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Eve Sleep plc (EVE)
Eve Sleep plc: Final results
12-March-2019 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
eve Sleep plc
Full Year Results
Rebuild strategy progressing and funds secured to deliver it
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, GBPm 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 the other
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 GBP34.8m (2017: GBP27.7m), 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 GBP29.4m (2017: GBP21.7m);
· 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%) and France 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 GBP11.7m (net of
expenses) and GBP0.9m media for equity commitment against future media spend
with Channel 4;
· Closing cash at 28 February 2019 of GBP17.8m;
· In a separate announcement released today, certain management changes
have been made, including the stepping down of CFO Abid Ismail 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 twelve months,
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 GBP0.8m of staff and country
exit costs (2018 only);
4 Results presented from NPS surveys conducted in December 2017 and 2018
respectively.
For further information, please contact:
eve Sleep plc via M7 Communications LTD
James Sturrock, Chief
Executive Officer
Abid Ismail, Chief Financial
Officer
Peel Hunt LLP (NOMAD and +44(0)20 7418 8900
broker)
Dan Webster
George Sellar
Guy Pengelley
M7 Communications LTD +44(0)7903 089 543
Mark Reed
Chairman's Statement 2018
Overview
2018 was a tough year for the business but I am pleased to state that
following substantial restructuring in the second half of the year we enter
2019 in better shape and on a sounder financial footing. It became apparent
in the first half of 2018 that the costs of rapid international expansion
across Europe were too great and that there were more profitable
opportunities for growth in the Core Markets in which eve had growing brand
awareness and was experiencing more efficient growth in revenue. Swift and
decisive action was taken, including a change in CEO and, following a
country-by-country review, a refocus, for now, on our most developed markets
of the UK&I and France, resulting in the withdrawal from other European
territories and the US over the summer months. As a result we now operate
from a materially lower cost base.
There was also much to be proud of in 2018, with considerable progress made
in many key elements of the strategy, which we will build upon in 2019 and
beyond. Product development remains a key focus and in 2018 eve extended the
mattress range from the original, adding a hybrid mattress (of foam and
spring construction) as well as a premium and an entry price offering. In
tandem, additional non-mattress sleep products were added, with the result
that the total range has increased to 21 products (2017: 15) by the end of
the year, with Core Markets non-mattress sales accounting for 19% of total
Core Markets sales in 2018 (2017: 14%).
We have always believed that we should be where the consumer shops and as
such we remain committed to our ecommerce led, multi-channel approach,
working with leading retail partners. This approach, along with our
marketing investment has driven a substantial improvement in brand awareness
in the Core Markets and substantial revenues. As at February 2019 eve was
the 5th most recognised mattress brand in the UK and the most well-known of
the "mattress in a box" brands. This is an impressive achievement in just
four years since launch.
Performance
Group revenues in the year grew 25% to GBP34.8m, with gross profit increasing
15% to GBP18.4m. The gross profit margin reduction from 57.7% to 52.8% year on
year was primarily due to the planned shift in channel mix to omni-channel
and increased sales of typically lower margin non-mattress products. Group
underlying EBITDA losses increased 27% to GBP19.2m on the GBP15.1m reported in
2017, primarily reflecting a 24% increase in administrative expenses and the
reduction in gross margin.
An analysis of the Core Markets performance provides a better reflection of
underlying trading trends. The Core Markets revenues in the year grew 35% to
GBP29.4m (2017: GBP21.7m), with marketing costs as a percentage of revenues
reducing by 360bps to 54.3% in 2018 from 57.9% in 2018. In the UK&I,
marketing costs as a percentage of revenues reduced by 840bps to 46.6% in
2018 from 55.0% in 2017.
Our people
There has been much change this year, which can be unsettling for our
people. I have been really impressed with how the entire team has embraced
this and I would like to personally thank them for their continued loyalty,
professionalism and commitment to eve. Our people are our most valuable
asset and we continue to invest in their development and wellbeing. The
market opportunity for eve is undiminished and I am confident that we now
have the right strategy, funding and team, led by James to deliver value for
our shareholders.
Paul Pindar
Chairman
Strategic Report
Introduction
The European sleep market is estimated to be worth GBP26bn, with the Core
Markets that eve is now focused on (UK&I and France) being worth GBP6bn. While
there are many traditional operators, in what is a highly fragmented sleep
market across Europe, there are limited well branded digital operators of
any meaningful size owning the wider sleep category. There is also an
increasing willingness on the part of consumers to purchase big ticket items
online, with Euromonitor predicting that the online furniture market will be
the second fastest growing retail category, with online purchase penetration
expected to increase by 55% between 2018 and 2023.
There is also an increasing awareness of the importance of sleep for
everyday health and wellbeing and the dangers of having insufficient sleep.
There is currently no brand in Europe that has established itself as a sleep
wellness brand. eve's ambition is to achieve just this; to be seen as the go
to brand for sleep wellness products.
Business Model
eve is a direct to consumer led business supported by retail partnerships.
The direct to consumer focus enables greater control over the customer
journey and experience and to build an on-going relationship with the
customer. The central strategy for the business is to establish eve as a
sleep wellness brand. Accordingly, resources in terms of investment and
talent are focused on the key operations of product development, branding,
marketing and customer experience that will facilitate the achievement of
this objective.
Manufacturing and fulfilment, which require heavy fixed cost investment are
outsourced to leading third party suppliers in the UK and Continental
Europe. This set-up has proved to be highly scalable and flexible, enabling
significant seasonal variations in monthly product demand to be met without
any noticeable margin impact or the requirement to hold large amounts of
mattress stock. There is also a close working relationship with eve's
manufacturing partners to innovate and develop new products that work better
in terms of function and design and that differentiate eve from peers,
without a premium price tag.
Establishing eve as a sleep wellness brand is a major differentiator to its
mattress-only focused peers and will give the Group the authority and trust
to sell a broader range of products in the category to its customer base.
This in turn is expected to increase the level of repeat purchases and
improve marketing efficiency, a key element of the new strategy to building
a sustainable and growing business on a clear path to profitability. The
increased scale from additional revenues is also expected to drive down
overheads as a percentage of revenues. Aligned with the business objectives,
unprompted brand awareness, eve's website conversion rate and marketing
efficiency are all KPIs of the Group. Trends in all operational KPIs in the
Core Markets of UK&I and France have been positive in 2018.
The inherent agility in the business model was demonstrated in the year,
when the decision to focus on the UK&I and France, withdrawing from other
European territories, was achieved at minimal cost and disruption.
Chief Executive's Report
What attracted me to eve?
I joined eve in September 2018 because I believe in eve's mission to bring
sleep wellness to the nation. 1 in 5 consumers say they have restless nights
due to discomfort or anxiety (YouGov Survey 2017). Sleep grows ever more
relevant in a world where wellbeing, wellness and a desire to switch off and
de-stress are becoming more and more of a zeitgeist of modern living. eve
has not only created beautiful products to give everyone the best possible
start to the day but has also simplified the way mattresses and other sleep
products are purchased and delivered. Our sleep products are rated highly by
consumers as evidenced by our Trustpilot score of 9.4 out of 10 and our
recent win of a Which? Best Buy rating. I believe that we are on our way to
building a brand that is differentiated and can be the category leader.
Business review
While there was considerable progress in 2018, including 35% revenue growth
in Core Markets and a substantial improvement in UK unprompted brand
awareness, our financial performance fell short of our own and the market's
expectations. This was due primarily to company specific factors related to
over expansion into too many countries too quickly and not helped by the
uncertain and challenging retail market backdrop.
To address this underperformance, one of my first actions since joining eve
was to lead a Board review of the Group's business, which has resulted in an
updated, and fully funded, rebuild strategy, with many improvements already
made. The central objective of the strategy is to build the team, the
systems and the products in order to create a platform enabling sustainable
future growth for the business, which has an increased focus on cash
generation and profitability. In addition to a territory refocus, to support
this central objective, action has been taken to reduce inefficient
investment in marketing and reducing overheads in 2019, when compared to
2018.
The rebuild strategy
The rebuild strategy focuses on three core pillars:
· differentiated brand positioning;
· expanded product range; and
· lower friction customer experience.
Differentiated brand positioning
We are broadening the Group's current position to become a trusted
destination for a wider range of products. To achieve this we are refocusing
marketing investment and communications around the benefits that eve can
bring consumers in sleep wellness.
We start from a good place, having already invested significantly in
marketing over the last two years in our Core Markets, including campaigns
"Every great day starts the night before" and "Join the Sleep rich". The
success of our marketing to date is demonstrated in our unprompted UK brand
awareness, which has increased consistently from 1.4% in December 2016 to
approximately 10% today. In 2018 eve was the UK's 5th most well-known
mattress brand and the most well-known bed-in-a-box brand. In France in
2018, eve was the 8th most well-known mattress brand and the most well-known
bed-in-a-box brand.
The efficiency of our marketing spend has improved in our Core Markets in
tandem with our growing awareness. In the UK&I marketing as a percentage of
revenue has fallen from 62.5% in 2016, 55.0% in 2017 to 46.6% in 2018.
Notwithstanding this substantial progress, more can be achieved.
Our new Chief Marketing Officer, Cheryl Calverley, who has previously worked
at the AA and Unilever, joined in December 2018. Cheryl is charged with
building a strong brand that consumers can relate to; a brand that will be
front of mind when they look at making purchases in the category.
To measure our success in delivering on this strategic pillar we will be
monitoring and reporting on the KPI of unprompted brand awareness in the UK
and marketing costs as a percentage of revenues will continue to be a KPI,
given its importance for the pathway to profitability.
Expanded product range
We are building out a range of sleep products to complement our successful
next generation foam mattress, giving eve a clear trajectory to owning the
ecommerce sleep wellness space in our chosen markets and encouraging a
stronger repeat purchase business model.
Recent new products include a baby mattress, a light and premium mattress to
address all price points as well as a hybrid mattress (of foam and spring
construction) to target a broader range of consumer preferences. During the
year we also launched a selection of bed frames and extended our range of
bed linens.
Range expansion helped to drive a repeat purchase rate of 14% in 2018 in the
Core Markets, up from 11% in 2017. In addition, sales from non-mattress
products increased in 2018 to 19% of total sales in the Core Markets (2017:
14%).
To measure our success in delivering on this strategic pillar we will be
monitoring and reporting on the KPIs of product returns rate, conversion
rates and the growth in non-mattress sales.
Lower friction customer experience
Enhancing customer experience throughout the online journey and in our
service proposition to enable stronger site conversion and customer
satisfaction metrics is core to our rebuild strategy. Improved conversion
will not only drive higher revenues but also greater marketing efficiency,
which is key to achieving profitability.
We have set up specific squads in our Digital Product team tasked with
identifying the friction points in the customer research, consideration and
purchase journey and implementing solutions to create an optimised
experience. A number of improvements to the customer experience have already
been made, which have contributed to a positive increase in the conversion
rate in the Core Markets. By way of example, we have recently improved our
delivery offering, adding a premium service to complement our free standard
delivery, as well as a greater choice of time slots, including nominated day
delivery and a choice of morning or afternoon slots.
There are additional developments to the online purchasing experience
including improvements to the search, discovery and checkout processes on
the website and plans to further improve post-sales customer relationship
marketing encouraging repeat purchase behaviour.
To measure our success in delivering on this strategic pillar we will be
monitoring and reporting on the KPIs of conversion rates and our Net
Promoter Score (NPS).
2019 focus summary
The focus for the next six to twelve months is to continue to lay the
foundations for the rebuild strategy, embed the changes into the business
and to focus on reducing underlying EBITDA losses, whilst growing revenue in
a sustainable way. Notwithstanding on-going macro headwinds in 2019, I am
confident that we have the team, strategy and product range, combined with
the strength of brand, to build a sustainable and profitable business which
meets the needs of our customers and delivers value for shareholders.
James Sturrock
Chief Executive Officer
Chief Financial Officer Review
In 2018, for approximately seven months of the year, eve was operating in
fifteen territories. Where Group is referred to this relates to trade in all
eve territories. Early in the second half of the year, eve rationalised the
markets in which it operated to focus on UK&I and France and these three
countries are referred to as the Core Markets.
In 2018, the key performance indicators (KPIs) used to evaluate and monitor
the performance of the business were updated to support the three core
pillars of the rebuild strategy (differentiated brand positioning, extended
product range and lower friction customer experience). In 2017, closing cash
and gross margin were financial KPIs of the Group; in 2018, the impact on
cash and gross margin is monitored via the financial KPIs set out below and
therefore these metrics are no longer separate financial KPIs of the
business. There are now three financial KPIs and five operational KPIs.
Financial KPIs1
· Overall revenue growth
· Marketing efficiency
· Underlying EBITDA2
Operational KPIs1
· Non-mattress sales as a proportion of total sales2
· UK brand awareness
· Product return rates
· eve website conversion rate2
· Net Promoter Score2
The results of the KPIs are set out below. Financial KPIs focus on both
Group and Core Markets results whilst the operational KPIs focus on measures
tracked in the Core Markets of UK&I and France. Whilst lower than original
expectations (due to the reasons set out in the Strategic Report), both
financial and operational KPIs show broadly positive trends against 2017:
Group and Core Markets Financial KPIs
· Group revenue increased by 25% to GBP34.8m (2017: GBP27.7m);
· Core Markets revenue increased by 35% to GBP29.4m (2017: GBP21.7m);
· Improvement in Group marketing efficiency of 510bps to 56.8% (2017:
61.9%);
· Improvement in Core Markets marketing efficiency of 360bps to 54.3%
(2017: 57.9%);
· Group underlying EBITDA loss: GBP19.2m (2017: GBP15.1m loss).
Core Markets Operational KPIs
· Increase in non-mattress Core Markets sales as a proportion of total
sales by 500bps to 19% (2017: 14%);
· Unprompted UK brand awareness: 560bps year-on-year increase in
unprompted UK brand awareness (November 2018: 11.2%; November 2017: 6.6%);
· 120bps year-on-year improvement in the returns rate to 9.3% (2017:
10.5%);
· 33bps year-on-year improvement in the conversion rate;
· Net promoter score of 58 in UK and 69 in France (2017: 56 in UK and 61
in France).
1 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
Underlying EBITDA - Earnings before interest, tax, depreciation and
amortisation, share-based payment charges (2017 and 2018), IPO-related
expenditure (2017 only) and staff and country exit costs (2018 only).
Underlying EBITDA reflects what management believe to demonstrate the
underlying performance of the business in a given year.
Non-mattress sales as a proportion of total sales - % change in value of
reported sales attributable to non-mattress products for the specified
segment of the last period vs the previous period. The Group track this
Operational KPI in addition to the Financial KPI of overall revenue growth
as returns and deferrals are not tracked in isolation for non-mattress
sales. Total sales represents all sales after discounts and VAT and before
deferred revenue, refunds processed and the refunds provision. Non-mattress
sales represents the value of sales from non-mattress products.
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 divided by the total website traffic. This figure
is compared on a bps movement between periods
Net promoter score - calculated based on responses to a single question:
"How likely is it that you would recommend our company/product/service to a
friend or colleague?" The scoring for this answer is based on a 0-10 scale
and KPI is based on % of those that responded with score 9-10 minus the
number of those responding 0-6. NPS scores presented are December 2017 and
2018 results.
2 These financial and operational KPIs are monitored by the Group in 2018
which were not monitored in 2017.
Group Financial Performance3
GBPm 2018 2017 Movement
Revenue 34.8 27.7 +25%
Gross profit 18.4 16.0 +15%
Distribution (4.1) (3.4) (18%)
Profit after distribution 14.3 12.6 +14%
Payment fees (0.7) (0.7) (5%)
Marketing (19.8) (17.2) (15%)
Loss after distribution, payment fees and (6.2) (5.3) (16%)
marketing
Wages & Salaries (excluding share-based (5.4) (4.5) (20%)
payment charges)
Other administrative expenses (8.5) (5.3) (59%)
Share-based payment charges (0.3) (1.8) +83%
Loss before IPO-related expenditure (20.3) (16.9) (21%)
IPO Related Expenditure - (2.1) n/a
Net finance income 0.0 0.0 +79%
Loss before tax (20.3) (19.0) (7%)
Taxation 0.2 - n/a
Loss after tax (20.1) (19.0) (6%)
Reconciliation to underlying EBITDA:
Taxation (0.2) -
Net finance income (0.0) (0.0)
IPO-related expenditure - 2.1
Share-based payment charge 0.3 1.8
Staff and country exit costs 0.8 -
Depreciation and amortisation 0.1 0.0
Underlying EBITDA (19.2) (15.1) (27%)
% of Revenue 2018 2017 Movement
Gross Profit 52.8% 57.7% (490bps)
Distribution (11.6%) (12.4%) +80bps
Profit after distribution 41.1% 45.3% (420bps)
Marketing (56.8%) (61.9%) +510bps
Administrative expenses3 excluding (41.9%) (37.9%) (400bps)
marketing
Administrative expenses3 excluding (39.7%) (37.9%) (180bps)
marketing and staff and country exit
costs (2018 only)
UK&I Financial Performance3
GBPm 2018 2017 Movement
Revenue 22.5 16.1 +40%
Gross Profit 11.8 9.6 +23%
Distribution (1.7) (1.4) (20%)
Profit after distribution 10.1 8.2 +24%
Payment fees (0.4) (0.4) (6%)
Marketing (10.5) (8.9) (18%)
Loss after distribution, payment fees and (0.8) (1.1) +29%
marketing (before overhead allocation)
France Financial Performance3
GBPm 2018 2017 Movement
Revenue 6.8 5.5 +23%
Gross Profit 3.7 3.0 +20%
Distribution (1.2) (0.8) (49%)
Profit after distribution 2.5 2.2 +10%
Payment fees (0.1) (0.1) (14%)
Marketing (5.4) (3.7) (48%)
Loss after distribution, payment fees and (3.1) (1.6) (101%)
marketing (before overhead allocation)
Other Territory Financial Performance3
GBPm 2018 2017 Movement
Revenue 5.5 6.1 (10%)
Gross Profit 2.9 3.4 (14%)
Distribution (1.2) (1.2) +5%
Profit after distribution 1.7 2.2 (19%)
Payment fees (0.2) (0.2) +4%
Marketing (3.8) (4.6) +17%
Loss after distribution, payment fees and (2.3) (2.7) +15%
marketing (before overhead allocation)
3 Administrative expenses per the Consolidated Statement of Profit and Loss
and Other Comprehensive Income include payment fees, marketing, wages &
salaries (excluding share-based payment charges) and other administrative
expenses.
Financial data has been rounded for presentation purposes. As a result of
this rounding, totals, comparatives and calculations presented in this
document may vary slightly from the arithmetic totals or calculations using
such data.
Revenue
Group revenue increased by 25% to GBP34.8m in 2018 (2017: GBP27.7m). Direct to
consumer remains the dominant revenue channel. However, Group revenues from
omni-channel did grow strongly, representing 22% of revenue in 2018 (2017:
14%), increasing 97% to GBP7.8m in 2018 (2017: GBP4.0m). As a result of
investment in marketing and product expansion, revenue from the Core Markets
of the UK&I and France combined grew by 35% to GBP29.4m (2017: GBP21.7m) with
UK&I revenues growing 40% and France growing 23% respectively.
Gross margin
Group gross margins remained strong however they have been negatively
impacted by both product mix (increasing non-mattress revenues) and channel
mix (increasing omni-channel revenues). As a result, Group gross margin
reduced by 490bps to 52.8% in 2018 (2017: 57.7%). Core Markets gross margin
(UK&I and France) reduced by 550bps to 52.7% in 2018 (2017: 58.2%).
Distribution costs
Distribution costs as a percentage of revenue reduced by 80bps to 11.6% in
2018 (2017: 12.4%), reflecting the exit from European countries and
increased share of revenue from retail, which typically has lower
distribution costs as shipment is often in bulk.
Marketing investment
Effective investment in marketing is an important driver of growth in the
business. In 2018 investment in Group marketing increased by 15% to GBP19.8m
(2017: GBP17.2m). Marketing investment in the Core Markets increased by 27% to
GBP15.9m (2017: GBP12.6m). The efficiency of marketing investment is closely
monitored and is an important KPI for the business. In 2018 Core Markets
marketing efficiency, defined as marketing costs as a percentage of
revenues, improved by 360bps to 54.3% (2017: 57.9%). In the UK&I marketing
efficiency improved by 840bps to 46.6% (2017: 55.0%). In France, which is at
an earlier stage of development than the UK, marketing efficiency reduced by
1330bps to 79.6% (2017: 66.3%).
Administrative expenses (excluding marketing)
Wages & Salaries (excluding share-based payment charges) remain the largest
component of administrative expenses and increased 20% to GBP5.4m (2017:
GBP4.5m) and making up 36.8% of administrative expenses excluding marketing
(2017: 42.6%). Other administrative expenses included GBP0.8m of staff and
country exit costs related to the exit from non-Core Markets in the second
half of 2018.
Underlying EBITDA loss
(earnings before interest, tax, depreciation, amortisation, share-based
payments (2017 & 2018), IPO-related expenditure in 2017, staff and country
exit costs in 2018)
The Directors consider that they are able to monitor Group financial
performance via underlying EBITDA by removing share-based payment charges,
IPO-related expenditure and staff and country exit costs from EBITDA on the
basis that these items do not occur evenly year on year.
The underlying Group EBITDA loss increased by GBP4.1m to GBP19.2m in 2018 (2017:
GBP15.1m loss). The increased loss reflects under performance in the first
half of the year, where Group losses increased year-on-year by GBP6.9m to
GBP11.9m. In the second half of the year underlying EBITDA losses reduced
reflecting the decision to focus on the Core Markets of the UK&I and France
and greater focus on efficiency of marketing spend.
France is at an earlier stage of development for eve compared to UK&I. Its
revenue grew 23% to GBP6.8m (2017: GBP5.5m) driven mainly by higher marketing
spend which resulted in a loss after distribution, payment fees and
marketing (before overhead allocation) of GBP3.1m (2017: GBP1.6m loss).
UK&I performance for the year, whilst below original year on year
expectations, was positive with revenue growth of 40% to GBP22.5m (2017:
GBP16.1m) resulted in a loss after distribution, payment fees and marketing
(before overhead allocation) of GBP0.8m (2017: GBP1.1m loss).
Share-based payment
In accordance with IFRS, a share-based payment charge for 2018 has been
calculated and charged to the income statement. 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 2018 was
GBP0.3m (2017: GBP1.8m).
Loss after tax
The loss after tax increased to GBP20.1m (2017: GBP19.0m loss) and underlying
EBITDA increased to a loss of GBP19.2m (2017: GBP15.1m loss).
Capital expenditure
Due to the Group's outsourced business model, capital expenditure
requirements remain low. The main area of capital expenditure in 2018
related to development cost in respect of the infrastructure for the website
platform and ERP systems. Total capital expenditure in 2018 was GBP0.4m (2017:
GBP0.4m).
Cash position
The Group had net cash of GBP6.0m at the year end (2017: GBP26.9m). Since the
year end the Group has raised an additional GBP11.7m (net of expenses) from
investors through a placing of new shares and secured GBP0.9m in future
advertising with Channel 4, which will be satisfied through the issuance of
new shares when utilised.
Abid Ismail
Chief Financial Officer
Consolidated Statement of Profit and Loss and Other Comprehensive Income
For the year ended 31 December 2018
Note 2018 2017
GBP GBP
Revenue 34,818,260 27,744,995
Cost of sales (16,442,852) (11,749,049)
Gross profit 18,375,408 15,995,946
Distribution expenses (4,056,074) (3,430,085)
Administrative expenses (34,360,477) (27,686,895)
Share-based payment charge 6 (303,281) (1,757,204)
Operating loss before IPO-related (20,344,425) (16,878,238)
expenditure
IPO-related expenditure - (2,124,528)
Operating loss (20,344,425) (19,002,766)
Net finance income 44,822 25,096
Loss before tax (20,299,603) (18,977,670)
Taxation 193,192 -
Loss for the year (20,106,411) (18,977,670)
Other comprehensive income
Foreign currency differences from 98,720 -
overseas operations
Total comprehensive loss for the (20,007,691) (18,977,670)
year
Basic and diluted earnings/(loss) (14.46) (16.17)
per share (pence)
Consolidated Statement of Financial Position
As at 31 December 2018
Note 2018 2017
GBP GBP
Assets
Non-current assets
Property, plant and equipment - 36,458
Intangible Assets 669,742 378,538
669,742 414,996
Current assets
Inventories 1,127,876 691,340
Trade and other receivables 7 4,626,750 4,177,056
Cash and cash equivalents 6,031,936 26,926,389
Current tax receivable 193,192 -
11,979,754 31,794,785
Total assets 12,649,496 32,209,782
Current liabilities
Trade and other payables 4,561,793 4,548,019
Provisions 8 955,949 826,702
5,517,741 5,374,721
Total liabilities 5,517,741 5,374,721
Net assets 7,131,755 26,835,060
Equity attributable to equity
holders of the parent
Share capital 5 139,735 138,631
Share premium 36,716,371 36,716,371
Share-based payment reserve 250,073 138,794
Retained earnings (30,073,145) (10,158,737)
Cumulative translation reserve 98,720 -
Total equity 7,131,755 26,835,060
Consolidated Statement of Cash Flows
For the year ended 31 December 2018
2018 2017
GBP GBP
Cash flows from
operating
activities
Loss for the year (20,106,411) (18,977,670)
IPO-related - 2,124,528
expenditure
Finance income (44,822) (25,096)
Taxation (193,192) -
Adjustments for:
Interest paid 44,822 25,096
Amortisation 120,571 7,945
Impairment 39,608 -
Increase in (436,536) (200,159)
inventories
Increase in trade (449,694) (3,127,395)
and other
receivables
Increase in trade 13,773 2,361,778
and other payables
Increase in 129,247 111,606
provisions - net
Share-based payment 303,281 1,757,204
charge
IPO-related - (2,124,528)
expenditure
Net cash outflow (20,579,352) (18,066,692)
from operating
activities
Acquisition of (3,150) (36,458)
property, plant and
equipment
Acquisition of (411,775) (378,538)
intangible assets
Net cash outflow (414,925) (414,996)
from investing
activities
Proceeds from the 1,104 40,768,722
issue of share
capital
Net cash inflow 1,104 40,768,722
from financing
activities
Net increase in (20,993,173) 22,287,034
cash and cash
equivalents
Cash and cash 26,926,389 4,639,355
equivalents at
start of period
Movement in cash (20,993,173) 22,287,034
Effect of exchange 98,720 -
rate fluctuations
on cash held
Cash and cash 6,031,936 26,926,389
equivalents at end
of period
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share Share Share-based Retained Foreign Total
Capita Premiu payment Earnings Currenc Equit
l m Reserve y y
Transla
tion
Reserve
GBP GBP GBP GBP GBP
Balance at 1 138,63 36,716 138,794 (10,158, - 26,83
January 2018 1 ,371 736) 5,060
Exercise of 1,104 - - - - 1,104
options
Share-based - - 303,281 - - 303,2
payment 81
charge
Transfer on - - (192,003) 192,003 - -
exercise of
options
Transactions 1,104 - 111,279 192,003 - 304,3
with owners 85
Loss for the (20,106, (20,1
year 411) 06,41
1)
Other 98,720 98,72
comprehensiv 0
e income for
the year
Balance at 139,73 36,716 250,073 (30,073, 98,720 7,131
31 December 5 ,371 145) ,755
2018
For the year ended 31 December 2017
Share Share Share-based Retained Foreign Total
Capita Premiu payment Earnings Currenc Equit
l m Reserve y y
Transla
tion
Reserve
GBP GBP GBP GBP GBP GBP
Balance at 1 316 16,124 - (12,838, - 3,286
January 2017 ,928 441) ,803
Issue of 38,767 40,698 - - - 40,73
Shares ,396 7,163
Bonus share 85,948 (85,94 - - - -
issue 8)
Share - (20,03 - 20,038,9 - -
Premium 8,965) 65
Cancellation
Exercise of 13,600 17,960 - - - 31,56
options 0
Share-based - - 1,757,204 - - 1,757
payment ,204
charge
Transfer on - - (1,618,410) 1,618,41 - -
exercise of 0
options
Transactions 138,31 20,591 138,794 21,657,3 - 42,52
with owners 5 ,443 75 5,927
Loss for the - - - (18,977, - (18,9
year 670) 77,67
0)
Balance at 138,63 36,716 138,794 (10,158, - 26,83
31 December 1 ,371 736) 5,060
2017
Notes to the accounts
1. Reporting Entity
eve sleep PLC (the "Company") is a public company, domiciled and registered
in England in the UK. The registered number is 09261636 and the registered
address at 31st December 2018 was 128 Albert Street, London, England, NW1
7NE.
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 financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as
adopted by the EU ("Adopted IFRSs"). The Company has elected to prepare its
parent company financial statements in accordance with adopted IFRS.
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 2018 or 2017 but is
derived from those accounts. Statutory accounts for 2017 have been delivered
to the registrar of companies, and those for 2018 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 and (iii) did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
2.2 Changes in accounting policy
In these financial statements, the Group has changed its accounting policies
in the following areas:
· Financial instruments
· Revenue recognition
The Group has adopted the following IFRSs in these financial statements:
· IFRS 9 Financial Instruments
· IFRS 15 Revenue from Contract with Customers
These accounting policies have been applied retrospectively. The impact of
transition to these IFRS has not required restatement of the primary
statements.
2.3 Measurement Convention
The financial statements are prepared on the historical cost basis.
2.4 Going Concern
The financial statements are prepared on a going concern basis
notwithstanding that the group is competing and disrupting an established
market and as is typical for a business at this stage of its lifecycle is
still generating losses as it uses working capital to develop the business
model and market share.
The Group has reported an operating loss of GBP20.3m (2017: GBP19.0m) with an
operating cash outflow of GBP20.6m (2017: GBP18.1m). The closing cash balance at
31 December 2018 was GBP6.0m however, since the end of the Accounts Period,
the Group completed a share placing to raise approximately GBP11.7m net of
expenses, (the "Placing") from existing and new investors and GBP0.9m of
future advertising spend credits. The closing cash balance at 28 February
2019 was GBP17.8m.
The directors have set out the three core pillars of the re-build strategy
in the Chief Executive's statement and have prepared a strategic plan in
order to grow the business in the refocused markets of UK&I and France. The
plan is supported by a financial model, underpinned by a number of key
business drivers. The business plan assumes continuing improvement in 2019
over those observed in 2018 for the majority of these drivers. The principle
assumptions adopted in the forecast model which reflect these improvements
are set out below:
· Revenue growth driven primarily by Website traffic growth and Conversion
rate improvements;
· Marketing expenditure reduction over the prior year and more targeted
spend moving forward.
To support the strategic plan the directors have prepared cash flow
forecasts covering a period of more than 12 months from the date of approval
of these financial statements. These forecasts in the base case indicate
that the group will have sufficient funds to meet its liabilities as they
fall due until such point that it achieves sustainable profitability and
cash generation. However, the delivery of the strategic plan is subject to
uncertainty and these have been modelled through sensitivity analysis. Where
sensitivity analysis indicates the possibility of a material impact to the
ability of the group to meet liabilities as they fall due, the directors
have considered what mitigating actions would be required and the timeframe
within which those actions are needed. The key mitigating factors are
centred around further reductions in controllable spend, including further
marketing cost appraisal and reductions in other categories of discretionary
spend. The directors also consider that it would be reasonable to target
working capital improvements such as reducing days through lower stock
levels and reducing debtor days through facilities such as debt factoring as
the group does not presently have any debt.
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. In such downsides the
Directors would need further funding and would consider ways of sourcing
this, which could include debt or possible further equity funding. The
Directors consider that such scenarios are possible, but not the likely
outcome.
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 significant
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 executive Board assesses the performance of each segment based on
revenue and gross profit after distribution expenses, which excludes
administrative expenses.
Year ended 31 December 2018
UK&I France Rest of Rest of Total
Europe World
GBP GBP GBP GBP GBP
Revenue 22,520, 6,833,520 4,744,6 719,148 34,818,2
896 96 60
Cost of sales (10,703 (3,174,414) (2,197, (367,66 (16,442,
,472) 303) 3) 852)
Gross Profit 11,817, 3,659,106 2,547,3 351,485 18,375,4
424 93 08
Distribution (1,697, (1,204,140) (1,079, (75,149 (4,056,0
expenses 775) 010) ) 74)
Segmental Results 10,119, 2,454,966 1,468,3 276,335 14,319,3
649 83 34
Administrative (34,360,
expenses 478)
IPO Related -
Expenditure
Share-based (303,281
payment Charge )
Net Finance 44,822
income
Taxation 193,192
Loss for the year (20,106,
411)
Year ended 31 December 2017
UK&I France Rest of Rest of Total
Europe World
GBP GBP GBP GBP GBP
Revenue 16,145, 5,544,040 5,021,5 1,033,8 27,744,9
542 94 19 95
Cost of sales (6,554, (2,498,587) (2,362, (332,67 (11,749,
822) 965) 5) 049)
Gross Profit 9,590,7 3,045,453 2,658,6 701,144 15,995,9
20 29 46
Distribution (1,412, (806,097) (1,022, (189,42 (3,430,0
expenses 199) 365) 3) 84)
Segmental Results 8,178,5 2,239,355 1,636,2 511,721 12,565,8
21 65 62
Administrative (27,686,
expenses 895)
IPO Related (2,124,5
Expenditure 28)
Share-based (1,757,2
payment Charge 04)
Net Finance 25,096
income
Taxation -
Loss for the year (18,977,
670)
No analysis of the assets and liabilities of each operating segment is
provided to the Chief Operating Decision Maker in the monthly management
accounts. Therefore no measure of segmental assets or liabilities is
disclosed in this note.
Due to the nature of its activities the Group is not reliant on any major
customers.
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.
31 December 2018 31 December 2017
Weighted average shares in 139,087,779 117,336,860
issue
Loss attributable to owners of (20,106,411) (18,977,670)
the parent company
Basic earnings/(loss) per (14.46) (16.17)
share (pence)
Diluted earnings/(loss) per (14.46) (16.17)
share (pence)
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 2018, options outstanding amounted to 3,203,153. Given the
loss for the year of GBP20,106,411 (2017 loss: GBP18,977,670) these options are
anti-dilutive.
5. Share Capital
Allotted, issued and fully paid:
Number Nominal Value 31 31
GBP December December
2018 2017
GBP GBP
Ordinary Shares 139,735,160 GBP0.001 139,735 138,631
Total 139,735 138,631
The table below summarises the movements in number of shares at the
beginning and end of the period:
Ordinary Shares
Share capital at 31 December 2017 138,631,020
Nominal Value GBP GBP0.001
Value of Share Capital GBP 138,631
Summary of movements in share capital
Exercise of options over ordinary shares 1,104,141
Share capital at 31 December 2018 139,735,161
Nominal Value GBP GBP0.001
Value of Share Capital GBP 139,735
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 2018, 1,104,141 share options were exercised bringing the total share
capital of the Company to 139,735,161 at 31 December 2018.
6. Share-based payment charge
The Group recognised a charge of GBP0.3m (2017: GBP1.8m) related to share-based
payments during the year to 31 December 2018, all of which relates to
equity-settled schemes.
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 Statement of Profit
and Loss and other comprehensive income on a straight-line basis over the
vesting period after allowing for an estimate of shares that will eventually
vest.
The Company operates an HMRC approved executive management incentive plan
(EMI). The vesting conditions are based on length of service with typically
25% of the options vesting on or after the 12-month anniversary of the
employee's start after which vesting occurs in equal monthly tranches so
that options vest in full on the 48-month anniversary of the employee's
start date. All options are equity-settled.
The terms and conditions of the grants are as follows:
Grant Date Number Number Exercise Performance Expiry date
of of Price conditions
Contract Options
s
16/01/2017 13 14,017, GBP0.001 Length of 16/01/2027
897 service
16/01/2017 3 4,653,8 GBP0.001 Performance 16/01/2027
41 Based
23/01/2017 3 56,626 GBP0.001 Length of 23/01/2027
service
25/01/2017 22 1,289,2 GBP0.001 Length of 25/01/2027
36 service
20/02/2017 1 18,825 GBP0.001 Length of 20/02/2027
service
10/04/2017 1 251,000 GBP0.001 Length of 10/04/2027
service
12/05/2017 18 2,222,7 GBP1.012 Length of 12/05/2027
31 service
The Company operates an unapproved executive incentive plan. The vesting
conditions for grants made on 12 May 2017 and during 2018 are based on
length of service with 100% of the options vesting on 36-month anniversary
of the employee's start date. The remaining options have vesting conditions
based on length of service with typically 25% of the options vesting on or
after the 12-month anniversary of the employee's start date after which
vesting occurs in equal monthly tranches so that options vest in full on the
48-month anniversary of the employee's start date. All options are equity
settled.
The terms and conditions of the grants are as follows:
Grant Date Number Number Exercise Performance Expiry date
of of Price conditions
Contract Options
s
13/07/2015 1 132,905 GBP0.001 Length of 13/07/2025
service
01/01/2016 1 49,447 GBP0.001 Length of 01/01/2026
service
01/02/2016 1 224,269 GBP0.001 Length of 01/02/2026
service
26/01/2016 1 12,550 GBP0.001 Length of 26/01/2026
service
12/05/2017 6 991,798 GBP1.012 Length of 12/05/2027
service
12/10/2017 1 23,939 GBP0.001 Length of 12/10/2027
service
20/10/2017 1 23,833 GBP0.001 Length of 20/10/2027
service
16/01/2018 1 20,000 GBP1.010 Length of 16/01/2028
service
17/01/2018 1 100,000 GBP1.010 Length of 17/01/2028
service
02/02/2018 1 15,000 GBP1.010 Length of 02/02/2028
service
05/02/2018 1 87,500 GBP1.010 Length of 05/02/2028
service
11/02/2018 1 20,000 GBP1.010 Length of 11/02/2028
service
The number and weighted average exercise prices of share options are as
follows:
Weighted Average Number of Options
Exercise Price
2018
2018
GBP
Outstanding at the GBP0.519 5,642,703
beginning of the year
Granted During the year GBP1.010 242,500
Forfeited during the GBP0.768 (1,577,909)
year
Exercised during the GBP0.001 (1,104,141)
year
Lapsed during the year - -
Outstanding at the end GBP0.613 3,203,153
of the year
Exercisable at the end GBP0.001 836,875
of the year
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 80.03p (2017: 103.94p).
The options outstanding at the end of the year have an exercise price in the
range of GBP0.001 to GBP1.012 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 are as follows:
Award 1 Award 2 Award 3 Award 4 Award Award
5 6
16 Jan 17 16 Jan 17 23 Jan 17 25 Jan 17
26 Jan 20 Feb
17 17
GBP GBP GBP GBP GBP GBP
Share Ord C Ord Ord Ord Ord Ord
class
Fair GBP0.06 GBP0.10 GBP0.10 GBP0.10 GBP0.10 GBP0.10
Value at
Grant
Date
Exercise GBP0.001 GBP0.001 GBP0.001 GBP1.012 GBP0.001 GBP0.001
Price
Expected 103% 103% 103% 103% 103% 102%
Volatili
ty *
Option 10 yrs 10 yrs 10 yrs 10 yrs 10 yrs 10 yrs
Life
Risk 0.200% 0.200% 0.235% 0.276% 0.300% 0.148%
free
interest
rate
Award 7 Award 8 Award 9 Award 10 Award 11 Award
12
12 May 17 16 Jan 17 Jan 2 Feb 18 5 Feb 18
18 18 11 Feb
18
GBP GBP GBP GBP GBP GBP
Share Ord Ord Ord Ord Ord Ord
class
Fair GBP0.29 GBP0.43 GBP0.43 GBP0.43 GBP0.43 GBP0.43
Value at
Grant
Date
Exercise GBP1.012 GBP1.010 GBP1.010 GBP1.010 GBP1.010 GBP1.010
Price
Expected 55% 77% 77% 77% 77% 77%
Volatilit
y *
Option 10 yrs 10 yrs 10 yrs 10 yrs 10 yrs 10 yrs
Life
Risk free 1.000% 1.000% 1.000% 1.000% 1.000% 1.000%
interest
rate
* Expected volatility is measured at the standard deviation of expected
share price movements and based on a review of volatility used by listed
companies of comparable industry sector and years of establishment.
7. Trade and other receivables
2018 2017
GBP GBP
Trade receivables 1,815,260 767,426
Other receivables 1,124,112 2,608,934
Prepayments 1,320,556 800,696
Other current assets 366,823 -
Total 4,626,750 4,177,056
The average credit period offered on sales of goods during 2018 was 27 days
(2017: 34 days). The average days sales outstanding ("DSO") in 2018 was 82
days (2017: 51 days). At 31 December 2018, trade receivables at a nominal
value of GBP35,681 (2017: GBP25,301) 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
irrecoverable amounts based on past default experience. Specific
counterparty risk is also considered where an analysis of the counterparty's
current financial position indicates a change in credit risk.
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 2018, consistent with 2017 where
three major retail customers each accounted for more than 10% of the total
balance of trade receivables on 31 December 2017.
Included in other receivables is GBP0.1m relating to VAT which is expected to
be fully recoverable.
Ageing of receivables 2018 2017
GBP GBP
Not overdue 1,177,697 378,260
Overdue between 0-30 days 382,274 378,240
Overdue between 31-60 day 56,070 10,183
Overdue between 61-90 days 73,634 743
Overdue over 90 days 125,584 -
Total 1,815,260 767,426
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. Provisions
Refunds Sales Warranty Total
Return
GBP GBP GBP GBP
Balance at 1 560,683 154,414 - 715,097
January 2017
Provisions made 4,118,714 - - 4,118,714
during the year
Provisions used (3,815,835) (154,414) - (3,970,249)
during the year
Unused amounts (36,860) - - (36,860)
reversing in the
year
Balance at 31 826,702 - - 826,702
December 2017
Provisions made 11,647,815 - 163,832 11,811,647
during the year
Provisions used (11,620,290) - - (11,620,290
during the year )
Unused amounts (62,110) - - (62,110)
reversing in the
year
Balance at 31 792,117 - 163,832 955,949
December 2018
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 a 10-year warranty period.
During this period 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.
Whilst there is a degree of estimation in the calculation of this provision,
any reasonable sensitivity analysis in the rate applied to claims at the
year end would not result in a material impact.
9. Subsequent events
Since the end of the Accounting Period, the Company has undertaken the
following significant events:
On 11 February 2019, the Company completed a placing of 120,317,323 new
ordinary shares of 0.1 pence each ("Ordinary Shares") in the share capital
of the Company (the "Placing Shares") at a price of 10 pence per Placing
Share (the "Placing Price") to raise approximately GBP11.7m (the "Placing"),
net of expenses, from existing and new investors. In addition, Channel Four,
which provides advertising services to the Company and is an existing
Shareholder, has agreed that GBP0.9m of future advertising spend by the
Company with Channel Four will, when payable, be satisfied by the issue of
new Ordinary Shares at the Placing Price over a period of up to twenty-four
months from Admission.
In addition, it is proposed that share option plans with a grant date
post-IPO (excluding those grants made in October 2017) will be cancelled and
replaced with a new share option plan. It is proposed that grants from this
pool will be granted on the following basis:
(i) nominal exercise price of GBP0.001 per ordinary share
(ii) vesting monthly from the date of grant over a 3 year period
Following the year end, it was agreed by mutual consent that Abid Ismail,
Chief Financial Officer of the Group, would step down as a Director of the
Company. Abid has agreed to stay on until Summer 2019 to effect a seamless
transition.
ISIN: GB00BYWMFT51
Category Code: FR
TIDM: EVE
LEI Code: 2138007BAC29AUXWQE6
Sequence No.: 7774
EQS News ID: 786289
End of Announcement EQS News Service
(END) Dow Jones Newswires
March 12, 2019 03:02 ET (07:02 GMT)
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