0m loss).
capital expenditure
Due to the Group's outsourced business model, capital
expenditure requirements remain low. The main area of capital
expenditure in 2021 related to ecommerce and ERP systems
infrastructure. Total capital expenditure in 2021 in the form of
intangible software assets totalled GBP0.2m (2020: GBP0.3m).
working capital
Inventories were increased to GBP1.3m (2020: GBP0.6m) to provide
a buffer against potential supply chain disruption and ensure that
customer deliveries could continue to be met in periods of high
demand. Tax liabilities reduced by GBP0.5m to GBP0.3m (2020:
GBP0.8m) with the repayment of GBP0.3m deferred VAT from Q1 2020,
delayed under the UK government's Covid-19 support measures.
cash position
The Group had cash and cash equivalents of GBP4.5m at the
year-end (2020: GBP8.4m).
Tim Parfitt
Chief Financial Officer
23 March 2022 Principal risks and uncertainties
Risk management is an important part of the management process
for the Group. Regular reviews are undertaken to assess the nature
of risks faced, the magnitude of the risk presented to business
performance and the manner in which the risk may be mitigated.
Where controls are in place, their adequacy is regularly
monitored.
The risks considered to be particularly important at the current
time are set out below.
Cash
The Group has yet to achieve positive cashflow and the Board is
therefore very focussed on the cash position and the use of cash
within the business. The Board is mindful of the impact on cash
should the business experience weaker than expected revenue growth
and hence larger losses.
Consumer Confidence
eve's products are a discretionary purchase for most consumers.
The business is therefore exposed to fluctuations in consumer
confidence which may be adversely affected in the current year by
increases in the cost of living and very recently by the war in
Ukraine.
Marketing
Marketing is an important investment area for the Group and is
the principal driver of customer visits to the Group websites.
There is a risk that expenditure may not result in the targeted
increase in brand awareness of website traffic.
eve monitors and analyses the effectiveness of marketing spend
on a daily basis and adjusts accordingly. The Group has built a
deep understanding of the most appropriate marketing strategies and
also supplements this with third party media and marketing agencies
to monitor and advise on the effective implementation and roll-out
of marketing and advertising campaigns to meet targeted
outcomes.
'Best-Buy' recommendations
Consumer recommendations such as Which? and Que Choisir play an
important role in giving customers the confidence to buy eve
products. The Group takes time to ensure that existing products are
refined when necessary to remain market-leading.
Product
The Group is responsible for the design of eve products and
could face exposure to product liability claims or claims against
health and safety procedures or practices in different territories.
The Group has a robust product and supplier onboarding process to
ensure new products and suppliers are of the highest standards. The
Group also retains insurance brokers to ensure sufficient insurance
coverage for product liability and associated losses.
The Group is subject to fluctuations in the cost of materials
which may adversely impact on the Group's profit margins. The price
and availability of many components is impacted by global events
such as the demand for key chemicals used in the manufacture of
foam. The Group primarily manufactures its French sold mattresses
in the EU and its UK&I sold mattresses in the UK, creating a
natural hedge against currency movement for its key products. For
other products and markets the Group looks to agree prices for a
period of time with manufacturers where possible to provide a
degree of certainty over currency fluctuations.
Operations
The warehousing of inventory and delivery of customer orders is
outsourced to third parties who have the ability to flex their
operations to meet fluctuations in demand. With the increase in
home shopping during the Covid-19 pandemic and as a result of
increased pandemic related sickness, the demands on logistics
companies have increased and at times the service provided to eve
and its customers has fallen below expected standards. The Group
constantly monitors the performance of service providers and
maintains the flexibility to switch providers if service levels
cannot be maintained.
Competition
The Group operates in the highly competitive mattress and pillow
industries and may not be able to grow, or maintain, its existing
market share. The Group constantly reviews and analyses its
performance against its business plan and against market
competitors. The Group has both internal talent and external
advisors who can advise on and respond to changes in the
competitive environment.
Staff retention and recruitment
eve recognises that the employment market is highly competitive
with many opportunities available to employees in other
organisations. The Group strives to make eve an attractive place to
work through focussing on employee engagement and wellbeing.
Customer Reviews
Customer review websites are monitored as these give impartial
feedback on the products and service levels received by customers.
These are a useful source of information confirming areas of the
business operations requiring improvement. Prospective new
customers use these websites to compare against competitors and
adverse reviews may have a negative impact on Group revenues.
Approved and signed on behalf of the board.
Tim Parfitt
Chief Financial Officer
23 March 2022 consolidated statement of profit and loss and
other comprehensive income
for the year ended 31 December 2021
Note 2021 2020
GBP GBP
Revenue 3 26,588,811 25,218,550
Cost of sales 3 (11,862,277) (10,763,508)
Gross Profit 14,726,534 14,455,042
Distribution expenses 3 (3,744,647) (3,500,916)
Administrative expenses (14,386,775) (13,394,391)
Operating Loss (3,404,888) (2,440,265)
Net finance (expense)/income (5,764) 1,641
Loss before tax (3,410,652) (2,438,624)
Taxation 356,428 414,541
Loss for the year (3,054,224) (2,024,083)
Other comprehensive income
Foreign currency differences from overseas operations which may be reclassified 81,649 35,822
subsequently to profit or loss
Total comprehensive loss for the year (2,972,575) (1,988,261)
Basic and diluted loss per share 4 (1.12p) (0.75p) consolidated statement of financial position
at 31 December 2021
Note 2021 2020
GBP GBP
Non-current assets
Property, plant and equipment 702,025 273,496
Intangible assets 434,616 466,330
1,136,641 739,826
Current assets
Inventories 1,291,678 559,915
Current tax receivable - 414,542
Trade and other receivables 7 1,313,830 1,880,188
Cash and cash equivalents 4,505,041 8,438,453
7,110,549 11,293,098
8,247,190 12,032,924
Total assets
Non-current liabilities
Lease liabilities 261,205 -
Current liabilities
Trade and other payables 8 2,853,975 4,024,210
Provisions 9 786,742 1,041,236
Lease liabilities 441,180 273,857
4,081,897 5,339,303
4,343,102 5,339,303
Total Liabilities
Net Assets 3,904,088 6,693,621
Equity attributable to equity holders of the parent
Share capital 5 274,322 272,570
Share premium 49,518,786 49,421,049
Share-based payment reserve 6 297,987 766,749
Retained earnings (46,420,508) (43,918,599)
Foreign currency translation reserve 233,501 151,852
Total equity 3,904,088 6,693,621 consolidated statement of changes in equity
Share Share Share-based Retained Foreign currency Total
capital premium payment reserve earnings translation reserve equity
GBP GBP GBP GBP GBP GBP
For the year ended 31 December 2021
Balance at 1 January 2021 272,570 49,421,049 766,749 (43,918,599) 151,852 6,693,621
Exercise of employee share options 765 - - - - 765
Transfer of historically exercised and - - (321,764) 321,764 - -
cancelled options
Share-based payment charge - - 182,277 - - 182,277
Transfer on cancelled, lapsed and - - (192,754) 192,754 - -
forfeiture of employee share options
Transfer on exercise of employee share - - (37,797) 37,797 - -
options
Transfer on issue of equity for 987 97,737 (98,724) - - -
marketing purposes
Total transactions with owners 1,752 97,737 (468,762) 552,315 - 183,042
Loss for the period - - - (3,054,224) - (3,054,224)
Other comprehensive income for the - - - - 81,649 81,649
period
Balance at 31 December 2021 274,322 49,518,786 297,987 (46,420,508) 233,501 3,904,088
For the year ended 31 December 2020
Balance at 1 January 2020 263,445 48,887,392 998,495 (42,109,328) 116,030 8,156,034
Exercise of employee share options 3,734 - - - - 3,734
Share-based payment charge - - 220,084 - - 220,084
Transfer on exercise of employee share - - (214,812) 214,812 - -
options
Transfer on issue of equity for 5,391 533,657 (237,018) - - 302,030
marketing purposes
Total transactions with owners 9,125 533,657 (231,746) 214,812 - 525,848
Loss for the period - - - (2,024,083) - (2,024,083)
Other comprehensive income for the - - - - 35,822 35,822
period
Balance at 31 December 2020 272,570 49,421,049 766,749 (43,918,599) 151,852 6,693,621 consolidated statement of cash flows
for the year ended 31 December 2021
Note 2021 2020
GBP GBP
Cash flows from operating activities
Loss for the year (3,054,224) (2,024,083)
Adjustments for:
Depreciation 419,752 470,211
Amortisation 216,124 169,193
(Increase)/decrease in inventories (731,764) 1,014,733
Decrease in trade and other receivables 7 980,900 697,386
(Decrease)/increase in trade and other payables 8 (1,170,235) 41,036
(Decrease)/increase in provisions 9 (254,495) 272,271
Share-based payment charge 6 182,277 522,114
Interest expense on lease liabilities 6,357 18,334
Net cash flow from operating activities (3,405,308) 1,181,195
Cash flows used in investing activities
Additions to intangible assets (184,409) (291,067)
Net cash flow used in investing activities (184,409) (291,067)
Cash flows from financing activities
Proceeds from the issue of share capital 765 3,734
Payment of lease rentals (426,109) (480,000)
Net cash outflows from financing activities (425,344) (476,266)
Net cash (outflow)/inflow (4,015,061) 413,862
Cash at beginning of year 8,438,453 7,988,769
Movement in cash (4,015,061) 413,862
Effect of exchange rate fluctuations on cash held 81,649 35,822
Cash at end of year 4,505,041 8,438,453 notes to the accounts
forming part of the financial statements
1. Reporting Entity
eve sleep PLC (the "Company") is a public company, domiciled and
registered in England in the United Kingdom and its shares are
listed on the London Stock Exchange AIM market. eve sleep PLC is a
company limited by shares. The registered number is 09261636 and
the registered address at 31st December 2021 was 29A Kentish Town
Road, London, England, NW1 8NL.
2. Accounting Policies
2.1 Basis of preparation
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the "Group").
The Group and Company financial statements have been prepared
and approved by the directors in accordance with UK-adopted
international accounting standards.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
Group financial statements.
This preliminary announcement is simultaneous with signed
financial statements on which the audit report is unqualified and
unmodified.
The financial information set out above does not constitute the
company's statutory accounts for the years ended 31 December 2021
or 2020 but is derived from those accounts. Statutory accounts for
2020 have been delivered to the registrar of companies, and those
for 2021 will be delivered in due course. The auditor has reported
on those accounts; their reports were (i) unqualified, (ii) did
include a reference to which the auditor drew attention by way of
emphasis without qualifying their report in respect of going
concern for the year ended 31 December 2021 only and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006. 2. Changes in accounting policy a. New and amended
Standards and Interpretations adopted by the Group and Company:
There are no changes to accounting policies adopted by the Group
in the year ended 31 December 2021. b. New and amended Standards
and Interpretations mandatory for the first time for the financial
yearbeginning 1 January 2021 but not currently relevant to the
Group or Company:
Amendments to IFRS 16 addressing Covid-19 related rent
concessions became effective for annual reporting periods beginning
on or after 1 June 2020. As neither the Group nor Company has
received such concessions, this is not relevant.
Interest rate benchmark reform - phase 2 - amendments provided a
practical expedient when accounting for a modification of a
financial instrument when an old interest rate benchmark is
replaced with an alternative (SONIA) as a result of the reform. As
neither the Group nor Company has such financial instruments, this
is not relevant. c. New and amended Standards and Interpretations
issued but not effective for the financial year beginning 1January
2021:
-- Amendment to IAS 1: "Classification of Liabilities as Current
or Non-current"
-- Amendment to IAS 12 'Deferred tax related to assets and
liabilities arising from a single transaction'
-- IAS 8: Definition of accounting estimates
-- IAS 1: Disclosure initiative - accounting policies
-- IFRS 9: Fees in the '10 per cent' test for derecognition of
financial liabilities
-- IAS 37: Onerous contracts - cost of fulfilling a contract
-- IAS 16: PPE: Proceeds before intended use
-- IAS 41: Taxation in fair value measurements
-- IFRS 17: Insurance Contracts
2.3 Measurement Convention
The financial statements are prepared under the historical cost
convention.
2.4 Going Concern
The financial statements are prepared on a going concern basis
notwithstanding that the Group is still generating losses.
The Group has reported a loss for the year of GBP3.1m (2020:
GBP2.0m) with net cash outflow of GBP3.9m (2020: inflow GBP0.5m).
The closing cash balance at 31 December 2021 was GBP4.5m (2020:
GBP8.4m).
There were two material cash outflows in the year totalling
GBP1.0m which are non-recurring: firstly, there was a planned
increase in inventories of GBP0.7m with the intention that this
would mitigate against potential supply chain disruption during the
year and allow customer orders to be fulfilled; secondly, GBP0.3m
VAT was paid to HMRC in April 2021 having been deferred from 2020
Q1 under the UK Government Coronavirus support measures. Without
these cash outflows, the net cash outflow for the year would have
been GBP2.9m and the prior year cash outflows would have been
higher.
The directors have prepared a business plan and financial model
including cashflow forecasts for a period of more than 12 months
from the date of approval of these financial statements.
The business plan makes the following key assumptions:
-- Revenue growth in all markets with UK direct to consumer
continuing the strong growth seen over theprevious two years and
remaining the predominant sales channel;
-- Some margin improvement generated through economies of scale
including increased purchasing power andmore efficient use of
warehouse space and logistics; and
-- Minimal increase in total marketing spend with a greater
emphasis on performance marketing and theongoing use of existing TV
assets in UK and France resulting in improved total efficiency,
measured as % ofrevenue.
The base case forecast demonstrates that the company will reduce
its net loss compared to 2021 and cash outflow will be less than
GBP2.0m annually.
The delivery of the business plan is subject to uncertainty
which has been modelled through sensitivity analysis. Uncertainties
are such that potential mitigating actions, which would be over and
above the current strategic plan, may not be sufficient to mitigate
all reasonably possible downsides in assumptions. The impact of
weaker consumer confidence is one such uncertainty which management
are assessing and managing the impact of on the business.
Mitigating actions would include reviewing all discretionary
spend including changes to marketing investment and fixed
overheads. In addition, the directors have considered opportunities
to improve working capital such as debt factoring and reducing
inventory investment.
Based on the above, the directors believe it remains appropriate
to prepare the financial statements on a going concern basis.
However, these circumstances represent a material uncertainty that
may cast doubt upon the company's ability to continue as a going
concern and, therefore to continue realising its assets and
discharging its liabilities in the normal course of business. The
financial statements do not include any adjustments that would
result from the basis of preparation being inappropriate.
3. Segmental analysis
IFRS 8, "Operating Segments", requires operating segments to be
determined based on the Group's internal reporting to the Chief
Operating Decision Maker. The Chief Operating Decision Maker has
been determined to be the executive board and the primary segmental
reporting format of the Group is geographical by customer location,
based on the Group's management and internal reporting
structure.
The board assesses the performance of each segment based on
revenue, gross profit and profit after distribution expenses,
payment fees and marketing expenses. Payment fees and marketing
expenses are presented within administrative expenses on the
statement of profit and loss and other comprehensive income.
For the year ended 31 December 2021
UK&I France Rest of Total
Europe
GBP GBP GBP
GBP
Revenue 22,586,531 3,997,720 4,560 26,588,811
Cost of Sales (9,949,919) (1,912,106) (252) (11,862,277)
Gross Profit 12,636,612 2,085,614 4,308 14,726,534
Distribution expenses (2,920,261) (824,386) - (3,744,647)
Payment fees (575,848) (77,658) (653,506)
Marketing expenses (5,396,865) (1,779,751) - (7,176,616)
Segment Results 3,743,638 (596,181) 4,308 3,151,765
Administrative Expenses (excluding payment fees and marketing (6,556,653)
expenses)
Net Finance (Expense) (5,764)
Taxation 356,428
Total (3,054,224)
For the year ended 31 December 2020
UK&I France Rest of Total
Europe
GBP GBP GBP
GBP
Revenue 20,501,151 4,586,988 130,411 25,218,550
Cost of Sales (8,692,158) (2,071,350) - (10,763,508)
Gross Profit 11,808,993 2,515,638 130,411 14,455,042
Distribution expenses (2,658,227) (842,746) 57 (3,500,916)
Payment fees (461,143) (70,214) (15,760) (547,117)
Marketing expenses (5,138,937) (964,248) 806 (6,102,379)
Segment Results 3,550,686 638,430 115,514 4,304,630
Administrative Expenses (excluding payment fees and marketing (6,744,895)
expenses)
Net Finance Income 1,641
Taxation 414,541
Total (2,024,083)
4. Earnings per share
The basic earnings per share is calculated by dividing the net
profit attributable to equity holders of the Group by the weighted
average number of ordinary shares in issue during the year.
2021 2020
Weighted average shares in issue 273,623,423 269,819,716
Loss attributable to the owners of the parent company (3,054,224) (2,024,083)
Basic loss per share (pence) (1.12) (0.75)
Diluted loss per share (pence) (1.12) (0.75)
For the periods presented, the weighted average number of shares
used for calculating the diluted loss per share are identical to
those for the basic loss per share. This is because the outstanding
share options would have the effect of reducing the loss per share
and would not be dilutive under IAS 33.
At 31 December 2021, options outstanding amounted to 12,280,674.
Given the loss for the year of GBP3,054,224 (2020 loss:
GBP2,024,083) these options are anti-dilutive.
5. Share Capital
Allotted, issued and fully paid:
Nominal Value 31 December 2021 31 December 2020
Number
GBP GBP GBP
Ordinary Shares 274,321,862 GBP0.001 274,322 272,570
Total 272,570
The table below summarises the movements in number of shares at
the beginning and end of the period:
Ordinary Shares
Share capital 31 December 2020 272,569,414
Nominal Value GBP0.001
Value of Share capital GBP272,570
Summary of Movements
Issue of shares for marketing services at GBP0.10 per share 987,245
Exercise of share options over ordinary shares 765,203
Share capital 31 December 2021 274,321,862
Nominal Value GBP0.001
Value of Share capital GBP274,322
The holders of Ordinary shares are entitled to receive dividends
as declared from time to time and are entitled to one vote per
share at meetings of the Company.
During 2021, 987,245 shares were issued and 765,203 share
options were exercised bringing the total share capital of the
Company to 274,321,862 at 31 December 2021.
6. Share based payments
The Group recognised a charge of GBP0.2m (2020: GBP0.5m) related
to share-based payments during the year to 31 December 2021, all of
which relates to equity-settled schemes and are presented within
administrative expenses. The charge in 2020 included GBP0.3m issued
to Channel 4 in relation to the equity settlement of marketing
services provided.
The Company issues equity-settled share-based payments to
certain employees, whereby employees render services in exchange
for shares or rights over shares of the parent company.
Equity-settled awards are measured at fair value at the date of
grant. The fair value is calculated using an appropriate option
pricing model and is expensed to the consolidated statement of
profit and loss on a straight-line basis over the vesting period
after allowing for an estimate of shares that will ultimately
vest.
The Company operates an HMRC approved executive management
incentive plan (EMI). Under length of service criteria, options
typically vest over a 3-year period in equal monthly amounts. For
those options with performance based condition, the options will
vest when the conditions are met. All options are equity
settled.
The terms and conditions of the grants are as follows:
Number of Exercise
Grant Date Number of Options Performance Conditions Expiry Date
Contracts Price
10/04/2017 1 251,000 GBP0.001 Length of service 10/04/2027
01/04/2019 7 6,679,364 GBP0.001 Length of service 01/04/2029
17/12/2019 4 6,850,000 GBP0.001 Length of service 17/12/2019
17/02/2020 2 550,000 GBP0.001 Length of service 17/02/2030
01/06/2020 3 1,750,000 GBP0.001 Length of service 01/06/2030
01/06/2020 2 2,650,000 GBP0.001 Performance Based 01/06/2030
28/06/2021 15 1,920,000 GBP0.001 Length of service 28/06/2031
The Company operates an unapproved executive incentive plan. The
vesting conditions for grants made on 26 January 2016 and 1 April
2019 are based on length of service with 100% of the options
vesting on 36-month anniversary of the grant date. All options are
equity settled.
The terms and conditions of the grants are as follows:
Number of Exercise
Grant Date Number of Options Performance Conditions Expiry Date
Contracts Price
26/01/2016 1 12,550 GBP0.001 Length of service 26/01/2026
01/04/2019 1 150,000 GBP0.001 Length of service 01/04/2029
The number and weighted average exercise prices of share options
are as follows:
Weighted Average Exercise Price GBP Number of Options
Outstanding at beginning of year GBP0.001 15,803,099
Granted during the year GBP0.001 1,920,000
Forfeited during the year GBP0.001 (137,500)
Exercised during the year GBP0.001 (765,203)
Lapsed during the year GBP0.001 (17,500)
Cancelled during the year GBP0.001 (4,522,222)
Outstanding at the end of the year GBP0.001 12,280,674
Exercisable at the end of the year GBP0.001 7,388,523
All options exercised during the year were options over Ordinary
shares.
The weighted average share price at the date of exercise of
share options exercised during the year was GBP0.001 (2020:
GBP0.001).
The options outstanding at the end of the year have an exercise
price of GBP0.001 and a weighted average contractual life of 10
years.
The fair value of employee share options is measured using a
Black-Scholes model. Measurement inputs and assumptions for those
share options granted during 2021 are as follows:
Award
28/06/2021
GBP
Share class Ord
Fair Value GBP0.032
Exercise Price GBP0.001
Expected volatility 114%
Option Life 10yrs
Risk free interest rate 1.000%
7. Trade and other receivables
2021 2020
GBP GBP
Trade receivables 715,938 656,032
Other receivables 9,724 221,030
Prepayments 468,167 883,126
Other current assets 120,000 120,000
1,313,830 1,880,188
The average credit period offered on sales of goods during 2021
was 52 days (2020: 32 days). The average days sales outstanding
("DSO") in 2021 was 65 days (2020: 44 days). At 31 December 2021,
trade receivables at a nominal value of GBPnil (2020: GBPnil) were
impaired and fully provided for.
All trade and other receivables are short-term. The directors
consider that the carrying amount of trade receivables approximates
to their fair value. All trade and other receivables have been
reviewed for indications of impairment.
Trade receivables represent amounts due from wholesale and
retail customers.
The Group has not charged interest for late payment of invoices
in the current year or prior period.
Allowances against doubtful debts are estimated by reference to
expected credit losses based on the probability of default (using
past default experience with that customer and alongside analysis
of the counterparty's current financial position where specific
credit risk is known), risk exposure (being the value of
receivables outstanding with that customer) and finally a
percentage representative of the loss due to default.
Before accepting any significant new customer, the Group uses a
variety of credit scoring systems to assess the potential
customer's credit quality and to define credit limits for each
customer. Limits and scoring attributed to customers are reviewed
regularly.
Three major retail customers each accounted for more than 10% of
the total balance of trade receivables on 31 December 2021, (2020:
Four major retail customers each accounted for more than 10% of the
total balance of trade receivables on 31 December 2020).
2021 2020
GBP GBP
Not overdue 509,464 289,305
Overdue between 0-30 days 71,102 142,721
Overdue between 31-60 days - 113,216
Overdue between 61-90 days 37,033 72,200
Overdue over 90 days 98,338 38,590
715,938 656,032
In determining the recoverability of a trade receivable, the
Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the
relevant year-end. Aside from the major retail customers accounting
for the year-end trade receivable balance mentioned above, the
concentration of credit risk is limited due to the customer base
being large and diverse.
8. Trade and other payables
2021 2020
GBP GBP
Trade payables 1,080,411 1,183,802
Non-trade payables and accrued expenses 594,953 1,027,043
Deferred revenue and customer deposits 884,403 949,411
Taxes and social security payable 294,208 863,954
2,853,975 4,024,210
All trade and other payables are short-term. The directors
consider that the carrying amount of trade and other payables
approximates to their fair value. Deferred revenue represents
contractual liabilities to deliver goods to customers where
consideration has been received prior to the year-end date. The
opening balance of deferred revenue was fully recognised during the
2021 financial year.
9. Provisions
Refunds Warranty Total
GBP GBP GBP
Balance at 1 January 2020 567,686 201,279 768,965
Provisions made during the year 3,735,217 106,000 3,841,217
Provisions used during the year (3,437,640) (65,221) (3,502,861)
Prior year under provision recognised in year (66,085) - (66,085)
Balance at 31 December 2020 799,178 242,058 1,041,236
Provisions (released)/made during the year 1,896,711 17,906 1,914,617
Provisions used during the year (2,126,128) (42,983) (2,169,111)
Balance at 31 December 2021 569,761 216,981 786,742
A refund provision is required as the Group provides certain
products to customers under a 100-day trial period.
During this period the customer is entitled to return goods for
a full refund. The provision is calculated by reference to the rate
of returns experienced by the Group in preceding periods and the
level of sales subject to the relevant trial periods of each
product at the year end. An analysis of the rate of return over
historical periods does not indicate a significant variation in the
rate of refunds provided to customers and accordingly, whilst there
is a degree of estimation in the calculation of this provision, any
reasonable sensitivity analysis in the rate applied to sales at the
year-end would not result in a material impact.
A warranty provision is required as the Group provides certain
products to customers with 2, 3, 5 or 10-year warranty periods
depending on the product category.
During these periods the customer is entitled to claim under
warranty a replacement product. The provision is calculated by
reference to the rate of successful claims experienced by the Group
in preceding periods and applying a projected distribution of the
claims across the 10-year warranty period. A 10% sensitivity
applied to the estimated rate for warranty claims would result in
the warranty charge increasing or decreasing by around GBP20,000.
(See note 2.19).
10. Subsequent events
There have been no significant events since the year end.
-----------------------------------------------------------------------------------------------------------------------
[1] Underlying EBITDA is defined in the Glossary
-----------------------------------------------------------------------------------------------------------------------
ISIN: GB00BYWMFT51
Category Code: FR
TIDM: EVE
LEI Code: 2138007BAC29AUXWQE6
Sequence No.: 151103
EQS News ID: 1310345
End of Announcement EQS News Service
=------------------------------------------------------------------------------------
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