DFS Furniture plc
Annual Report & Accounts 2020
DFS Furniture Group
is the largest sofa retailing
specialist in the UK
Investing in our
Purpose...
Our purpose
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Our Group purpose is to
bring great design and
comfort into every living
room, in an affordable,
responsible and
sustainable manner.
DFS Furniture plc
Annual Report & Accounts 2020
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Our purpose continued
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3
Our customers and our
people are at the heart
of everything we do,
reflected in our three
core values
1. Think Customer
We treat them as we would our own family and keep
them at the forefront of our minds because they are
the heart of our Group.
2. Be Real
We bring our whole selves to work and are confident
to speak up. We accept each other for who we are
and respect each other as part of our family.
3. Aim High
We play to win for the same team, focused on our
shared family ambition. We are bold, brave and
welcome challenge as a chance to innovate.
For over 50 years, we have provided millions of sofas
into homes across the UK, the Republic of Ireland,
Spain and the Netherlands.
DFS Furniture plc
Annual Report & Accounts 2020
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DFS Furniture plc
Annual Report & Accounts 2020
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Highlights
We continue to make progress on our strategic agenda
focused on driving the DFS core business, further developing
our Group platforms and setting Sofology up for future growth.
Financial highlights
The Group has implemented IFRS 16 for the first
time in FY20. To aid comparison with prior years,
unaudited financial measures excluding the impact
of IFRS 16 are presented alongside reported results.
In the previous year, the Group changed its
accounting reference date from 31 July to 30 June.
FY19 was therefore a short accounting period of
48 weeks. In order to provide full year comparative
figures, unaudited pro-forma figures are presented
for the 52 weeks ended 30 June 2019, in addition to
the audited statutory period of 48 weeks ended
30 June 2019.
Definitions and reconciliations of these alternative
performance measures can be found on page 158.
Group revenue
FY20
£724.5m
FY20 pre-IFRS 16
£724.5m
FY19
(52 weeks pro-forma)
£996.2m
FY19
(48 weeks)
£901.0m
Underlying EBITDA1
FY20
£61.9m
FY20 pre-IFRS 16
£(13.8)m
FY19
(52 weeks pro-forma)
£90.2m
FY19
(48 weeks)
£65.1m
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Underlying (loss)/profit before tax excluding amortisation
of brand names1
£(63.1)m
FY20
£(56.8)m
pre-IFRS 16 FY20
FY19
(52 weeks pro-forma)
£50.2m
FY19
£28.2m
(48 weeks)
(Loss)/profit before tax
£(81.2)m
FY20
£(74.9)m
pre-IFRS 16 FY20
Underlying earnings per share1
(24.3)p
(22.9)p
FY20
pre-IFRS 16 FY20
Earnings per share
£(31.4)m
FY20
£(28.5)m
pre-IFRS 16 FY20
FY19
£43.6m
(52 weeks
pro-forma)
FY19
£22.4m
(48 weeks)
FY19
(52 weeks pro-forma)
18.4p
FY19
10.3p
(48 weeks)
FY19
FY19
£16.5m
(52 weeks
pro-forma)
£8.6m
(48 weeks)
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1. Refer to pages 158 to 160 for further information on alternative
performance measures.
DFS Furniture plc
Annual Report & Accounts 2020
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Operational and strategic highlights
Comprehensive response to Covid-19, protecting
colleagues, customers and the long-term value of
the business.
Further progress with our strategy to lead sofa retailing
in the digital age:
Drive the DFS core
• Investment in digital and showrooms to drive DFS
omnichannel journey
• Online order intake during lockdown and showroom
performance since reopening highlight resilience of
digital infrastructure and customer demand for
both channels
Build the platforms
• Development of a group-wide, best-in-class platform
underway with the rollout of the Sofa Delivery Co.
and Stockwise
Unlock new growth
• Store roll-out accelerates at Sofology; strategic
restructuring of small brands to improve returns
Further development of our ESG strategy, which is
embedded in the business.
Strong trading online during lockdown, which has
continued into the new financial year both in showrooms
and online.
What’s in our report
Strategic report
1-63
Our purpose
Highlights
What makes us unique
Our brands
Chair’s statement
Chief Executive’s report
Working together
Market overview
Our customer journey
Business model
Strategy
Strategy in action
Risks and uncertainties
Key performance indicators
Financial review
Sustainability and responsibility report
Section 172 statement
Corporate governance
64-119
Board of Directors
Corporate governance report
Audit Committee report
Nomination Committee report
Directors’ remuneration report
Directors’ report
Statement of Directors’ responsibilities in respect
of the annual report and the financial statements
Independent auditor’s report
Financial statements
120-161
Post Purchase NPS2
85.7%
FY20
FY19
85.7%
84.2%
Established Customer NPS2
42.9%
FY20
FY19
42.9%
33.0%
2. Net Promoter Scores are for the DFS brand.
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2
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Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
2
Consolidated statement of changes in equity
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Consolidated cash flow statement
Notes to the consolidated financial statements
Company balance sheet
Company statement of changes in equity
Notes to the Company financial statements
Financial history
Alternative performance measures
Shareholder information
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161
(52 weeks pro-forma)
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DFS Furniture plc
Annual Report & Accounts 2020
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What makes us unique
Our strategy is to be the leading sofa retailer
in the digital age, meeting customer
expectations, stakeholder demands and
delivering growth whilst integrating
sustainability into the way we do business.
Vertical integration
We design, retail,
manufacture, deliver
and carry out after-
sales servicing.
We have a network of showrooms across the
UK, Ireland and parts of Europe and market-
leading websites so we can offer customers
a seamless omnichannel experience.
We manufacture around a quarter of all
Group sofas in the UK across our own five
factories and wood mills. We operate our
own distribution network, with more than
20 distribution centres, around 370 delivery
vehicles and 600 delivery colleagues who
carefully install our products into customers’
homes.
Our team of 235 service managers address
any after-sales issues and deliver high levels
of customer satisfaction.
Portfolio of
complementary brands
We operate three
separate brands:
DFS, Sofology and
Dwell.
Our brands are complementary – they
appeal to different customer segments and
allow us to target the majority of the market
and deliver organic market share growth.
Each brand curates their own ranges,
supported by specialist in-house
design teams.
Creative direction is managed by each brand
team who operate independently from their
own head offices.
Well invested omnichannel
platform with unrivalled scale
We invest in our
business for the
long term.
With a 34% market share across the Group,
we are over three times the size of our
nearest direct competitor.
We continue to invest in technology to
improve our websites and enhance our
range of online services, including
augmented reality visualisation tools and live
“in-store” communications.
All our brands have a national network of
well-invested showrooms with highly
motivated and well-trained sales colleagues.
With the launch of The Sofa Delivery Co.,
we’re developing a fully integrated Group-
wide supply chain platform and delivering
a range of efficiencies.
UK factories
UK showrooms nationwide
Group market share
5
DFS Furniture plc
Annual Report & Accounts 2020
196
34%
The way our people
responded to this crisis was
nothing short of exemplary,
and I cannot thank them
enough for their spirit,
engagement and hard work.”
Tim Stacey, CEO
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DFS GROUP
ESG STRATEGY
2020 sustainability
UPDATE
SEPTEMBER 2020
PagePage
1
DFS Group ESG - Sustainability 2020
Partnered with waste recycling
experts Clearabee
Our new Environmental,
Social and Governance
(ESG) strategy launches in
the current year.
Building on current initiatives such as our Sofa Rescue
partnership with Clearabee and PlanTree reforestation
initiative, our new strategy incorporates specific
multi-year targets for our brands across key areas of
the business including sourcing, packaging, recycling,
energy efficiency, gender diversity and flexible working.
Furniture pieces diverted from landfill
>33,000
DFS Furniture plc
Annual Report & Accounts 2020
Our people
We would not be
the market leader
without our 5,000+
talented and
enthusiastic
colleagues.
We continue to be rated one of the best
companies to work for in the UK with
consistently high levels of employee
engagement.
Our award-winning apprenticeship schemes
support individuals to become highly skilled
in specialist occupations and develop
long-term careers with the Group.
Group colleagues
5,372
8
Our brands
We are the leading sofa retailing group in the
UK – we operate across three brands, each
appealing to different customer segments.
Joules Ashwicke
• DFS is the leading retailer of sofas in
the UK with over 50 years’ heritage
• Headquartered in Doncaster it operates
117 showrooms in the UK and Republic
of Ireland, eight across Spain and the
Netherlands and a leading web platform
• The brand is promotionally led with broad
reaching advertising campaigns that
drive brand recall and focus on comfort
and value for money
Its customers tend to have average
national income and a high proportion
are young families
•
• As one of the UK’s most visible retail
brands, DFS is often an anchor tenant
driving significant footfall to destination
retail parks
• DFS is the most commonly searched term
online in the sector, ahead of even “sofa”,
and its website received an average of
1.9m unique visitors each month in
the 12 months to June 2020
• Sofa orders are fulfilled on a made
to order basis
DFS Furniture plc
Annual Report & Accounts 2020
In addition to DFS’s own brand products,
it also offers a wide range of exclusive
brands created in collaboration with the
UK’s top home and lifestyle brands.
Revenue
FY20
£535.2m
FY19
(52 weeks pro-forma)
£721.7m
FY19
(48 weeks)
£650.6m
Number of showrooms
125
FY19
125
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Islington
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Number of showrooms
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45
FY19
Revenue2
FY20
£143.7m
FY19
(52 weeks pro-forma)
£205.9m
FY19
(48 weeks)
£187.7m
• Sofology is the third largest retailer
of sofas in the UK
• Headquartered near Warrington it
trades through its growing national
footprint of 45 showrooms and
its website
Its marketing approach focuses
on emphasising product design
and quality
•
• The use of well known celebrities in
its TV and digital adverts has helped
build its brand awareness and
distinctiveness
• The brand appeals to a slightly more
affluent than average customer
• Utilises a strong omni-channel model
that enables the customer to start
building a basket in showroom for
completion there and then or once
they are back at home
Its products are made to order
•
• Dwell sells stylish, modern furniture,
lighting and home accessories
• Dwell’s products are on display in
•
•
39 DFS showrooms as well as on its
own standalone website
Its customers tend to be affluent
and slightly older families in the
35-55 age range
In contrast to the rest of the Group,
Dwell operates a stocked model from
its Milton Keynes national distribution
centre allowing for short customer
lead times
Bergen
Tabula
DFS Furniture plc
Annual Report & Accounts 2020
10
Chair’s statement
Financial and operational resilience in
a challenging year
Overview
This has been an extraordinary year, unprecedented in the challenges
posed by the closure of our showrooms, manufacturing and delivery
capabilities for almost three months of our peak Spring trading period.
During this period, the majority of our colleagues were furloughed and
the small team which remained worked from home.
I applaud the response of our people in managing the closure of our
operations in late March, looking after colleague welfare and planning
and executing the reopening of the business at the start of June.
During the peak of the Covid-19 pandemic the Board met frequently
to provide support and guidance to the Group Leadership Team.
This included assisting with making the key tactical decisions
required to secure the operational and financial position of the
Group, including agreeing arrangements with landlords and
suppliers to manage our cashflow, increasing the Group’s banking
facilities and raising new equity financing.
Strategy progress
In the first full financial year since its launch, we have continued to
progress the implementation of the Group’s strategy to be the
leading sofa retailer in the digital age. In particular, a number of new
initiatives have been launched to further develop the omnichannel
proposition of the largest brands, DFS and Sofology. Progress
has also been made on leveraging DFS’s existing assets to support
improved returns on capital through sharing retail space and
logistics assets to support Sofology’s expanded presence across
the UK. Having proved our ability to do this, including the integration
and development of the supporting information systems and
processes the Group is well positioned to replicate this approach
across the UK and the Republic of Ireland over the next two years.
Financial results
At our half-year trading update we reported that Group revenues were
down 5.7% in the first half against the strong prior year comparative;
however, importantly, order intake was up year-on-year in the second
half, with a particular strength in the DFS brand. This remained the
position and the Group, excluding the underperformance of Sofa
Workshop, was on track to broadly meet market profit expectations
for the full year until the Covid-19 pandemic took hold in late March.
Then, in line with government requirements, all UK operations excluding
our web platform were suspended from 23 March. Our showrooms,
manufacturing facilities and delivery network closed for almost three
months, resulting in a revenue shortfall of c.£270m which led to a
reported loss before tax for the year of £81.2m.
Covid-19 pandemic closedown
The reaction of the business to the pandemic was fast and effective.
After pausing operations overnight, additional communication
channels were established to ensure colleagues remained fully
informed of the developing situation and the impact of the business’
‘hibernation’. Almost 90% of colleagues were furloughed and around
500 remaining colleagues worked tirelessly to manage the impact on
the business. Expenditure was minimised and, in order to increase
financial resilience, in April 2020 the executive team secured an
incremental £70m twelve month debt facility from our banks to
supplement our existing lending arrangements, and we also raised
£63.9m in new equity financing from a share placing the same month.
I would also like to express our thanks to the Group’s many
stakeholders for their support through this challenging period.
This includes the Government for providing broad support including
the Coronavirus Job Retention Scheme, and many of our larger
suppliers and landlords, who agreed to payment deferrals.
Ian Durant
Non-Executive Chair
2020 highlights
• Fast and decisive action in response to
Covid-19; temporary suspension of
business drives loss before tax for the year
• Strong trading online during lockdown,
which has continued into the new financial
year both in showrooms and online
• Good strategic progress with the focus on
DFS and Sofology
• Sale of Sofa Workshop and restructuring
of Dwell completed early in the new
financial year
• Development of phase one of our Group
Environmental, Social and Governance
agenda
DFS Furniture plc
Annual Report & Accounts 2020
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Re-establishing our operations
The DFS and Sofology brands traded well
online throughout the lockdown period.
Benefitting from continued investment over
numerous years, as we shared in our July
trading statement order intake across the
online channels was up 77% year-on-year
from the beginning of lockdown to
12 July 2020.
Most of the Group’s customers still choose
to visit our showrooms, so they can
experience the look and feel of our products,
as well as the all important “comfort test”,
before committing to a purchase. During
lockdown the executive team worked hard to
put in place all the steps necessary to safely
welcome back employees and customers
into our showrooms and restart our
manufacturing and delivery operations with
appropriate safety measures. To facilitate
the re-opening, we implemented strict social
distancing and hygiene measures and
introduced a new appointment system for
customers which has proved popular.
Since re-opening in June, we have been
pleased to see a significant increase in
customer orders, which has been sustained
into the first three months of the new
financial year. We believe this reflects both
latent demand from the period of closure
and a renewed focus and enthusiasm
amongst customers for enhancing the
comfort of their homes.
The high level of orders, combined with
constrained deliveries through June as
operations gradually recommenced,
resulted in a higher than normal order bank
at the end of the year. The Group therefore
entered the new financial year with good
momentum.
We are very aware of the ongoing economic
uncertainty and have decided to focus our
efforts more closely on the development
of the DFS and Sofology brands, which we
believe provide the greatest opportunities
for growth. To facilitate this we have, since
the end of the financial year, completed the
sale of Sofa Workshop and integrated the
management of the Dwell retail team into
DFS to reduce costs and help it become
a more profitable part of the Group.
Unfortunately, the consequence of this is
the loss of a number of colleague roles from
the business.
We recognise the environment in the new
financial year, is likely to be highly challenging,
and may require rapid changes in our ways of
working to adapt to the continued impact of
Covid-19. The Board and Executive have
adopted a shorter, more frequent planning
cycle to reflect this heightened risk. I am
confident given the pace at which the Group
has responded to recent challenges we have
the right team and structures in place to
manage these risks.
Our purpose, our values and
our people
The Group, which is the outright market
leader in its sector in the UK, has a
distinctive culture. There is a great sense of
pride, commitment, and a “can-do” attitude
amongst the people that work across the
business. Our purpose, built on our values, is
to bring great design and comfort into every
living room, in an affordable, responsible,
and sustainable manner.
the Board as a Non-Executive Director. Jane
has subsequently taken on the role as our
designated Non-Executive Director as we
look to further strengthen the Board’s
understanding of employee views.
That our people live our values has been
evident from their dedication and enthusiasm
over the past year. Aside from the pandemic
there is a significant amount of change going
on within the Group and I commend our
employees for their commitment and
determination to see through the numerous
projects that are underway.
Environmental, Social and
Governance (“ESG”)
With the support of the Board, the Group
Leadership team has spent a considerable
amount of time and effort developing phase
one of the Group’s ESG strategy. Our
ambition is to leverage our influence and
scale as market leader to offer sustainable
and ethical products and to drive a more
circular product lifecycle. This starts from
sourcing and manufacturing, through to
retailing and delivery before then ensuring
the collection and responsible disposal of
products at the end of their useful lives.
As a result, we expect to become more
efficient, competitive and innovative
without margin dilution to support the
long-term sustainability and profitability of
the Group. We believe this approach to
sustainability is expected by our customers
and indeed embedding sustainability into
everything we do is a key priority for
the future.
We are well aware that there is much to be
done, and the team has been on a journey
to first understand, through independent
audits, our current situation in relation to
sourcing, energy consumption, waste
products and our people. We have then
developed what we consider to be stretching
but realistic targets and plans to achieve these.
We launched four key initiatives in the year:
our wood and leather sourcing strategy;
reduction and recycling of packaging; our
‘sofa rescue’ service to reduce the amount of
waste product entering landfill; and our tree
planting initiative working with the Woodland
Trust. There are many other work streams
underway – more detail on these and our
targets can be found on pages 48-59.
I am proud of the work done by our colleagues
across the Group to support the incredible
work of the NHS during the height of the
health crisis. Support was provided to 50
NHS hospitals across the UK, by donating
and delivering sofabeds, sofas and recliners
to allow health workers to enjoy much
needed rest whilst remaining on site
between shifts to support patients.
The Board
In September 2019, Alison Hutchinson
succeeded Luke Mayhew as Senior
Independent Director, prior to his retirement
from the Board at the AGM in November.
In January, Steve Johnson succeeded Alison
as Chair of the Remuneration Committee. In
January 2020 we welcomed Jane Bednall to
The Board’s focus in the year has been to
drive the implementation of the Group’s
strategy through providing oversight,
support and challenge to the Group
Leadership team. Although interrupted by
the sudden and extreme impact of Covid-19
closure, the Group’s strategic direction
remains intact and steps have been taken to
accelerate changes which we anticipate will
enhance the Group’s UK market leadership
position and profitability.
More details on the Board’s activities can be
found on pages 66 to 75 in the Corporate
Governance Report and Section 172
Statement on pages 60 to 63.
Dividend
As a result of the uncertainty driven by the
pandemic, we took the decision to cancel
the interim dividend. Whilst trading has been
strong since the lockdown measures eased,
we remain cautious around the continued
potential impacts of Covid-19 on operations
and the macro-economy. While the terms of
the incremental banking facility secured in
April preclude payment of a dividend at the
current time in any event, we would not have
otherwise sought to recommend payment
of a final dividend in respect of the FY20
financial year as we seek to maximise the
financial resilience of the Group.
Looking ahead
The Group’s scale economies, brand
heritage, vertical integration and financial
strength position it well for what is, as noted
in the Chief Executive’s outlook, likely to be
a tough trading environment. This strength
has enabled the Group to grow its market
share during previous times of economic
challenge as less resilient competitors
exited the market, for example during the
global financial crisis of 2008/9.
In these uncertain times we need to be
cautious and alert to the unexpected. It is
impossible to predict the impact of the
political, social and economic developments
we are seeing. Notwithstanding these
challenges, the Board is confident that the
strength and resilience of the business
places the Group in a relatively strong
position over the long term and well placed
to manage these market uncertainties. We
remain committed to developing the Group
to drive shareholder returns, have a positive
impact on our society and continue to
provide a rewarding place for our people
to work and believe these aspirations are
mutually compatible.
Ian Durant
Chair of the Board
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
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Chief Executive’s report
Our strategy, to lead sofa retailing in the
digital age, is more relevant than ever.
Overview
The decision to close our business down for the first time in 50 years
on 23 March 2020, based on the Government guidance, was
momentous but clearly necessary. We moved swiftly to protect
colleagues and customers by temporarily closing all showrooms,
manufacturing and distribution operations.
The way our people responded to this crisis was nothing short of
exemplary, and I cannot thank them enough for their spirit, engagement
and hard work throughout lockdown, ingredients that enabled us to
come through the crisis. We also really appreciated the support we
received from our key stakeholders, including our shareholders, our
banking partners, our suppliers and our landlords. With their collective
support, and the actions we have taken, I am very confident that the
Group has emerged even stronger from this unprecedented period.
Re-opening the business safely has been a huge undertaking and we have
put colleague and customer safety first. The careful re-opening through
late May and June, together with the disruption through lockdown itself,
has clearly impacted the financial performance in the year with revenue
for the 52 weeks to 28 June 2020 declining by £271.7m to £724.5m
compared to the 52 week unaudited pro forma prior year period.
This reported performance is based on the fact that the Group
recognises revenues at the point of delivery of orders to customers,
and consequently second half financial performance was particularly
adversely affected. The Group traded very well online, but government
lockdown restrictions from 23 March severely restricted customer
deliveries for much of the remaining period.
Underlying loss before tax excluding brand amortisation1 for the year on
a pre-IFRS 16 basis was £56.8m compared to a profit of £50.2m in the
comparative period. We ended the year with net debt on a pre-IFRS 16
basis1 of £169.2m (2019: £176.3m), after raising £63.9m from
shareholders as part of our measures to build financial resilience in
response to the pandemic.
Since the year end, net debt has reduced significantly, due to a
combination of the resumption of customer deliveries and very strong
order intake, which has exceeded our expectations in the first few
months of the new financial year. We have reviewed extensive external
and internal data and we believe that the current level of performance is
due to a combination of latent demand post lockdown, a shift of
consumer behaviour towards spending on “home”, the relative strength
of our omni-channel offer and competitor market exits.
Based on data from Global Retail the upholstery market was relatively flat
for three years from the start of 2017 to the end of 2019, driven by low
consumer confidence and a subdued housing market caused by political
uncertainty and relative macro economic weakness. There appeared to
be some green shoots in the market after the December General election,
pre-lockdown, as conversion and Average Order Value improved post
Boxing Day, although footfall and web visitors remained fairly depressed.
Post-lockdown there appears to be a shift upwards in the market cycle,
but it is only a few months of trading, and macro economic storm clouds
are gathering, together with the next phase of Brexit and the threat of
further disruption from Covid-19. Indeed, the current out-performance
could be “pull forward” from the autumn as consumers fear a second
wave of the virus. It is therefore impossible to call as to how sustainable
this trend might be, and as such, to predict the future from the autumn
onwards would be speculative at best. That said, given the start to the
new financial year and the relative strength of our proposition, we are
well positioned to take advantage if the current trends continue and we
can also cope with potential further disruption.
1. Refer to pages 158 to 160 for APM definitions
Tim Stacey
Chief Executive Officer
2020 highlights
• Loss before tax of £81.2m as a direct result
of business suspension during lockdown
• Comprehensive response to Covid-19,
protecting colleagues, customers and
the business
• Acceleration of growth strategy focused
on DFS and Sofology
• Good progress on cost efficiency
• Development of our ESG strategy, which is
embedded in our business
• Very strong demand since reopening
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I am so proud of, and grateful to, every single one
of our colleagues and stakeholders for the way
in which we managed through the lockdown.”
Prior to the arrival of Covid-19, we were making
good progress on our strategic initiatives,
despite the continued challenges from the
relatively flat market. During lockdown we
reflected on our progress, given the
acceleration in consumer behaviour towards
online shopping, and the underlying strengths
of our well-invested omnichannel platform and
unrivalled industry scale.
As I outline below, since the year end, we have
taken further actions to reinforce the structure
of the Group and we will continue to invest in
core assets and key initiatives which support
our long-term strategy and deliver improved
shareholder returns.
Managing the Covid-19 pandemic
Our company values, allied to our rigorous risk
management framework, helped shape our
response to the Covid-19 pandemic. From
January, Covid-19 evolved rapidly from
a predominantly regional concern, disrupting
our Chinese imports, to an international crisis
affecting many elements of daily life, including
every aspect of our own Group activities.
As the pandemic spread into the UK, our first
actions were to prioritise the health and safety
of our colleagues and customers. On 23 March,
we closed all our showrooms, manufacturing
and distribution operations in the UK, Republic
of Ireland and Spain and immediately
suspended all customer deliveries, with health
concerns paramount. Despite severe
restrictions on physical operations, we
continued to support close to 5,000
furloughed colleagues at a time of growing
financial uncertainty, fully protecting salaries in
April and maintaining salaries at 80% of full pay
until colleagues returned to work, in excess of
Government salary caps. In solidarity with our
teams on furlough, all our Group’s senior
leadership, including our Board Directors and
senior executives, agreed an equivalent salary
reduction.
We also amended our sick pay policy to take
account of Covid-19 risks and the salaries of the
Group’s senior executives and Non-Executive
directors were reduced while operations were
suspended. We also provided valuable
well-being support to employees via numerous
avenues including our employee assistance
helpline and The DFS Living Well Workplace
platform. Government restrictions on our
business began to be eased from the end of
May, and our own operations resumed once
we were confident that we had the correct
measures in place to protect our colleagues
and customers.
Safety concerns addressed, aided by our
Group-wide Google technology infrastructure
to facilitate remote team-working, we were able
to enact recently updated business continuity
procedures in order to protect the health of the
business. We undertook a thorough financial
review, significantly reducing expenditure,
deferring new store openings and utilising the
UK government’s business rates holiday and
the Coronavirus Job Retention Scheme to
manage costs and cash.
In relation to key external stakeholders, we
aimed to act with integrity in relation to our
suppliers and landlords. Recognising their
existential challenges, we prioritised payments
to smaller, key long-standing suppliers. We
acknowledge the support of our strongest
landlords and suppliers in allowing us to secure
temporary improvements to our payment
schedules.
Our investors also deserve recognition for
their support during the pandemic. With cash
flows temporarily constrained as lockdown
restrictions prevented us from delivering our
growing customer order bank, we were able to
secure a temporary £70m extension to our
banking facilities. Our largest shareholders also
participated in a £63.9m share placing which
was also supported by our Board members.
As dividend payments have been suspended
to help manage the financial impact of the
pandemic, we acknowledge our shareholders’
support and will aim to recommence payments
once the macroeconomic outlook is
more certain.
At a time of unprecedented challenge, I have
greatly admired how our various stakeholders
and management teams have been able to
work calmly together, allowing us to operate
safely and preserve the long term value of the
Group. The power of strong relationships is
something that we value highly as a Group.
Review of strategic progress
The far-reaching consequences of the
pandemic underline more than ever the
importance of fully embracing digital channels
as online penetration accelerates across the
retail sector. In the upholstery market we
believe that it is the combination of digital and
the physical aspects of our showrooms that will
continue to be successful . We know from our
research that 90% of sofa buying decisions are
made in the showrooms after the all important
“sit test” as “comfort” is the number one reason
why customers choose to buy a sofa or not.
Showrooms are therefore at the centre of
our business model and as such we believe
that the Group is well placed if consumers
reprioritise the home within their lifestyles
and spending patterns.
Our strategy, to lead sofa retailing in the
digital age, aims to generate, as previously
announced, £40m of incremental profit before
tax relative to FY18 and excluding the impact of
normal market growth/decline, by focusing on
three core pillars: (i) to drive the DFS core brand,
(ii) to build group platforms to maximise
efficiency, and (iii) to unlock new profitable
channels of growth.
Drive the DFS core
The DFS brand is the largest and most
profitable in the Group and the key priority of
our strategy is to focus on driving this brand
across all channels. We continue to invest in
our infrastructure in order to further improve
our omnichannel customer journey.
With a strong online offer and well-invested
showrooms, DFS is well positioned to compete
across all channels. Prior to the Covid-19
pandemic, our recent market research showed
that 85% of customers began their sofa buying
research online, with around 90% of customers
subsequently visiting a showroom to conduct a
“sit-test” before completing their purchase. As
such we believe that the combination of digital
and physical showrooms is the right business
model for the upholstery sector.
We were pleased, however, to see that we could
trade well online, even without the benefit of
showrooms during the lockdown period. This
performance underlines the strength of the
DFS brand and our online proposition, as well
as our reputation for supplying good value
products.
Our showrooms performed strongly as they
reopened in the final weeks of the financial
year. This trend has continued into the current
financial year, together with high levels of
growth through our online channels. Our online
penetration of total orders is up 3ppts to 22%
over the last six months.
A greater proportion of our advertising
expenditure was spent on digital marketing
as we worked with Facebook, Instagram and
Pinterest to develop increasingly targeted
customer campaigns. We also improved our
on site search capabilities, being the first sofa
retailer in the UK to introduce “visual search”.
This functionality enables customers to take
photos of any sofa they see in any setting and
then compare that to our extensive ranges.
In the first half of the year, we re-platformed
the DFS website onto Google Cloud, enabling
improved functionality, a faster user experience
and far greater user capacity. Furthermore,
having been the first sofa retailer to launch
augmented reality on an iPhone mobile browser,
enabling a customer to view a sofa in their own
DFS Furniture plc
Annual Report & Accounts 2020
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Chief Executive’s report continued
home, we’ve launched a second generation service with a new software
partner and have been increasing the number of ranges available on this
service. These initiatives have had a positive impact, particularly when
showrooms were closed during the lockdown period.
We continued to invest in our showrooms in the year, equipping our
sales colleagues across the showroom estate with 1,200 new Google
Chrome tablets. The tablets enable rapid access to key information in
a convenient and secure way, utilising customer data from their online
account with us to direct them to the products they’ve been browsing
and similar products that may match their requirements. Working with
our artificial intelligence partner, Satalia, we developed a model to
predict footfall, based on local market trends, weather, promotional
campaigns to ensure we can act at short notice to optimise our sales
team scheduling to meet demand.
We continue to track customer satisfaction by monitoring Net Promoter
Scores (NPS) at various stages of the customer journey. Our post
purchase NPS score for the DFS brand was 85.7% (FY19 84.2%). Our
established customer satisfaction score improved significantly to 42.9%
(FY19 33.0%). This increase was driven by a combination of better digital
communication with customers post purchase, improved product quality
and new digital tools enabling customers to book their own delivery and
access customer service and help.
We’re using our data more efficiently to deliver timely insights into
consumer trends and drive more effective product development. We
continue to see above average sales growth from our licensed sofa
brands including French Connection, House Beautiful, Country Living
and Joules, with successful new model introductions driving sales as
they roll out across the DFS store estate.
Towards the end of the financial year, we also introduced the DFS Chair
Edit – a series of new colourful accent chairs that complement existing
sofa product ranges and allow customers to indulge their own design
talents and create a coordinated living room look. In the current year, we
have recently launched new ranges targeting busy families and to attract
additional style-focused customers with our exclusive Halo Luxe
partnership, which showcases the very best leather products.
We are making great progress in modernising and driving the DFS core
business and this remains the key priority of our strategy. We look
forward to continuing our investment, particularly in digital capability,
as the year progresses, as we look to strengthen DFS’s market-leading
position.
Build the platforms
This strategic pillar focuses on Group-wide benefits from utilising
existing infrastructure and scaling systems, processes and data.
As a market-leading, vertically-integrated business, we are targeting
significant efficiency gains from our property, logistics, marketing and
manufacturing activities.
We continue to make good progress securing property savings, through
a combination of rent reductions on leases approaching renewal and
downsizing some showrooms. Last year we secured a further £1.4m of
annualised savings, bringing the total annualised saving since the
program began to £4.3m. We are confident of achieving the £6-8m
targeted annual savings by FY23 as previously communicated. In order
to secure the maximum value benefit over the longer term, we only
commit to new leases where appropriate terms are available, reflecting
the rental market trend and the Group’s strength as an anchor tenant on
many retail parks. We are also well placed to strengthen our portfolio
during a period of market disruption affecting our competitors.
We continue to seek efficiencies from our Customer Distribution Centre
(CDC) network, with some of our CDCs now delivering multiple Group
brands after a successful trial. In the year, we relocated our Belfast CDC
from our retail site into a new standalone location, repurposing the space
to house more of our brands with minimal incremental rent. Our
relocated Belfast CDC now delivers more of our brands’ products to
customers’ homes on the same vehicles under our ‘The Sofa Delivery
Co’ branded group delivery network. This network will enable us to
provide better and more consistent service to our customers at a lower
cost to the Group by: increasing utilisation of our delivery fleet and
reducing carbon emissions; reducing CDC operating costs; and
leveraging DFS’s proprietary routing and scheduling optimisation
DFS Furniture plc
Annual Report & Accounts 2020
software. We have the opportunity to transition all the Group’s sofa
delivery operations to this model by the end of Financial Year 2022 with
annualised savings of £3m+.
To improve customer experience, we have trialled seven days a week
and later evening delivery slots in our Glasgow CDC. As well as providing
greater customer convenience, the change in shift patterns has also
generated positive feedback from our colleagues in relation to work life
balance and rest periods. We are considering extending this trial to all
CDCs over the next 24 months.
We target continuous incremental improvements in our customer
facing technology platforms. In the year, we enabled DFS customers to
book their delivery and installation slots online. Around fifty percent of
our customers now use this online functionality resulting in both higher
NPS scores and increased efficiency. Customers can also now track
where their delivery vehicle is, in real-time, on the day of delivery.
Marketing has been a traditional DFS strength and a major area of
investment for the group. However, we believe we can drive significant
efficiencies by using increasingly granular data-led analysis, particularly
in relation to our digital marketing investment. With the support of our
expert partners, we have identified optimum amounts of investment by
brand for the current financial year, which will be regularly reviewed to
reflect prevailing market conditions.
Going forward we are reviewing our own manufacturing capacity and
capability given our growth plans for both DFS, Sofology and Dwell, the
clear margin benefits of vertical integration and the potential for
increased control of end to end supply chain.
We recognise that world class retail businesses are moving to become
more platform-based in order to enable future profitability and extract
cost efficiencies. We are making good progress on our platforms and
intend to deliver all of the cost savings identified by Financial Year 2023.
Unlock new growth
The third pillar of our strategy is ‘unlock new growth’ which targets
profitable growth from our other brands. Most recently this was
reflected in the acquisition of Sofology in 2017 for £25m, following on
from opportunistic acquisitions of Dwell and Sofa Workshop in 2013
and organic expansion in the Netherlands and Spain .
Recent operational challenges, weaker results and the uncertain retail
outlook, have led us to review our Group structure and re-assess the
prospects of certain smaller Group businesses. As we recover from the
pandemic, we believe that it is important that the Group retains the
financial resilience to weather a period of economic uncertainty, and that
the investment in individual brands matches future returns prospects.
With a leaner, simplified structure, we believe the Group will be best
placed to maintain its leading market position, while taking advantage of
the significant Sofology profit growth opportunity.
Sofology
We plan to accelerate the development of Sofology, and see significant
scope to expand the number of showrooms in the UK, driving further
economies of scale. We were encouraged by the performance of Sofology
during the year, particularly the online channels during the lockdown period
and as showrooms re-opened towards the end of the financial year.
Sofology continues to lead the sector with its seamless omnichannel
journey, and made further progress in this area in the last financial year.
Recent developments include website enhancements such as a
‘go-in-store’ capability, whereby a customer browsing online can be
connected to a colleague in a showroom via video, see the product live
and have any questions answered, and the introduction of a ‘sofa sizer’,
enabling a customer to enter the maximum height, width and depth of a
sofa with the range immediately refined and presented to the customer.
These initiatives have helped contribute to improved web and showroom
conversion throughout the year.
We have developed significant new product ranges and refreshed the
existing offer through the addition of new coverings. These new
collections have been successful in driving improved Average Order
Values and gross margins, and as such are driving strong sales and
margin growth year on year post lockdown.
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Sofology’s NPS continues to benefit from investment in product quality
and after sales service. Colleague engagement scores have also
continued to improve and attrition has reduced significantly.
Sofology opened three new showrooms in the period including its first
store in Northern Ireland. Despite disruption due to lockdown measures,
we remain encouraged by the new store performance.
We continue to see the opportunity to grow the Sofology brand to 65-70
outlets in the medium term. In the current year, taking advantage of
favourable lease terms, we are seeking to accelerate the showroom
opening programme and plan to open 6-10 new showrooms in the next
twelve months.
Sofa Workshop and Dwell
The disappointing performance by Sofa Workshop we outlined in our
interim results deteriorated further in the second half. Following our
strategic review, we decided to sell Sofa Workshop and the transaction
was finalised and announced in August.
In a competitive homewares market, Dwell also reported a decline in
sales and brand contribution during the year. We have restructured the
Dwell operating model to enable its wide range of attractive products to
be sold more seamlessly to DFS customers, as well as online. We believe
that Dwell has a complimentary proposition to our sofa brands and is
now set up to deliver profitable growth going forward.
International
Prior to lockdown, the performance of our six Netherlands showrooms
was in line with expectations and we expect to conclude our review on
growth options for this business in 2021. Our two Spanish showrooms
continue to perform well despite potential uncertainty from the Brexit,
which may have some effect in the areas they are located.
People, purpose and values
FY20 placed significant demands on our Group colleagues, including
managing uncertainties around the government furlough programme,
or working extended hours from home alongside domestic pressures
and perhaps coping with anxiety around Covid-19. Using a variety of
means, we have aimed to support our colleagues from a financial and
wellbeing perspective as much as possible during this period. I genuinely
appreciate all our colleagues for their efforts in the year.
Despite the growing importance of digital technology, retailing remains
very much a ‘people’ business, and the industry remains the UK’s largest
private sector employer. I am proud to lead a Group with more than
5,000 passionate and dedicated colleagues. As a vertically-integrated
omnichannel business, with a strong ‘family’ ethos, the Group offers a
wide range of career opportunities across our manufacturing, retailing,
distribution and support functions. We also provide a range of career
development opportunities, from our award-winning apprenticeship
programme to leadership skills workshops.
We continue to receive external recognition for our employment
engagement, gaining a Best Companies™ accreditation for a fifth
consecutive year, with colleagues highlighting positive manager
relationships and an enjoyable team working environment as key
attractions of the Group. We continue to benefit from colleagues’ loyalty,
with almost 40% of colleagues having more than five years’ service with
the Group.
As a successful UK-based company and the market leader in our sector,
we also believe that, in addition to delivering long-term value for
shareholders, we have a responsibility to contribute to the success of
wider society and to be aware of our impact on the environment. To this
end, we have spent time reflecting on our company purpose throughout
the year:
Our Group purpose is to bring great design and comfort into every living
room, in an affordable, responsible, and sustainable manner. Our
customers and our people are at the heart of everything we do, reflected
in our three core values of ‘Think Customer’, ‘Be Real’ and ‘Aim High’.
These values are firmly ingrained across the Group and are central to our
strategy and our purpose.
Environmental, Social and Governance (ESG)
Reflecting our purpose and values, we are committed to acting in a
responsible and sustainable manner into the long-term. Our Group-wide
ESG initiative is led by Sofology CEO Sally Hopson and supported by
Alison Hutchinson as Board sponsor. In the last twelve months, we have
intensified our efforts in this critical area, and have developed a new ESG
Strategy that will be announced alongside our preliminary results. The
Strategy will detail specific multi-year targets for our brands across key
areas of the business including sourcing, packaging, recycling, energy
efficiency, gender diversity and flexible working. We intend to turn ESG
leadership into a sustainable source of competitive advantage for the
Group. Further details of our ESG Strategy can be found on page 48 of
this Annual report.
Impact of the UK’s exit process from the EU
In my 2019 CEO’s report, I reported in detail on our work on the potential
impact of the UK’s departure from the European Union. Our preparations
have continued, overseen by the Group Risk Team reporting to the Audit
Committee. The UK is currently in a transition period until the end of 2020
while trade negotiations take place regarding the nature of the future
relationship with the EU. The level of change required as part of any trade
deal is unclear as yet. We have established a cross brand Working Group
prioritising actions to address the “known knowns” surrounding the EU
departure process. With governments prioritising the Covid-19 response,
it is currently unclear whether the transition period will be extended and,
on balance therefore, the risks of a ‘no deal’ departure have increased.
We provide more detail on Brexit in our Risks & Uncertainties analysis
on page 35.
As indicated in last year’s report, the two principal risks to the Group from
the EU departure remain consumer confidence related impacts on
consumer demand, and border delays. As a result of the Covid-19
pandemic, consumer confidence is already low. We will continue our
preparations to minimise the disruption as part of our risk management
process, until the UK and EU’s path forward is clear.
Outlook
While the reported decline in profit is undoubtedly disappointing in
headline financial terms, a significant proportion of this profit has already
been recovered in the current year as we resumed customer deliveries.
We have also continued to make progress with our strategic agenda,
strengthened our stakeholder relationships and worked hard to preserve
the value of the Group.
The current year has started very strongly with all showrooms now open
and our digital channels continuing to grow. Our year-on-year order
intake growth over the last twelve weeks, combined with our previously
announced higher opening order book, implies c.£226m of additional
revenues will be realised in this financial year. We believe that this growth
is due to a combination of pent up demand from lockdown, consumers
spending relatively more on their homes and the strength of the DFS
and Sofology propositions in particular.
In the absence of further lockdown impacts, we therefore look forward
to reporting a strong first half sales and profit performance, although the
full year outcome will be dependent on the effects of the pandemic and
Brexit on consumer confidence, the housing market and levels of
employment. Cash generation will continue to be a priority as we look to
rebuild our financial resilience.
We remain focused on executing our strategy, with agility and pace, and
believe that the Group is well placed to further strengthen our market-
leading position in the medium term. The events of the past year have
allowed us to build an even stronger sense of togetherness. We emerge
from the crisis stronger and with renewed energy and purpose.
Tim Stacey
Chief Executive Officer
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
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Working together
At a time of unprecedented challenge, our various
stakeholders and management teams have been working
closely together, allowing us to operate safely and preserve
the long term value of the Group. Our Group ‘family’ values
of Think Customer, Be Real, and Aim High have helped shape
our response to the Covid-19 pandemic.
Protection
Employees have been issued with the
appropriate protective equipment and
given clear instructions as to how to
perform their roles safely in the current
environment.
Online support
We’ve kept in touch with our colleagues via
our Facebook Workplace platform which
also hosted live-streamed “Town Hall”
management presentations.
1. Employees
As the pandemic spread into the UK and our European markets,
we acted fast to protect the health of our colleagues and
customers by closing showrooms, factories and suspending
customer deliveries, only resuming operations after detailed safety
checks. We’ve provided financial support beyond government
caps for furloughed colleagues, updated our sick pay policy and
offered extensive wellbeing support across phone helplines, our
Living Well platform and informal team get-togethers.
2. Customers
We’ve introduced appointment booking slots, social distancing
in the stores and ensured that our delivery teams are equipped
with all the right PPE. We’re now trialling ‘go in store’ video calls
with local showroom teams so customers can consult advisors
from the comfort of their own homes.
3. Suppliers & landlords
Despite the financial pressures of the pandemic, we’ve aimed to
treat suppliers and landlords fairly, supporting our smaller, long-
standing suppliers during the peak of the crisis. In turn, we also
recognise the support of our strongest suppliers and landlords
who granted us improvements to our payment schedules.
4. Investors
We appreciate our investors for their support during the
pandemic. As lockdown restrictions prevented us from making
deliveries to customers, our banks and shareholders provided
us with temporary additional financial resources so we could
continue trading online and investing for the future despite
Covid-19 disruption.
5. Community
The Group and our employees support a range of charities and
volunteer to help the community throughout the year. During
the peak of the pandemic, we provided over £100,000 of sofas
and sofa beds to NHS hospitals between April and June and
donated £300,000 of products to Children in Need for families
impacted by Covid-19. Our factories also supported the ‘Love of
Scrubs’ campaign, with volunteers in the factories cutting 7,300
sets of scrubs to be sewn by the Love of Scrubs Group.
DFS Furniture plc
Annual Report & Accounts 2020
Business continuity
Recently upgraded business continuity plans
ensured we could act swiftly when the pandemic
struck, switching seamlessly to remote working
via Google’s G-Suite.
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Volunteering
Our volunteering
initiative, Giving Back
at DFS, launched just
before the Covid-19
lockdown. This
initiative commits us to
supporting colleagues
with their own
volunteering initiatives
and donating up to 1%
of profits and up to 1%
of product volumes to
deserving causes.
Supporting NHS
key workers
We donated over £100,000
of sofas and sofa beds to
50 NHS hospitals between
April and June 2020.
Thank you so much again.
Gestures like this, and a
comfortable sofa to
sit on during breaks will
certainly boost morale
with my colleagues.”
Dr. Emily Gott,
Prince Charles Hospital,
Merthyr Tydfil,
South Wales
Shareholders
We were able to count on our largest shareholders to
back a £63.9m share placing which was also
supported by our Board members.
Suppliers and landlords
We’ve worked collaboratively with our suppliers
during the crisis, prioritising payments to smaller
long-standing suppliers whilst benefiting from the
support of our largest suppliers and landlords.
DFS Furniture plc
Annual Report & Accounts 2020
18
Market overview
We are the leading sofa retailer
in the digital age
The upholstered furniture market is large and still fragmented
despite ongoing market share gain and consolidation by
leading players.
Market opportunity
Large potential customer base
The DFS Group has a specialist focus on
the retail upholstered furniture segment.
The UK upholstery furniture market was
estimated by GlobalData to be valued at
£3.2 billion (incl. VAT) in 2019. We also
offer a selected range of beds, dining and
other furniture and home accessories
giving access to other segments in the
UK furniture market.
Clear leader in the segment
The DFS Group, through its DFS, Sofology
and Dwell brands, is the clear leader in the
upholstery furniture market with 34% share
by value. We see three broad categories of
companies actively competing in the
upholstery furniture retail market: Specialist
Chains such as DFS, Sofology, ScS and
Furniture Village; Independents that are
typically single store operations; and General
Merchandisers such as Ikea, John Lewis,
Next, Argos, Debenhams and all other
retailers including DIY chains and
supermarkets. Historically the Group has
tended to gain market share during periods
of market weakness as weaker multiples and
independent chains have exited the market.
For example, the Group’s market share
increased from c.18% to 26% during the
2007-2014 period (GlobalData).
Steady growth over
long-term periods
Since 2010, the UK upholstered furniture
segment of the furniture market has
achieved modest compound annual
growth despite political uncertainty
following the 2016 vote to leave the EU
and subdued housing market activity.
Demand is supported by a seven year
replacement cycle and underpinned by
demographic trends.
We believe over shorter time frames the
segment is principally driven by three key
factors: consumer confidence, housing
market activity and consumer credit
availability.
In addition to these market drivers we do
see from time to time some material
volatility in market demand levels caused
by particularly hot or cold weather and
significant public events.
UK upholstery furniture market
Group market share
£3.2bn
34%
DFS Furniture plc
Annual Report & Accounts 2020
Blenheim
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Market conditions are currently challenging,
with consumers managing uncertainty due
to Brexit and Covid-19.
Key market drivers
Consumer confidence
Levels of consumer spending, particularly
for big ticket items, are influenced by
general consumer confidence. UK
consumer confidence has weakened
since 2016 amid uncertainty following the
referendum vote to leave the EU.
Consumer confidence appeared to
improve slightly following the UK General
Election in December 2019, only to fall to
near record levels as lockdown measures
were introduced to manage the spread of
Covid-19.
Consumer confidence1
Consumer confidence1
5
0
-5
-10
-15
-20
-25
2011
2012
2013
2014
2015
2016
2017
2018
2019
1. GfK UK Consumer Confidence average of
individual scores for each year.
a
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F
Housing transactions p.a. (‘000s2)
1200
960
720
480
240
0
-240
2020
YTD
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Net unsecured lending growth3 (%)
12
10
8
6
4
2
0
-2
-4
-24.7%
YTD
H1
Consumer confidence1
5
0
-5
-10
-15
-20
-25
2011
2012
2013
Housing market
Independent research conducted on our
behalf suggests that c.20% of upholstery
purchases are triggered by a house move.
Housing market transactions have been
subdued since 2015, reflecting a
combination of macroeconomic and
political factors as well as a weaker
environment for buy-to-let transactions.
In 2020, Government social distancing
measures led to a sharp contraction in
housing market activity in the spring but
which has shown signs of stabilisation
2016
2014
2018
during the summer.
2020
YTD
2019
2017
2015
Consumer confidence1
5
0
-5
-10
-15
-20
-25
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
YTD
720
960
Consumer credit
Housing transactions p.a. (‘000s2)
Upholstered furniture typically has
1200
relatively high unit prices and thus the
availability of consumer credit can
facilitate purchases and upselling.
Consumer uncertainty has reduced
demand for credit since 2016. In the
current year, with discretionary spending
options restricted, demand for consumer
credit fell sharply during the Covid-19
lockdown period. Employment uncertainty
2015
2014
2019
may reduce credit demand for the year as
a whole.
-24.7%
YTD
2020
H1
-240
2011
2016
2017
2012
2018
2013
240
480
0
Housing transactions p.a. (‘000s2)
Housing transactions p.a. (‘000s2)
1200
960
720
480
240
0
-240
-24.7%
YTD
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
H1
2. HMRC – number of residential property
transaction completions with a value over
£40,000 for the UK, seasonally adjusted.
Net unsecured lending growth3 (%)
Net unsecured lending growth3 (%)
12
10
8
6
4
2
0
-2
-4
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
3. Monthly 12 month growth rate of total (excluding
the Student Loans Company) sterling net
consumer credit lending to individuals (in percent)
seasonally adjusted.
Net unsecured lending growth3 (%)
12
10
8
6
4
2
0
-2
-4
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
DFS Furniture plc
Annual Report & Accounts 2020
20
Our customer journey
The customer is at the heart
of our Group journey
UK factories
5
3
Group showrooms
209
3. Quality manufacturing
We are one of the largest manufacturers of
upholstered furniture in the UK. Our three
finished goods and two sub-component
factories each benefit from a highly skilled
workforce who collectively produce around
a quarter of all the furniture we sell.
2. Omnichannel retail
The combination of our well invested
websites, national showroom networks and
call centres which are staffed by well trained
and highly motivated sales teams provide a
market-leading omnichannel experience to
our customers. Collectively across all our
brands we have styles and price points that
appeal to the majority of the market and we
make our products more affordable
through offering interest free credit.
2
1
French Connection Studio
1. Design and inspire
90% of customers research online
Through our innovative in-house design
teams and with our buying expertise we
remain at the forefront of home furnishing
trends with each of our brands offering a
distinct curated range. We inspire
consumers to consider a purchase through
memorable advertising, inspirational web
content and more recently through the use
of augmented reality technology to
visualise our sofas in their homes.
UK-based design studios
2
DFS Furniture plc
Annual Report & Accounts 2020
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4. Service
Aftercare is provided by highly skilled
teams with the majority of after-sales
issues being addressed in customers’
homes by our own colleagues.
4
5
5. Innovative delivery
options
Through our own network of
customer delivery centres and our
own delivery fleet we carefully deliver
our products to customers’ homes
and provide a comprehensive
installation service.
Joules Patterdale
DFS Furniture plc
Annual Report & Accounts 2020
22
Business model
How we create value...
Our enablers
What we do
Customer ethos
‘Think Customer’ is our first value.
By treating customers as we
would our own family, we aim to
deliver great service.
Unparalleled scale
We have a UK Group market share
of c.34%, over three times that of
our nearest competitor.
Complementary
brands
Our complementary brands
appeal to different customer
segments.
Well-invested platform
Modern, well-located showrooms
and innovative apps and websites
give customers the convenience
to shop exactly how they want.
Our own warehouses and delivery
fleet use state-of-the-art
software to help us operate
efficiently.
Made-to-order
products
The majority of the products we
sell are made-to-order enabling
us to operate with negative
working capital.
Vertically integrated
model
We have end-to-end control of
the customer journey from design
all the way through to after-sales
servicing.
Exceptional people
We have over 50 years of
expertise and recruit, train and
retain what we believe are the
highest calibre people in the
industry.
Design and inspire
Our design teams and experienced buyers curate attractive and
distinct propositions across our unique brands that appeal to
most tastes. Our marketing aims to reach our target markets
across all broadcast and digital media, inspiring customers to
consider a purchase.
Retail
Our websites and showrooms nationwide combine to create an
increasingly seamless customer experience, allowing
customers the opportunity to visualise, sit on and feel the
product, while researching and then transacting in store, at
home or on the move.
Manufacture
We manufacture around a quarter of the Group’s sofa orders in
our own British factories, resulting in shorter lead times and
superior quality control.
Deliver and install
Our delivery network operates from customer distribution
centres spread across the UK and Ireland using custom-built
route-mapping technology to reduce lead times and
optimise efficiency.
Service
Sometimes things go wrong and, if they do, we have our own
teams of upholsterers that are on hand to visit customers in
their homes and address any after-sales issues.
Purpose
To bring great design and comfort into every living room, in an
affordable, responsible and sustainable manner. For over 50 years,
we have provided millions of sofas into homes across the UK,
the Republic of Ireland, Spain and the Netherlands.
See page 1 for more information
DFS Furniture plc
Annual Report & Accounts 2020
Values
Our customers and our people are at the heart of everything we do,
reflected in our three core values:
•
•
•
See page 2 for more information
‘Think Customer’
‘Be Real’
‘Aim High’
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How we deliver value...
Outcomes
Value for stakeholders
Sustain sector-leading
operating margins
Scale advantages across the value
chain, from sourcing and shipping
rates to maximising delivery and
service fleet utilisation.
Grow our market share
We have a history of growing our market
share over the long-term in all economic
climates. Our exclusive brands enable
us to target the majority of the market
and we have a clear opportunity to
grow further.
Maintain strong cash
generation
We aim to deliver consistent free cash flow
generation enabling us to both invest for
growth and return funds to shareholders.
Continue to invest in
business
We reward our staff fairly, maintain
and enhance our existing assets and
selectively invest in growth opportunities
to optimise the returns for our
shareholders.
Customers
85.7%
post purchase NPS
Employees
39%
employees > five years’ service
Suppliers
40%
customer orders from British factories1
Shareholders
£135m
cash distributed since flotation
Community
£28m
raised for charitable causes through
partnerships with the British Heart
Foundation and Children in Need
customer donations and fundraising
initiatives
1.
Includes third party manufacturing and internal
manufacturing
Strategy
Leading sofa retailing in the digital age through three inter-related
strategic pillars:
1. Drive DFS core
2. Build the platforms
3. Unlock new growth
See pages 24-31 for more information
Governance
Robust corporate governance framework, practices and policies to
manage and deliver long-term success for the Company.
See pages 64-110 for more information
DFS Furniture plc
Annual Report & Accounts 2020
24
Strategy
Our strategy for growth
Bewitching
Our aim is to lead sofa retailing in the
digital age. We intend to strengthen
our market position, lead from the
front and embrace the challenges
and opportunities of the digital age.
Our strategy is centred on three interrelated pillars
across which we see £40m of incremental profit
opportunity in the medium term spread broadly
equally across the pillars.
The strategy reflects the Group’s expertise, scale,
retail assets and supporting infrastructure and the
ability to utilise these enablers to both improve our
operating efficiency and unlock the growth
potential across the brand portfolio.
DFS Furniture plc
Annual Report & Accounts 2020
01
Drive DFS core
A renewed focus on driving the core
DFS business across all channels
01 Omnichannel
Develop seamless customer journey
across channels
Focus for 2020/21
• Further enhancements to seamless customer
•
journey
Incremental product sales opportunities via DFS
website
02 Product innovation
Enhance our unique and differentiated
product offer
Focus for 2020/21
• New ‘data-driven’ product launches to drive
conversion, improve margin and attract new
customers to the DFS brand
• Collaborate with our brand partners and roll-out
new eye-catching models
03 Customer proposition and service
innovation
New services to engage customers
Focus for 2020/21
• Evaluate ‘video in store’ proposition trial
• Light-touch refresh for selected showrooms
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03
Build the platforms
Build platforms to enable profitable
Group growth
Unlock new growth
Unlock and deliver new
profitable growth
01 Cost efficiency and property cost
reduction
Reduce our relative cost base
Focus for 2020/21
• Flexible, strategic approach to lease negotiations
– medium-term cost savings targets remain
on track
• Repurposing retail space to improve productivity
and customer proposition
02 Supply chain
Best-in-market two person sofa delivery
and installation
Focus for 2020/21
• Complete Group-wide rollout of inventory
management system
• Extend trials of 7-day extended hours
delivery model
• Roll-out of Sofa Delivery Company into
new locations
03 Marketing investment
Data and insight driven efficiency and
effectiveness across the Group
Focus for 2020/21
• Applying data-driven econometric analysis to
target significant improvements in marketing ROI
01 Sofology
Develop a nationwide business
Focus for 2020/21
• Targeting 6-10 new showrooms in key locations
• Continued development of omnichannel
•
initiatives
Increase marketing intensity to build brand
awareness
02 Dwell
Broaden reach through digital, wholesale
and right space
Focus for 2020/21
•
• Disposal of Sofa Workshop (completed
“Pivot” Dwell to a wholesale brand
September 2020)
03 International: Netherlands
Break-even and beyond on current model
Focus for 2020/21
• Develop options for medium-term growth
DFS Furniture plc
Annual Report & Accounts 2020
26
Strategy in action
01
Drive DFS core
Incremental gains from
wide-ranging omnichannel
initiatives
Our experience during lockdown and the
subsequent careful re-opening of our
showrooms highlighted that customers really
value being able to shop online, in-store or a
combination of both channels. This unique
period presented a genuine test of recent
omnichannel investment, highlighting the
resilience of our digital infrastructure and the
creativity of our commercial teams. In the year
ahead, we’re planning more initiatives across a
range of areas to further enhance our
customer experience.
We’re continuously investing in technology to improve customers’
shopping experience across our showrooms and websites. With the
purchasing process increasingly beginning online, customers are able
to use a growing range of online tools to help them find their dream
sofa, helping differentiate us from competitors. In the last year,
achievements included an expansion in the number of sofas in our
Augmented Reality visualisation tool database, allowing customers to
use smartphones to visualise a wider range of models and colours in
their own living space. The completion of our shared web-to-store
customer basket allows customers to create an editable shortlist of
preferred options they can take into the showroom. Combined with
the launch of our appointment booking facility, customers can discuss
potential purchases with well-informed colleagues at a time that
suits them.
In the current year, drawing on successful learnings from Sofology,
we are trialling live video-in-store communication, so customers can
interact directly with local DFS colleagues before travelling to the
showroom.
Product innovation also remains at the heart of DFS. We’re excited
about our new product launches in the year ahead, which include
ranges to appeal to all of our major target customer groups, such as
Halo Luxe and further exclusive brand range extensions. We’re
making increasing use of data and customer insight to improve our
product ranges, and drive sales of our exclusive branded products.
The surge in post lockdown visits to our showrooms underlines that
showrooms remain at the heart of the sofa purchase customer
journey. We’ve been refreshing our showrooms with better lighting,
new flooring and improved visibility across the shopfloor, leading to
higher sales and a significantly improved customer feedback.
With a record order bank as we head into the new financial year, we’re
expecting to be busy on a number of fronts, but we believe our
targets of constant improvement across the DFS brand leave us well
placed to deliver further profitable market share growth into the
medium term.
DFS Furniture plc
Annual Report & Accounts 2020
27
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DFS Furniture plc
Annual Report & Accounts 2020
28
Strategy in action continued
02
Building a leading
Group-wide supply
chain platform
Our two-person sofa delivery and installation
service has long been a source of competitive
advantage for DFS, but we’re looking to
leverage this further as we seek to build on
recent systems investments and service
initiatives to develop a best-in-class Group-
wide platform.
As we move towards an increasingly integrated Group structure, we
are rolling out our leading DFS supply chain platform to support our
upholstery-led brands. This results in a more efficient use of our
distribution infrastructure, delivering economic benefits and
reducing the environmental impact through less overall delivery
miles. To this end, in the last year we have extended a number of
trials and initiatives as we put in place a number of key building blocks
for the future.
In the last financial year, we continued the development of our
Stockwise inventory management system that will be integrated
across the Group’s different retail brands, enabling us to fulfil a range
of orders from the same customer delivery centre regardless of
which retail brand sold to the customer. We have also completed the
rollout of our in-day delivery tracking system allowing customers the
ability to track, online, the progress the delivery team are making
against the estimated time of arrival on the day of delivery.
In our Belfast Customer Delivery Centre (CDC), alongside a full
trial to test our systems integration, we also introduced our new
‘Sofa Delivery Co.’ branding and vehicle livery, which was received
positively by both customers and colleagues. In our Glasgow CDC,
in addition to our brand launch, we also began full trials of a new
working practices model which combines more flexible shift
patterns for colleagues with the ability to offer 7 days a week,
extended hours delivery to customers, improving both customer
satisfaction and employee work-life balance with an industry-leading
4 on 4 off colleague shift pattern.
In the current year, our priority is to complete the roll-out of our fully
integrated supply chain systems and The Sofa Delivery Co. branding
across all our CDCs and the StockWise inventory system across all of
our Group retail stores. As our retail competitor set continues to
evolve, we believe our supply chain initiatives will allow us to retain
our leadership of the sector and achieve further profitable market
share growth.
DFS Furniture plc
Annual Report & Accounts 2020
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DFS Furniture plc
Annual Report & Accounts 2020
30
Strategy in action continued
03
National expansion
of Sofology
Delivering profitable expansion of our Sofology
brand is a key element of our group growth
strategy. New showrooms are performing well
and we’re pursuing a range of initiatives aimed
at delivering attractive medium-term sales and
profit growth.
Launched in 2016 and owned by the group since 2017, Sofology is
DFS’s younger sibling, bursting with energy and ideas. A leader in
product design, Sofology appeals to customers with stylish,
contemporary tastes. With only 45 showrooms in the UK, Sofology is
roughly a third of the size of DFS and we expect the brand to deliver
incremental sales and profit growth as we target a chain of around
65-70 outlets in the medium term. Despite a lockdown affected end
to the year, Sofology opened three showrooms in FY20, which are
performing in line with expectations. We are targeting 6-10 new
showrooms in FY21, taking advantage of favourable lease terms.
Growth doesn’t only come from new showrooms. We’re targeting
like-for-like sales growth from increased brand awareness, high NPS
scores and from our highly engaged colleagues via a number of new
initiatives, including improvement in our web sales performance,
incremental sales from accessories, as well as continually innovating
from a product perspective. Recent product launch successes
include the ‘Palm’ sofa, as featured in our latest Owen Wilson advert,
and the ‘City Living’ range appealing to space-constrained urban
dwellers, that builds on the success that the DFS brand has had with
the ‘So Simple’ range.
Improved profitability and return on capital are important parts of
the Sofology growth story and we continue to explore the benefits
of best practice exchange and the growing adoption of group-wide
platforms, such as the Belfast Sofa Delivery Co. trial and Sofology
showroom co-location with DFS. Launched in the digital age,
Sofology has long prioritised the omnichannel customer journey
and its ‘Go in Store’ innovation is now being trialled elsewhere in the
Group. A larger showroom network will also allow the chain to deliver
improved economies of scale from its already highly visible
nationwide TV campaigns.
Last but not least, with environmental credentials increasingly
critical to every consumer brand, Sofology stands at the forefront of
the Group’s Environmental, Social and Governance (ESG) efforts.
The Group’s new ESG strategy sets a series of brand targets in key
areas such as sustainable sourcing, diversity and flexible working.
We intend to turn ESG leadership versus our main upholstery
competitors into a sustainable source of competitive advantage.
DFS Furniture plc
Annual Report & Accounts 2020
Weekend
31
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DFS Furniture plc
Annual Report & Accounts 2020
32
Risks and uncertainties
How we manage risk...
The Group faces a number of risks and uncertainties
in both the development and day-to-day operations
of its business.
Identify
The Board has overall responsibility for the
management of risk and the identification of
principal risks that may affect the Group’s
strategic objectives. The Group has an
established risk register which is coordinated
and analysed by the Group’s Risk and Internal
Audit function to facilitate biannual reviews
of principal risks by the Directors, including
identification of emerging risks arising and
also horizon risks to be monitored.
1. Principal risks
These risks have been identified by the
GLT as the ones that pose the greatest
threat to the success of the Group.
2. Strategic risks
These risks pose a threat to the
Group but are considered well
controlled, and the impact if
materialised would be sustainable.
3. Operational risks
Granular risks that have localised
impact on individual departments,
and/or business areas.
Risk pyramid graphic
Each principal risk is owned by a member of
the Group Leadership Team. The Directors
maintain overall responsibility for risk
management throughout the Group and
oversee the implementation of processes to
manage these risks by the Group Leadership
Team and operational management. The
Audit Committee, delegated by the Board,
is responsible for the review of the
effectiveness of the internal control
framework. The Audit Committee reviews
the Group’s internal risk register on a regular
basis. The Audit Committee and Board also
review presentations on topics in relation to
key risk areas such as Covid-19, data
protection, cyber security and significant
change initiatives.
The ongoing process of management and
mitigation of risk by the Group Leadership
Team is focused through the context of a
Group risk appetite agreed by the Board,
with a rolling plan for the Board to
periodically review all principal risks with the
Group Leadership Team using this approach.
The Group seeks to continuously develop its
risk management processes and in the
last year a particular focus has been on
developing comprehensive operational risk
registers via Group-wide engagement
sessions, as well as the roll-out of our new
online in-house developed risk management
platform. The new platform is expected to
further embed risk management into the
day-to-day practice of all senior and middle
management colleagues. Specific risk-
focused initiatives undertaken during the
financial year included a full externally
assessed cyber review, completed in
July 2019, and an upgrade to the Group’s
Business Continuity procedures, completed
in September 2019.
Evaluate
The Directors confirm that they have made
a robust assessment of the emerging and
principal risks and uncertainties facing the
Group, including those that would threaten
its business model, future performance,
solvency or liquidity.
Mitigate
The Group’s principal risks are discussed
opposite, together with the Group’s related
mitigating activities. Other risks which are
currently either not known to the Group,
or are not considered material, could also
impact the Group’s reported performance
or assets. Additional controls that could
be implemented to reduce or manage
particular risks better will be considered by
the Directors in line with the Group’s risk
appetite and decisions on whether the
additional controls are implemented will be
documented and reviewed in subsequent
risk reviews.
Covid-19 pandemic
In the second half of the financial year,
the Group took a dynamic approach to
managing the risks surrounding the
Covid-19 pandemic, with the Group
identifying the virus as an emerging risk
in January 2020 – initially as a supply chain
disruption risk, but subsequently elevating
this to a major business resilience risk.
This resulted in a number of management
actions being taken in the second half of
the year, including:
• Activating business continuity plans,
including the introduction of streamlined
decision-making structures, and the
establishment of a crisis management
team which met on a daily basis to
manage the response to the pandemic,
including daily calls with the Group
Leadership Team.
Internal
audit plan
Review
emerging
risks
Horizon
scanning
DFS Furniture plc
Annual Report & Accounts 2020
• Temporarily closing physical retail stores,
manufacturing operations and
suspension of customer deliveries,
resuming gradually towards the financial
year end.
• Utilising the UK Government’s
Coronavirus Job Retention Scheme for
furloughed employees and introduction
of home working processes for those
required to work during the lockdown
period.
• Undertaking a detailed financial review
to assess the impact of the pandemic,
resulting in the introduction of a
significant expenditure reduction
programme, managing liquidity and
strengthening the Group’s financial
position by suspending dividends and
raising additional capital from lenders
and shareholders.
• Completing a strategic review in relation
to the Group’s investment in smaller
brands.
• Liaising with landlords to adjust payment
schedules on leased properties, and
deferring new store openings.
• Engaging with key stakeholders
throughout the process, including
employees, customers, suppliers,
regulatory bodies, shareholders and
lenders.
As part of our risk management process,
and in this annual report, we have assessed
the impact of pandemic as a new principal
risk (Business Continuity and Resilience) for
the Group and present mitigating actions
below. Where necessary, we also highlight
the potential impact of the pandemic in
relation to our other principal risks. We also
consider the impact of the pandemic in
detail in our Viability Reporting.
33
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Risk heat map
In analysing the key risks for our business, we consider regulatory and other external
publications and peer Group comparisons to ensure that the Group’s risk register is
comprehensive and places appropriate emphasis on those risks that may pose a more
significant threat. The heat map below illustrates the distribution of identified risks
according to their relative likelihood of occurrence and potential severity of their impact
after taking into account mitigating activities:
h
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Impact
High
Principal risks
1 Business continuity and resilience
2 Brexit
3 Cyber
4 Environmental, Social and Governance
5 Financial risk and liquidity
6 Regulatory environment
7 Consumer proposition and industry competition
8 Transformation
See pages 80 to 81 for more on how risk is managed.
DFS Furniture plc
Annual Report & Accounts 2020
34
Risks and uncertainties continued
Link to strategic pillar
Drive the DFS core
Build the platforms
Unlock new growth
Movement
Increase
Unchanged
Decrease
Principal risks
Risk
Strategic link Mitigation
Movement
Business continuity and resilience
As illustrated by the Covid-19 pandemic,
the Group faces the risk of disruption
to its operations from a wide range of
unpredictable domestic and international
events. These risks can range from smaller
localised disruptions (e.g. supply chain,
manufacturing, stores or systems) to major
impacts affecting the Group for an extended
period.
Events and situations requiring the
temporary closure of some or all of the
Group’s showrooms and customer delivery
operations result in loss or delay of revenue
and cash. Disruption to UK and international
production and supply chains may also
affect the Group’s ability to deliver products
to customers in a particular period, again
impacting financial performance. The
business may also incur additional costs,
either directly or as a consequence of the
disruption impacting operational efficiency.
The Group maintains business continuity plans to manage a range of
potential disruptions. These were invoked during the Covid-19 pandemic
when a crisis management committee was formed, meeting daily to
oversee the Group’s response to the pandemic. Each business function
has developed and maintains full response plans to highlight and track
actions immediately required, as well as those relating to temporary
suspension and restart of activities. The Group has incorporated the
learnings and strategies from our response to the pandemic in 2020 into
its procedures for responding to a second wave of the Covid-19 virus or
future pandemics and its formal business continuity plans will be further
updated in the current year.
Cyber risk is considered a distinct principal risk for the Group in its own
right. However, IT systems are regularly reviewed in order to ensure
that they are able to support the Group in the event of a disruption to
operations.
The Group maintains a comprehensive overview of its cost base and
commitments and communicates regularly with key stakeholder groups
including employees, investors, suppliers, landlords and regulators.
This supports a cooperative and dynamic approach to managing cash
and liquidity in the event of severe disruption to trading, as successfully
demonstrated during the lockdown period. The Group was also able to
utilise Government support programmes in relation to employee and
business rates expenses and deferral of tax liabilities, although there is
no guarantee that such programmes would extend indefinitely in the
event of a more sustained pandemic.
The Group regularly reviews its capital requirements in order to provide
sufficient flexibility and resilience to manage disruption to its operations.
DFS Furniture plc
Annual Report & Accounts 2020
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Risk
Strategic link Mitigation
Movement
Brexit
The Group sources a substantial proportion
of its raw materials and finished goods from
outside of the UK, has retail operations in
the Republic of Ireland, the Netherlands and
Spain, and employs many EU nationals across
its operations, both in the UK (primarily within
its manufacturing operations) and overseas.
In common with other UK-based businesses,
the Group is therefore exposed to a number
of potential risks as a consequence of the
UK leaving the European Union. These
may include a negative effect on consumer
demand, delays or additional costs in
transporting goods into or out of the UK, an
increase in the cost of goods and materials
due to adverse exchange rate movements or
additional duties or tariffs, shortage of skilled
employees and additional administrative
costs.
The UK is currently in a transition period until
the end of 2020 while trade negotiations
take place regarding the nature of the future
relationship with the EU. The level of change
required as part of any trade deal is unclear
as yet, and with governments prioritising the
Covid-19 response, the risks of a ‘no deal’
departure from the EU have increased.
Cyber
The Group’s operations depend upon the
continued availability and integrity of its IT
systems, including the security of customer
and other data held by the Group, and risk of
attacks is ever increasing. Increased levels
of remote working during the Covid-19
pandemic have increased the Group’s
reliance on its IT infrastructure.
The Group’s IT infrastructure and websites
are a key component of its omni-channel
proposition and its strategic objective to lead
furniture retailing in the digital age. A failure to
review and innovate in this competitive area
could impact achievement of the Group’s
strategic growth plans.
Effective operational systems supporting
supply chain, customer delivery, call-handling
and the processing of financial transactions
are essential to the delivery of a good
customer experience. We also rely on a
number of key systems to support timely
reporting on operational performance.
Delays or errors could result in increased
costs or lost revenue.
The Group has established a working group to focus on the analysis
of expected legislative and practical changes to the Group’s operating
environment as a consequence of Brexit, and has taken advice on
approach and key risk areas from external advisors. The conclusions of
this work have been reviewed with the Board.
The Brexit working group identified a number of specific relevant areas of
focus for the Group, with the two key concerns being:
• impact on the consumer market/economy
• delays/congestion at borders due to additional checks
The working group determined that border delays would likely have a
greater impact at roll-on-roll-off ports (Dover/Calais) than at freight
ports where clearance is often completed whilst at sea. All third party
suppliers have been tasked with obtaining all necessary regulatory
permits to support rapid customs clearance procedures, and status is
being monitored. Approximately one third of finished goods are sourced
from Europe, excluding the UK. The Group does not anticipate any
significant adverse impacts on supplies from the Far East (approximately
one quarter of finished goods) due to Brexit.
Longer term risks posed by potential adverse movements in exchange
rates, would be expected to be addressed by an industry-wide pricing
response to any permanent change in the cost environment.
While progress has been made and assurance has been obtained, the
continued uncertainty (exacerbated by Covid-19) requires the Group to
maintain its vigilance and planning process as the end of the transition
period approaches.
Full IT security backup and business continuity procedures, comprising
both internal and third party resources, are in place and are regularly
reviewed, tested and updated. A full review was conducted in July 2019,
including critical risk assessments in each business area, and identified
improvement opportunities were incorporated into the FY20 plan with
further actions to be integrated into the FY21 plan.
Technical security measures against data loss through a systems breach
are in place and regularly reviewed and updated, including through
external audit, which is also reported to the Board.
Third party penetration testing is carried out routinely to check the
resilience of the Group’s systems to cyber-attack. A colleague cyber-
awareness programme is also in place.
The Group continues to make substantial investment in both website
development and digital marketing to maintain its market-leading
position. An established team of experienced staff in this field are
supported with ongoing relationships with external partners.
The Group engages with independent third parties to actively monitor
both customer satisfaction with its digital services and the emergence
of new online competitors.
IT systems are regularly reviewed and upgraded to ensure they continue
to support the needs of the Group, and the conclusions of reviews are
discussed and challenged at the Board.
DFS Furniture plc
Annual Report & Accounts 2020
36
Risks and uncertainties continued
Link to strategic pillar
Drive the DFS core
Build the platforms
Unlock new growth
Movement
Increase
Unchanged
Decrease
Risk
Strategic link Mitigation
Movement
Environmental, Social and
Governance
Key stakeholders, including customers,
employees, investors and regulators, as well
as the media, are increasingly focused on the
Group’s policies and management regarding
Environmental, Social and Governance (ESG)
risks. A failure to manage the business in
accordance with high ESG standards could
expose the Group, or its key third party
suppliers, to adverse financial consequences,
reputational damage, and difficulties in
retaining or attracting employees. Failure
to adapt to growing public interest in social
and environmental concerns may deter
customers or demotivate colleagues.
The Group’s efforts in relation to certain ESG risks are covered in detail
in the sustainability and responsibility report on pages 48 to 59. The
Group has also developed an ESG strategy which has been approved by
the Group Board and is overseen by a member of the Senior Leadership
Team. The Group continues to develop its environmental and social
agenda, having already enhanced its operating approach in Timber
Sourcing, Modern Slavery and Anti-Bribery compliance during recent
years. The Group plans to publish its updated ESG strategy in the current
year, setting out detailed, multi-year targets by brand.
The Group’s environmental strategy comprises a range of initiatives
linked to ‘the sofa cycle’ foundation framework. The Group has specific
targets in relation to wood and leather sourcing, packaging and sofa
recycling. The Group has also launched several sustainability initiatives
aimed at reducing the Group’s carbon footprint and prioritising energy
from renewable sources including: our PlanTree tree planting partnership
with the Woodland Trust; and Sofa Rescue, our recycling partnership
aimed at minimising diversion to landfill. In 2019, Sofology received the
Environmental ISO-14001 Accreditation. DFS and Sofology now have
a contract with Track Record Global (TRG) to establish our suppliers’
performance against our timber and leather sourcing policies.
The Group supports the continuous growth and development of our
employees through a variety of training and leadership programmes
at all levels of the business. The Group has invested significantly in the
health, safety and wellbeing of our employees and consistently tracks
employee engagement. The Group recognises the benefits of a diverse
workforce and gender diversity is a key area of focus for our Senior
Leadership teams. The Group has a range of specific gender diversity
targets at a range of levels within the organisation. The Group also seeks
to make a positive contribution to the communities in which we operate,
supporting a variety of charities and organisations and encouraging our
employees to contribute to society including via our own volunteering
programmes.
The Group has developed a robust corporate governance framework,
practices and policies to manage and deliver long-term success for
the Company, including (but not limited to) Board composition, Audit
Committee structure, executive compensation and whistleblowing.
DFS Furniture plc
Annual Report & Accounts 2020
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Risk
Strategic link Mitigation
Movement
Financial risk and liquidity
A downturn in the macroeconomic
environment, or increased uncertainty from
Brexit and the Covid-19 pandemic, may
impact the Group’s ability to obtain debt or
equity financing.
Any “no-deal Brexit” disruption, or a
temporary suspension of customer
deliveries, as experienced in the second
half of FY20 as part of measures to contain
Covid-19, may increase working capital
needs for the Group with delays slowing the
realisation of revenues.
An increase in interest rates could increase
the Group’s financing costs. The Group is
also exposed to foreign currency exchange
risk on certain purchases sourced from
overseas.
Regulatory environment
The Group is subject to increasing levels
of compliance requirements in many of
its activities from regulatory and other
authorities including; the Financial Conduct
Authority for its consumer finance offering,
the Information Commissioner’s Office in
regards to data protection and Health and
Safety Executive and local authorities for
the health and safety of its colleagues and
customers.
The Group also generates income from
product aftercare insurance. Changes to the
regulatory environment surrounding product
warranty insurance could impact the sales
of these products, which currently account
for a mid-teen percentage share of Group
gross profits. Changes in other legislation
which may have significant retrospective or
future economic effects could also impact
operating results.
Recently, the Group has been required to
adhere to detailed Government operational
guidelines to contain the spread of
Covid-19. Failure to meet our regulatory
obligations, or provide a safe environment
for our colleagues and customers may
result in significant financial impacts and/or
reputational damage.
The Group aims to maintain good working relationships with all financial
counterparties and engages proactively to ensure that counterparties
fairly understand the financial performance and continue to support
Group activities. The Group regularly reviews its financing arrangements
to ensure it has adequate funds in place and financing costs are kept
to a minimum. The Group operates a five year revolving credit facility
that matures in August 2022 and was able to secure a further £70m
temporary extension to this facility until March 2021 in response to the
Covid-19 pandemic. The facility enables more dynamic management
of short term borrowing needs, reducing interest costs. The Group
would expect to refinance this loan no less than 12 to 18 months before
maturity.
Foreign exchange and interest rate risks are managed through the use
of appropriate hedging arrangements in accordance with its Board-
approved treasury policy, with details reviewed by the Board on a regular
basis. Further details on foreign exchange hedging are provided in the
CFO’s review. No financial instruments are entered into for speculative
purposes.
Comprehensive training and monitoring programmes (including
individual NPS, Internal audits and mystery shoppers) are in place to
ensure that employees are appropriately skilled to deliver high levels
of customer service and maintain regulatory compliance. A Group
Leadership Team Governance, Risk and Compliance Committee is
in place supported by a number of sub-committees, which includes
a committee focussing primarily on regulatory areas and conduct
risks, and Health and Safety. The Committee monitors management
information and reviews processes and procedures to ensure our
customers are treated fairly. This includes rigorous oversight and
escalation processes to maintain the status of limited permission
to offer consumer finance granted by the FCA. The Committee also
reviews the regulatory landscape and forthcoming changes to ensure
timely, structured and sustainable planning and implementation. The
CFO and the Director of Risk and Internal Audit attend these Committee
meetings and are responsible for ensuring that relevant matters are also
escalated to the Audit Committee for consideration.
The Group continues to place significant focus on maintaining its
compliance with data protection requirements and has a robust set of
policies supported by annual data protection training for all employees.
The Group has a compliance framework that ensures ongoing review
and monitoring; a review of the Group’s information security by external
cyber-security professionals was completed in the year. The Group
also regularly reviews customer satisfaction levels with these products,
working hard on regulatory compliance and proactively seeking to ensure
customers derive value from their policy.
The Group continues to review the pricing and cover levels of the
insurance products it offers to maintain and enhance the customer value
proposition.
DFS Furniture plc
Annual Report & Accounts 2020
38
Risks and uncertainties continued
Link to strategic pillar
Drive the DFS core
Build the platforms
Unlock new growth
Movement
Increase
Unchanged
Decrease
Risk
Strategic link Mitigation
Movement
Products and services are continually reviewed to ensure they suit
customers’ needs, are competitively priced, offer good value, meet the
right quality standards and are supported by excellent customer service,
in order to enhance the Group’s market-leading position.
Our in-house design teams enable reaction to emerging trends and new
entrants to the market. External design partners are also incentivised to
generate new product concepts on a regular basis.
The Group regularly holds innovation working sessions focused on both
product and service areas, with relevant Board members joining the
Senior Leadership in participating in these.
Through our internal manufacturing knowledge and close supplier
relationships, we are able to identify and address any quality issues
that emerge. We also have good data and insight building on our NPS
framework that allows product level analysis of potential issues. Our
made-to-order model allows identified improvements to be rapidly
effected.
The Group is investing significantly in developing its online presence and
continues to make good progress in growing online sales, as part of our
omni-channel strategy. We track our relative progress in online growth
through external benchmarks. Prior to the Covid-19 pandemic, evidence
suggested that c. 90% of customers want to view a physical product
before making a purchase, although the Group’s online retail order intake
performed strongly when customers were unable to visit stores during
the lockdown period.
The Group’s focus on customer care quality and service is underpinned
by our established use of Net Promoter Score (“NPS”) at all touch points
of the consumer journey. Colleagues across the business are directly
incentivised on NPS scores to reinforce customer-focused behaviours.
Experienced senior management have been engaged in the design and
delivery of the integration and transformation plans, and regular updates
are given to the Board. The Group has an executive directly responsible
for transformation who oversees a team of project managers engaged
to drive our processes. Risk assessments are completed for all critical
workstreams and have been challenged through Board and Audit
Committee discussions. The Group continues to target efficiency gains
by increasingly sharing Group infrastructure including logistics (e.g. the
Sofa Delivery Co. launch), central support functions, and manufacturing
facilities.
Sofology has traded well since acquisition, although store openings
planned for the current year have been temporarily put on hold while
the Group assesses the impact of Covid-19 on its competitors and the
environment for attractive retail locations.
A strategic review of the smaller brands has resulted in significant
reorganisation of the Dwell retail operations and, subsequent to the end
of the financial year, the sale of Sofa Workshop.
Customer proposition and industry
competition
Maintaining the reputation of, and value
associated with, the Group’s brands and
product offering is central to the success
of the business. Increased customer
concerns, falls in actual product quality or
poor customer service could have a negative
effect on the reputation of our brands,
leading to loss of revenue. A failure to predict
changes in customer tastes or the impact
of changes in the competitive environment
(particularly with the growth of new online
entrants and international competitors) could
reduce the Group’s revenues and market
share. The Covid-19 pandemic and allied
customer health concerns may cause an
acceleration in the shift away from physical
stores towards online retailing.
Transformation
The Group’s 2017 acquisition of Sofology and
related development objectives were based
on an expectation around the synergistic and
other benefits that would be generated. The
Group is also executing a strategy to build its
platforms to support the Group brands, while
reviewing its investments in certain smaller
operations.
Failure to effectively execute this
transformation strategy or to otherwise
realise expected synergies could negatively
impact the results of the Group. The
integration of Dwell’s operations into
DFS in order to reduce operating costs
may negatively impact overall sales of
Dwell products. Continued diversion of
management time and ongoing disruption
to the economy as a result of the Covid-19
pandemic may affect the Group’s ability to
deliver anticipated benefits within the original
time horizon.
DFS Furniture plc
Annual Report & Accounts 2020
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Viability reporting
In accordance with the revised UK Corporate Governance Code, the
Directors have assessed the prospects of the Group over a period
significantly longer than 12 months from the date of approval of the
financial statements. The period assessed was the three years from
28 June 2020 as in the opinion of the Directors this reflects the
longest period over which the impact of key risks can be reasonably
assessed within a big-ticket retail business given the potential
volatility of the trading environment arising from continuing political
and economic uncertainties.
Approach
The Group established a ‘base case’ model of financial performance
over the three year assessment period which reflected prudent
expectations of future customer demand and the execution of the
Group’s strategic plans.
The Directors then made a robust consideration of the key risks and
uncertainties that could impact the future performance of the
Group and the achievement of its strategic objectives, as discussed
on pages 32 to 38 of this Annual Report. Particular regard was paid
to the potential impacts of Covid-19, while acknowledging that the
significant uncertainties surrounding the future trajectory of the
pandemic and the related Government response present an
additional source of variability.
The primary impact of those risks which could significantly affect
the future viability of the Group is a decrease in customer orders,
and associated reduction in revenue. The effect of this lost revenue
on profit before tax and cash was applied to the base case model
using an expected ‘drop through’ rate, based on expected gross
margins and variability of costs. The analysis considered a range of
severe but plausible scenarios impacting revenue alongside specific
modelling relating to possible changes in the regulatory
environment surrounding product warranty insurance and the
impact of port delays arising from a ‘no deal’ Brexit.
For each scenario, sensitivity and stress-testing analysis was
performed to model the impact on the Group’s profitability and cash
flows. The assessment considered how risks could affect the
business now, and how they may develop in future. The analysis
takes into account the significant level of variable and discretionary
spend, including marketing costs, in the Group’s business model and
the existence and effectiveness of other mitigating actions the
Group could take, including the reduction of capital expenditure to
maintenance-only levels and the continued restriction of dividend
payments.
Key assumptions
The base case forecast, which is prepared on a prudent basis,
assumes a double-digit decline in customer orders across the
remainder of FY21, followed by a gradual recovery in the UK
upholstery market over the subsequent three years to reach an
overall size broadly in line with FY19 levels. No market share benefit
arising from the withdrawal of competitors from the sector has been
included in the analysis, although the Group has historically grown
market share in periods of economic downturn. The base case also
assumes no significant change in either upholstery gross margin or
order bank across the assessment period and that dividend
payments resume from FY23.
In sensitising the base case for lower revenue scenarios, the rate of
drop through to profit is assumed to be consistent throughout
the assessment period. Where Covid or other events necessitate
the temporary closure of retail showrooms, it has been assumed
that half of the expected customer orders for that period are
subsequently recovered when showrooms re-open and customer
deliveries can continue at a reduced capacity while showrooms
are closed.
In developing the viability assessment it has been assumed that the
Group’s £250.0 million revolving credit facility will be replaced on or
before its maturity in August 2022 with a comparable facility and the
same covenants.
Results
The range of severe but plausible scenarios included a further
market decline of 5% beyond that already included in the base case,
and potential Covid-related shutdowns ranging between two and
four months. The Group maintained both covenant compliance and
sufficient liquidity in all these scenarios. The Group’s resilience
under these severe scenarios has been enhanced as a result of the
£64m proceeds from the share placing and £70m additional credit
facility both obtained in April 2020. Based upon this assessment, the
Directors have confirmed that they have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the period to 25 June 2023.
DFS Furniture plc
Annual Report & Accounts 2020
40
Key performance indicators
Financial
Gross sales1
Underlying EBITDA1
Underlying PBT excluding brand
amortisation1
FY20
FY20 pre-IFRS 16
£935.0m
£935.0m
FY20
£61.9m
£(63.1)m
FY20
FY20 pre-IFRS 16
£(13.8)m
£(56.8)m
FY20 pre-IFRS 16
FY19 (52 weeks pro forma)
£1,287.2m
FY19 (52 weeks pro forma)
£90.2m
(52 weeks pro forma)
FY19
FY19 (48 weeks)
FY18
FY17
£1,165.0m
£1,125.6m
£990.8m
Description
Gross sales represents the total amounts
payable by external customers for goods
supplied by the Group, including aftercare
products (for which the Group acts as an
agent), delivery charges and value added
and other sales taxes.
Performance
Significant fall in sales due to temporary
pause in trading during UK Covid-19
lockdown.
£50.2m
£28.2m
FY19 (48 weeks)
£65.1m
(48 weeks)
FY19
FY18
FY17
£76.1m
£82.4m
FY18
£38.3m
FY17
£50.2m
Description
Underlying EBITDA means underlying
earnings before interest, taxation,
depreciation and amortisation.
Description
Profit before tax adjusted for non-
underlying items and amortisation
associated with acquired brands.
Performance
Reduction in EBITDA as a consequence of
reduced gross sales.
Performance
Loss before tax arises from fall in EBITDA.
Free cash flow1
Gearing1
FY20 pre-IFRS 16
£(9.8)m
FY20 Pre IFRS 16
FY19 (52 weeks pro forma)
£92.6m
FY19 (52 weeks pro forma)
FY18
FY17
£60.4m
£57.0m
FY18
FY17
[XX]x
1.95x
2.09x
1.75x
Lease adjusted ROCE1
FY20 pre-IFRS 16
4.0%
FY19 (52 weeks pro forma)
FY18
FY17
16.6%
15.6%
18.7%
Description
Free cash flow is Underlying EBITDA, less
cash capital expenditure and changes in
working capital.
Performance
Cash out flow in the year due to lower sales
and resulting fall in profits.
Description
Gearing is net debt divided by underlying
EBITDA for the previous twelve months.
Performance
Gearing ratio not meaningful for FY20 due
to reported losses in the year.
Description
Return on Capital Employed (“ROCE”) is
post-tax operating profit before non-
underlying items plus operating lease
charges expressed as a percentage of the
sum of: property, plant and equipment,
computer software, working capital and
8x operating lease charges.
Performance
Decrease in ROCE reflects significantly
lower profit.
1.
Pro-forma period is the unaudited 52 weeks to 30 June 2019. Refer to pages 158 to 160 for further information on alternative performance measures.
DFS Furniture plc
Annual Report & Accounts 2020
41
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Non-financial
Cumulative property cost
savings secured
£4.3m
NPS (%) – post purchase
customer satisfaction
85.7%
NPS (%) – established
customer satisfaction
42.9%
FY20
FY19
FY18
1.2m
4.3m
2.9m
FY20
FY19
FY18
FY17
85.7%
84.2%
84.9%
85.2%
FY20
FY19
FY18
FY17
42.9%
33.0%
35.8%
34.2%
Description
Savings from regears ‘right sizing’ showrooms
and closure of showrooms that have no
adverse impact on total brand sales.
Description
Average across all DFS stores based on post
purchase customer satisfaction surveys.
Description
Average across all DFS stores based on
established customer satisfaction surveys
(six months after order).
Performance
Improving trend based on the Group’s
anchor tenant status and strength of
covenant.
Performance
Small year on year increase in very strong
overall level.
Performance
Significant increase reflects ongoing focus
in this area and resolution of prior year port
delay impacts.
Sofology UK stores
45
FY20
FY19
FY18
FY17
45
42
41
37
Description
Number of Sofology stores trading at the
end of the financial period.
Performance
Three additional stores opened in FY20
(Peterborough, Cheltenham and Belfast).
DFS Furniture plc
Annual Report & Accounts 2020
42
Financial review
Financial strength and flexibility to
prosper in the changing environment
Our headline financial results reflect the impact of the
Covid-19 lockdown, due to showroom closures and the
suspension of deliveries for the majority of the final quarter as
well as an unusually strong prior year comparative in the first
half. Since the Group recognises revenue on delivery to the
customer, the lockdown period resulted in a significant sales
and profit shortfall compared to the prior year. In order to
mitigate the short and medium term financial impacts of the
pandemic, the Group has taken wide-ranging actions with
the aim of strengthening its financial resilience. Order intake
in late June and in the current year has been very positive
year-on-year as we have benefited from deferred consumer
spending, and an increased consumer prioritisation of
home-spending, since the national lockdown ended.
Nevertheless, despite current trading, the economic outlook
remains particularly uncertain due to the ongoing pandemic
and the end of the Brexit transition period. Our current year
focus is on capturing the benefit of the strong market
environment while it persists, maintaining financial resilience,
and prioritising investment in the key elements of our
long-term digital age strategy. To support our responsiveness
we have shortened our planning cycles, and sought where
possible to time-limit any incremental cost commitments
that we make – for example in discretionary marketing spend
commitments and flexible recruitment of colleagues to
match resources with current incremental demand.
During this period of unprecedented change and challenge for
the Group, I sincerely appreciate the hard work and dedication
of all our colleagues in helping us respond positively and
proactively, and the strong support and understanding that
we have received from our broader stakeholder groups.
Basis of financial presentation
In the previous financial year, the Group changed its
accounting reference date and reported a 48 week period
to 30 June 2019. The current period being reported is
the 52 week period to 28 June 2020. In order to provide a
meaningful comparative, the unaudited pro-forma results
for the 52 week period to 30 June 2019 are included in the
table opposite and commentary that follows.
The financial statements are prepared for the first time this
year under IFRS 16. The Group has adopted a modified
retrospective transition approach to IFRS 16, meaning
financial statements for earlier periods will not be restated.
To aid comparability with the prior period, FY20 results are
presented in the table both before and after applying
IFRS 16. The impact of applying IFRS 16 is to increase the
reported loss before tax for the reported 52 weeks by £6.3m.
The adoption of IFRS 16 has no impact on the way we run
the business or on the Group’s cash flows, other than a
marginal change in corporation tax payments due with a
slight reduction in the short term, offset by higher payments
in the longer term.
Brand contribution, which is reported before property or
central costs, remains our preferred measure of segment
profitability.
1. Refer pages 158-160 for APM definitions
Mike Schmidt
Chief Financial Officer
In brief
• Revenue of £724.5m – a reduction of £271.7m
from the unaudited pro-forma twelve month
comparative period, driven by the pause in
trading during the Covid-19 lockdown
• Underlying loss before tax, pre IFRS 16 and
excluding brand amortisation1 of £56.8m
• Restructuring and impairment charges totalling
£16.6m recognised in connection with strategic
review of smaller brands
• Reported loss before tax, including restructuring
costs and impact of IFRS 16, of £81.2m
• Placing of 42.6m shares in April 2020, to increase
resilience in light of Covid-19, raising gross
proceeds of £63.9m
• Year end net debt maintained at £169.2m on a
pre-IFRS 16 basis1, compared with £176.3m at
June 2019, with equity proceeds offsetting
operating losses
• Strong online order intake since March, and in
showrooms since reopening, which has
continued into current year
DFS Furniture plc
Annual Report & Accounts 2020
43
52 weeks to 28 June 2020
£m
DFS
Sofology
Other
Group
– underlying
pre IFRS 16
Group
– underlying
IFRS 16
Non-
underlying
items1
Brand
amort’n
Group
– Reported
IFRS 16
IFRS 16
Gross sales1
Revenue
Cost of sales
697.1
181.7
56.2
935.0
535.2
(212.6)
143.7
(72.3)
45.6
(22.5)
724.5
(307.4)
Gross profit
Selling and distribution costs*
322.6
(191.6)
71.4
(47.8)
23.1
(20.9)
417.1
(260.3)
–
–
–
–
–
131.0
23.6
2.2
156.8
(102.5)
(68.1)
–
75.3
0.4
935.0
724.5
(307.4)
417.1
(260.3)
156.8
(27.2)
(67.7)
–
–
(3.1)
(3.1)
(2.1)
(5.2)
–
(0.2)
–
–
–
–
–
–
–
–
–
935.0
724.5
(310.5)
414.0
(262.4)
151.6
(27.2)
(67.9)
56.5
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(13.8)
75.7
61.9
(5.4)
(31.2)
(56.3)
(87.5)
(11.2)
(1.5)
(100.2)
(45.0)
(11.8)
19.4
(25.7)
(25.6)
(37.5)
(16.6)
–
(1.5)
–
(43.7)
(37.5)
(56.8)
(6.3)
(63.1)
(16.6)
(1.5)
(81.2)
Unaudited pro-forma results:
52 weeks to 30 June 2019
DFS
Sofology
Other
Group
– underlying
Audited results for the
48 weeks to 30 June 2019
Group
– underlying
Non-
underlying
items1
Brand
amort’n
Group
– reported
942.1
260.7
84.4
1,287.2
1,165.0
721.7
(288.4)
433.3
(232.1)
205.9
(101.5)
104.4
(56.7)
68.6
(31.7)
36.9
(25.6)
201.2
47.7
11.3
996.2
(421.6)
574.6
(314.4)
260.2
(107.5)
(62.5)
90.2
(29.3)
60.9
(10.7)
50.2
–
–
–
–
–
–
–
(4.4)
901.0
(383.8)
517.2
(293.7)
223.5
(99.1)
(59.3)
–
–
–
–
–
–
–
–
–
1,165.0
901.0
(383.8)
517.2
(293.7)
223.5
(99.1)
(63.7)
60.7
65.1
(4.4)
(26.8)
–
(1.4)
(28.2)
38.3
(10.1)
(4.4)
–
(1.4)
–
32.5
(10.1)
28.2
(4.4)
(1.4)
22.4
DFS Furniture plc
Annual Report & Accounts 2020
Brand contribution1
Property costs
Administrative expenses
EBITDA1
Depreciation, amortisation &
impairment
Operating profit
Interest
Loss before tax
£m
Gross sales1
Revenue
Cost of sales
Gross profit
Selling and distribution costs*
Brand contribution1
Property costs
Administrative expenses
EBITDA1
Depreciation, amortisation &
impairment
Operating profit
Interest
Profit before tax
1. Refer pages 158-160 for APM definitions
* Excludes property costs
44
Financial review continued
Covid-19 impact and refinancing
The CEO Report covers the Group’s detailed operational and
strategic actions in relation to the pandemic in the last financial year.
From a financial perspective, our main actions in response to the
pandemic were to address the profit and cash flow implications of
disruption to our made-to-order, negative working capital model,
to meet our financial obligations to key stakeholders (in particular
those smaller suppliers most dependent upon the Group) and to
ensure that we had sufficient financial resources to see us through
a lockdown period of potentially uncertain duration.
In March, as the implications of the pandemic became more apparent,
the Group undertook a wide range of mitigating actions to reduce
cash operating costs. In addition, in order to give the Group liquidity
headroom through a severe lockdown scenario, the Group
successfully completed a placing of 42.6m shares (an increase of
19.9% of the issued ordinary share capital of DFS prior to the placing)
to raise gross proceeds of £63.9m in April 2020. Alongside the placing,
the Group also secured a 12-month, £70m extension to its existing
£250m bank facilities.
Our usual bank covenants of 3.0x (IAS17) net debt/EBITDA and 1.5x
Fixed Charge Cover have been temporarily replaced by two financial
covenants for so long as the additional £70m 12 month facility
remains outstanding. The first is a quarterly EBITDA test that
proxies the previous net debt/EBITDA test, and requires us to ensure
cumulative EBITDA (IAS17) during FY20 grows by at least £17.1m each
quarter across the FY20 financial year, reaching a target last nine
month EBITDA of £51.3m in March 2021. The second is a test to
ensure that total facilities are not drawn beyond £300m each month
end through to November 2020 and beyond £250m each month end
through to March 2021.
Restructuring of Dwell and sale of Sofa Workshop
As detailed in our July trading update, towards the end of FY20 the
Group began an operational restructuring of Sofa Workshop and
Dwell to improve the returns generated by these brands. Since the
financial year end, the Sofa Workshop business has been sold and
Dwell’s retail sales teams and certain back office support functions
have been integrated into the DFS operating unit, while their buying,
marketing and other commercial operations will remain distinct.
Largely as a result of this restructuring and related trading, the Group
has recognised non-cash impairments of acquisition-related goodwill
and brand names and certain property right-of-use assets. The Group
has also incurred cash restructuring costs of £1.3m associated with
related headcount reductions and £3.1m reduction in net realisable
value of associated inventory. In total we have recognised income
statement charges of £16.6m in FY20 in relation to the restructuring,
which have been presented as non-underlying costs.
Sales and revenue
As noted above, annual revenues were severely impacted by the
pause in deliveries for the majority of the final quarter to comply with
Covid-19 restrictions. Total gross sales1 for the Group declined by
27.4% to £935.0m compared to the pro-forma twelve month
comparative period. Revenue, which is stated after deducting VAT
and the costs of providing interest free credit and aftercare
products, declined at a similar rate to £724.5m. Sofology opened
three showrooms in the financial year which overall performed in line
with our expectations prior to the pause in trading due to Covid-19.
1. Refer pages 158-160 for APM definitions
DFS Furniture plc
Annual Report & Accounts 2020
While the suspension of customer deliveries severely impacted
reported revenue in the financial year, the Group continued to take
orders online during the lockdown period, achieving strong year-on-
year growth. Showrooms also benefited from a release of latent
demand as stores re-opened in the final weeks of the financial year.
We discuss the current year implications of a materially higher
year-on-year opening order bank in the ‘looking forward’ section below.
Gross profit
Underlying gross profit1 declined by 27.4% to £417.1m compared to
£574.6m for the twelve month pro forma comparative period as a
result of the lower revenues and a small decrease in underlying gross
margin percentage of 10bps to 57.5%. The DFS brand gross margin
increased 20bps year-on-year as a result of sourcing, pricing and
quality improvements coming through as well as more favourable US
dollar exchange rates. This was offset by increased promotional
activity and customer care costs across Dwell and Sofa Workshop
and sell-off of clearance stock in Sofology. After additional inventory
write downs in connection with the reorganisation of Dwell and Sofa
Workshop, reported gross margin was £414.0m.
We source around one quarter of the finished goods that we sell
from the Far East, and we pay for these goods in US dollars. We
continue to protect ourselves from adverse US dollar exchange rate
movements for our spend of c. $165m annually, by hedging our US
dollar purchases to maintain eighteen months cover by value. Our
hedged rate for FY20 as a whole was broadly consistent with the
rates secured for FY19. Our hedged rate for FY21 is 5 cents lower
than the average rate secured for the whole of FY20. Each one cent
movement in the dollar to sterling exchange rate impacts profits by
approximately £1m, however these impacts will be felt by all industry
participants and we will seek to mitigate these impacts in our
commercial proposition.
Operating costs and brand contribution1
Underlying selling and distribution costs1 (excluding property costs)
reduced by £54.1m (17.2%) to £260.3m, reflecting the reduced
trading volumes together with a wide range of mitigating actions
to offset the financial impact of the pandemic, including a re-phasing
of marketing spend and reduced discretionary expenditure. We
continued to invest in key initiatives including Sofology showroom
expansion, digital innovation and last-mile logistics development.
Underlying brand contribution1 for the Group reduced by £103.4m
overall to £156.8m.
Property costs and administrative expenses
Underlying property costs1 pre IFRS 16 reduced by £5.0m to
£102.5m. This was primarily due to a c.£6m benefit in FY20 from the
retail business rates holiday implemented by the UK Government
from April 2020. While a limited increase in costs arose from
incremental space taken in the year, this was broadly offset by the
impact of lease re-gears.
Underlying administrative expenses1 pre IFRS 16 increased by
£5.6m to £68.1m, predominantly as a result of investment in the
infrastructure to support the delivery of strategic initiatives and
to a lesser extent from regulatory-driven increases to employer
pension contributions.
45
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EBITDA1
As a net result of the lower revenues and the other factors described
above, the Group’s underlying EBITDA1 pre IFRS 16 decreased
from £90.2m profit for the unaudited pro-forma twelve months to
30 June 2019 to a loss of £13.8m for FY20. Government support
through the retail business rates holiday and for the furlough of over
5,000 of our team members to protect employment levels partially
mitigated the substantial losses that we have incurred due to the
business suspension.
Depreciation, amortisation and impairment
Underlying depreciation, amortisation and impairment charges1
of £31.2m pre IFRS 16 (excluding brand amortisation) reflected a
modest increase on the prior year in line with the related asset base.
A further £11.2m of non-underlying impairment charges were
recognised in connection with the restructuring discussed above,
including the write down of the Sofa Workshop goodwill and
brand name.
Interest
Pre IFRS 16 interest charges1 increased by £1.1m from £10.7m to
£11.8m due to higher borrowings as part of our contingency
planning in the early stages of the pandemic.
Profit Before Tax (‘PBT’)
Underlying PBT1 for the year (pre-IFRS 16 and brand amortisation)
was a loss of £56.8m compared with a profit of £50.2m for the
unaudited twelve month pro-forma comparative period. Including
non-underlying items and the adoption of IFRS 16, the total reported
loss before tax was £81.2m.
IFRS 16
To provide better comparability with the previous financial year, the
table on page 43 illustrates the impact on the income statement of
the adoption of IFRS 16. Further details are provided in note 1 to the
financial statements.
Reported EBITDA1 (including the impact of IFRS 16) was £56.5m as a
consequence of the majority of lease rental charges no longer being
charged to operating profit. These charges were replaced with
additional depreciation and interest charges of £56.3m and £25.7m
respectively. The net impact of these changes increased the reported
loss before tax for the 52 weeks ended 30 June 2020 by £6.3m
compared to that which would have been reported under IAS 17.
Although the timing of the recognition of lease expenses is accelerated
under IFRS 16, the total expense over the life of the lease is identical to
that under IAS 17. Therefore, excluding the effect of any future changes
to the Group’s leases, this negative impact will reduce over the next
two financial years and by FY23 would result in a modest benefit to
reporting profit before tax. However, new leases entered into will
also slow the realisation of this non-cash benefit to reported profits.
Tax
The reported effective tax rate for FY20 is 14.8%. This is lower than
the applicable UK Corporation Tax rate of 19.0% primarily due to
losses incurred in Sofa Workshop which have not been recognised as
deferred tax assets, the non-deductible write down of goodwill and
disallowable depreciation on non-qualifying assets.
1. Refer pages 158-160 for APM definitions
Earnings per share
Basic earnings per share for the Group was a loss of 31.4 pence per
share for the 52 weeks to 28 June 2020 (48 weeks to 30 June 2019:
profit of 8.6 pence per share), based on a weighted average number
of shares in issue for the financial year of 220.3m reflecting the
placing of new shares in April 2020 (FY19 212.0m).
Capital expenditure
Cash capital expenditure for the period was £23.4m, a reduction of
£2.9m from the £26.3m for the unaudited pro-forma comparative
period1. The year-on-year reduction reflects a scaling back in
non-essential discretionary capital expenditure as part of our
mitigating actions to manage the financial impact of the pandemic.
In addition to the £23.4m cash capital expenditure, £5.3m of assets
(predominantly delivery vehicles and company cars) were acquired
under lease arrangements which was a consistent level of
investment to last year.
Cash flow and balance sheet
As we have highlighted previously, the DFS business model benefits
from negative working capital: payments are received from
customers on or before delivery, while our suppliers are paid to
agreed terms. Working capital balances are seasonal depending on
recent trading activity and cost seasonality (particularly in
advertising spend) as well as predictable patterns of payments on
rents, tax payments and other recurring charges. Inventory balances
are limited and have historically remained broadly stable.
The suspension of customer deliveries during the pandemic, also
delayed the receipt of the related customer payments and the
Group was only partially able to limit the unwind of its negative
working capital position. The additional £70m 12-month credit
facility agreed in April was primarily intended to cover a working
capital unwind. The proceeds of the placing, combined with both the
resumption of customer deliveries towards the end of FY20, and the
better than expected sales in the current year to date, means the
Group has not as yet needed to draw on this secondary facility.
The sharp reduction in operating profits experienced in the second
half resulted in a significant operating cash outflow for the year. This
was partially mitigated by the actions the Group had taken to reduce
discretionary spending as well as utilisation of available Government
support. In addition to the £6.0m in-year benefit of the retail
business rates holiday, the Group has received £19.5m in respect of
FY20 under the UK Coronavirus Job Retention Scheme, and was also
able to defer VAT, PAYE and Duty payments totalling £28.7m into
FY21. In consultation with our landlords, £27.8m of rent payments
were also deferred as at year end. A working capital out flow is
therefore to be expected in FY21 as stakeholders’ various Covid-19
related payment deferral schemes and agreements fall due.
Combined with net financing cash inflows as a result of the share
placing, the Group ended the year with a pre IFRS 16 net debt of
£169.2m (FY19 £176.3m).
DFS Furniture plc
Annual Report & Accounts 2020
46
Financial review continued
Dividend
Reflecting confidence in the Group’s outlook at the time, the FY20
interim dividend was declared at 3.7 pence per share. Subsequently,
however, it became clear that Covid-19 was evolving from a Far East
sourcing issue into a more significant threat to the UK economy.
A desire to strengthen the Group’s financial resilience and liquidity
position led the Group to cancel the payment of the interim dividend
and seek additional financing facilities, including a 12-month, £70m
facility secured in April 2020. As part of the terms of this facility, the
Group has undertaken not to pay dividends or conduct any
acquisitions until either six months after the repayment of the
incremental facility, or following the refinancing of all existing
bank facilities.
Given the broader macroeconomic uncertainty, the desire to
increase financial resilience and the restrictions in place under the
banking facilities, the Directors do not propose a final dividend
(FY19: 7.5 pence).
We do recognise the value some of our shareholders place upon
regular dividend payments. The Group will continue to review its
dividend policy in the light of our trading performance, business
requirements and the uncertain economic environment.
Risk and governance
Building on initiatives in FY19, the Group continues to strengthen its
approach to risk and governance. In FY20 a particular focus was on
developing comprehensive operational risk registers via Group-wide
engagement sessions, as well as the roll-out of our new in-house
developed online risk management platform. The new platform is
expected to further embed risk management into the day-to-day
practice of all senior and middle management colleagues. Specific
risk-focused initiatives undertaken during the financial year included
a full externally assessed cyber review, completed in July 2019, and
an upgrade to the Group’s business continuity procedures,
completed in September 2019, both of which have proved valuable in
facing into the impacts of Covid-19. Business Continuity and
Resilience constitutes one of the Group’s Principal Risks and the
Group has incorporated the learnings and strategies from our
response to the pandemic in 2020 into its procedures for responding
to a potential second wave of the Covid-19 virus or other significant
disruption. The Group’s formal business continuity plans will be
updated further in the current year.
Looking forward
As indicated in our August trading update, the Group has
experienced strong trading since the lockdown period both online
and in our showrooms. Nevertheless, given the lingering effects of
the pandemic and wider economic uncertainty, we remain cautious
on the outlook for the remainder of 2020 and into 2021, and we
remain concerned by lower consumer confidence and a potentially
slower residential property market. Whilst a weak trading
environment would impact our short-term revenue and profits, the
Group has historically prospered in economic downturns and gained
market share.
The dichotomy between current trading and the potential future
macroeconomic environment makes giving meaningful guidance for
our revenue performance in FY21 and beyond exceptionally
challenging; and it will be our revenue performance that will primarily
drive our future profit outturn. To assist our stakeholders however,
we have prepared three scenarios for revenue performance. We
believe the scenarios can help give a feel for how the Group might
perform in very different trading environments. However, the choice
of revenue changes modelled and their impact on costs and profits
should be seen as illustrative and not as guidance given the number
of factors that are unforeseeable and the current early stage of the
current financial year.
Medium
Rest of year:
-15%
£1,064m
Overall gross margin broadly flat at 58%
High
Rest of year:
0%
£1,169m
£678m
£617m
c. £400m
c.£123m
£94m
Increases by <10% of change in
revenues
£147m
Scenario overview
IFRS 16 Basis
Revenue
Gross profit
Operating costs
Low
Rest of year:
-30%
£959m
£556m
Identified cost mitigation
of up to £15m
Interest & depreciation
Implied PBT
£57m
DFS Furniture plc
Annual Report & Accounts 2020
47
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Revenues
In planning for FY21 we benchmark our performance relative to the
52 weeks to December 2019, where we generated revenues of
£943.0m excluding Sofa Workshop. We take some comfort from a
materially higher opening order bank year-on-year, from which we
expect to realise an incremental c.£100m of revenues and early
trading over the first twelve weeks that has generated a further
c.£126m of incremental revenues. Trading in October 2020 onwards
may however be significantly weaker, with (i) the UK furlough scheme
coming to an end which may affect employment levels and
consumer sentiment, and (ii) expected longer manufacturing lead
times for our products creating less of a call to action for delivery
ahead of Christmas, and (iii) the potential impact of Brexit on
sentiment. Offsetting that, we have some early evidence that the
DFS Group is gaining market share following the recent tough
environment and we may see consumers continuing to prioritise
spending on their homes, which is consistent with the average order
value growth that we have seen over the last twelve weeks of +7.6%.
We therefore see a very wide range of potential outcomes, with
some of our internal modelling scenarios hypothesising that the
upholstery market could be weaker than the 10%+ year-on-year
market declines seen post the global financial crisis. Likewise we also
do see a potential scenario where demand levels could even stay
positive across the year.
Gross profit
Our gross margins continue to remain stable or grow slightly in the
retail activities of our scale brands of DFS and Sofology. Although we
will face some pressure from adverse foreign exchange rates we
believe this can be offset through the commercial proposition. As
revenues rise or fall, the manufacturing participation will flex slightly,
which may generate slight fluctuation in margin levels, however this
variation is unlikely to be significant relative to other assumptions.
Cost base
We have taken appropriate action on operating costs, including
headcount and marketing budgets. Following the sale of Sofa
Workshop, we believe our base operating cost base is likely to be
c.£400m excluding Sofa Workshop. Retail business rates relief of
c.£19m will also be received in FY21 and is reflected within that
expected cost base. The cost base does carry some flexibility from
sales team commissions and last-mile delivery costs, which we
expect to move by a little less than 10% of any revenue change. We
do also retain the ability to make choices on our advertising spend
and other cost commitments, giving potential additional flexibility of
up to £15m.
Interest and depreciation
We expect these to remain broadly similar to prior years, albeit with
depreciation of property right-of-use assets changing to reflect the
increased property estate and the potential for bank facility
refinancing fees to be incurred during the year.
Profit Before Tax outturn
The three scenarios show a wide range of outcomes, but it is notable
that all scenarios result in profit before tax above recent financial
years, and the ‘middle’ and ‘high’ scenario are materially above prior
years. We would however be cautious around extrapolating these
profits into future years given that the rates relief is not expected to
continue and the risk that these revenue levels will not recur.
Financial resources and cashflow
Following the recently completed equity placing and the £70m
temporary working capital facility secured in April, our available cash
resources at the year end were just over £160m. In line with typical
market practice, we expect to refinance the Group’s existing £250m
senior revolving credit facility at least a year ahead of its maturity in
August 2022.
Although we do expect that we will need to make ‘deferred’ rental
and taxation payments of approximately £56.5m during FY21 and
into FY22, our strong trading to date has reduced net bank
borrowings (excluding finance lease obligations) as at 21 September
2020 to £32.2m (equivalent to overall pre-IFRS 16 net debt of less
than £50.0m) and we believe we have the resilience to respond to a
range of economic scenarios whilst continuing to invest in our most
compelling growth initiatives.
Applying recent learnings from the pandemic, we also now expect
customer deliveries and hence revenue and cash generation to
continue throughout all but the most severe lockdown scenarios,
further increasing our resilience. We have prioritised capital
expenditure on our critical development initiatives and up to ten
showrooms openingduring the year, which have proven rapid
paybacks, and we therefore currently expect our capital expenditure
in FY21 to be broadly in line with prior years.
In conclusion
The past six months have presented exceptional challenges and we
do not anticipate the near-term environment will be any less
demanding. Notwithstanding that, we continue to believe the
business is well positioned strategically and has an appropriate
financial model and resources to deliver attractive shareholder
returns.
Mike Schmidt
Chief Financial Officer
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
48
Sustainability and responsibility report
Sustainable, responsible, and
inclusive business
Our Group purpose is to bring great design and
comfort into every living room, in an affordable,
responsible, and sustainable manner.
DFS Group ESG look and feel
Sofa Cycle final diagram - Sofa photograph
Coloured zones and captions
Generating energy
and raw materials
Sourcing raw
materials
Recycling
Rethinking
Reuse
Collection
Packaging
THE SOFA
CYCLE
Delivery
Design and
production
Shipping
Retail stores
Key to colours
Sourcing and making
Selling and delivering
Reusing and recycling
Initiatives launched in 2020
1. Sourcing our wood and leather
2. Recycling our packaging
3. Sofa rescue
4. “PlanTree”
DFS Furniture plc
Annual Report & Accounts 2020
Introduction
As is clear from our purpose, our Group is committed
to acting in a responsible, sustainable, and inclusive
manner, which puts our customers and our
colleagues at heart of everything we do.
Our ESG strategy
During the year we put significant effort into developing our
approach to ensuring our business is built on the right ethical
foundations and that we have an ESG strategy for our Group
that builds on our the values embedded in our businesses
and integrates sustainability considerations firmly into the
way we do business.
Our thinking follows the concept of the circular economy,
which aims to keep products in use for longer, by reusing,
recycling or remaking, so any waste becomes the beginning
of another process or a recovered resource. The Sofa Cycle
helps us visually articulate shared Group-level objectives.
Each of our businesses can then use the Cycle to create
activities and policies relevant to their brand, their size and
their customers. It also has the flexibility to evolve over time
as our business becomes even more circular in its approach,
and the evolution of sustainable practices enables us to do
more. We appreciate that the Sofa Cycle very much
addresses the product aspects of our business, rather than
being people focused. This acknowledges the fact that we
can’t address the whole ESG agenda at once, and must take
it step by step. Of course, people issues are vital – and we
believe we are already good employers – so we will look to
add more colleague-based initiatives in Phase 2 of our
ESG strategy.
Our phase 1 Group ESG targets and our 4-key initiatives for
the year; our foundation initiatives Sourcing our Wood and
Leather and Recycling our Packaging, and our flagship
initiatives Sofa Rescue and PlanTree are built around the
Sofa Cycle.
We believe that we can meet customer expectations,
stakeholder demands and continue to grow our business
while fulfilling and embracing our social and environmental
obligations.
After working with our partners and looking at where we are,
we decided that our primary focus for this phase of our
journey would be on the products we provide our customers.
We are acutely aware that far too many of the sofas that are in
people’s homes, have not been manufactured in sustainable
fashion and that too many of them end up in landfill.
We developed our strategy based upon a circular approach
that covers the entire life cycle of the sofas we provide, from
sourcing the raw material or finished products, our supply
chain and manufacturing through to the retailing, delivery
and lifecycle of the sofa.
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The aim of the Sofa Cycle is to capture the complex and interlinked
aspect to the cycle of a sofa’s life and to ensure we build in
sustainability when developing our products and services. Whether
it is through sourcing FSC compliant wood to make the frames for
our sofas or ensuring our delivery vehicle routing system, Apollo,
plans the most efficient route to minimise carbon output.
Working with partners the Carbon Trust, TRG, Clearabee and the
Woodland Trust, we are continuing to develop our multi-year
transformational plan focussed on environmental and social issues
across the spectrum of our businesses. We aim to ensure we have a
clear, independently audited view of our plan for all areas of our ESG
initiatives. Our ESG initiative is led on behalf of the Group’s
Leadership Team by Sofology’s CEO Sally Hopson, supported by
Alison Hutchinson as Board sponsor.
This year we have worked together to develop our phase 1 Group
ESG Targets. The targets apply to each of our brands individually.
They are our best view of the steps we need to take as a Group over
the next 4 years. Some of the brands are expected to achieve some
of these targets earlier than the date for the Group, depending on
where the brand is currently in relation to each target.
Our Phase 1 Group ESG Targets
E is for environmental
Wood sourcing
All our sofas will be built of 100% FSC Certified Wood by 2025.
Leather sourcing
The leather we use will not lead to deforestation in Amazon regions or elsewhere
by December 2021.
Packaging
We will reduce our packaging and ensure 100% of the plastic packaging
we use is recyclable by December 2020.
Sofa packaging
85% of all our sofa packaging will be recycled by December 2020.
CO2 reduction
CO2 offset
100% of all our sofa packaging will be recycled by December 2022.
We will reduce our CO2 emissions with Sofa Delivery Company by a minimum of
10% by 2023.
We will achieve 100% carbon offset by December 2020.
S is for social, our colleagues and our communities
Inclusion and
diversity
Inclusion and
diversity
Inclusion and
diversity
All Group apprenticeship programmes will have at least 50% female
representation from 2020.
All Group Management development programmes will have at least 50% female
representation from 2020.
A minimum 50% of showroom managers will be female by December 2024.
Charity community
Volunteering Days – everyone can have paid time off to give back to their
community.
Target a minimum of 1,150 Volunteering days by December 2021.
G is for governance, how we manage what we do
ISO
ISO
ISO45001 – Health & Safety from December 2021.
ISO14001 – Environmental Management from December 2021.
Modern slavery audits Independent ethical audits of our supply chain by December 2021.
DFS Furniture plc
Annual Report & Accounts 2020
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Our environment
3) Sofa rescue
When people buy a new sofa, they often want to get rid of their old
one. Unless they pass it on to family, friends or charity, this isn’t easy
to organise. Whilst DFS has worked for many years with the British
Heart Foundation to ensure as many sofas as possible are resold and
reused, too many are still going to landfill.
As part of our sofa cycle, we developed our sofa recycling service
“Sofa Rescue”. When DFS customers buy a new sofa or armchair,
they have the option either to donate it to the British Heart
Foundation, or they can choose to have their old sofa or armchair
collected and recycled by our partner Clearabee. Clearabee will
collect the customer’s old sofa and take it to a certified recycling
centre where it is broken down to its component parts for recycling
and creating energy from waste.
The Sofa Rescue Scheme was rolled out nationally in January to DFS
customers and in June for Sofology customers, and to date more
than 33,000 pieces of furniture have been successfully diverted
from landfill.
4) PlanTree
PlanTree is our permanent reforestation initiative. While we work
hard to source wood as sustainably as possible, we want to go
further, and contribute significantly to reforestation. That’s the aim
of Sofology’s PlanTree campaign, where for every sofa order, we
plant a tree in the UK, as part of accredited reforestation schemes
run by the Woodland Trust. When a customer places an order, we tell
them about the tree we will plant on their behalf. When we deliver
their item, we include a thank you card and reference to the tree.
Through PlanTree, Sofology will plant over circa 100,000 trees
(1 tree per order) in the UK in 2020. DFS has committed to launching
PlanTree in 2021 and will also be focusing on a UK tree planting
programme. We are also proud to be working with the UK’s largest
woodland conservation charity to help us mitigate our
carbon emissions.
Progress against our initiatives 2020
1) Sustainable resources – sourcing wood and leather
During the year we focussed our efforts on developing our targets
and examining our supply chain to ensure we are sourcing our raw
materials and finished goods in a sustainable way. We updated our
policies on timber and introduced our new policy on sourcing leather.
These can be found on our website at www.dfscorporate.co.uk/
governance/policies.
As the nation’s biggest sofa manufacturer, the Group has been
working hard to source wood as sustainably as possible, but also
wants to go further and contribute significantly to reforestation and
ensure that the leather we use does not lead to deforestation.
We are engaging actively with our suppliers to implement a robust
verification programme for timber and leather products sourcing.
We comply with European Timber Regulation No 9952010, and
whilst we are not an operator placing timber or timber products on
the internal market for the first time, as a trader we require all our
timber suppliers to certify that the timber used in our products or
supplied to us, is compliant with the regulations. We keep records of
all timber supplied to DFS and timber products from our suppliers
for a minimum of five years.
Illegally harvested wood
We will not accept in our furniture:
01
02
03
Timber harvested in violation of traditional and human rights
Timber from forests in which high conservation values are
threatened by management activities
04
05
06
07
08
09
10
Timber from forests being converted to plantations and
non-forest use since 1994
Timber from forests in which genetically modified trees are
planted
Unknown sources
Leather from animal skins that is not a by-product of the meat
packing industry
Animal skins from aborted or live animals or from endangered
species (including any species listed in the three CITES
Appendices)
Products containing leather where the supplying partner has
not declared the species of animal and country of slaughter for
all items
Products from suppliers who are unable to demonstrate that
their leather supply chains do not contribute to deforestation
2) Recycling our packaging
When we deliver a sofa, we remove and recycle as much of the
packaging as possible. We have continued to increase the amount
we recycle, and by next year will be recycling all our sofa packaging.
That means working with our suppliers to remove from our
packaging any materials that are difficult to recycle or are damaging
to the environment. Through these efforts, we have decided to get
rid of polystyrene packaging as it is so hard to recycle. Another
positive move is in using recyclable corner protectors, which can be
used up to eight times on the sofas we deliver before being
completely recycled.
DFS Furniture plc
DFS Furniture plc
Annual Report & Accounts 2020
Annual Report & Accounts 2020
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Energy usage
Electricity use is a key component of the Group’s CO2 emissions.
During the year we continued to work hard to improve our energy
efficiency. We have implemented a series of energy initiatives to
reduce our carbon footprint and eliminate our energy waste.
We are committed to further reducing our energy consumption,
and our Energy Management Policy supports our reduction in
carbon emissions. Through the deployment of the latest in energy
technology and a new energy management platform, we have
complete visibility across all sites; this enables us to manage and
reduce our energy waste by monitoring consumption against
agreed targets.
From October 2020, 100% renewable electricity backed by REGOs
has been secured for 92% of our estate, with the target to have
100% of our electricity sourced from renewable energy by 2023.
During the year we worked with Businesswise Solutions to get a
clearer understanding of our energy usage across the Group and
to roll out low energy lighting schemes across our showrooms and
our offices. Additionally, we use automated meters to monitor and
investigate usage of both gas and electricity. We will continue to
work with Carbon Trust and other advisors to reduce the amount of
energy we use. As well as setting our phase 1 environmental targets,
we worked with our partners to understand our impact on the
environment looking at water and waste management. We will
continue to develop our wider phase 2 environmental targets
during 2021.
Fleet
Our transport fleet drives over 9 million miles per year delivering to
customers’ homes, so it needs to be efficient and safe. All trucks
are on a six-year replacement cycle to ensure we continuously
modernise the fleet and move towards the highest European
emission standards. We combine this with in-cab telemetry and a
system of daily debriefs where driver behaviour is assessed against
energy-efficiency and safety targets. We reward drivers who reach
the highest standards, and we work with any who need help to
improve. We keep looking for further improvements and we
continue to work with industry bodies and truck manufacturers in
trials of new technology.
With our company car fleet, we encourage the use of electric or
hybrid cars providing charging points at key sites across the UK.
9.8% of our company car fleet is electric or hybrid.
The CO2 performance of our company car fleet has come down to
99.6 g/km (FY19: 100g/km) which is 22 % below the UK national
average for new registrations which is currently 127.6g/km.
We are continually looking at new ways we can improve our CO2
performance. Our DFS customers have the option to select “eco”
delivery slots when planning their delivery with our route planning
software optimising the routing of our vehicles to minimise emissions.
To mitigate our carbon emissions during 2020, the Group will plant
over 59 hectares of native woodland with over 112,250 trees in the
UK through the Woodland Trust’s Carbon scheme. As a Group we
are currently the Woodland Trust’s largest carbon mitigation
partnership.
Energy and transport fuel consumed
The tables below show our energy use and associated greenhouse gas emissions in line with the UK Government Streamlined Energy and
Carbon Reporting Requirements. Usage and emissions reported correspond with our financial year.
FY20
MWh
*
First year of reporting on our emissions from the ROI,
Spain and the Netherlands
UK operations
International operations
Group
UK
Direct emissions Scope 1
Indirect emissions Scope 2
Sub-total UK
International operations*
Direct emissions Scope 1
Indirect emissions Scope 2
Sub-total International
Group Total
96,192
4,364
100,556
TCO2e
2020
2019 % decrease
TCO2e per employee
2019
2020
17,928
19,543
6,364
7,654
24,292
27,197
-8.3
-16.9
-10.7
2,506
690
3,196
27,488
–
–
–
–
–
–
–
–
3.4
1.2
4.6
12.7
3.5
16.2
5.0
3.7
1.5
5.2
–
–
–
–
Notes:
GHG emissions have been restated for 2019 as there was
an error in the calculation as both gas and electricity were
included in Scope 2, rather than fuel for transport and gas
being reported in Scope 1 with just electricity in Scope 2.
The total TCO2 reported in 2019 was 28,064 (excluding
International) when in fact it should have been 27,197
(excluding International).
To express our annual emissions in relation to a
quantifiable factor associated with our activities, we have
used Tonnes CO2 per employee as this is a relevant
indication of growth.
DFS Furniture plc
DFS Furniture plc
Annual Report & Accounts 2020
Annual Report & Accounts 2020
52
Sustainability and responsibility report continued
Our colleagues
The colleagues in our
business are the heart
of its success.
DFS Furniture plc
Annual Report & Accounts 2020
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Much of the value we deliver to customers is through
the expertise and experience of all our colleagues.
Our sustainability relies on our ability to attract
colleagues with the right skills and behaviours and to
motivate, develop, support and reward them
appropriately.
During the year we employed 5,372 colleagues across the UK,
Republic of Ireland, the Netherlands, and Spain. We believe
that our ability to deliver fantastic products and service to
our customers comes from the passion and commitment
shown by all our colleagues across all parts of our Group. We
are proud of the work we do to develop and strengthen our
teams. Creating and sustaining a values-based culture with
good governance to enable us to fulfil our purpose is crucial
to ensuring our colleagues remain engaged, well informed,
and able to effectively deliver our strategy.
Talent and development
We continue to grow and develop all our colleagues
recognising this is pivotal to the success of our Group.
Developing and retaining talent is important to us and as
such we have a robust talent review process in place across
the Group and a range of learning solutions to develop key
skills, support career progression and role transitions. We
actively promote the benefits of further learning and
development for all our colleagues, at whatever stage of
their career. We provided over 6,000 face-to-face training
days to our colleagues. During the pandemic we utilised our
digital technology to deliver a range of virtual learning
solutions. The success of these virtual learning sessions
will enable us to continue to offer bite sized support and
development to all our colleagues, offering a truly agile
learning and development proposition well into the future.
Apprenticeships and early careers
As a Group we are very proud to invest in the development
of all our colleagues. We welcome students into our business
for early careers work experience and offer learning which
supports students in their transition from school to work.
Our apprenticeship scheme, which supports our inclusivity
and diversity approach, continues to grow and supports not
only young participants to achieve formal qualifications in
their chosen field, but since 2017, we also offer Advanced
and Higher Apprenticeships to existing colleagues wanting
to further their professional development. Over 65 young
colleagues have completed the level 2 apprenticeships, with
the majority staying with the Group. A further 62 colleagues
have started an advanced or higher apprenticeship.
Sofology colleagues enjoying tree planting day
DFS Furniture plc
Annual Report & Accounts 2020
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Our colleagues
• Clear guidance for delivery teams and our service upholsterers
visiting customers’ homes;
• Checking/ auditing across all areas that the new processes are
being followed by everyone; and
• Created business area specific Covid-19 re-boarding videos,
modules, and risk assessments.
Throughout the year we continued to invest in training and
development and in improving our processes and practices to
ensure that we operate safe and secure workplaces. All colleagues
complete online training modules to ensure awareness of the
Group’s ‘house rules’ for health and safety and these are reinforced
with monthly safety messages to refresh and remind our colleagues.
Despite the challenges arising from the pandemic during this last
year, both our DFS and Sofology retail brands have been awarded
the RoSPA Silver Award for continual improvement towards Health
and Safety. Sofology has maintained its ISO45001 certification. DFS
expects to gain its ISO45001 certification by December 2020.
The Group is a passionate advocate for removing the stigma
attached to mental ill-health, actively creating a culture of openness
and support. As a Group we have mental health first aiders working
across the Group and throughout the pandemic we worked with our
colleagues to ensure that whether they were working or furloughed,
they looked after their mental health. Our colleague wellbeing
resources provide a range of support including direct access to
counselling services. We also offer colleagues private medical
benefits that give parity to mental and physical health conditions.
Inclusivity and diversity
The Group is committed to ensuring our colleagues can thrive and
prosper. Approaching inclusivity and diversity as a business issue
reflects our firm view that inclusive and diverse teams, working
within inclusive environments, are more innovative, engaged, and
deliver better outcomes for our customers. Our colleagues and
those suppliers and contractors we work with are expected to
embrace a culture of diversity and to be respectful and considerate
to others.
Whilst the Group continues to focus on gender and addressing the
gender pay gap, our aspirations going forward are to broaden the
agenda to encompass all aspects of diversity more widely. Our 2019
conference and 2020 digital ‘In the loop’ session both highlighted
the importance of diversity, inclusion, and reflecting our customer
base in the communities that we live in.
Our steering group is committed to building a more inclusive and
diverse workforce and we have built on previous years’ successful
campaigns for International Women’s Day and Pride events. Our
DFS retail brand celebrated International Women’s Day by asking our
colleagues what this year’s theme #EachForEqual really means to
them. In Sofology the team shared lots of colleague stories for our
Pride week, joining virtual Pride events, along with offering wellbeing
support from our Living Well programme and recommended
learning modules from our online training hub.
Employee engagement
Creating highly engaged teams is a cornerstone of our success.
We listen to our colleagues’ feedback and ideas in many ways,
including our partnership with Best Companies. We believe a key
part of employee engagement is not only listening, but also acting
on what our colleagues have to say, and in turn letting them know
about the improvements and changes we make. We engage our
colleagues through:
• Our Group Leadership Forum, consisting of 70 senior leaders
from across the Group. The Forum meets regularly to keep
informed with what is happening, collaborate and share
best practice.
• Workplace by Facebook is a leading digital platform that allows
colleagues to connect and collaborate with each other, while
keeping updated about key news from across the Group.
Workplace also gives all of our colleagues direct and instant
access to our Group Leadership Team, which enables great
conversations about what matters most to our business.
• We keep our colleagues informed of performance and strategy
through regular meetings led by the Group Leadership Team and
updates via Workplace and Crafted, the Group-wide magazine.
• The Executive Directors attend key business meetings
throughout the year, including regular trading performance
review and capital allocation meetings, and present financial
results to our colleagues in live “Town Hall” sessions which are
streamed live via Workplace to give access to all colleagues.
• The Chairman and other Non-Executive Directors attend
meetings with our colleagues, when they attend the Employee
Voice Forum and visit showrooms, factories, and warehouses.
During the year, the Board appointed a Designated Non-
Executive Director to ensure we continue to focus on the views
of our colleagues.
Helping our colleagues to do the right thing.
All our colleagues must be equipped to make the right decisions.
The Group supports this by consistently promoting and embedding
our policies, processes, and training. Our Group Code of Conduct
outlines Group values and the behaviours we expect. Colleagues
also receive mandatory online training on Anti-Bribery, Modern
Slavery and Data Protection.
If our colleagues witness something inappropriate, they can report
the matter to their line management, or make use of our
independent and confidential whistleblowing helpline.
Health, safety and well-being
The health, safety and well-being of our colleagues, customers and
partners is extremely important to us, never more so than this year
as we face the impact of Covid-19 on our business.
To help our colleagues and customers have confidence in returning
to work and to our factories and our showrooms, we developed our
Covid-19 response plan:
• Social distancing in place across all sites;
• Sanitising stations installed within all areas for both customers
and colleagues;
• Temperature checks for all colleagues at the beginning of
their shift;
• PPE provided – face masks and visors made available for all
colleagues;
DFS Furniture plc
Annual Report & Accounts 2020
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DFS was once again a finalist
in the Retailer of the Year in the
All About School Leavers Awards
for apprenticeship schemes.”
Case study
The young people joining our apprenticeship programmes are
taking their first step on building a long-term career with us, a
great example of this is Sam Barnes. Sam joined our very first
apprenticeship programme in 2014 at the age of 19, having
been travelling for a year doing charity work, Sam was looking
for an apprenticeship that would give him a trade. Although Sam
had never thought of a career in the furniture industry, he was
keen to gain the skills involved in upholstery and having the
opportunity to complete the Duke of Edinburgh Gold Award
alongside the apprenticeship was an added bonus.
Sam excelled through his programme, and with the support
from the store team, he gained a permanent position and
successfully completed his qualification and Gold Award. Then
in 2018 Sam saw an internal vacancy for a Development coach
for the Service Manager apprenticeship programme. Having
come through the apprenticeship programme himself, Sam was
eager to work with and develop young people to give them the
same opportunities and support that he had received. Sam was
successful in his application and has since redesigned the
programmes and now delivers these for both DFS and Sofology.
Sam, showing Alfie, one of our Service Apprentices in Birstall, how the
leather colours work.
Our leadership development programmes ensure inclusion and
wellbeing are at the core as we recognise the importance of line
manager awareness and we encourage our managers to complete
our online modules on diversity and inclusion. We delivered a
People’s policy skills workshop to our management teams with the
focus on effective management of the disciplinary, absence and
grievance processes, but with an underlying thread of nurturing an
inclusive and diverse workforce.
We continue to promote inclusivity and diversity across our
workforce as well as prohibiting discrimination in any form
throughout the year. To do so:
• We give full and fair consideration to employment applications
from individuals with disabilities to ensure they have equal
opportunity for employment and development in our business.
• We continue to try to improve female representation in key
business areas that have a traditional skew towards men.
• We set performance targets for a large proportion of the
management population to focus on the gender split across all
sectors of our business.
• We provide recruitment development workshops for managers
with a dedicated section on unconscious bias training covering
gender and ethnicity.
• We are building assessment criteria into our online recruitment
processes that remove unconscious bias.
• We have family friendly policies for parents.
Details of our most recent gender pay gap report, can be found on
page 99 in the Directors’ Remuneration Report.
Gender diversity of the Group 28 June 2020
Directors
20
19
4 (57%)
5 (71%)
Group Leadership Team
20
19
6 (67%)
5 (56%)
Senior managers
20
19
17 (68%)
N/A
All colleagues
20
19
3,437 (64%)
3,502 (64%)
Male
Female
3 (43%)
2 (29%)
3 (33%)
4 (44%)
8 (32%)
N/A
1,935 (36%)
1,950 (36%)
DFS Furniture plc
Annual Report & Accounts 2020
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Sustainability and responsibility report continued
Our customers
Taking pride of place in our customers’ homes, we
understand the importance of providing responsibly
sourced, high-quality, durable products that can withstand
the demands of a busy household – all whilst offering the
luxurious style, comfort and value for money which our
customers love.
Delivering these standards requires a detailed approach, achieved
by working closely with our long-standing supplier base. Through our
close partnerships, we take on a ‘tried and tested’ approach,
rigorously testing each one of our products to ensure it meets the
highest standards of safety and durability. Along with carrying out
tests on the structure during production of new ranges, we also
carry out a unique process on the first product samples we receive.
This involves stripping down the unit entirely for one final inspection
that can result in further tweaks and improvements – If a product
does not meet our quality standards, we will not include it in any
of our ranges. The quality of materials and the skill of the
craftsmanship mean that we are so confident in the structural
durability of our ranges that we guarantee them for a minimum of
15 years. Within the Group we are continually finding innovative
ways to create new products that have an eco-friendly story to tell,
Sofology will introduce a 100% recyclable ‘Heron’ eco-fabric,
and a sofa made from recycled materials later this year.
As we manufacture many of the sofas we supply, we have direct
control of these factors with the sofas that we make in our UK
factories. We know where the raw materials are sourced from,
and we can test the finished products to levels beyond industry
standards in recognised accredited test laboratories.
To ensure we deliver the highest levels of customer service we make
significant investment in training and developing our colleagues.
Colleague performance and customer satisfaction are monitored
through regular inspections, customer surveys and, for some of our
brands, mystery shoppers which are carried out through an
independent consumer research group.
Customer referral is the perfect indicator of excellent customer
satisfaction and we use Net Promoter Score (“NPS”) as a measure
of recommendation, which provides us with an internationally
recognised predictor with proven links to business success. NPS
forms a component of remuneration for colleagues throughout the
business, including salespeople, management, head office teams
and Executive Directors.
Atticus
DFS Furniture plc
Annual Report & Accounts 2020
Our suppliers
We have long standing relationships with our upholstery
suppliers and close contact with them is maintained
through frequent visits by our operational and senior
management team. This year more than ever those
relationships have proved crucial to the success of our
business. We work with our suppliers to monitor and
improve quality and performance, and ensure compliance
with our ethical trading standards.
We go to great lengths to ensure the quality and safety of all the
products we sell. With over 50 years of designing and manufacturing
sofas in the UK, our unique knowledge of the manufacturing process
enables us to understand and work with our suppliers worldwide to
ensure they can meet our quality standards.
Our own detailed quality checks and product testing are supported
using independent safety specialists, and all upholstered furniture
items are offered with a minimum 15-year guarantee. Fire safety
is of paramount importance, so all our products are tested by
independent UKAS accredited organisations to ensure they meet
our rigorous standards policy.
We are very proud that our upholstery products carry the British
Standards Kitemark™ for domestic furniture making. DFS is the only
furniture retailer and manufacturer to have been awarded this
prestigious external quality standard across all our ranges.
Business ethics
Whoever we work with and wherever they are based, we expect
suppliers to comply with our Supplier Code of Conduct. We have
a clear Anti-bribery policy in place and all colleagues dealing with
third parties are expected to undergo training in this area. The
policy makes clear our zero-tolerance approach to any breach
of the Bribery Act. Our contracts with suppliers are clear about
the standards we expect them to comply with and we require all
our Suppliers to certify that they comply with the Supplier
Code of Conduct.
To assist our colleagues in doing the right thing we have a clear
whistleblowing policy supported by an external, confidential
reporting hotline which enables colleagues to report concerns
in confidence.
Modern slavery
We respect and uphold human rights and the Group does not
tolerate modern slavery in any part of our operations or supply chain.
We have developed a series of steps to mitigate the risks of slavery
or human trafficking within our business, including: formal
communication with new and established suppliers, and regular
visits to suppliers both in the UK and overseas to audit our suppliers’
practices in accordance with our Supplier Code of Conduct. Our
suppliers must be able to demonstrate that they operate to
recognised standards, uphold human rights, and prevent modern
slavery. Our statement made in accordance with the Modern Slavery
Act 2015, which contains further information, is available on our
website at http://www.dfscorporate.co.uk.
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DFS Furniture plc
Annual Report & Accounts 2020
58
Sustainability and responsibility report continued
Our communities
We recognise that we have both a responsibility and an
opportunity to make a difference to people’s lives in the
communities where we live and work. We do this in many
ways across the Group, from raising money for charity,
right through to donating our products to help those in need.
As we entered 2020, we watched the world face one of its biggest
ever challenges, that has impacted lives all over the world.
Clear leadership and quick decision-making, supported by the
extraordinary efforts and attitudes of all our colleagues, enabled us
to continue to support our customers, support our suppliers, develop
new safe ways of working and do our bit for the UK’s NHS heroes.
The Group provided urgent support to around 50 NHS hospitals
during the pandemic, donating and delivering sofabeds, sofas and
recliners allowing health workers to enjoy much needed rest whilst
remaining on site between shifts to support the patients. Our
factories supported the Love of Scrubs campaign, with volunteers in
the factories cutting 7,300 sets of scrubs to be sewn outside by the
Love of Scrubs Group.
Actions in response to Covid-19
Our response in numbers
Over £100,000
of sofas and sofa beds provided to the NHS hospitals
between April and June
£300,000
of products for Children in Need for families
impacted by the pandemic
We will continue to work together as a team to ensure that we do
everything we can to help to limit the impact of the pandemic in the
communities in which we live and work.
Giving Back: an innovative new charity and
volunteering strategy
In 2020, just before the Coronavirus lockdown, we launched Giving
Back at DFS, an innovative new way for colleagues and the Company
to make a difference to the communities where we live and work.
Through Giving Back, we have committed to raise and donate up to
1% of our Profit Before Tax every year, give every colleague one
day’s paid volunteering and donate up to 1% of our products
(volume) each year to charitable causes and organisations who need
them the most. From planting trees to helping at local homeless
shelters, every one of our colleagues is encouraged to get out into
their community and support a cause close to their heart.
DFS Furniture plc
Annual Report & Accounts 2020
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DFS and BBC Children in Need
2019/20 saw DFS raise over £450,000 for BBC Children in Need.
Together with our customers we have raised over £5,000,000 for
BBC Children in Need over the last eight years. This year after
talking to our colleagues about what they considered important,
we decided to take our partnership with BBC Children in Need in
an exciting new direction – a DFS Funding Programme focusing on
the mental health and well-being of children & young people.
Over the next three years, the money raised by DFS and our
customers will support 7,500 children and young people showing
severe mental health issues, which will help to keep them safe
and improve their emotional wellbeing. Our money will provide
one-to-one support and specialist counselling that will make a
real difference to their lives. In addition to this we have also
pledged £300,000 of products to Children in Need to help those
children and young people who have been most affected by the
Covid-19 pandemic.
We also want to help our colleagues create a real local connection
to BBC Children in Need and have a better understanding of the
difference that our partnership makes in their local community.
That is why we are connecting all DFS showrooms, customer
delivery centres, manufacturing sites and offices with a BBC
Children in Need project or partner that is within ten miles of them.
The Pennies Foundation
During the year, Sofology chose to partner with the registered
charity “The Pennies Foundation”. Pennies works with Sofology to
allow customers to support the six local charities nominated by
Sofology colleagues for each Sofology retail region. The charities
selected by the colleagues provide support for smaller local charities
working with children and young colleagues across the UK in a range
of challenging situations. As well as supporting these charities
through customer donations, Sofology colleagues have completed
individual fundraising activities to raise extra funds, including a bike
riding marathon, an ice bucket challenge in our North Region for
Grace House, and a skydive for CATTs in our North Central region.
Now lockdown has eased, Sofology colleagues have now started to
volunteer for Grace House in their garden area, as well as helping
with painting their new therapy rooms.
Duke of Edinburgh
The Group continues to benefit from our long-standing partnership
with the Duke of Edinburgh Award Scheme. DFS remains a Silver
Partner of the Duke of Edinburgh’s Award, with the focus of our
partnership being supporting young colleagues to develop new skills
and gain valuable experience through our apprenticeship programme.
Working with all our partners we will continue to work to ensure we
make a positive contribution to the society in which we live and work.
DFS Furniture plc
Annual Report & Accounts 2020
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Section 172 statement
Our Section 172(1) Statement describes how the Directors, individually and collectively,
acting in good faith have exercised their duties over the course of the year to promote the
long-term success of the Company for the benefit of its members as a whole, and in doing
so have had regard to the matters set out in section 172(1) (a) to (f) of the Companies Act 2006.
Our stakeholders
The Directors consider that the following groups are the Company’s key stakeholders.
The Board believes that understanding the respective interests of such stakeholder groups so
that these may be properly considered in the Board’s decisions, is not only the right thing to do,
but is fundamental to our ability to drive value creation over the longer term. Now, as we enter
a new financial year adapting to new ways of working and living due to the impact of the global
Covid-19 pandemic, balancing the needs and expectations of our stakeholders has never been
more challenging or more important.
We have grouped our stakeholders into seven key categories and have provided an overview of the
way in which the Board acted with regard to these groups when making key strategic decisions.
We do this through various methods, including: direct engagement by Board members;
receiving reports and updates from members of management who engage with such groups;
and coverage in our Board papers of relevant stakeholder interests with regard to proposed
courses of action.
Our colleagues
see pages 61.
The strength of our business is built on the hard work, loyalty,
and dedication of all of our people. Our colleagues rely on us to
provide stable employment opportunities to enable each of
them to realise their potential in a working environment where
they can be at their best. We are committed to developing our
people and have a strong culture of learning and development
including an award-winning apprenticeship scheme.
Our customers
see page 61.
Our customers are the reason we exist.
We are dedicated to providing innovative, attractive, design-led,
high quality products to new and existing customers at
great value.
Our suppliers
see page 61.
We rely on our raw material suppliers and our suppliers of
finished goods to manufacture our products to the highest
standards, on commercially attractive terms and on short lead
times. Our landlords provide the real estate that we fit out and
operate as our showrooms and Customer Distribution Centres.
We work with a range of key suppliers who provide our IT
systems, maintain our sites and provide us with the goods and
services to operate our business. Our suppliers relied on us to
generate revenue and employment for them throughout the
2020 financial year.
Our communities
see page 62.
Communities and the wider public expect us to act as a
responsible company and neighbour, and to positively impact
the local communities in which we operate.
Our environment
see pages 62.
Our people and our customers require us to minimise any
adverse impact we might have on the environment.
Our investors
see page 62.
We rely on our shareholders and providers of debt funding as
essential sources of capital to further our business objectives.
They rely on us to protect and manage their investments in a
responsible and sustainable way that generates value for them
over the long term.
Our regulators
see page 62.
We seek to enjoy a constructive and cooperative relationship
with the bodies that authorise and regulate our business
activities. This helps us maintain a reputation for high standards
of business conduct.
DFS Furniture plc
Annual Report & Accounts 2020
Considering the long-term impact
of decisions
Within the retail sector, the operational
cycle is short due to a variety of consumer
patterns and seasonal factors. Despite this,
the Board remains mindful that its strategic
decisions can have both short and long-
term implications for the business and its
stakeholders, and these implications are
carefully assessed.
The most prevalent example of this is in the
Board’s decisions with regards to capital
allocation. During the year, in approving the
Company’s budget the Board balanced:
•
the need for capital expenditure on new
and existing showrooms, warehouses,
and systems to support operational
performance; with
• a desire to remain resilient to risks,
attract, and retain long term investors by
growing the value of the Company and
returning surplus capital to shareholders.
Considering our colleagues
Our colleagues and the members of our
wider workforce are our most valuable asset.
The Board takes active steps to ensure that
the suggestions, views, and interests of our
workforce are captured and considered in
our decision-making and that the health and
wellbeing of our employees are prioritised.
This year as the pandemic spread, our first
actions were to focus on the health and
safety of our colleagues. We continued to
support our furloughed colleagues at a time
of growing financial uncertainty, fully
protecting salaries in April and maintaining
salaries at 80% of full pay until colleagues
returned to work, in excess of government
salary caps.
Colleague engagement
The Group benefits from having a CEO and
CFO who have served with the Group as
employees for several years before joining
the Board. They both maintain a high degree
of personal oversight and engagement in
the Group’s day to day operations. This
knowledge of the business and active style
of engagement means our Executive
Directors maintain an acute insight into
the mood, culture, and views of our
people, which they then report on to the
wider Board.
There are a number of effective workforce
engagement mechanisms in place across
the Group:
• Workplace, our online platform for
colleagues, facilitates ongoing,
meaningful performance and
development conversations between
managers and teams. Workplace
provides a forum for positive and
constructive feedback by individuals,
peers, and managers.
• Employees are kept informed of
performance and strategy through
regular presentations, Town Hall
meetings and Workplace updates from
members of the Group Leadership Team.
• Employee engagement surveys are
undertaken annually, and the results are
reported to the Board. In addition, we use
Workplace to conduct pulse surveys to
help us to quickly check in and
understand how colleagues are feeling.
The most recent one looked at how
people felt coming back to work after the
pandemic shutdown.
• The Chairman and other Non-Executive
Directors attend meetings with our
employees, through the Employee Voice
Forum with the Group People Director,
and where appropriate Executive
Directors and visit showrooms, factories,
and warehouses.
• Our use of technology has enabled us
to accommodate most meetings and
communications remotely. This helps
support flexible working and enabled
employees working remotely during the
pandemic to stay in touch.
These meetings provide effective
engagement and open discussion on the key
business issues, policies, and the working
environment in different parts of the Group,
with actions agreed on issues raised.
The Group People Director attends Board
and Remuneration Committee meetings
to brief on employee-related matters
including: engagement activities; the
results of employee opinion surveys; staff
retention rates, diversity; numbers and
nature of whistleblowing reports; disciplinary
and grievance procedures; learning and
development activity; pay and reward
including gender pay gap; and people
initiatives.
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The Board considers that, taken together,
these arrangements deliver an effective
means of ensuring the Board stays alert to
the views of our people. In addition, and to
strengthen the Board’s understanding of
the issues impacting the workforce, the
Board has during the year appointed a
Designated Non-Executive Director to
ensure a deeper understanding by the Board
of the views of the workforce.
Inclusivity and diversity
Making inclusivity and diversity a central
consideration helps the business to attract,
retain and develop the best talent from
every walk of life.
During the year we:
• Updated our Board Inclusivity and
Diversity Policy and our Group Equal
Opportunities Policy.
• Focused on developing flexible working
with a particular focus on part-time roles
within our retail teams to make them
more attractive to those colleagues
working around family commitments.
• Worked towards increasing the support
offered to working parents through
enhanced employee leave.
Considering the need to foster the
Company’s business relationships
with customers and suppliers
Customers
As a large retail business, the sentiment of
customers can be seen in the Company’s
underlying sales performance figures and
Customer NPS scores, which the Board
reviews regularly. The Executive Directors
provide updates to the Board on their
perceptions of consumer sentiment and
the market view. The interests of customers
are considered in key decisions e.g. relating
to: showroom portfolio changes; selection
of product lines including our third-party
brands; selection and monitoring of
suppliers to ensure quality and safety
standards are met; freight and logistics
arrangements to maximise efficiencies from
order to delivery; the availability of customer
credit products; and the development of our
Online platform across each of our brands.
With the interests of customers in mind,
during the year the Board reviewed
proposals in respect of: showroom openings
; capital expenditure on showrooms and
warehouses; the restructuring of the Dwell
operating model and the customer delivery
contract with our partner Wincanton; and
reviewed our insurance offering to
customers. The Board took the decision
to sell the Sofa Workshop subsidiary in
order to focus resources on our DFS and
Sofology brands.
DFS Furniture plc
Annual Report & Accounts 2020
62
Section 172 statement continued
Suppliers
Throughout the year the Board was briefed
on major contract renegotiations and the
strategy with regards to suppliers and with
certain landlords of the Group’s premises.
The Board seeks to balance the benefits of
maintaining strong partnering relationships
with key suppliers alongside the need to
obtain value for money for our investors and
the desired quality and service levels for our
customers. During the lockdown period we
worked closely with all our suppliers and
valued their support and assistance in
agreeing payment plans that helped us to
manage our cashflow position until we
had stabilised the business and could
recommence deliveries into our customers’
homes. We have continued to work closely
with our suppliers as we developed new ways
of working across the Group.
Further details on ethical trading and our
focus on suppliers as part of maintaining a
reputation for high standards of business
conduct are noted below.
Considering the impact of the
Company’s operations on the
community and the environment
The Board supports the Group’s approach
to Environmental, Social and Governance
matters with a view to reducing adverse
impacts on the environment and supporting
the communities in which we live and
work. Please see pages 48 to 59 of our
Sustainability and Responsibility Report for
details. The Board has oversight of the
Group’s ESG Strategy and targets, with the
Senior Independent Non-Executive Director
acting as the Board sponsor in this area.
The Board intends to give further
consideration in 2021 to the Group’s phase 2
ESG targets.
Considering the need of the Company
to maintain a reputation for high
standards of business conduct
Corporate governance
Our reputation is key. It underpins our ability
to earn the loyalty of our customers and to
grow our business. The Board recognises
the importance of operating a robust
corporate governance framework, and you
can read about how we comply with the UK
Corporate Governance Code and our
approach to governance in our Corporate
Governance Report on pages 66 to 75.
Ethical trading and responsible sourcing
The Audit Committee exercises strong
oversight over the Group’s activities in these
areas including reviewing the work of the
internal audit function, and reports to the
Board on such topics as appropriate.
During the year, the Board approved the
Group’s Employee Code of Conduct with
which all our People, employees, consultants
and sub-contractors must comply and the
2019 Modern Slavery Transparency
Statement, published at https://www.
dfscorporate.co.uk/governance/policies.
A new employee training module on
understanding Modern Slavery was rolled
out across the Group. All our Suppliers are
required to sign up to our Supplier Code of
Conduct and to confirm that they comply
with the Modern Slavery Act. A copy of our
Supplier Code of Conduct and our Modern
Slavery Statement can be found at www.
dfscorporate.co.uk/governance/policies.
Considering the need to act fairly as
between members of the Company
The Company has just one class of share in
issue and so all shareholders benefit from
the same rights, as set out in the Company’s
Articles of Association and the Companies
Act 2006. The Board recognises its legal and
regulatory duties, including under the EU
Market Abuse Regulation, and does not take
any decisions or actions, such as selectively
disclosing confidential or inside information,
that would provide any shareholder or group
of shareholders with any unfair advantage or
position compared to the shareholders as
a whole.
Investor engagement
During the year, the CEO and CFO regularly
held one-to-one meetings, calls, roadshows,
and conferences with institutional investors.
The Chairman and Senior Independent
Director also engaged with certain major
shareholders by way of meetings and calls.
There is also regular communication with
institutional investors by the Head of
Investor Relations and senior management.
During 2020, the Board have engaged with
investors on a range of topics, including:
• Governance including Board
composition;
• Executive remuneration;
•
the Group’s Environmental, Social and
Governance Strategy;
• Company performance against its
strategy; and
the impact of Covid-19.
•
The Board receives regular information on
investor views in several ways:
• The Company’s largest shareholders are
invited to listen in to online full year and
interim results presentations, at which
Executive and Non-Executive Directors
are present.
• The Group’s corporate brokers provide
feedback on market reaction and
investor views after full and half year
results announcements and investor
roadshows.
• Analyst/broker reports and views:
independent investment research
analysts also have access to Executive
Directors as part of their investment
advisory roles and are able to attend
results meetings, company visits and
Capital Markets Days. The analysts’
research publications provide timely
feedback on financial performance,
strategy, and share valuation.
• Reports from the Chairman and other
Non-Executive Directors who have direct
dialogue with shareholders. Shareholder
feedback reports and statements made
by representative associations. All
shareholders have an opportunity to
ask questions or represent their views
formally to the Board at the AGM, or with
directors after the meeting.
Investors’ interests were considered as
part of the Board’s decisions throughout
FY20 including with regard to: obtaining an
additional credit facility to protect the
Group’s cash position at the peak of the
Covid-19 pandemic; the issue of new equity
finance through a non-preemptive placing of
ordinary shares; and the cancellation of the
interim dividend, in order to preserve cash
within the Group in light of the pandemic.
The Board carefully considers the Group’s
cash position and forecasts when making
decisions on capital allocation and the
Company’s dividend policy.
Regulators
Our Group is regulated by the Financial
Conduct Authority in respect of the
provision of credit broking. As a responsible
authorised company, we seek always to
cooperate and engage constructively with
the FCA and meet its standards.
The Audit Committee exercises
independent oversight over the regulated
Finance business that includes updates on
matters under discussion with the FCA.
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Annual Report & Accounts 2020
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Tax strategy1
We manage our tax affairs responsibly and
proactively to comply with tax legislation.
The Group’s approach is to seek to build
solid and constructive working relationships
with all tax authorities.
During the year, the Board approved the
Group’s 2019 Tax Strategy1 to comply with
Schedule 19, paragraph 16(2) of the UK
Finance Act 2016 published at https://www.
dfscorporate.co.uk/governance/policies.
This policy includes a requirement that
the Company engages with HMRC
constructively, honestly and in a timely and
professional manner, and seeks to resolve
disputed matters through active and
transparent engagement. The Group CFO
provides regular updates to the Board on
tax matters.
1. Not part of the s172 requirements subject to audit
Financial reporting
The reporting of the Group’s financial results
is subject to oversight by the Financial
Conduct Authority (“FCA”). In preparing its
annual report and accounts, the Group
maintains an awareness of published FCA
guidance to support the quality of its
reporting, and where specific enquiries are
raised seeks to engage with the regulator in
a positive and constructive manner.
Debt capital/credit facility providers
and credit reference agencies
The Group CFO and the Company’s
Treasury team are responsible for managing
the relationships with our bank syndicate,
and for the Group’s cash/debt management
and financing activities.
The Group CFO provides regular reports to
the Board on these activities including the
Company’s plans to ensure appropriate
access to debt capital, monitoring the
headroom and maturity schedules of our
primary credit facilities.
The Board approves the Company’s
Treasury Policy annually.
S172 statement of non-financial
information statement
The table below sets out where the other
information required to be disclosed under
sections 414CA and 414CB Companies Act
2006 can be found in this Annual Report.
Reporting requirement
Relevant information
Policies and standards
The Company’s employees
Our Colleagues – pages 52-55
Sustainability and Responsibility report
Anti-corruption and anti-bribery
matters
Anti-Bribery – page 57 Sustainability and
Responsibility report
• Diversity & Inclusivity Policy*
• Equal Opportunities Policy*
• Whistleblowing Policy*
• Group Health and Safety Policy
• Group Employment Policies
• Group Code of Conduct*
• Anti- Bribery Policy*
• Competition Law Policy
• Supplier Code of Practice Standards*
• Whistleblowing Policy*
Respect for human rights
Social matters
Environmental matters
Modern Slavery – page 57
Whistleblowing – Audit Committee report
page 81
• Modern Slavery Policy*
• Data Protection Policy
• Privacy Policy*
Sustainability and Responsibility –
pages 50-51
• Tax Strategy*
• Environment Policy
• Timber Sourcing Policy*
• Leather policy
* These policies can be found at https://www.dfscorporate.co.uk/governance/policies
This Strategic Report was approved by the Board on 24 September 2020.
On behalf of the Board
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
DFS Furniture plc
Annual Report & Accounts 2020
64
Board of Directors
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1
N
2
6
A
N
R
–
3
5
4
A
N
R
–
A
N
R
A
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Committee membership key
A
N
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Audit Committee Member
Nomination Committee Member
Remuneration Committee Member
Denotes Chair
–
None
DFS Furniture plc
Annual Report & Accounts 2020
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Ian Durant
2
Tim Stacey
3
Mike Schmidt
Non-Executive Chair
Date of joining DFS: May 2017
Ian has held senior executive and
non-executive positions in the retail,
property, hotels and transport
sectors in the UK and internationally,
including twelve years based in Hong
Kong when he was active in the fast
growing markets of Asia. He brings
to the Board 40 years of experience
of managing consumer businesses,
with particular experience of
financial and people management,
strategy development and planning,
reorganisation, M&A, investor
relations, and board management
and listed company governance.
During his executive career he had
leadership roles as a Finance
Director with Liberty International,
SeaContainers and Thistle Hotels,
Dairy Farm International, Hong
Kong Land and Hanson.
As a non-executive director he has
served on the boards of UK listed
companies including Westbury,
Home Retail Group and Greene
King. He was chairman of Capital
and Counties Properties until 2018.
Qualifications: BA (Hons) in
Development Studies, Economic
and Social History from Kent
University, Fellow of the Institute of
Chartered Accountants in England
and Wales and Fellow of the
Association of Corporate Treasurers.
External appointments:
• Chair of Greggs plc
• Trustee and Chair of Finance
and Investment Committee of
RPLC (until 30 June 2020)
Chief Executive Officer
Date of joining DFS: July 2011
Chief Financial Officer
Date of joining DFS: March 2014
Experience: Prior to his
appointment as CFO, Mike served
as DFS’s Chief Development
Officer with responsibility for
property, strategic development
and investor relations activities. He
led the acquisition of Sofology in
2017 and more recently has also
served as Chair of Sofa Workshop
and Dwell.
Prior to joining DFS Mike previously
spent 13 years working for a
number of leading investment
banks including UBS and Citi,
where he gained experience
advising a wide range of customer-
facing companies.
Qualifications: MA (Hons) in
Economics and Management from
Cambridge University.
External appointments: None
Experience: Prior to his
appointment as Group CEO, Tim
held a number of key leadership
roles across the business. He
joined as Director of Online and
Business Development and led the
multi-channel transformation of
DFS, together with the growth and
acquisition strategy.
He then took on the role of Chief
Operating Officer assuming
responsibility for stores, supply
chain and customer service in
addition to the Online operations
and International development.
Tim has led the Group as CEO since
November 2018, through the
acquisition and development of
Sofology and continued development
of the Group as the clear market
leader in the UK and Ireland.
Tim has a wealth of leadership and
retail experience, including 12
years at Alliance Boots in roles
such as Multi-Channel Director for
Boots.Com and Director for Online
and Business Development.
Qualifications: BA (Hons) in
Accounting and Finance from
Nottingham Trent University and
member of the Institute of
Chartered Accountants in England
and Wales.
External appointments: None
5
Jo Boydell
6
Steve Johnson
7
Jane Bednall
Independent Non-Executive
Director
Date of joining DFS: December
2018
Experience: Jo Boydell has been
the Chief Financial Officer of
Travelodge since March 2013,
and has broad based finance
experience in hospitality, leisure
and retail. Jo has held senior
finance roles across a number of
consumer-facing companies
including Mothercare, Jessops,
Ladbrokes plc, Hilton Group plc
and EMI Group.
Qualifications: Honours Degree
in Physics from Oxford University.
Associate of the Institute of
Chartered Accountants in England
and Wales and ICAEW Business
and Finance Professional.
External appointments:
• Chief Financial Officer of
Travelodge Hotels Limited
Independent Non-Executive
Director
Date of joining DFS: December
2018
Experience: Steve has over
25 years’ experience in the retail
sector, in both public and private
equity businesses. He served as
CEO at Focus Wickes DIY Group
and Woolworths, as well as chairing
several other businesses. Prior to
this Steve spent eight years at
Asda having started his career
with Bain & Co.
Qualifications: Qualifications BA
(Engineering), MEng from
Cambridge University.
Independent Non-Executive
Director1
Date of joining DFS: January 2020
Experience: Jane has a strong
marketing and commercial
background in customer facing
FTSE 50 companies. Most recently,
Jane served as Chief Marketing
Officer for Scottish and Southern
Energy (SSE) plc and prior to that in
global senior leadership positions
with InterContinental Hotels Group,
British Airways and Centrica.
Elected by the Retail Energy
Industry, Jane also served for two
years as Non-Executive Director of
Smart Energy GB.
External appointments:
• Chair of Matalan
• Senior Independent Director
Qualifications: BA Hons Modern
Languages (French, German,
Spanish), from Sheffield University.
of Lenta Limited
External appointments:
• Non-Executive Director EI
Group
1. Appointed as Designated Non-Executive Director 8 July 2020.
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4
Alison Hutchinson C.B.E.
Senior Independent
Non-Executive Director
Date of joining DFS: May 2018
Experience: Alison has a
background in both IT and retail
financial services and was
previously Group CEO of
Kensington Group PLC.
She has also held senior
management positions, including
Marketing Director, at Barclaycard
having started her career at IBM
where she became Global Director
of Online Financial Services.
Alison has worked with the retail
industry over the last 12 years to
establish the fastest growing fintech
charity the Pennies Foundation.
In 2016, Alison received a CBE for
her services to the Economy and
Charity.
Qualifications: BSc (Hons) in
Technology and Business Studies
from Strathclyde University.
External appointments:
• Chief Executive of The Pennies
•
•
Foundation charity
Independent Non-Executive
Director of Liverpool Victoria
Friendly Society Ltd
Independent Non-Executive
Director of Yorkshire Building
Society
DFS Furniture plc
Annual Report & Accounts 2020
66
Corporate governance report
Ian Durant
Chair of the Board
24 September 2020
2020 highlights
The main governance issues addressed by the Board,
and its Committees, during the year included:
• assessing the operating and financial
performance and strategy of the
Group, in the context of the trading
environment and market expectations
• overseeing the extension to the Group’s
financing and the share issuance
• developing our corporate purpose, building
on the Group’s values
• the appointment of a new Non-Executive
Director, Jane Bednall
• the appointments of Alison Hutchinson as
the Senior Independent Non-Executive
Director and Steve Johnson as Chair of the
Remuneration Committee
• enhancing our employee engagement
arrangements, with the nomination
of Jane Bednall as the Designated
Non-Executive Director
DFS Furniture plc
Annual Report & Accounts 2020
This year our governance has
evolved, proportionate to the
needs of the business and
responsive to the fast changing
circumstances of the pandemic
which have proved immensely
challenging”.
Dear Shareholder
The Board recognises the importance of the role that good
governance plays in the long-term success of the Group and in
promoting stakeholder trust. The effective application of
governance is essential to support resilience and innovation and to
enable our people to flourish and deliver success through good
times and bad.
This is our first Annual Report since the introduction of new
disclosure requirements following the publication in 2018 of the
revised UK Corporate Governance Code, and in this report you can
read about how we have applied the updated principles. There are
also new disclosures this year with regard to stakeholder
engagement. Details of this and our full response to s.172 of the
Companies Act 2006 can be found on pages 60 to 63.
Against the background of the global pandemic the Group faces an
unprecedented challenge. The pandemic has had a drastic impact on
the lives of our colleagues and our customers, and created an uncertain
economic outlook for the UK and ongoing concerns about future UK
trading arrangements with the EU. I am grateful for the response of our
colleagues many of whom were furloughed for several weeks but have
remained positive and supportive of our business.
I would also like to thank those colleagues who worked throughout
the lockdown to maintain our online offering for customers, and who
acted with pace and agility to ensure we re-opened our showrooms,
restarted manufacturing and delivered to customers as quickly and
safely as possible once the lockdown was relaxed. Their approach
gives the Board confidence that we will emerge a stronger and more
focussed business better able to face the challenges and
opportunities ahead.
Through the pandemic lockdown when most of the Group’s activities
closed down, the Board met frequently by phone and online video to
oversee the steps being taken to protect the Group’s liquidity. These
steps included cancelling the dividend, obtaining additional banking
facilities and issuing new shares. The Board also debated plans to
refocus the Group on to its core brands after the business was able to
reopen and thus kept one eye on strategy whilst making the tactical
decisions required to address the unprecedented short term
disruption to the economy and our business.
The Board fosters a culture of openness, challenge and engagement
with the Group Leadership Team and the wider senior management
team. Board meeting agendas include regular “deep dives” into key
operational areas. We also continue to fulfil our other core duties to
oversee culture, governance, financial controls, risk and change
management. This is supplemented by informal occasions for Board
members to meet and discuss the plans and broader strategic
issues with members of the wider management team.
67
Environmental, social and governance (ESG) considerations are an increasing focus for stakeholders, and the Group recognises the impact
of its operations on the environment and the communities in which it operates. This year’s annual report contains more detail on our ESG
initiatives which we believe are both socially responsible and value creating.
During the year we have complied with all the principles and provisions of the UK Corporate Governance Code 2018 (“the Code”) other than
Provision 38 in respect of Executive Director pensions, as discussed further on page 71. This report details the Board’s activities during the
year, including how it has discharged its governance duties and applied the principles of good corporate governance.
We will be holding our Annual General Meeting in Doncaster at 2.30pm on the 13 November 2020: we will be holding the meeting virtually in
order to comply with prevailing health and social distancing requirements.
Ian Durant
Chair of the Board
24 September 2020
Governance framework
DFS Furniture plc Board
Members:
Independent Non-Executive Chair
4 Independent Non-Executive Directors
2 Executive Directors
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Audit Committee
Remuneration Committee
Nomination Committee
Members:
4 Independent
Non-Executive Directors
Members:
4 Independent
Non-Executive Directors
Members:
Independent
Non-Executive Chair
4 Independent
Non-Executive Directors
The Audit Committee’s role is to assist
the Board with the discharge of its
responsibilities in relation to financial
reporting, internal controls, risk
management, compliance and audit.
The Remuneration Committee
recommends the Group’s policy on
executive remuneration and determines
the levels of remuneration for Executive
Directors, the Chair of the Board and
senior management.
The Nomination Committee assists the
Board in reviewing the structure, size and
composition of the Board and succession
planning for senior management.
See committee report page 76-81
See committee report page 84-105
See committee report page 82-83
This section looks at the roles and responsibilities of our Board.
The composition and role of the Board
The Board currently consists of four Independent Non-Executive Directors, an Independent Non-Executive Chair and two Executive
Directors. Biographies of all members of the Board appear on page 65.
The Board is collectively responsible for the long-term success of the Company and for leading and controlling the Group and has overall
authority for the management and conduct of the Group’s business, strategy and development.
The Board is also responsible for ensuring the maintenance of a sound system of internal control and risk management (including financial,
operational and compliance controls and for reviewing the overall effectiveness of systems in place) and for the approval of any changes to
the capital, corporate and/or management structure of the Group.
The CEO and CFO are members of the Board and are a bridge to the Group Leadership Team. The Board delegates to the Group Leadership
Team the day-to-day operation of the business within defined parameters and Board meetings are scheduled to coincide with key events in
the corporate and trading calendar.
The Board has adopted a formal schedule of matters reserved for its approval. This is reviewed annually to ensure it complies with the
requirements of the Code and the current needs of the business. The Chair and the Non-Executive Directors meet several times each
year without the Executives present, and additionally the Non-Executive Directors hold regular meetings with the CEO. The Board has
implemented a Group Policy framework which is considered by the Board on annually. Individual policies and associated practices are
considered by the Board throughout the year.
DFS Furniture plc
Annual Report & Accounts 2020
leading the management and performance of the Group;
Role of the Chief Executive Officer
•
• planning the Group’s strategies effectively;
• ensuring the effective implementation of the Board’s decisions;
• maintaining an effective framework of internal controls and risk
•
management;
leading, motivating and monitoring performance of the Group’s
executive management team, focusing on succession planning
and making appropriate recommendations as to the team’s
remuneration to the Remuneration Committee; and
• managing the Group’s relations with shareholders, customers,
suppliers, regulators, other public organisations, other
companies and the media.
Role of the Senior Independent Director (SID)
The Senior Independent Director is an Independent Non-Executive
Director who is responsible for:
• acting as a sounding board for the Chair; and
• meeting with the Company’s shareholders to consider matters
where it may be inappropriate to have those discussions with the
Chair and Executive Directors.
Role of the Company Secretary
The Company Secretary is responsible for:
• advising the Board and its Committees on corporate governance
and compliance within the Group and appropriate procedures for
the management of Board and Committee meetings;
• managing the provision of timely, accurate and considered
•
information to the Board; and
recommending corporate governance policies and practices to
the Chairman and CEO.
68
Corporate governance report continued
Whilst the Board does not manage the day to day operations of the
Group, key decisions and matters which are reserved for approval of
the Board are fully documented and regularly reviewed. These
include the setting of, and changes to, the Group budget and
strategic four-year plan, major acquisitions and disposals, the
determination of interim dividends and the recommendation of final
dividends, approval of the financial results, trading statements,
annual report and accounts and an annual review of the
effectiveness of risk management and internal control systems.
All the Directors have the right to have their concerns over or
opposition to, any Board decision noted in the minutes. During the
year, no such opposition or concerns were noted. The Board has
adopted guidelines by which Directors may take independent
professional advice at the Company’s expense in the performance
of their duties.
Board committees
Subject to those matters reserved for its decision, the Board has
delegated to its Audit, Nomination and Remuneration Committees
certain authorities. There are written terms of reference for each of
these Committees which are available on the Group’s corporate
website, www.dfscorporate.co.uk. Separate reports for each
Committee are included in this Annual Report from pages 76 to 105.
Role of the Chair and Chief Executive Officer
As the Chair, Ian Durant is responsible for leading the Board and
ensuring its effectiveness in all aspects of its role. The CEO,
Tim Stacey, is responsible for managing the operation of the Group
to create value over the long-term. The roles are distinct and
separate and clear divisions of accountability and responsibility have
been agreed and documented by the Board.
Role of the Chair
•
leading the Board and ensuring its effectiveness in all aspects of
its role;
• promoting high standards of ethics and corporate governance;
• ensuring the submission to the Board by the Chief Executive
Officer of objectives, policies and strategies for the Group,
including the Group business plan and annual budget;
• maintaining the Board’s review of the Group’s general progress
and long-term development and ensuring that effective strategic
planning for the Group is undertaken;
facilitating effective contributions of Non-Executive Directors to
the leadership of the Group;
•
• ensuring effective communication between the Board and the
Company’s shareholders; and
• acting on the results of the Board’s annual review of its and its
Committees’ and individual Directors’ performances.
DFS Furniture plc
Annual Report & Accounts 2020
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69
Board balance and independence
The Board reviews independence as part of its annual Board Review and monitors independence throughout the year.
The Board has determined that the Non-Executive Directors are independent and have a complementary set of skills and experience as
shown in the table below. Further information on the diversity of the Board can be found within the Directors’ biographies on pages 65.
Principal skills
and experience
Customer services/
marketing
International
Operations
Regulatory
Finance
People
Retail
Ian Durant
Chair
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
Alison Hutchinson
Senior Independent
Non-Executive Director
Jo Boydell
Independent
Non-Executive Director
Steve Johnson
Independent
Non-Executive Director
Jane Bednall
Independent
Non-Executive Director
Luke Mayhew
Senior Independent
Non-Executive Director
Length of appointments
Non-Executive Directors’ appointments are for an initial period of three years and are subject to annual re-election by shareholders at the
Company’s AGM, taking into account the requirements of the Listing Rules and continued satisfactory performance.
Neither the Chairman nor any Non-Executive Director have been in their position for more than nine years, in accordance with the
recommendations made in the Code.
Board meetings
The following section provides an overview of the content and structure of the Board’s meetings and illustrates that the Group’s key
stakeholders are central to Board discussions. Meeting agendas are agreed in advance by the Chairman, CEO and Company Secretary and
are tailored to strike an appropriate balance between regular standing items, such as reports on current trading, financial performance,
regulatory and health and safety, with one or two detailed “deep dives”.
These enable the Board to gain a deeper understanding of the strategic direction of the business, exchange views and robustly debate
elements of the Company’s performance, specific projects or areas of strategic significance. Board packs are distributed in the week prior to
each meeting to provide sufficient time for Directors to review their papers in advance. If Directors are unable to attend a Board meeting for
any reason, they are consulted prior to the meeting and their views are made known to the other Directors.
At each Board meeting, the Board receives and discusses reports from each of the Executive Directors. In addition, and as part of the
process of maintaining an awareness of the Company’s activities and assessing the ability of the management team, members of the
Group Leadership Team are invited to attend Board meetings to present papers to the Board. This process also affords senior managers
the opportunity to bring matters to the attention of the Board.
The Board held eight scheduled meetings during the year, with one of these meetings being a strategy day with members of the
Group Leadership Team.
Twelve ad hoc meetings were held in response to the Covid-19 pandemic as and when necessary, bringing the total number of Board
meetings to twenty.
DFS Furniture plc
Annual Report & Accounts 2020
70
Corporate governance report continued
Board attendance and overview of responsibilities
Name
CHAIRMAN
Ian Durant
Non-Executive Chair
Meetings attended Maximum meetings***
Independent
Responsibility and role during 2019/20
Date of appointment
8
8
–
Leading the Board and ensuring its
effectiveness in relation to board
governance, performance, and shareholder
engagement.
2 May 2017
EXECUTIVE DIRECTORS – At each Board meeting, the Board receives and discusses reports from each of the Executive Directors.
8
8
8
2
8
8
5
Tim Stacey
Chief Executive
Officer
Mike Schmidt
Chief Financial
Officer
8
8
NON-EXECUTIVE DIRECTORS
Alison Hutchinson
Luke Mayhew*
Steve Johnson
Jo Boydell
Jane Bednall**
8
2
8
8
5
STANDING ATTENDEES
Liz McDonald
General Counsel and
Company Secretary
–
–
Leading and managing Group performance
and strategy to ensure the long-term
profitable operation of the Group.
Leading, managing and maximising Group
financial performance, investor relations,
legal and property functions.
1 November
2018
11 July 2019
Overseeing the implementation of the
strategy and development of the Group
whilst maintaining a system of internal
control and risk management.
Board Committee members also have
further specific responsibilities in relation
to reviewing the integrity of financial
information, dealing with succession planning
and Board diversity, and setting remuneration.
1 May 2018
3 February
2015
6 December
2018
6 December
2018
1 January 2020
Advising the Board on all corporate
governance and legal issues.
ATTENDED BY INVITATION – members of the Group Leadership Team may be invited to attend Board meetings to present papers
and discuss matters of importance
Nick Smith
Scott Fishburn
Sally Hopson
Alex Salden
Russ Harte
Peter Jenkins
Gill Stewart
Jo Shawcroft
5
6
3
1
3
1
1
1
The Group Leadership Team sits below
Board level. They promote and facilitate the
implementation of the strategy and Group
values and oversee the day-to-day
operations of each of the Group companies.
Their attendance at Board meetings is part of
the process of maintaining an awareness of
the Company’s activities and assessing the
ability of the management team. This
process also affords senior managers the
opportunity to bring matters to the attention
of the Board.
* Luke Mayhew retired from the Board on 14 November 2019, so was eligible to attend 2 scheduled Board meetings.
** Jane Bednall was appointed on 1 January 2020, so was eligible to attend 5 scheduled Board meetings.
DFS Furniture plc
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71
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Usually the Board splits its meetings between its Group Support Centre in Doncaster and London, as well as using a number of operational
locations away from these sites in order to help to promote colleague engagement and to provide the Board with greater insight and direct
feedback. During the year the meetings which took place between March and June were held via video conference due to the Covid-19
pandemic. Prior to the pandemic and subsequent lockdown, our colleagues had a number of opportunities to interact with Board members
at different events, such as the DFS Conference and Employee Voice Forums.
Additionally, all of the Non-Executive Directors have visited a number of the Group’s retail, warehousing and manufacturing sites throughout
the UK so that they are well-versed in the operations of the business and had a chance to meet with the front-line team members as well as
centrally based executives. These visits provide the Non-Executive Directors with the in-depth knowledge necessary to facilitate strong
debate and supportive challenge.
The Board has a full programme of Board meetings planned for the year ahead and intends to meet eight times, with additional telephone or
online meetings to review important trading periods or strategic issues, as appropriate.
Committee meetings
All Directors are invited and did attend Audit Committee meetings, and the Chair of the Board is invited to and did attend Remuneration
Committee meetings. The Chief Executive Officer is invited to attend both the Remuneration and Nomination Committee meetings,
and the Chief Financial Officer is invited to attend the Remuneration Committee meetings.
Although specific information on the role and key activities of each Committee can be found in their separate Committee reports,
a summary of Committee members attendance of meetings is as follows:
Name
Ian Durant
Alison Hutchinson
Steve Johnson
Jo Boydell
Jane Bednall*
Luke Mayhew**
Date of appointment
Audit Committee
Remuneration Committee
Nomination Committee
2 May 2017
1 May 2018
6 December 2018
6 December 2018
1 January 2020
3 February 2015
–
3/3
3/3
3/3
1/1
1/1
–
4/4
4/4
4/4
2/2
1/2
1/1
1/1
1/1
1/1
–
–
Jane Bednall was appointed 1 January 2020, so was eligible for 1 Audit Committee meeting and 2 Remuneration Committee meetings.
*
** Luke Mayhew retired 14 November 2019, so was eligible for 1 Audit Committee meeting and 2 Remuneration Committee meetings.
Compliance with the UK Corporate Governance Code 2018:
Introduction
The Board is wholly committed to upholding high standards of corporate governance and follows a rigorous structure for the supervision,
control, and management of the Group.
The UK Corporate Governance Code 2018 (“the Code”) was published by the Financial Reporting Council in July 2018 and applies to this
Annual Report. A copy of the Code can be found at www.frc.co.uk.
Compliance statement
This Corporate Governance Report, which incorporates reports from the Audit and Nomination Committees on pages 76 to 83 together
with the Strategic Report on pages 1 to 63, the Directors’ Remuneration Report on pages 84 to 105 and the Directors’ Report on pages 106
to 109, describes and explains how the Company has applied the relevant provisions and principles of the Code, and the Financial Conduct
Authority’s Listing Rules and Disclosure and Transparency Rules throughout the year.
The current Code applies to accounting periods beginning on or after 1 January 2019. We are pleased to report that, in the first year in which
we applied the new Code, the Company was compliant with all Provisions except for Provision 38. Provision 38 provides that Executive
Director pension contribution rates (or payments in lieu) should be in line with those available to the workforce. Our incumbent Executive
Directors’ pension contribution rates, while in line with Remuneration Policy for existing Executive Directors, do not yet match the wider
workforce. We will review how to address this Provision during the coming year as any reduction of fixed, contractual remuneration must be
done so carefully and proportionally over time. We have reported in summary below how we have complied with the Provisions. Further
details regarding the Executive Directors’ pension contributions are set out on page 93 in the Directors’ Remuneration Report.
DFS Furniture plc
Annual Report & Accounts 2020
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Corporate governance report continued
Conflicts of interest
The duties to avoid potential conflicts and to disclose such situations for authorisation by the Board are the personal responsibility of each
Director. All Directors are required to ensure that they keep these duties under review and to inform the Group Company Secretary on an
ongoing basis of any change in their respective positions.
The Company’s conflict of interest procedures are reflected in its Articles of Association (“Articles”). In line with the Companies Act 2006,
the Articles allow the Directors to authorise conflicts and potential conflicts of interest, where appropriate. The decision to authorise a
conflict can only be made by non-conflicted Directors. The Board considers conflicts or potential conflicts at each Board meeting. The
Company maintains a related party register to record any conflicts which is updated annually.
The Articles require the Company to indemnify its officers, including officers of wholly owned subsidiaries, against liabilities arising from the
conduct of the Group’s business, to the extent permitted by law. For a number of years, the Group has purchased Directors’ and Officers’
liability insurance, and this is anticipated to continue.
Board evaluation
In line with the Code and the supporting Guidance on Board Effectiveness, the Board carried out its fourth evaluation of its own effectiveness,
and that of its various Committees, during the year. The Company appoints an external organisation to carry out the Board evaluation every
third year as required under the Code. The evaluation this year was carried out by the Group Company Secretary; the evaluation in 2021 will be
an externally facilitated review. The diversity and independence of the Board is also considered as part of this evaluation.
The process involved each Director, the Company Secretary and each Group Leadership Team member completing a formal questionnaire
on the performance of the Board and each of the Board committees and attending a one to one session with the Senior Independent
Director (SID). The questionnaire considered the balance of skills, diversity, independence and knowledge of the Company on the Board,
how the Board works together, and other factors relevant to its effectiveness.
Board members have the opportunity to provide further written feedback on an anonymous basis in order to encourage them to provide
honest feedback on Board dynamics and the performance of the Board and the Committees. The results of the evaluation identify areas for
development which are then used as focus points for agreeing an action plan moving forward.
Stages of the Board evaluation
Stage 1
One to one session
with the SID
Formal online questionnaire
Stage 2
Stage 3
Results collated,
reported and evaluated
Board discussion and
action plan for FY21 agreed
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Results overview
The consensus was that the Board, and its Committees, had performed effectively and had addressed those areas previously identified as
requiring further attention. Insights arising from this year’s review are highlighted in the table below in respect of the Board, the Committees,
and the Chairman.
Board
Committees
The review found that Board dynamics
remain strong, with members of the Board
and management team working well together.
Board members confirmed that they were
confident that over the previous year a great
emphasis had been placed on understanding
key business risks and this had led to more
informed debate.
Overall, each of the Board Committees were
considered to operate well. It was concluded
that in terms of planning during the
upcoming months additional time would be
required for the Audit Committee to
consider risk in greater depth in light of
Covid-19.
Chair
Results show the Board is well led and the
environment is managed effectively by the
Chair so that Board members can contribute
freely and play an active role in Board
meetings.
Board action plan for FY21
• Continued exploration and application of values, culture, and strategy in alignment with the Company Purpose.
• Close monitoring of the risks arising from the ongoing impact of Covid-19 on the Group and the wider economy and of the impact of
Brexit, and the mitigation of those risks.
• Further consideration and discussion surrounding all the principal current and emerging risks.
• Overseeing the structural changes and the continued progression and development of each of the Group brands.
• Monitoring the development of the Group’s ESG strategy against the phase 1 ESG targets.
Election of Directors
The Board can appoint any person to be a Director, either to fill a vacancy or as an addition to the existing Board. Any Director so appointed
by the Board shall hold office only until the next following AGM and shall then be eligible for election by shareholders. In accordance with the
Articles, Jane Bednall will be offering herself for election at the forthcoming AGM, along with all the other Directors for re-election. All of the
Directors stand for annual re-election in compliance with the Code.
The AGM is to be held at DFS Furniture plc’s Head Office, 1 Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster,
DN6 7NA, at 2.30pm on 13 November 2020, full details of which are set out in the notice of meeting accompanying this Annual Report.
As noted above, following the formal internal evaluation process of the effectiveness of the Board, the Board is satisfied that each Director
remains competent to discharge their responsibilities as a member of the Board and considers that each Director’s contribution is, and
continues to be, important to the long term sustainable success of the Company and the specific reasons for such are set out in the
directors’ biographies on page 65.
Independence
At least half of the Board was made up of Independent Non-Executive Directors (not including the Chairman) throughout the reporting
period. The Non-Executive Directors whom the Board considered to be independent are shown as such on page 70. The Board confirms
that all the Non-Executive Directors (excluding the Chairman) were independent during the reporting period and that the Chairman was
independent on appointment. The Remuneration Committee membership is made up of only independent Non-Executive Directors.
Details of how the Remuneration Committee exercised its discretion during the year may be found on page 86 of the Remuneration
Committee Report.
Culture and Company purpose
In compliance with the Code, the Group has established its Corporate Purpose, which is set out on page 1, along with details of the
Company’s Values, strategy, and culture. An explanation of our Corporate Purpose, values and strategy are set out in the Strategic Report
which starts on page 1. The Board regularly discusses the importance of the Company culture and is mindful that it remains aligned with its
purpose, values and strategy. Integrity and sympathy to the DFS group culture and its 50 year history are paramount when the Board recruits
new members to the Board.
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Corporate governance report continued
Diversity & experience
The diversity of the Board is considered on page 83 of this annual
report. The Board specifically reflects on the issue of diversity in its
succession planning and Board development and considers that the
Directors have a broad range of relevant experience in order for
them to continue to fulfil their roles effectively and in accordance
with the Code. For example, the Audit Committee Chair held a
number of senior finance roles not only prior to but concurrent
with joining the Company and therefore has the required financial
experience to enable her to be Committee Chair. The Remuneration
Committee Chair had served on our Remuneration Committee
since December 2018, prior to his appointment as Chair.
Development
Following appointment, new Directors undergo a detailed, tailored
induction programme. In the case of Non-Executive Directors, this
includes meeting with the Group Leadership Team and key
members of the wider senior management team. New Directors
also visit operational locations, including showrooms, factories,
support offices, Customer Distribution Centre and delivery and
service functions, as well as meeting with the Group’s professional
advisors including brokers, lawyers, and auditors. As such, new
Directors spend considerably more than the minimum commitment.
In addition, each Director receives key information and policies that
are relevant to their position. For new Executive Directors, and
Non-Executive Directors for whom the appointment is their first to
a UK-listed company, the induction includes details of the legal
duties and obligations of being a Director of the Company.
Where any individual development needs have been identified,
which may arise as a result of part of the annual Board evaluation
process, then training will be provided as appropriate.
External appointments
The Executive Directors may accept appointments outside of the
Group provided that such appointments do not prejudice their ability
to perform their duties as Executive Directors of the Company.
Tim Stacey and Mike Schmidt do not currently hold any external
appointments.
The Non-Executive Directors’ appointment letters anticipate a
minimum time commitment of two days per month, recognising
that there is always the possibility of an additional time commitment
and ad hoc matters arising from time to time, particularly when the
Company is undergoing a period of increased activity. The average
time commitment inevitably increases where a Non-Executive
Director assumes additional responsibilities such as being appointed
to a Board Committee. The Board considers that each of the
Non-Executive Directors’ continue to have sufficient time to meet
their responsibilities, in accordance with the Code. Due to the
impact of the pandemic on the Group all the Directors spent
considerably more time during the year than the minimum
commitment required.
As part of the assessment of the time commitment required under
the terms of reference for the Board should a Director wish to take
on an additional external appointment, they are required to obtain
the approval of the Board to ensure the Director has sufficient time
to fulfil their duties.
DFS Furniture plc
Annual Report & Accounts 2020
Shareholder engagement
The Board actively seeks and encourages engagement with major
institutional shareholders and other stakeholders. The CEO and
CFO regularly meet with analysts and institutional shareholders to
keep them informed of significant developments and to develop an
understanding of their views which are discussed with the Board.
In addition, all Directors receive reports and briefings during the year
about the Company’s investor relations programme and receive
feedback obtained by the Company’s brokers after meetings, in
order to maintain an understanding of market perceptions. External
analysts’ reports on the Group are also circulated to the Directors.
In addition to the extensive engagement carried out by the CEO
and CFO, the Chairman, and Chairs of the Remuneration and
Audit Committees met or spoke to a number of shareholders during
the year.
The Chairman makes himself available to shareholders so that any
major issues and concerns are communicated to the Board through
the Chairman. All major shareholders are given the opportunity to
meet with the Senior Independent Non-Executive Director and she
welcomes the opportunity to meet with major shareholders when
requested to do so. No requests were received during the year for
the Senior Independent Non-Executive Director to meet with
shareholders.
In particular, the Company communicates with both the institutional
and private shareholders through the following means:
Interaction with all shareholders
• presentations of full year and interim results to analysts and
shareholders, which are also available on the Company’s
corporate website.
• market announcements, through which we ensured that all
investors were informed of the impact the virus was having on
our business.
the Annual Report, which sets out details of the Company’s
strategy, business model and performance over the past
financial year and plans for future growth.
the Annual General Meeting, where all shareholders have the
opportunity to vote on the resolutions proposed and to put
questions to the Board and executive team.
the Company’s corporate website (www.dfscorporate.co.uk),
where investor information and news is regularly updated.
•
•
•
Interaction with institutional shareholders
•
the CEO and CFO hold physical and online meetings with
institutional investors following the full year and interim results.
the Chairman meets with institutional shareholders where
appropriate.
•
Interaction with private shareholders
• dial-in facility to live presentations of the full year and interim
results.
• dedicated email point of contact to answer shareholder
questions and queries.
Investor relations activity, analysis of the share register, comments
by analysts, views of major shareholders and advice from the
Company’s brokers are all ongoing items of review by the Board in
order to maintain a clear understanding of market perceptions.
In particular, the potential effects of MiFID II on market awareness of
our investment proposition are closely monitored by the CFO so
that any adverse trends can be identified and reported to the Board
in a timely manner. Although no material effect has been
experienced to date, this issue remains under review to enable the
approach to investor relations to be tailored as appropriate.
Relationships with other stakeholders
The Group considers our customers, colleagues, suppliers,
regulators, and the communities in which we operate, as our
principal stakeholders in addition to our shareholders. We also
believe that our wider obligations to the environment make it a
principle stakeholder in our business. Our section 172 statement on
pages 60 to 63 and our Sustainability and Responsibility report on
pages 48 to 59 sets out more detail on how we manage our
relationships with all our stakeholders.
The Non-Executive Directors are available to discuss any matter
stakeholders might wish to raise. The Chairman and Non-Executive
Directors are also available to attend investor relations meetings or
to request meetings with investors or analysts independently of the
Executive Directors, if required.
External auditor
Our external auditor is Frances Simpson at KPMG LLP. The Audit
Committee oversees the Group’s relationship with its external
auditor including assessing the independence and effectiveness of
the audit firm. Further details are set out in the Audit Committee
report on pages 76 to 81.
Internal audit
Further details relating to the internal audit function are contained
within the Audit Committee report on pages 80 to 81.
Non-audit services policy
Our non-audit services policy can be found on our website and is
summarised on page 79 of this annual report.
Remuneration
The remuneration policies are designed to support strategy and
promote the long-term success of the Company. Details of the
procedures used to determine remuneration, including separate
performance-related elements, in relation to the Board and wider
workforce are contained in the Remuneration Committee report on
pages 98 to 99.
DTR Disclosure
The disclosures required under DTR 7.2 of the Disclosure and
Transparency Rules are contained in this report, and the Audit
committee and Nomination committee Reports, except for
information required under DTR 7.2.6 which is contained in the
Directors’ Report on pages 106 to 109.
Signed on behalf of the Board of Directors.
Elizabeth McDonald
Group Company Secretary
24 September 2020
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76
Audit Committee report
Jo Boydell
Chair of the Audit Committee
24 September 2020
The role of the Audit Committee
The primary responsibilities of the Committee remain
the oversight of the Group’s external financial reporting,
internal controls and risk management, and the
effectiveness of both the internal audit function and the
external audit.
Key activities during FY20
• review and response to risk impacts from
Covid-19
• development of new Group internal audit
methodology and risk management tool
• decision taken to defer planned external
audit tender process
• oversight of implementation of new lease
accounting standard IFRS 16
DFS Furniture plc
Annual Report & Accounts 2020
The primary responsibilities of the
Committee remain the oversight
of the Group’s external financial
reporting, internal controls and risk
management, and the
effectiveness of both the internal
audit function and the external
audit.”
On behalf of the Board, I am pleased to present this year’s Audit
Committee report following my first full year as Chair. During FY20,
Luke Mayhew stepped down from the Committee following his
retirement from the Board and we were pleased to welcome Jane
Bednall as a new member from January 2020.
The Covid-19 pandemic has had a significant and wide-ranging
impact on the risk profile of the Group, as discussed in more detail in
the Risks and Uncertainties section on pages 32 to 33, and has by
extension also had a significant impact on those activities for which
the Committee is responsible.
Internal audit activity was temporarily suspended during the final
quarter of FY20 as a consequence of the pandemic, however the
progress in the period before this was very pleasing. Building on the
restructure of the function last year, FY20 has seen development of
a Group-wide consistent internal audit methodology, bespoke risk
management tool and a significant investment in training and
development for the internal audit and risk teams.
In addition, the planned external audit tender process has now been
deferred until FY21, although this will still be conducted earlier than
required by the relevant regulations.
The direct and wider economic impacts of the pandemic have been
a key consideration for the assessment and reporting on going
concern and viability. The Committee has continued to take an
active role in reviewing and challenging the assumptions applied in
making these assessments in the context of the Group’s external
financial reporting. The Committee has also received regular
updates on the Group’s implementation of IFRS 16 Leases which
has been adopted for the first time in the current financial year and
which represents a significant change to the measurement and
presentation of financial results.
The effectiveness of the Committee was considered as part of
the annual Board evaluation and I am pleased to report that no
significant areas of concern were identified and the Committee
was viewed as operating effectively.
I thank my fellow Committee members for their valuable
contribution and support during a year that has seen some
unprecedented challenges for the Group, and I welcome any
comments or questions from shareholders.
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Composition
The Audit Committee continues to be chaired by Jo Boydell, who
was appointed to the role in April 2019. Other current Committee
members are Alison Hutchinson, Steve Johnson and Jane Bednall
(appointed in January 2020). Luke Mayhew ceased to be a Committee
member on his retirement from the Board in November 2019.
The UK Corporate Governance Code (“the Code”) recommends that
all members of the Audit Committee are Non Executive Directors,
independent in character and judgement and free from any
relationship or circumstance which may, could or would be likely to, or
appear to, affect their judgement and that one such member has
recent and relevant financial experience. The Board considers that,
by virtue of her current executive role, details of which are set out on
page 65, Jo Boydell has recent and relevant financial experience and
the Company complies with the requirements of the Code in this
respect. All Committee members are Independent Non-Executive
Directors and have extensive relevant commercial and operational
experience in large retail/customer-facing organisations which both
benefit the Committee and collectively illustrate its competence
relevant to the sector in which the Group operates.
Biographies of the Independent Non-Executive Directors are
included on page 65 and a summary of their principal skills and
experience is shown on page 69.
The Chief Executive Officer, Chief Financial Officer and Chair of the
Board attend meetings of the Audit Committee by invitation, as do
KPMG LLP’s Audit Partner and members of the Executive Board and
senior management as appropriate. The Director of Risk and Internal
Audit provides an update at each meeting. The Company Secretary
also attends by invitation in order to maintain a record of the meetings.
Roles and responsibilities
The Audit Committee assists the Board in discharging its
responsibilities with regard to the oversight of:
Financial reporting:
• Monitoring the integrity of the financial statements of the Group,
including its annual and half yearly reports, and considering the
clarity and completeness of disclosures therein;
• Reviewing and challenging any changes to accounting policies,
accounting for significant or unusual transactions and the
application of appropriate judgements and estimates;
• Advising the Board on whether the Group’s financial statements
are fair, balanced and understandable; and
• Assessing the assumptions and sensitivities underlying the
Group’s Viability Statement.
Internal controls and risk management:
• Reviewing the Group’s processes and procedures for ensuring
that material business risks, both existing and emerging, are
properly identified and managed;
• Reviewing the adequacy and effectiveness of the Group’s
internal financial controls and risk management systems; and
• Reviewing the Group’s arrangements with regard to employee/
contractor whistleblowing, fraud detection, prevention of bribery
and money-laundering.
Internal and external audit:
• Monitoring and reviewing the effectiveness of the Group’s
internal audit function in the context of the Group’s overall risk
management system;
• Overseeing the Group’s relationship with its external auditor,
including their appointment, remuneration, independence and
the effectiveness of the audit process; and
• Developing and implementing a policy on the supply of non-audit
services by the external auditor.
The ultimate responsibility for reviewing and approving the Annual
report and accounts and the half-yearly reports remains with the
Board. The Audit Committee will give due consideration to laws and
regulations, the provisions of the Code and the requirements of the
Listing Rules.
The Audit Committee reviews the content of the Annual report and
accounts and advises the Board on whether, taken as a whole, they
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Group’s and Company’s
position and performance, business model and strategy.
Activities of the Audit Committee
The Audit Committee of the Group met three times during the year
and attendance at those meetings is shown on page 71. At
each meeting, standing agenda items relating to risk, internal audit
results, whistleblowing and litigation issues were reviewed.
In addition, the other matters covered at each meeting are
summarised below:
2019
August 2019
• Specific update on IFRS 16 transition and reporting
• FY19 full year results, including reviews of going concern and
viability reporting
• External audit findings for FY19, including KPMG LLP’s
performance and subsequent re-appointment
• FY19 preliminary statement and Annual report
• Group risk report, including business continuity planning and
results of an independent cyber risk review
• Group internal audit report
• Proposal for external audit tender process
September 2019
• FY19 full year results, including reviews of going concern and
viability reporting
• External audit findings for FY19, including KPMG LLP’s
performance and subsequent re-appointment
• FY19 preliminary statement and Annual report
• Group risk report, including business continuity planning and
results of an independent cyber risk review
• Group internal audit report
• Proposal for external audit tender process
2020
March 2020
•
Interim results for FY20, including the first-time application of
IFRS 16
• External audit interim review findings
• FY20 interim results announcement and presentation
• Group risk report, including impacts of emerging Covid-19 risk
• Group internal audit report
• Update on external audit tender process
• Approval of updated policy on non-audit services
A subsequent meeting in early July 2020 considered the following
matters:
• Group internal audit and interim risk update
• External audit plan and strategy for FY20
•
Initial review of FY20 viability analysis, including modelling of
Covid-19 and Brexit risks
• Confirmation of decision to defer external audit tender
Following the FY20 year end close, at the September 2020 meeting,
the Committee reviewed and approved, for consideration by the
Board, the financial results for the 52 weeks ended 28 June 2020
including a review of the full year external audit. As part of that review
process, the members of the Committee reviewed the Annual
Report, including the adequacy of the disclosure with respect to
going concern and viability reporting in order to conclude whether
the Annual Report taken as a whole was fair, balanced and
understandable.
This additional review by the Audit Committee, supplemented by
advice received from external advisors during the drafting process,
assisted the Board in determining that the report was fair, balanced
and understandable at the time that it was approved.
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Annual Report & Accounts 2020
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Audit Committee report continued
The Committee considered the appropriateness of preparing the
accounts on a going concern basis, including consideration of
forecast plans and supporting assumptions as well as sensitivity
analysis and concluded that the Company’s financial position was
such that it continued to be appropriate for accounts to be prepared
on a going concern basis.
Significant issues considered in relation to the
financial statements
The Committee, together with management and the Group’s
external auditor, considered the following significant matters in
relation to the financial statements and how these were addressed.
Performance evaluation
The evaluation of the performance of the Audit Committee was
carried out as part of the wider review of Board effectiveness, further
details of which can be found in the Corporate Governance report
on page 72. There were no significant concerns raised from this
review and the Committee was deemed to be operating effectively.
Impairment of intangible assets
As a result of business acquisitions, the Group has recognised
significant balances for goodwill and brand names. Goodwill must be
tested annually for impairment; other intangible assets are tested
when there are indicators that they may be impaired.
The assessment of potential impairment requires a number of
judgements and estimates to be applied in determining the relevant
future cash flows and the discount rate to be applied.
Note 10
The Committee reviewed and challenged the approach taken by
management to impairment testing, and assessed the
reasonableness of the underlying assumptions and financial
forecasts used. The Committee considered the appropriateness of
the conclusions reached, including the recognition of impairment
charges on goodwill and intangible assets relating to Sofa Workshop.
The Committee also reviewed KPMG’s report and discussed their
observations and findings in this area.
Provisions
Note 20
In accordance with IFRS, the Group maintains a number of
provisions, primarily relating to: the cost of satisfying guarantees
offered to customers; dilapidations and other property-related
liabilities; and the valuation of finished goods inventory. The
determination of these provisions is inherently uncertain as they rely
on using historical data to estimate future liabilities.
The Committee considered management’s documented rationale
and basis for these provisions to challenge and assess their
reasonableness and adequacy. This included consideration of
alternative valuation methodologies to provide additional
supporting evidence.
Going concern and viability reporting
In addition to the statement on going concern, the Group is required
to make an assessment on its longer term viability. This requires the
application of a number of judgements and estimates, particularly
given the current uncertainty in the UK consumer market
surrounding the UK’s departure from the European Union.
IFRS 16 transition
The Group has adopted IFRS 16 Leases for the first time in the
current financial year. This standard represents a fundamental
change in the accounting and presentation of lease arrangements
and depends on significant and complex underling calculations.
The Committee also reviewed KPMG’s audit report and discussed
their observations and findings in this area.
Page 39
The Committee, along with the Group’s external auditor, has
reviewed management’s assessment of the prospects of the Group
for the three years from 28 June 2020, being a reasonable period for
the assessment of key risks for a retail business given continuing
political and economic uncertainties. This review included the
challenging of assumptions and stress-testing of the scenario
modelling, including the potential impacts of Covid-19 and Brexit,
and concluded that the going concern assumption remains
appropriate and the Board is able to make the viability statement on
page 39 of the Strategic Report.
Note 1.18
The Committee has received regular updates throughout the
implementation process, including details of methodology and
the basis of key assumptions such as applicable discount rates.
The Committee has also reviewed the external presentation and
disclosure of the impact of IFRS 16 on the Group’s financial
statements.
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Independence safeguards
The external auditor is required periodically to assess whether, in its
professional opinion, it is independent and those views are shared
with the Audit Committee. The Committee has authority to take
independent advice as it deems appropriate in order to resolve
issues on auditor independence. No such advice has been required
to date. There are no contractual obligations in place that restrict
the choice of statutory auditor.
KPMG LLP was appointed while the Group was under private
ownership and has served the DFS business for more than 20 years.
The engagement partner has rotated regularly during this time, with
the current partner, Frances Simpson, assuming this role for the first
time in the current financial year. Following the Company becoming
a public listed entity in 2015, KPMG LLP may remain as external
auditor without re-tender for ten years from that date, until the
completion of the 2025 annual audit.
In last year’s Annual report the Committee announced that it would
conduct a tender process for the external audit during the course of
FY20, with a view to appointing a firm for FY21, to address the risk
that an earlier re-tender may be required should the Company enter
the FTSE 350 index. Invitations to tender were duly issued to a
number of selected firms, and detailed plans were established for
the process with significant activity scheduled for March and April
2020. The emergence of the Covid-19 pandemic in the UK at that
time prevented the completion of these activities in line with the
intended approach and consequently, in line with FRC guidance,
the Committee decided to pause the tender process.
It remains the Group’s intention to complete a tender process ahead
of the regulatory requirement to do so in 2025 in order to ensure
a managed and ordered approach. Provided the public health
environment permits, the tender process will be conducted during
FY21 with the aim of appointing a firm for the FY22 financial year at
the November 2021 Annual General Meeting.
Independence assessment by the Audit Committee
The Committee is satisfied that the independence of the external
auditor is not impaired and notes that the audit firm’s engagement
partner rotation policy has been complied with. Furthermore, the
level of fees paid for non-audit services, details of which are set out
in note 3 to the financial statements, does not jeopardise its
independence.
The Committee has assessed the performance and independence
of the external auditor and recommended to the Board the
re-appointment of KPMG LLP as auditor until the AGM in 2021.
As noted above, a tender process will be conducted during FY21.
Assessment of effectiveness of the external
audit process
The Audit Committee oversees the relationship with the external
auditor and considers the re-appointment of the Company’s auditor,
KPMG LLP, before making a recommendation to the Board to be put
to shareholders. As part of this responsibility, the Committee
approved the audit plan for the 52 weeks ended 28 June 2020 and
reviewed the auditor’s findings and management representation
letters. Prior to recommending the appointment of KPMG LLP at the
forthcoming AGM to the Board, the Audit Committee reviewed the
audit process, the performance of the auditor and its ongoing
independence, taking into consideration input from management,
responses to questions from the Committee and the audit findings
reported to the Committee. Based on this review, the Committee
concluded that the external audit process had been run efficiently
and that KPMG LLP has been effective in its role as external auditor.
In FY19, the FRC’s Audit Quality Review team commenced a review
of selected areas of KPMG’s audit of the Group’s FY18 Annual report.
The results of this review were communicated to the Committee in
November 2019 and did not include any significant findings. The
Committee Chair met with representatives of the FRC to ensure the
findings were fully understood.
Approach to appointing the external auditor and how
objectivity and independence are safeguarded relative to
non-audit services
Following the implementation of the EU Audit reforms, the Audit
Committee has agreed a policy intended to maintain the
independence and integrity of the Company’s auditor when acting
as auditor of the Group’s accounts. The policy governs the provision
of non-audit services provided by the auditor and, in summary,
categorises the types of non-audit services as:
• Prohibited – services that have the potential to impair or appear
to impair the independence of their audit role.
• Permissible (subject to approval limits) – services which
primarily relate to work that is outside the required scope of the
statutory audit, but is consistent with the role of the external
statutory auditor.
• Services to be considered on case-by-case basis – all other
services of an advisory or other nature that do not compromise
the independence of the external auditor.
In any event, within each of the Group’s legal entities, the cumulative
total of non-audit fees paid to the external auditors within each
financial year must not exceed 70% of the average audit fee for the
last three financial years. The above policy has been adhered to
throughout the financial year ended 30 June 2019, during which no
non-audit services were provided by the Group’s external auditor,
other than an interim review which is closely related to the audit.
Following the publication of the FRC’s revised ethical standard in
December 2019, the Committee reviewed and updated the Group’s
policy on non-audit services. These changes were not material, and
primarily related to greater detail and clarity on the types of services
included in the permissible category. The updated policy was
approved at the March 2020 Committee meeting and will apply from
the beginning of FY21.
DFS Furniture plc
Annual Report & Accounts 2020
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Audit Committee report continued
Internal audit
Following its restructure during FY19 as noted in last year’s report,
the Group’s Internal Audit and Risk function has continued to make
strong progress. An updated methodology, aligned with CIIA
standards, has been established and consistently applied to all
internal audits with the scoring and weighting definitions amended
to allow consistency across the Group’s brands.
The Group has also invested in significant training and development
to support the effectiveness of the internal audit function, and has
successfully developed its own internal risk management tool to
capture and assess risks across each brand. The Group is committed
to seeking further development and innovation in its approach to
risk management, and moving forward into FY21 will place an
increased emphasis in particular on sharing of best practice and
wider use of data analytics.
The scope and focus of the Group’s internal audit plan continues to
be informed by the regular formal reviews of the risk register as well
as specific business requirements. The full execution of the FY20
plan was inevitably disrupted in the last quarter of the year by the
Covid-19 pandemic, but prior to that point a wide ranging
programme of work had been completed, including:
• Regulatory areas such as data protection and the Group’s FCA
regulatory responsibilities for credit broking, including complaints
handling; the store environment, particularly in relation to
conduct risk and stock management;
• Retail audits in all brands including a review of management and
administration controls, stock management and regulatory
compliance;
• Support for a full DFS brand stocktake and review of associated
controls;
The effectiveness of the internal audit team, and its level of
resource, is reviewed by the Committee at least annually. This
assessment includes the ongoing review of the:
• Audit agenda and operational plans (including resource
requirements);
• Results of the audit fieldwork and any significant issues
highlighted; and
• Management of any corrective actions implemented.
Internal control and risk management
The Board is responsible for the overall system of internal controls
for the Group and for reviewing its effectiveness. In accordance with
FRC guidance, it carries out such a review at least annually, covering
all material controls including financial, operational and compliance
controls and risk management systems.
The system of internal controls is designed to manage rather than
eliminate the risk of failure to achieve business objectives and can
only provide reasonable and not absolute assurance against material
misstatement or loss. The Group has operating policies and controls
in place covering a range of issues including financial reporting,
capital expenditure, business continuity and information technology,
including cyber security, and appropriate employee policies. These
policies are designed to ensure the accuracy and reliability of financial
reporting and govern the preparation of financial statements.
In particular, a Governance, Risk and Compliance committee
comprising senior management meets monthly to review changes
in the regulatory/legal landscape, the Group’s key risks and concerns
and also ensures the sub-committee framework is working
effectively.
• Key head office functions including tax compliance and
accounts payable;
• Customer Distribution Centres, with a particular focus on stock
management;
• Group-wide key risk areas including whistleblowing policies and
fraud risk; and
• Update of business continuity plans in early FY20, which were
then subject to independent external review.
There are a number of governance sub-committees that focus
separately on: Conduct Risk; Environmental, Social and Governance;
Health and Safety; and Legal and Financial. These comprise senior
and middle management responsible for the ‘day to day’
management of the controls to ensure the Group remains both
compliant and proactively reviews its processes, risks and
forthcoming changes to ensure it plans in a timely, structured and
sustainable way.
In addition, an external cyber audit was completed in FY20. This
review identified areas where the Group could strengthen its
approach and a dedicated cyber working group was subsequently
established to progress these actions through FY20 and FY21.
Following the restart of business activities on the easing of Covid-19
restrictions, the internal audit team undertook a comprehensive
audit assurance programme designed to verify the level of
adherence with our Covid-19 measures at every site within our retail
and distribution network. Site visits were completed by a
combination of physical and virtual means, utilising video to check
evidence where appropriate. Weekly reporting was issued to all
stakeholders confirming a very high compliance with our Covid-19
safety measures, and remediation plans were put in place at the few
sites where gaps were identified, with all return visits confirming
significant improvements. In order to limit visitors to our production
sites, a similar cycle of support and checks at all our manufacturing
sites was conducted by the Production Health and Safety Manager.
Summarised reporting of internal audit results is provided to the
Governance Risk and Compliance committee on a monthly basis
and also at each Audit Committee meeting, together with
summaries of themes emerging from the results and overall risk
profile across the business.
The Governance, Risk and Compliance committee places emphasis
on key metrics and management information designed to provide
oversight of performance and highlight any potential detriment or
risk to the Group while seeking to achieve the very best customer
outcomes and provide a safe environment for staff, customers and
data alike. During the year, this management information has
continued to be developed and refined in direct association with the
ongoing review of the risk register.
The Board is ultimately responsible for the Group’s system of
internal controls and risk management and discharges its duties in
this area by:
• Holding regular Board meetings to consider the matters reserved
for its consideration;
• Receiving regular management reports which provide an
assessment of key risks and controls;
• Scheduling annual Board reviews of strategy including reviews of
the material risks and uncertainties facing the business;
• Ensuring there is a clear organisational structure with defined
responsibilities and levels of authority;
• Ensuring there are documented policies and procedures in place;
and
• Scheduling regular Board reviews of financial budgets and
forecasts with performance reported to the Board monthly.
DFS Furniture plc
Annual Report & Accounts 2020
In reviewing the effectiveness of the system of internal controls, the
Audit Committee will continue to:
•
review the risk register compiled and maintained by senior
managers within the Group at least bi-annually and question and
challenge where necessary;
regularly review the system of financial and accounting
controls; and
report to the Board on the risk and control culture within
the Group.
•
•
In respect of the Group’s financial reporting, the Finance
Department is responsible for preparing the Group financial
statements using a well-established process and ensuring that
accounting policies are in accordance with International Financial
Reporting Standards. All financial information published by the
Group is subject to the approval of the Audit Committee.
The impact on internal controls of the Covid-19 pandemic and
associated changes to business operations has been considered
and appopriate modifications made where necessary, for example
to accommodate remote working. There have been no changes in
the Company’s internal control during the financial year under review
that have materially affected, or are reasonably likely to materially
affect, the Company’s control over financial reporting.
The Board, with advice from the Audit Committee, is satisfied that
an effective system of internal controls and risk management is in
place which enables the Company to identify, evaluate and manage
key risks and which accords with the guidance published by the FRC.
These processes have been in place since the start of the financial
year and up to the date of approval of the accounts. Further details
of specific material risks and uncertainties facing the business can
be found on pages 32 to 38.
Whistleblowing
The Group is committed to the highest standards of openness,
honesty, integrity and accountability and, as a result, has a
whistleblowing policy in place. This policy is intended to make
employees or third parties aware that they should report any serious
concerns or suspicions about any wrongdoing or malpractice on the
part of any employee of the Group. Examples include fraud, breakdown
in internal controls, misleading customers, bribery, modern slavery,
dishonesty, corruption and breaches of data protection or health
and safety. An internal audit of the Group’s whistleblowing process
conducted during FY20 concluded that it was operating effectively
and identified some minor areas for improvement.
During the year, there were 26 reports received through the
whistleblowing process, all of which were fully investigated and
addressed in accordance with the policy.
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Control environment
The Board is committed to business integrity, high ethical and moral
values and professionalism in all its activities. The Group has policies
in place for:
• Anti-bribery;
• Modern slavery;
• Equal opportunities;
• Gifts and entertainment; and
• Share dealing.
In accordance with the obligations under the Reporting on Payment
Practices and Performance Regulations 2017, the Company has
submitted its bi-annual reports in line with the legislation during
the year.
Following an externally-facilitated risk-assessment exercise, the
Company has also reviewed its practices and processes in order to
ensure that reasonable prevention procedures are in place to
prevent the facilitation of tax evasion in line with the new Criminal
Finances Act 2017.
The Company’s Modern Slavery Statement, which sets out details of
the policies in relation to slavery and human trafficking, as well as its
due diligence processes with its partners, has been published on the
Company’s website (www.dfscorporate.co.uk).
The Company has also updated its Tax Strategy Statement, which is
published on the Company’s website (www.dfscorporate.co.uk) in
compliance with its duty under the Finance Act 2016, which sets out
details of the Company’s attitude to tax planning and tax risk.
Accountability
The Board is required to present a fair, balanced and understandable
assessment of the Company’s financial position and prospects. The
responsibilities of the Directors and external auditor are set out on
pages 110 and 119. As set out in the Directors’ report, the Directors
consider the Company’s business to be a going concern. The
Company’s viability statement can be found on page 39.
Jo Boydell
Chair of the Audit Committee
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
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Nomination Committee report
Ian Durant
Chair of the Nomination Committee
The role of the Nomination Committee
The Committee makes recommendations to the
Board, with the agreed terms of reference, on the
appointment of Executive and Non-Executive Directors
ensuring the appropriate blend of skills, knowledge and
experience.
2020 highlights
• conducted a review of the composition of
the Board, based on the skills, knowledge,
experience and diversity of the Board and
the requirements of our stakeholders
• conducted the search for a new
Non-Executive Director, including
consideration of candidates, and
recommendation to the Board
• appointed the new Senior Independent
Non-Executive Director and a new Chair of
the Remuneration Committee
• reviewed the pipeline of talent within the
Group Leadership Team
DFS Furniture plc
Annual Report & Accounts 2020
This year, the Nomination
Committee has focused on
the appointment of a new
Non-Executive Director which will
add diversity and experience to the
Board.”
The Nomination Committee keeps the composition and
performance of the Board under review to ensure that it has the
right blend of skills, knowledge, diversity, and experience to remain
effective in supporting the Company in its purpose and strategy.
I was pleased with the performance of the Board through the
extreme and unprecedented challenges of the Covid crisis and the
need for agile and timely decision making and actions to protect the
business and support the management team.During the year, after
Luke Mayhew indicated his intention to step down from the Board as
a Non-Executive Director at the AGM in November 2019 a review of
the composition of the Board and the skills, independence and
experience of the Non-Executive Directors’ was undertaken and a
Board succession plan developed.
As a result of that review Alison Hutchinson was appointed the
Senior Independent Non-Executive Director with effect from
26 September 2019.
Following an externally facilitated search, Jane Bednall was appointed
to the Board as a Non-Executive Director in January 2020. Jane
brings a wealth of relevant retail and marketing experience, including
digital marketing in both listed company and private equity owned
businesses. Jane has settled in well and we welcome her contribution.
Due to her increased responsibilities as Senior Independent Director,
Alison Hutchinson stepped down as Chair of the Remuneration
Committee on 17 January 2020, and Steve Johnson was appointed
Chair of the Remuneration Committee.
We are committed to having a diverse Board, in all respects, to
reflect the customers we serve. We consider the Parker review and
the Hampton-Alexander review when making appointments to the
Board and I can report we currently have three female directors from
a Board of seven directors, a 43% female representation.
This year the annual Board evaluation was conducted internally and
discussed by the Nomination Committee. The performance of the
Nomination Committee was reviewed, and I am pleased to report
that the evaluation concluded that the Committee is operating
effectively. It is our intention next year to conduct an externally
facilitated board evaluation in line with the normal triennial cycle.
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Several potential candidates were considered from which a short-list
was prepared and subsequently met by members of the Nomination
Committee.
The Committee felt that given Jane’s strong background in
marketing and in particular her experience in the digital marketing
arena, as well as her commercial background working with several
large customer-facing UK businesses and her prior experience as
the Designated Non-Executive Director for EI Group PLC, she would
be a welcome addition to the Board.
The Committee subsequently recommended the appointment of
Jane Bednall as an Independent Non-Executive Director to the
Board, which approved her appointment in December 2019.
All new Directors are subject to an in-depth and tailored induction
process. Jane Bednall had commenced her induction and had met
several members of the Group Leadership team, as well as the
Company’s financial advisors, legal advisors and brokers, when due
to Covid-19 the remainder of her induction plan was required to be
put on hold. Jane recommenced her formal induction into the
Company and has visited several showrooms, and factories across
the Group, once the lockdown period had come to an end.
Diversity
The Board and Group Leadership Team believe that increasing the
diversity of colleagues and operational teams is an important
component in delivering the Group’s strategy. This is most evident in
its support for gender diversity, having committed to a programme
to encourage a higher proportion of female appointments across
the business, subject always to there being a sufficiently
experienced candidate for a specific role.
Whilst the Board has not committed to any specific diversity targets,
we are pleased that our Board continues to reflect a good gender
split and that our female directors play key roles within the Board.
We will continue to give due consideration to talent, retail and
technology experience, and cognitive, gender and ethnic diversity
when making new appointments to the Board.
Ian Durant
Chair of the Nomination Committee
24 September 2020
Composition
The Nomination Committee is chaired by Ian Durant and comprises
all the Non-Executive Directors. Alison Hutchinson, Steve Johnson,
and Jo Boydell were members throughout the year; Jane Bednall
was appointed to the Committee in January when she joined the
Board. Luke Mayhew stepped down from the Committee when he
retired from the Board on 14 November 2019.
The UK Corporate Governance Code (“the Code”) recommends
that a majority of the Nomination Committee be Non-Executive
Directors, independent in character and judgement and free from
any relationship or circumstance which may, could or would be likely
to, or appear to, affect their judgement. The Board considers that
the Company complies with the Code.
Only members of the Committee have the right to attend
Committee meetings, but the Committee may invite others,
including the Chief Executive Officer, the Chief Financial Officer and
the Chief People Officer as well as its external advisers, to attend all
or part of any meeting if it is appropriate or necessary or pursuant to
the terms of any agreement with shareholders.
The Nomination Committee will meet as often as it deems
necessary but, in accordance with its terms of reference, at least
once a year.
Roles and responsibilities
The Nomination Committee is responsible for regularly reviewing
the structure, size and composition of the Board and its committees
(including an appraisal of skills, knowledge, experience, and diversity)
and for making recommendations to the Board regarding any
changes. It is also responsible for identifying and nominating for the
approval of the Board, candidates to fill Board vacancies as and when
they arise.
The Committee’s terms of reference are available on the Company’s
corporate website at www.dfscorporate.co.uk.
Activities of the Nomination Committee
The Nomination Committee met formally once during the year,
with additional ad hoc meetings being held to provide updates on
the changes to the composition of the Board Committees and the
associated recruitment processes.
The Committee focused its activities on the appointments of
the new Independent Non-Executive Director and the Senior
Independent Director. The main activities of the Committee
included:
• conducting the search and selection process, and engaging the
services of Spencer Stuart for the appointment of Jane Bednall
as an Independent Non-Executive Director from 1 January 2020
and the Designated Non-Executive Director from 1 July 2020;
the ongoing review of the talent and succession planning for the
Board and Group Leadership Team including assessment of their
training and development needs;
the internal review of the Committee’s effectiveness;
•
• a review of Directors’ time commitments and independence; and
the consideration of the re-election of Directors at the Annual
•
General Meeting.
•
Board appointments
The Nomination Committee was advised by Spencer Stuart with
regards to the appointment of the new Non-Executive Director.
A detailed brief was developed based on an assessment of the
strategy for the business, including the likely challenges and
opportunities in the years ahead, as well as defining the best cultural
fit for success.
DFS Furniture plc
Annual Report & Accounts 2020
The Committee aims to ensure
that our remuneration strategy
supports the delivery of the
Group’s long-term strategy and
ensures that the pay framework
is appropriately flexible to act in
shareholders’ best interests to
attract, retain and motivate our
senior executives even in the most
challenging and unpredictable
circumstances.”
Contents of this report
Part A: Annual statement by the Remuneration
Committee Chair
Part B: At a glance
Part C: DFS’s remuneration philosophy
Part D: Remuneration Policy summary and alignment to
business strategy
Part E: Employee value proposition and wider workforce
considerations
Part F: Annual report on remuneration
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Directors’ remuneration report
Steve Johnson
Chair of the Remuneration Committee
24 September 2020
The role of the Remuneration Committee
The primary responsibilities of the Committee remain the
oversight of the Group’s Remuneration Policy, making
recommendations to the Board on the remuneration of the
Executive Directors and the Chairman of the Board and
oversight of the remuneration arrangements for the Group
Leadership Team.
Key activities during FY20
• Reviewed and determined for the Executive
Directors and Group Leadership Team:
– Salary levels for FY21;
– Outcomes vs. performance targets for
outstanding LTIP awards;
– Due to the impact of Covid-19 on trading, the
Committee reviewed the Executive Directors
annual bonus outcome and applied downward
discretion resulting in no bonus payment for
FY20; and
– Performance targets and participation levels for
the FY21 annual bonus and 2019 LTIP award
• Responding appropriately to the Covid-19 pandemic
• Considered developments in executive pay and
corporate governance
DFS Furniture plc
Annual Report & Accounts 2020
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Given the economic challenges the retail sector is facing, the
Committee agreed it would be appropriate to simplify the Executive
Directors’ annual bonus and create a focus on consistent financial
performance throughout the year. Performance conditions were
therefore reviewed and for FY21 performance will be measured
against underlying EBITDA (70% of the annual bonus) and
personalised strategic measures (30% of the annual bonus).
Our Remuneration Policy continues to provide appropriate flexibility,
ensuring that any payments made in the implementation of the
Policy are in the best interests of both the Company and our
shareholders. The Committee has the ability to apply malus,
clawback and responsible application of discretion to override
formulaic outcomes of the incentive schemes to ensure that pay
outcomes are appropriate in the wider business and economic
context. The Committee is firmly of the view that, in the current and
likely future environment, its ability to exercise discretion across the
remuneration framework is a critical tool for the good governance of
the business and is in the best interests of all stakeholders.
Part A: Annual statement by the Remuneration
Committee Chair
Dear Shareholder,
On behalf of the Board, I am pleased to present this year’s
Remuneration Committee report. This report is my first as Chair
of the Committee, having joined the Board and the Committee in
December 2018 and succeeded Alison Hutchinson as Chair of the
Committee in January 2020. I thank Alison for her support during the
transition of responsibilities. During FY20, Luke Mayhew stepped
down from the Committee following his retirement from the Board
and we were pleased to welcome Jane Bednall as a new member
from January 2020. Jane also joined the Remuneration Committee
on her appointment to the Board.
The Remuneration Report provides a comprehensive picture of
the structure of our remuneration framework, its alignment with
the business strategy and the rest of the workforce, as well as the
decisions made by the Committee as a result of business
performance for this year and the intended arrangements for FY21.
The Committee is committed to ensuring that our remuneration
framework supports our strategy and provides a balance between
motivating and challenging our Executive Directors and Group
Leadership Team to focus on our strategy and to deliver our
business priorities.
This year has been overshadowed by the impact of the global
pandemic on our business. Having begun the second half of the
financial year in a reasonably strong position, the Group’s second
half financial performance was severely impacted by the imposition
of lockdown which prevented the Group from delivering to our
customers for most of the final quarter of the year. As we only
recognise revenues when an order is delivered to the customer,
this resulted in a significant reduction in revenue for FY20 and a
resulting loss before tax. Further details of the financial and strategic
performance of the business are given in the CEO Report and
Financial Review.
The Committee’s agenda for the year was another full one as we
assessed year end outcomes and approved new awards, measures
and targets under the Annual Bonus scheme and Long-Term
Incentive Plan (“LTIP”). This was carried out in the context of a
difficult retail trading landscape and the impact of global pandemic
as noted above.
DFS Furniture plc
Annual Report & Accounts 2020
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Directors’ remuneration report continued
Covid-19 impact on remuneration
This year the Committee has taken discretionary action in a number of areas due to the impact of Covid-19. The table below summarises the
key components of remuneration that have been impacted and the decisions made by the Committee.
Element of remuneration
Committee decision
Rationale
2020 salary levels
To cancel 2020 salary increases for Executive
Directors.
In May 2020, the Directors voluntarily took a
20% reduction in pay which remained in place
until the financial year end, and after the
business had fully re-opened. The salary
forgone will not be repaid.
The senior management team also took a
voluntary 20% reduction in pay for the month
of May, aligning them with employees who had
been furloughed and returned to work in
late-May and early-June.
To exercise downward discretion and not make
any payments to Executive Directors.
2020 bonus
2017 LTIP vesting
The 2017 LTIP award will lapse in full in
November 2020.
2020 LTIP
(granted in FY21)
The Committee has determined to make a grant
on the normal timetable.
Targets for the EPS and TSR condition will be set
within 6 months from grant when the market has
stabilised.
• As stated in the 2019 Directors’ Remuneration Report,
it was intended that Tim Stacey’s salary increase to
£420,000 and Mike Schmidt’s salary increase to
£306,000 (2% in line with the wider workforce) in
April 2020.
• However, due to the pandemic the Committee cancelled
the annual salary review for the workforce to preserve
cash. These increases were therefore not implemented.
• Directors determined that they should temporarily
reduce their pay by 20% in line with those workers who
had been furloughed.
• The impact of the pandemic on the financial results of
the business has rendered the assessment of financial
targets irrelevant.
• Performance against the non-financial conditions (the
NPS target and the personal objectives), have been
achieved, in full or in part, and a bonus payment would
ordinarily be due to the Executive Directors.
• However, the Committee concluded that, given the
overall financial performance it would be inappropriate
to award any bonus. In consultation with the Executive
Directors, the Committee therefore exercised its
discretion and no bonus payments were made to the
Executive Directors.
• The Committee set stretching targets for the EPS
growth measure which were not met.
•
• Prior to March 2019 the 2017 LTIP had been on track to
partially vest in respect of the relative TSR measures.
However, the TSR measure has been severely impacted
as several of the comparator retailers were able to
continue operating, resulting in a disparity of share price
performance over the period.
• Given the negative impact of the dividend cancellation
and share price performance on shareholders during this
period, the Committee decided not to exercise its
discretion on this occasion.
• This decision will impact both current and previous
employees including the current CEO who fully agreed
that in the current difficult circumstances this was the
correct course of action for the Committee to take.
• For the 2021 LTIP grant, performance will be based on at
least 50% EPS and 50% relative TSR measures (against the
FTSE 250 excl. investment trust and FTSE 350 General
Retailers).
• However, at the present time, the Committee does not
feel able to robustly set three-year EPS and TSR targets
given the significant uncertainty in the wider economic
environment.
• Therefore, the Committee’s intention is to set the targets
within six months of the 2021 LTIP award being granted (in
line with IA guidelines) when the market has stabilised.
• Likewise, the Committee will consider the most
appropriate weighting between TSR peer groups within six
months when the market has stabilised.
DFS Furniture plc
Annual Report & Accounts 2020
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Although it has been a difficult year, I feel confident that the Group will emerge stronger from the challenges it has been confronted by
and I would like to thank the Executive Directors for their positive approach to the decisions the Committee has had to take in relation to all
aspects of the remuneration outcomes. I look forward to working with them to ensure that our remuneration strategy remains flexible and
realistic, aligned with our values and culture, and rewards our Executives and the senior management team appropriately.
The decisions taken this year demonstrate the value of the discretionary powers available to the Remuneration Committee in ensuring an
equitable outcome for both shareholders and the business. We intend to continue to use these powers to ensure the best outcomes for all
stakeholders in this continuing uncertain world.
I thank my fellow Committee members for their valuable contribution and support during a year that has seen some unprecedented
challenges for the Group. As always, I welcome any comments or questions from shareholders.
Remuneration for FY21
In FY21 we will continue to operate our remuneration arrangements in line with the Policy approved at the 2018 AGM by our shareholders.
Remuneration arrangements for the CEO, Tim Stacey
As stated in the 2018 Directors’ Remuneration Report, we set Tim’s salary at a lower level compared to his predecessor but with the
intention to increase it to £440,000 p.a. on a stepped basis over a two-year period subject to corporate performance being deemed
satisfactory by the Board. We also stated that our intention is to increase the maximum annual bonus opportunity from 100% to 120%
of salary in steps over 2 years. However, as set out above, due to the pandemic, the Committee determined to postpone the first step
of this increase in April 2020.
The Board was satisfied that under Tim’s leadership the Group has delivered solid trading performance and made good progress towards
executing our long-term growth strategy. Therefore, after a review of Tim’s performance over the year and through the recent crisis the
Committee believes that it is appropriate to increase Tim’s salary to £440,000 as originally envisaged. This is a 10% increase and will take
effect in April 2021 in line with the timing of the salary review for the workforce. We note the Committee reserves the right to review this
position again and it may be subject to change reflecting the shareholder experience and challenging external environment.
It should be noted that pension contributions to Tim are fixed and increases to salary over time will be non-pensionable. The Committee will
review pension levels for Executive Directors as part of the next policy review to ensure they are aligned to the wider workforce by the end
of 2022.
The Committee intends to increase Tim’s annual bonus opportunity to 120% of salary effective from FY21 in line with the original decision.
It should also be noted that, as set out in last year’s Directors’ Remuneration Report, Tim’s annual bonus opportunity is now greater than
100% of salary so mandatory bonus deferral into shares for three years will be introduced where the payment is greater than 75% of salary
in line with policy.
Base salary
Pension
Annual bonus
LTIP
Shareholding requirement
£440,000 p.a.
£50,000 p.a. (fixed amount) less
employer’s NIC where taken as cash
120% of salary
150% of salary
250% of salary
Remuneration arrangements the CFO, Mike Schmidt
As set out above, the intended 2% increase to Mike’s salary in April 2020 was not implemented due to the financial impact of the pandemic.
After a review of Mike’s performance over the year and through the recent crisis where he led the successful debt and equity raising the
Committee believes that it is appropriate to increase Mike’s salary to £330,000. This is a 10% increase on his current salary and will take
effect in April 2021 in line with the timing of the salary review for the workforce. Future increases to Mike’s salary will be considered against
appropriate external benchmarks and in light of his personal performance.
Mike’s annual bonus opportunity will be 110% of salary. As the annual bonus opportunity is now greater than 100% of salary mandatory
bonus deferral into shares for three years will be introduced where the payment is greater than 75% of salary.
As reported in 2019, Mike’s pension contribution level was frozen at the level he received in his previous role. Future increases to salary will be
non-pensionable and over time Mike’s pension contribution as a percentage of his salary will continue to reduce (Mike’s pension of £29,250
p.a. is currently equal to 9.8% of salary, this will lower to 8.8% of salary following his salary increase in April 2021). The Committee will review
pension levels for Executive Directors as part of the next policy review to ensure they are aligned to the wider workforce by the end of 2022.
Base salary
Pension
Annual bonus
LTIP
Shareholding requirement
£330,000 p.a.
£29,250 p.a. (fixed amount) less
employer’s NIC where taken as cash
110% of salary
120% of salary
250% of salary
In relation to the performance measures for annual bonus and LTIP awards for FY20, our approach is described on pages 93 and 94.
DFS Furniture plc
Annual Report & Accounts 2020
88
Directors’ remuneration report continued
Our compliance with the 2018 UK Corporate Governance Code (“the Code”)
Key Remuneration Element of the 2018 Code
How is this considered within DFS’s remuneration framework?
Five-year period between the date of grant and
realisation for equity incentives
• The LTIP has a five-year period including the performance and holding period.
Phased release of equity awards
• The LTIP ensures the phased release of equity awards through annual rolling
grants.
Discretion to override formulaic outcomes for
bonus and LTIP awards
• The Policy contains the ability to override formulaic outcomes and apply
discretion where deemed necessary.
Post-cessation shareholding requirement
• We have implemented a minimum shareholding requirement to include a
two-year post-cessation shareholding requirement.
Pension alignment
• Pension contributions have been frozen for the most recent appointment to
the Board (as discussed above).
• The Committee will review pension levels for Executive Directors as part of the
upcoming policy review to ensure they are aligned to the wider workforce by
the end of 2022.
Extended malus and clawback provisions
• The current malus and clawback provisions reflect requirements of the Code
and best practice.
Effective engagement with workforce
• We have appointed a Designated Non-Executive Director (Jane Bednall) who
will attend the Employee Voice Forums and engage with the workforce.
Wider workforce considerations
DFS have always believed that the people in our business are fundamental to its success. We are committed to creating an inclusive working
environment for all our staff and to rewarding our employees in a fair manner. In this year’s report, on pages 98 to 100 we have included some
further information on our employee value proposition, our evolving diversity and inclusion policies and accomplishments towards fostering
an inclusive and engaging working environment. We are also reporting our CEO pay ratio for the first time this year, see page 100 for
further details.
This year the Group continued to develop the role of the Employee Voice Forum. The Employee Voice Forum representatives did an
excellent job of voicing their ideas and their colleagues’ feedback. Going forward the Employee Voice Forum will continue to play a key role in
enabling the Non-Executive Directors to understand the views of our colleagues.
In order to provide further momentum, we have decided to appoint a Designated Non-Executive Director as recommended by the
Corporate Governance Code. Jane Bednall has taken on this role from 1 July 2020.
In the coming year I, along with the Designated Non-Executive Director and other Board members, will attend Employee Voice Forums and
we will seek to understand the views of our employees across the Group. The Committee will continue to seek to use the feedback received
from these meetings as a valuable insight when making wider remuneration decisions, including those relating to the reward principles and
Executive Director remuneration.
Committee performance
The Committee’s performance was assessed as part of the annual Board evaluation. I am pleased to report that the Committee is regarded
as operating effectively and the Board has confidence in the quality of the Committee’s work.
Looking forward
The Committee remains focused on ensuring that we implement the Policy so that it retains and motivates a talented senior leadership
team to deliver the business strategy and create sustainable value for shareholders. During the year the Committee will be focused on the
review of the Remuneration Policy and will be seeking to work with our investors to develop a policy in line with our culture and values and
aligned to our business strategy. A proposal will be put to shareholders at the 2021 Annual General Meeting for approval.
We trust that the information set out in this report provides you with what you need to be able to support the advisory resolution to be put
to shareholders on this remuneration report at the Company’s AGM on 13 November 2020.
If you would like to discuss any aspect of this Remuneration Report, I would be very happy to hear from you. You can contact me through
the Company Secretary, Liz McDonald. I will also be available at the Company’s 2020 AGM to answer any questions in relation to this
Remuneration Report.
Steve Johnson
Chair of the Remuneration Committee
23 September 2020
This report has been prepared in accordance with Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and
Reports) Regulations 2008 as amended in 2013, the provisions of the 2018 Corporate Governance Code and the Listing Rules.
DFS Furniture plc
Annual Report & Accounts 2020
AGM Shareholder voting
Resolution
Approve Annual Report on Remuneration (2019 AGM)
Approve Policy (2018 AGM)
89
Votes for
Votes against
Votes withheld
175,603,649
5,012,061
50,972
97.23%
2.77%
166,426,128
4,252,410
97.51%
2.49%
–
396
–
Part B: Remuneration in FY20 – at a glance
This section briefly highlights performance and remuneration outcomes for FY20, and our approach for FY21. More detail can be found on
pages 100 to 105. Full details of the Policy which was approved by shareholders at the 2018 AGM can be found on www.dfscorporate.co.uk.
The ‘At a Glance’ section contains a summary of the remuneration for Tim Stacey (CEO) and Mike Schmidt (CFO).
FY20 Single Figure outcomes and our Policy
The graphs below illustrate the CEO and CFO’s FY20 single figure outcome as compared to the Policy approved by shareholders in
December 2018. The full explanatory notes for each element of remuneration are detailed on pages 92 to 94 in the Annual Report
on Remuneration.
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CEO
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0
0
£
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1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
CFO
1,500
1,300
1,100
0
0
0
£
’
900
700
500
300
100
-100
1,864
1,564
1,084
RSP
Share price growth
LTIP
Annual Bonus
Other
Benefits
Pension
Salary
484
568
Minimum
On-target
SF FY20
Maximum
Maximum
with 50%
share growth
on LTIP
1,212
1,032
723
Share price growth
LTIP
Annual Bonus
Other
Benefits
Pension
Salary
342
331
Minimum
On-target
SF FY20
Maximum
Maximum
with 50%
share growth
on LTIP
Notes:
• Minimum pay is fixed pay only (i.e. salary + benefits + pension).
• On-target pay includes fixed pay, 50% of the maximum bonus (equal to 60% of salary for the CEO and 55% of salary for the CFO) and 60% vesting of the LTIP awards
(with grant levels of 150% of salary for the CEO and 120% of salary for the CFO).
• Maximum pay includes fixed pay and assumes 100% vesting of both the annual bonus and the LTIP awards.
• Maximum with 50% share growth shows the maximum scenario with 50% share price growth on the LTIP award over the vesting period.
• All amounts have been rounded to the nearest £1,000. Salary levels (which are the base on which other elements of the package are calculated) are based on those applying at
1 July 2020. The value of taxable benefits is the cost of providing those benefits in the year ended 28 June 2020. The Executive Directors are also permitted to participate in
HMRC tax advantaged all-employee share plans, on the same terms as other eligible employees, but they have been excluded from the above graph for simplicity.
DFS Furniture plc
Annual Report & Accounts 2020
90
Directors’ remuneration report continued
Annual bonus FY20 outturn
The annual bonus targets and outcomes for FY20 are based on the financial year up to year ended 28 June 2020 (as described on page 101
of this annual report). When assessing the non-financial elements of the Annual Bonus, the NPS target was achieved in full and the personal
objectives had been completed in full or in part prior to lockdown, on which an element of the bonus payment would ordinarily have been
due to the Executive Directors. However, the Committee concluded that, given the overall financial performance and the impact on
shareholders due to the cancellation of the dividend, it would be inappropriate to award any bonus to the Executive Directors. In consultation
with the Executive Directors, the Committee therefore exercised its discretion to override the formulaic outcome and no bonus payments
were made to the Executive Directors.
2017 LTIP award vesting in 2020
The chart shows the outcome of the 2017 LTIP awards, for which the performance period ended on 28 June 2020.
Performance measure
Earning per share
TSR vs FTSE 250 index*
TSR vs FTSE 350 retail index
Total
* Excluding Investment Trusts
Weighting
50%
25%
25%
100%
Threshold
(0%)
4% p.a.
Target
10% p.a.
Index
Index + 10% p.a.
Index
Index + 10% p.a.
Maximum
(100%)
Outcome
(% max bonus)
0%
-0.97%
below index
-0.35%
below index
0%
0%
0%
0%
The resultant vesting of LTIPs is set out in the table below:
Number of
shares granted
Award vesting
(% max)
Number of shares
vesting
Value of shares
vesting
Value attributable
to share price
movement
Value of dividend
equivalents due
Value of resultant
award
CEO
125,000
0%
0
0
0
0
0
Level of shareholdings
Below we present a summary of the level of shareholding for the CEO, Tim Stacey and CFO, Mike Schmidt. In this summary, we have illustrated
the current share interests of the Executive Directors, taking into account shares which are owned outright or vested, shares which are
unvested and shares which remain subject to performance.
The shareholding requirement is 250% of salary and must be built up over a five-year period and then subsequently maintained. As noted
earlier, a post-cessation shareholding requirement has been implemented.
Further detail regarding the Executive Directors’ outstanding share awards can be found on page 104. At the year end the value of the CEO’s
shares equalled 202% of salary, and the CFO’s share equalled 11% of salary, based on a closing share price of £1.69 as at 28 June 2020.
Share holding requirement
Tim Stacey
Mike Schmidt
Share holding requirement
Value of benefiicially ownd shares
Shares subject to performance
conditions and continued employment
0
100
200
300
400
500
600
% of base salary
Notes:
(i) Beneficial interests include shares held directly or indirectly by connected persons.
(ii) Represents 2017, 2018 and 2019 LTIP shares and remaining 2017 RSP shares, which are subject to ongoing performance conditions for Tim Stacey. Represents 2018 and 2019
LTIP shares and remaining 2017 and 2018 RSP shares, which are not subject to performance conditions for Mike Schmidt.
(ii) Shareholding requirement calculation is based on the share price at the end of the year (£1.69 at 28 June 2020).
DFS Furniture plc
Annual Report & Accounts 2020
91
Part C: DFS’s remuneration philosophy
Our values underpin our pay and recognition policies across the organisation and the remuneration principles which are supported in our
Directors’ Remuneration Policy.
Our values underpin our pay and recognition policies across the organisation and the remuneration
principles which are supported in our Directors’ Remuneration Policy.
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Our goal is to attract, retain and develop the best people, who do what they love,
and in return for them to be rewarded fairly
Our Remuneration Policy principles are designed to help us achieve our goal
Attract, motivate
and retain
Executives and
Senior Management
in order to deliver
the company’s
strategic gaols and
business outputs.
Encourage and
support a high-
performance sales
and service culture
ensuring good
customer outcomes.
Reward delivery of
the Group’s business
plan and key
strategic goals.
Adhere to the
principles of good
corporate
governance and
appropriate risk
management.
Align employees
with the interests
of shareholders and
other encourage
widespread equity
ownership amongst
the Group.
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Annual Report & Accounts 2020
92
Directors’ remuneration report continued
The following section sets out details on the application of our Policy.
Part D: Summary of the Remuneration Policy and alignment to business strategy
DFS’s Policy remains to attract, retain and motivate its leaders and to ensure they are focused on delivering our strategy designed to
promote the long-term success of the Group.
The Group’s focus is to deliver long-term, sustainable growth for shareholders. Our strategy will transform our Group in the medium term
by focusing on three interrelated pillars. The Committee is of the view that the performance measures within the annual bonus and LTIP
directly relate to delivery against the wider strategy, as shown below.
Initiatives
Group Metrics
How we measure success through our
incentive arrangements
Leading
sofa
retailing
in the
digital age
1
2
3
Drive
DFS Core
Build the
Platforms
Unlock
New Growth
Growth in Underlying
Gross Sales
Annual bonus
Revenue
PBT
Increasing PBT Margin
Cash flow
Strong Cash
Generation
Growth Lease
Adjusted ROCE
NPS
Strategic
LTIP
EPS
Relative TSR
3
3
2
3
2
2
3
1
1
1
1
1
1
3
The table below sets out an overview of the key areas of the approved Policy and summarises how the Committee applied the Policy in FY20,
together with details of how the Committee intends to implement the Policy in FY21.
Operation
Maximum
Opportunity
Performance measures/
assessment and
recovery provisions
Implementation for
financial year ended
28 June 2020
Implementation for
financial year ending
30 June 2021
Base salary
To provide competitive fixed remuneration that will attract and retain key employees and reflect their experience and position in the
Group
Salaries are reviewed
annually, and any change
will take effect from
1 April.
Annual percentage
increases are generally
consistent with the range
awarded across the
Group, unless a higher
increase is proposed due
to specific circumstances
as determined by the
Committee.
A broad assessment of
individual and business
performance is used as
part of the salary review.
No recovery provisions
apply.
CEO, Tim Stacey:
£400,000.
CFO Mike Schmidt
£300,000.
As set out in the
Chairman’s statement,
the intended FY20
increases were cancelled
due to the pandemic and
a 20% voluntary reduction
taken from May-July
2020.
CEO, Tim Stacey:
£400,000 to £440,000
(10% increase in April
2021) – see page 87 for
further details, this
increase will be kept under
review.
CFO, Mike Schmidt:
£300,000 to £330,000
(10% increase April 2021)
– see page 87 for further
details, this increase will
be kept under review.
Benefits
To provide competitive benefits and to attract and retain high calibre employees
Market standard benefits
reviewed periodically to
ensure market
competitive.
Benefit values vary
year-on-year depending
on premiums and the
maximum potential value
is the cost of the provision
of these benefits.
No performance or
recovery provisions apply.
Normal company
benefit provision.
No change.
DFS Furniture plc
Annual Report & Accounts 2020
Pension
To provide a competitive Company contribution that enables effective retirement planning.
No performance or
recovery provisions apply.
CEO, Tim Stacey:
£50,000 (fixed) less
employer’s NIC where
taken as cash.
CEO, Tim Stacey:
£50,000 (fixed) less
employer’s NIC where
taken as cash.
CFO, Mike Schmidt
£29,500 (fixed) less
employer’s NIC where
taken as cash.
CFO, Mike Schmidt:
£29,250 (fixed) less
employer’s NIC where
taken as cash.
Contribution to a
personal pension
scheme or cash
allowance in lieu of
pension benefits.
The maximum
contribution to a personal
pension scheme or cash
in lieu is equal to £50,000.
Pension contributions for
new Executive Directors
will be reviewed to ensure
compliance with
corporate governance
best practice around
alignment with the
workforce.
Where pension
contribution is taken as a
salary supplement the
amount will be reduced by
the associated Employer’s
National Insurance
contribution to ensure
there is no cost to the
Company from this
alternative.
93
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Annual Bonus
Incentivises the achievement of annual objectives which support the Group’s short-term performance goals.
Performance targets and
weightings will be set
annually based on a range
of financial and non-
financial measures.
Financial targets govern
the majority of bonus
payments.
The Committee retains
discretion to adjust
targets and weightings in
respect of annual bonus
awards as required. Malus
and clawback provisions
apply.
CEO, Tim Stacey 110%
of salary.
CEO, Tim Stacey:
120% of salary.
CFO, Mike Schmidt:
100% of salary.
CFO, Mike Schmidt:
110% of salary.
Performance conditions:
• Revenue (15%)
• Profit before tax (25%)
• Cash Flow (20%)
• Net Promoter Score
(20%)
• Personal objectives
(20%)
See page 101 for details of
targets and outcomes
against them for FY20.
To simplify the annual
bonus and create a focus
on the Group’s financial
performance the
performance conditions
for FY21 have been
simplified to the following:
• EBITDA (70%)
• Personal objective
(30%)
Targets are deemed
commercially sensitive
and will be disclosed
retrospectively following
the end of the
performance period.
Bonus awards are
granted annually.
The performance period
is one financial year with
pay-out determined by
the Committee following
the year end, based on
achievement against a
range of financial and
non-financial targets.
Maximum awards under
the Annual Bonus are up
to 120% of salary.
Where maximum awards
are increased above 100%
of salary, then the
Committee will determine
that bonus deferral shall
apply to part of the annual
bonus earned.
Where deferral applies,
bonus payments greater
than 75% of salary will be
deferred into shares for
three years.
There will be no payment
made for threshold
performance. 100% of
maximum will be paid for
stretch performance.
The Committee may
award dividend
equivalents on those
shares to Plan participants
to the extent that they
vest.
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Annual Report & Accounts 2020
94
Directors’ remuneration report continued
Long-term incentive plan
Incentivises executives to achieve superior returns to shareholders over a three-year period, to retain key individuals and align their
interests with shareholders
Annual grants of
performance share
awards (LTIP awards).
Three year vesting period
subject to the
achievement of the
performance measures.
Two year holding period
will apply following the
three-year vesting period
for LTIP Awards granted
to the Executive
Directors.
Participants may be
entitled to dividend
equivalents on LTIP
awards that have vested.
Maximum LTIP awards are
equal to 150% of base
salary.
Targets are typically
structured as a
challenging sliding scale,
with no more than 20% of
the maximum award
vesting for achieving the
threshold performance
level through to full
vesting for substantial
out-performance of the
threshold.
Awards vest based on
performance against
challenging targets,
aligned with the delivery
of the Company’s
long-term strategy.
Performance measures
(metric, targets, and
weightings) are reviewed
annually.
Malus and clawback
provisions apply.
LTIP award level of 150%
of salary granted to Tim
Stacey (CEO) and 120 %
of salary granted to Mike
Schmidt (CFO) with a
three year performance
period and two year
holding period.
• Adjusted EPS growth
(50%)
• TSR relative to FTSE
250 excl. investment
trusts (15%)
• TSR relative to FTSE
350 General Retailers
Index (35%)
See below for full details
of the LTIP awards
granted in the reporting
year.
LTIP award level of 150%
of salary will be granted to
Tim Stacey (CEO), and
120% salary to Mike
Schmidt (CFO), with a
three year performance
period and two year
holding period.
For the FY21 LTIP grant,
performance will be based
on at least 50% EPS and
50% relative TSR
measures (against the
FTSE 250 excl.
investment trust and
FTSE 350 General
Retailers).
At the present time, the
Committee does not feel
able to robustly set
three-year EPS and TSR
targets given the
significant uncertainty in
the wider economic
environment.
Therefore, the
Committee’s intention is
to set the targets within
six months of the 2021
LTIP award being granted
(in line with IA guidelines)
when the market has
stabilised.
Likewise, the Committee
will consider the most
appropriate weighting
between TSR peer groups
within six months when
the market has stabilised.
Minimum shareholding requirements
To ensure that Executive Directors’ interests are aligned with those of shareholders over a longer time horizon.
The Executive Directors
are required to build or
maintain (as relevant1) a
minimum shareholding in
the Company.
Not applicable.
Not applicable.
250% of salary for
Executive Directors to be
built up over five years.1
No change to
shareholding
requirements for FY21.
For FY20 and beyond, the
Committee determined
that a shareholding
requirement would
continue to apply for two
years post cessation of
employment for the
Executive Directors.
1. Executive Directors are not required to purchase shares to satisfy this requirement.
DFS Furniture plc
Annual Report & Accounts 2020
95
Illustration of the operation of the Policy
Fixed pay
Year 1
Base salary
Pension and benefits
Bonus
Cash bonus
Year 2
Year 3
Year 4
Year 5
Where bonus opportunity is increased above
100% of salary, bonus deferral applies if the
bonus outcome is greater than 75% of salary
(3-year deferral)
LTIP
Long-term incentive plan (3-year performance period)
2 year-post vesting holding period
Chairman and Non-Executive Director Fees
Fees for the Chairman and Non-Executive Directors were reviewed in October 2019 and a 2% increase was to be applied to all fees with effect
from 1 April 2020. These increases were in line with those awarded to the wider workforce. In March 2020, due to the impact of the Coronavirus
pandemic the 2020 pay increase was cancelled for the wider workforce and the Committee agreed that the increase in fees for the Chairman
and Non-Executive Directors would also be cancelled. In April, the Committee agreed that to support the Group, and in line with the voluntary
decision by the Executive Directors and senior management team, the Chairman and Non-Executive Directors would also take a temporary
20% reduction in their fees for May and June 2020. The senior management team’s reduction only applied during May 2020.
The following table sets out the annual fee rates for the Non-Executive Directors as at 28 June 2020:
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Chairman fee
Senior Independent Director fee
Chair of Audit/ Remuneration Committee fee
Independent Non-Executive Director fee
FY20(i)
£
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61
58
51
FY19
£
184
61
58
51
% change
0%
0%
0%
0%
(i) The Non-Executive Directors, in line with the Executive Directors and senior management, agreed to take a 20% reduction in fees for May and June.
(ii) Non-Executive Director fees will be kept under review for future periods. To the extent there are any increases to fees these will be in line with those awarded to the wider
workforce and would be effective no earlier than April 2021.
Pay comparisons
Comparison of Executive Director Policy quantum to our peers
When we set the remuneration for the Executive Directors, one of the factors the Committee considers is the relevant market for talent
against which we can compare remuneration levels. We believe the top half of the FTSE SmallCap and FTSE 350 General Retailers are of a
similar size and currently represent our key markets for senior executive talent. The following chart shows the relative position of target total
remuneration for our CEO and CFO compared to these talent markets.
Positioning of total remuneration of DFS’s
CEO and CFO relative to market benchmarks
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35%
38%
44%
26%
FTSE 350
Retailers
FTSE SMC
(top half)
FTSE 350
Retailers
FTSE SMC
(top half)
Chief Executive
Officer
Chief Financial
Officer
DFS Furniture plc
Annual Report & Accounts 2020
96
Directors’ remuneration report continued
Remuneration of CEO role versus wider company performance since IPO
The chart below illustrates the Group’s Total Shareholder Return performance against the FTSE250 Index and FTSE 350 General Retailers
Index since 5 March 2015, the date of IPO, to the end of FY20 (28 June 2020). The peer groups here represent the Company’s key markets
for investment capital (noting this is distinct from the peer groups used for pay benchmarking above).
150
140
130
120
110
100
90
80
70
60
50
Mar
2015
Jul
2015
Nov
2015
Mar
2016
Jul
2016
Nov
2016
Mar
2017
Jul
2017
Nov
2017
Mar
2018
Jul
2018
Nov
2018
Mar
2019
Jul
2019
Nov
2019
Mar
2020
Jul
2020
DFS Furniture plc
FTSE 250 Index
FTSE 350 General Retailers Index
The table below indicates the total single figure of remuneration for the CEO since IPO, along with the annual bonus payout and LTIP vesting
level as a percentage of the maximum opportunity.
CEO
Single Figure
Annual Bonus (% of max)
LTIP vesting (% of max)
FY20
FY19
Tim Stacey
Tim Stacey
568
0%
0%
464
26.2%
28.6%
Ian Filby
374
32.2%
28.6%
FY18
Ian Filby
673
36%
0%
FY17
FY16
FY15
Ian Filby
666
37.5%
0%
Ian Filby
804
71.9%
n/a
Ian Filby
790
85.2%
n/a
Notes:
1. Tim Stacey became CEO and Executive Director on 1 November 2018.
2. The Committee applied downward discretion to override the formulaic outcome of the 2020 annual bonus to zero.
3. Tim Stacey’s single figure for FY20 includes an award under the DFS Restricted Share Plan which was made to the CEO prior to his appointment as an Executive Director.
The award had a value of £97.7k and vested on 16 November 2019.
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Percentage change in the Directors’ remuneration.
The table below compares the percentage increase in Directors’ pay with the wider employee population. The Company considers DFS
employees other than those whose remuneration includes piecework or commission, and excluding the Executive Directors, to be an
appropriate comparator group.
We note that the 2019 figures used to calculate the % changes below reflect the 11-month financial year. No Directors received a salary
or fee increase for FY20.
% change FY19 – FY20
CEO
CFO
Tim Stacey
Mike Schmidt
Ian Durant
Jane Bednall
Jo Boydell
Alison Hutchinson
Steve Johnson
Non-Executive Directors
Luke Mayhew
Employee pay
Base salary
Benefits
Annual bonus
2%
39%
5%
n/a
81%
17%
79%
-63%
0%
41%
0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
-100%
-100%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Notes:
1.
2. Tim Stacey became the CEO and Executive Director on 1 November 2018. The change in CEO remuneration is Tim Stacey’s FY20 remuneration compared to FY19 remuneration
In line with the regulations, this analysis will be extended up to five years in the future.
which has been calculated by adding together the remuneration paid to Tim Stacy and the previous CEO Ian Filby in respect of the period these individuals were Executive
Directors in FY19.
3. Mike Schmidt became the CFO and Executive Director on 11 July 2019. Nicola Bancroft stepped down from the CFO role and the Board in March 2019. The change in CFO
remuneration is Mike Schmidt’s FY20 remuneration compared to FY19 remuneration for Nicola Bancroft which represents remuneration for only 9 months of the year. We note
that Mike Schmidts joining base salary level was the same as his predecessors (£300,000) and he did not receive a salary increase for FY20.
4. No annual bonus was paid to Executive Directors for FY20.
5. Whilst the NED’s all took a 20% reduction in their fees in May and June to support the business through the pandemic (see single figure remuneration table for Non-Executive
Directors on page 103 for further details), the changes in fees above also represent a number of changes to roles:
a. Luke Mayhew stepped down from the Board on 15 November 2019.
b. Alison Hutchinson was appointed Senior Independent Director on 26 September 2019.
c. Jane Bednall was appointed to the Board on 1 January 2020.
d. Jo Boydell was appointed to the Board on 6 December 2018 and appointed as Chair of the Audit Committee on 1 April 2019.
e. Steve Johnson was appointed to the Board and its Committees on 6 December 2018 and appointed as the Chair of the Remuneration Committee on 17 January 2020.
6. With regards to the annual bonus for the wider employee population, payments for targets achieved (for the NPS and personal performance measures) have been withheld until
the first half of FY2021 and are subject to achievement of a financial underpin.
Relative Importance of spend on pay
The table below sets out the overall spend on pay for all employees compared with the returns distributed to shareholders.
Significant distributions
Employee remuneration
Distributions to shareholders (dividends and share buybacks)
Notes:
1. The above figures are taken from notes 4, 21 and 22 to the financial statements.
2020
2019
£186.5m
£17.0m
£167.4m
£23.8m
% change
+11.4%
-28.6%
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Directors’ remuneration report continued
Part E: Employee value proposition and wider workforce considerations
The Committee oversees remuneration of the Chairman, Executive Directors, and the Group Leadership Team, having regard to pay
conditions across the Group. The Committee’s focus is on determining the Policy and practices to ensure that the incentives operated by
the Company align with its culture and strategy. In line with the Code, the Committee has oversight of wider workforce pay and policies and
incentives, which enables it to ensure that the approach to Executive remuneration takes into account the approach to broader workforce pay.
Wider workforce employee value proposition
The Group employs over 5,000 people across the UK, Republic of Ireland, the Netherlands, and Spain. We believe that our ability to deliver
fantastic products and service to our customers comes from the passion and commitment shown by all our people across all parts of the
Group. The various factors which make up our “Fair Deal” proposition is set out below.
Area
Details
Pay and benefits
• We have a clear reward philosophy across the Group as highlighted previously
• We aim to be the market median payer of remuneration for good individual performance, believing
that this approach balances fairness to the employee as well as responsible use of shareholders’ funds
• Employees can share in our success via bonus schemes and the Sharesave scheme which is
available in the UK and Republic of Ireland
Working environment
• We strive to create a positive working environment and promote the right behaviours through
evidence of objective decision making, equity of treatment and trust in doing the right things in the
right way
• Company-wide groups generate positive engagement more broadly with activities such as the
#HealthySelfie campaign in the ‘Living Well’ Workplace group
• We launched Workplace by Facebook as an internal communication and engagement tool in 2017,
and currently more than 2,300 of our colleagues use it daily to connect teams and support business
efficiencies
• We also continue to receive external recognition for excellence in employee conditions by the
retention of our Top Employer certification from the Top Employers Institute
Development opportunities
• We provided access to development opportunities enabling growth within function or
cross-functionally
• We have an award-winning apprenticeship programme. To date, 65 young people have successfully
completed the programme and now hold permanent positions in the Group in a variety of areas
including service upholstery, manufacturing, retail, and administration
• We provided access to development opportunities enabling growth within function or
cross-functionally
• We actively participate in the national development of apprenticeship standards in manufacturing
and retail for our industry
Recognition
• We provide monetary and non-monetary recognition
• We have visible celebrations of achievements
• We have opportunities for peer-led and hierarchical recognition
Cascade of remuneration across the group
The policy described above applies specifically to Executive Directors of the Company. The Committee believed that the structure of
management and employee reward at DFS should be linked to DFS’s strategy and performance. The table below illustrates how the
remuneration framework operates below the Executive Directors.
Level
Executive Directors
Group Leadership Team
Head of divisions/
functions
Managers
All employees
Employee
numbers
Fixed
remuneration
Annual bonus
or sales
commission plans
Restricted
share plan
Long-Term
incentive plan
Sharesave
2
8
c.75
c.335
c.4,952
Shareholding
guidelines
Notes:
1. Manager population may participate in the restricted share plan by invitation.
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Oversight of wider workforce pay and policies
In order for the Committee to carry out its oversight review of wider workforce pay and policies and incentives under the Code, the
Committee has approved a process by which it will be provided with additional information, in the form of a Workforce Report, to carry out
these responsibilities. This is an annual summary setting out the key details of remuneration changes for the senior management and the
wider workforce. The Committee appreciates that the level and type of remuneration offered will vary depending on an individual employee’s
level of seniority, the nature of their role, and the Group brand to which they belong.
The first Committee report is due to be considered by the Committee in FY21. Details of the findings on the alignment of pay across the
Group will be communicated to employees and reported on in next year’s report.
Consideration of employee views
In setting the policy for Directors, the pay, and conditions of other employees of the Group are taken into account, including any base salary
increases awarded. As described above, the Committee will be provided with data on the remuneration structure for management level tiers
below the Executive Directors and will use this information to ensure consistency and fairness of approach throughout the Company.
As reported in 2019 DFS set up its Employee Voice Forum in June 2019. Attendees have been chosen from our front-line teams, with
representatives from all areas of the Group providing feedback from their areas. In November, the Non-Executive Directors attended the
Employee Voice Forum along with the Group People Director and topics covered included executive pay and employee share schemes.
Other sessions planned during the year had to be cancelled due to the pandemic and the majority of the representatives being furloughed.
The purpose of these sessions is to understand the views of our employees better and ensure their views are factored in as part of decision
making including, where appropriate, decisions on remuneration.
The Employee Voice Forum operates in addition to existing open communication via Workplace, and employee views are sought in an active
program of engagement surveys, which are shared with the Board and with the Committee. The results of the surveys and the actions taken
by the business are communicated back to employees.
During the year the Board again reviewed how best to engage and communicate with our employees and concluded that in addition to
the Employee Voice Forum, a Designated Non-Executive Director would be appointed to enhance our employee engagement
arrangements.
Jane Bednall was duly appointed to this role from 1 July 2020.
Gender pay gap reporting and diversity and inclusiveness initiatives
Gender pay gap reporting
The UK Government Equalities Office legislation requires employers with more than 250 employees to disclose information on their
gender pay gap annually. The Group is confident our male and female employees receive equal pay for equivalent jobs. We published our
gender Pay Gap Reporting for 2019 in April 2020 and it is available online: https://www.dfscorporate.co.uk/media/48485/2019-Group-
Gender-Pay-Gap-Narrative-1-.pdf
We recognise that there continues to be a gender pay gap in the business, although the mean and median gaps fell 3.6% and 3.1%
respectively in the year. The Group’s employee base has an approximate two-thirds male, one-third female split driven mainly by the fact that
historically our manufacturing, supply chain and retail business areas have, for various reasons, attracted a predominantly male workforce.
Analysis shows that our 14.8% mean and 10.1 % median pay gap is a result of more men in senior positions throughout all business areas.
We note that we have no positions in the Group where there is a gender pay gap for men and women performing the same job.
The Group has several initiatives in place to work towards closing the gap. These are part of wider diversity and inclusiveness initiatives,
which are described below.
Further information can be found in the Sustainability Report on pages 54 to 55 of this Annual Report.
Inclusivity and diversity
DFS is committed to ensuring that all our employees can thrive and prosper. The Company is committed to addressing the gender pay gap
and a number of steps are in place to promote equality and diversity in the workforce as well as prohibiting discrimination in any form:
• We welcome and give full and fair consideration to applications from individuals with recognised disabilities to ensure they have equal
opportunity for employment and development in our business. Wherever practicable we offer training and make adjustments to ensure
disabled employees are not disadvantaged in the workplace
• We are actively working to improve female representation in key business areas with a traditional skew towards men
• We are setting performance targets for a large proportion of the management population to focus on the gender split across all sectors
of our business
• We are offering recruitment development workshops for hiring managers with a dedicated section on unconscious bias training
• We are building assessment criteria into our online recruitment processes that remove gender bias
• We have introduced Group wide family friendly policies and increased time off for parents
• We have introduced flexible working and are creating the tools, mechanisms, and environment to offer this to all employees
• An equal split between male and female colleagues on Apprenticeships and Management Training programmes
• The Board is kept aware of progress and initiatives with regards to inclusivity and diversity
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Directors’ remuneration report continued
CEO Pay ratio
This is the first year in which we are required to disclose the CEO Pay ratio.
The Company has adopted Option B: Gender Pay Gap data, this approach was considered appropriate due to data availability. The Committee
will continue to determine the most appropriate methodology (Option A, B or C) to be used each year, by considering the robustness of the
calculation methodology as well as the availability of data and operational time constraints.
The relevant employees at each quartile were identified in April 2020, this was as a result of using the Gender Pay Gap data which is calculated
for the period covering 5th April 2020.The pay and benefits data for the relevant 25th, 50th and 75th percentile employees is taken from the
12-month period ending in June 2020, financial year FY20. The pay and benefits figure includes:
• all earnings paid through the payroll, e.g. salary, bonus, long term incentives
•
• any other taxable benefits, e.g. private medical, company car etc
• no elements of pay were omitted and there was no departure from the single figure methodology
the value of the employer pension contributions
Pay and benefits for the relevant employees have been calculated on a full-time equivalent basis and there was no reliance on estimates.
The lower quartile, median and upper quartile employees were identified from the gender pay gap data where the hourly pay for employees
was ranked. A sample of 10 employees pay and benefits either side of the initially identified employees was reviewed to ensure that the
appropriate representative employees are selected.
The table below compares the FY20 single total figure of remuneration for the CEO with that of employees who are paid at the 25th, 50th
and 75th percentile of the employee population.
FY20 Data: Single Figure Total Remuneration
Year
Method
2020
Option B
Measure
Pay Ratio
Salary
Total pay and benefits
CEO
£386,667
£568,399
25th
percentile
24:1
£21,850
£23,644
50th
percentile
20:1
£25,648
£28,740
75th
percentile
16:1
£30,367
£35,048
Part F: Annual Report on Remuneration for the Financial Year ended 28 June 2020
Single total figure of remuneration for Executive Directors – audited
The remuneration of Executive Directors showing the breakdown between components with comparative figures for the prior financial year
is shown below. Figures provided have been calculated in accordance with the Regulations.
Name
Tim Stacey
Mike Schmidt3
Year
2020
2019
2020
Base
salary
Taxable
Benefits1
387
267
289
40
21
13
Bonus
0
70
0
LTIP
0
774
0
RSP2
Pension5
Other6
98
–
–
43
29
27
0
0
2
Total
Fixed
470
317
331
Total
Variable
98
147
–
Total
568
464
331
Notes:
1. Taxable benefits comprise car, private medical insurance (including cover for spouses and dependents), relevant professional subscriptions, seasonal gifts and reimbursement
of home telephone line and telephone expenses – the value of which has been included in the Taxable Benefits column.
2. This is an award under the DFS Restricted Share Plan that was made to the CEO prior to his appointment as an Executive Director. The award vested on 16 November 2019 and
was subject to a share price performance condition. The share price increase attributed to this award is £11,181.
3. As Mike Schmidt was not an Executive Director during 2019, the table only shows his single figure for 2020.
4. The 2016 LTIP award which vested in 2019 for Tim Stacey has been restated using the actual share price on vesting of £2.14 as at 15/11/2019.
5. Where pension contribution is taken as a salary supplement the amount is be reduced by the associated Employer’s National Insurance contribution to ensure there is no cost to
the company from this alternative.
6. The ‘Other’ column for Mike Schmidt represents a car allowance supplement.
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Incentive outcomes for 2020
Annual bonus outturn for the year – audited
As reported in the Chairs statement the impact of the pandemic on the financial results of the business has rendered the assessment of
financial targets irrelevant. When assessing the non-financial elements of the Annual Bonus, the NPS target was achieved in full and the
personal objectives had been completed, in full or in part prior to lockdown, on which an element of the bonus payment would ordinarily have
been due to the Executive Directors. However, the Committee concluded that, given the overall financial performance and the impact on
shareholders due to the cancellation of the dividend, it would be inappropriate to award any bonus to the Executive Directors. In consultation
with the Executive Directors, the Committee therefore exercised its discretion and no bonus payments were made to the Executive Directors.
Performance measure
Group revenue
Group underlying PBT
Group net debt
Net promoter score
Personal objectives
Bonus outcome following discretion (% maximum)
Bonus opportunity for FY20 following discretion (% salary)
Total bonus outcome following discretion (£)
Weighting
Threshold
(0%)
Target
Maximum
(100%)
Outcome
(% max bonus)
15%
£991.7m
£1,035.5m
£1,059m
25%
£52.1m
£56.6m
£59.0m
20%
£46.2m
£50.2m
£52.4m
20%
20%
See note above
See note above
0%
0%
0%
–
0%
0%
0
LTIP awards vesting in relation to performance in 2019/20 – audited
The 2017 award was granted on 15 November 2017 and was assessed against the performance targets at the end of FY20 (i.e., to 28 June
2020). The final level of vesting of these awards was 0% as set out on in Part B At a glance on page 90 .
However, as set out in the single figure table Tim Stacey received 45,635 shares in relation to his Restricted Share Plan award as granted on
16 November 2017 prior to becoming CEO. This award was subject to a share price performance condition which was met.
LTIP awards granted in FY20 (2019 award)
The CEO, Tim Stacey was granted an award over 248,275 shares, in the form of nil cost options, equivalent to 150% of salary on 25 October
2019 and the CFO, Mike Schmidt was granted an award of 148,965 shares, in the form of a nil cost option, equivalent to 120% of salary on
25 October 2019 (the number of shares granted was based on a share price of £2.42 (which was the average of the closing share price on the
three days prior to the grant). The performance period for the 2019 award is from 1 July 2019 and will end 30 June 2022. The performance
measures are based on Adjusted EPS and Relative TSR and details are set out below.
For FY20, we applied an absolute range for the EPS measure (50% of the LTIP award) as the Committee felt that it was more appropriate to
adopt an absolute range as it gave the clearest line of sight for management and shareholders alike.
As reported in 2019, the Committee confirmed that the comparator groups within the TSR measure would be weighted more heavily
towards the UK retail sector as the more relevant group. Therefore, for the 2019 LTIP award, the split between the FTSE 350 General
Retailers Index and the FTSE 250 Index (excluding Investment Trusts) was 35:15 (50% of the LTIP award).
Director
Tim Stacey
Mike Schmidt
Number of shares
granted in
form of a
nil-cost option
Face value of
shares at date of
grant (£)
248,275
148,965
600,000
360,000
Minimum value
at vesting (£)
120,000
72,000
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Directors’ remuneration report continued
(1) Adjusted EPS (50% of the award)
Adjusted EPS will be measured by reference to the reported Adjusted EPS figure for the Financial Year ending in 2022. This portion of the
award will vest as follows:
Adjusted EPS for the Financial Year ending in 2022
Percentage of this portion of Award Vesting
Less than 23.5p
23.5p
28.5p
Nil
20%
100%
Between 23.5p and 28.5p
Between 20% and 100% on a straight-line basis
(2) Total Shareholder Return (TSR) (50% of the award)
TSR growth will be measured against two indices: the FTSE 250 Index (excluding investment trusts) and the FTSE 350 General Retailers Index.
The performance period for this award commenced at the beginning of the Company’s FY20 and shall terminate at the end of the FY22.
This portion of the award will vest as follows:
FTSE 250 Index (15% of the award)
TSR Growth p.a.
Below FTSE 250 Index return
Equal to FTSE 250 Index return
10% p.a. above the FTSE 250 Index return
Percentage of this portion of Award Vesting
Nil
20%
100%
Between FTSE 250 Index return and the Index plus 10% p.a.
Between 20% and 100% on a straight-line basis
FTSE 350 General Retailers Index (35% of the award)
TSR Growth p.a.
Percentage of this portion of Award Vesting
Below FTSE 350 General Retailers Index return
Equal to FTSE 350 General Retailers Index return
10% p.a. above the FTSE 350 General Retailers Index return
Between FTSE 350 General Retailers Index return and the
Index plus 10% p.a.
Nil
20%
100%
Between 20% and 100% on a straight-line basis
LTIP awards to be granted in FY21 (2020 award)
For the FY 2021 LTIP grant, Executive Directors will be awarded quantum in line with policy. Performance will be based on EPS and relative
TSR (against the FTSE 250 index excluding investment trusts and FTSE 350 General Retailers). However, at the present time, the Committee
does not feel able to robustly set three-year EPS and TSR targets given the significant uncertainty in the wider economic environment.
Therefore, the Committee’s intention is to set the targets within six months of the 2020 LTIP award being granted (in line with IA guidelines)
when the market has stabilised. Likewise, the Committee will consider the most appropriate weighting between TSR peer groups within six
months when the market has stabilised.
SAYE awards – audited
There were no SAYE awards granted to Executive Directors during the year.
Payment to past directors
None
Payment for loss of office
None
Dilution
The Company intends to fund its share incentives through a combination of new issue and market purchased shares. The Company monitors
the levels of share grants and the impact of these on the ongoing requirement for shares. In accordance with guidelines set out by the
Investment Association (“IA”) the Company can issue a maximum of 10% of its issued share capital in a rolling 10-year period to employees
under all its share plans.
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Single figure remuneration table for Non-Executive Directors – audited
The remuneration of Non-Executive Directors showing the breakdown between components, with comparative figures for the prior year, is
shown below. Figures provided have been calculated in accordance with the Regulations.
Director
Ian Durant
Luke Mayhew
Alison Hutchinson
Jo Boydell
Steve Johnson
Jane Bednall
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
Fees
£’000
177
168
21
56
61
52
56
31
52
29
24
Other
£’000
1
–
–
–
–
–
–
–
–
–
–
Total
£’000
178
168
21
56
61
52
56
31
52
29
24
Notes:
1. 2019 figures reflect the 11-month financial year.
2. The NED’s all took a 20% reduction in their fees in May and June to support the business through the pandemic.
3. Luke Mayhew stepped down from the Board on 15 November 2019.
4. Alison Hutchinson was appointed Senior Independent Director on 26 September 2019.
5. Jane Bednall was appointed to the Board on 1 January 2020.
6. Steve Johnson was appointed as Chair of the Remuneration Committee on 17 January 2020.
7.
Ian Durant other remuneration relates to health insurance benefit in kind.
Shareholding and other interests at 28 June 2020 – audited
Directors’ share interests and, where applicable, achievement of shareholding requirements are set out below. In order that their interests
are aligned with those of shareholders, Executive Directors are expected to build up and maintain (as relevant) a personal shareholding equal
to 250% of their base salary in the Company (this applies to existing Executive Directors only) over a five-year period from appointment.
Director
Tim Stacey3
Mike Schmidt4
Ian Durant
Jane Bednall
Jo Boydell
Alison Hutchinson
Steve Johnson
Luke Mayhew5
Total
Shareholding at 28 June 2020
Interests in shares under the LTIP
(Conditional shares)
Number of
beneficially
owned shares1
477,208
19,375
44,666
13,333
13,333
13,333
26,666
44,121
652,035
% of salary
held2
Shareholding
requirement
met
Subject to
conditions
Not subject
to conditions
Vested but
unexercised
Unvested
SAYE awards
Total at
28 June 2020
202%
11%
n/a
n/a
n/a
n/a
n/a
n/a
–
no
no
n/a
n/a
n/a
n/a
n/a
n/a
761,449
–
181,007
54,098
–
–
–
–
–
–
–
–
–
–
–
–
–
942,456
54,098
–
–
–
–
–
–
–
–
–
– 1,238,657
–
–
–
–
–
–
–
254,480
46,666
13,333
13,333
13,333
26,666
44,121
– 1,635,259
Notes:
1. Beneficial interests include shares held directly or indirectly by connected persons.
2. Shareholding requirement calculation is based on the share price at the end of the year (£1.69 at 28 June 2020).
3. Tim Stacey’s interests in share, subject to conditions include 106,484 shares under his 2017 RSP award.
4. Mike Schmidt’s interests in shares, not subject to conditions, refer to his outstanding 2017 and 2018 RSP awards. The RSP awards were granted to Mike prior to him becoming
Executive Director and have no performance conditions attached to them.
5. Luke Mayhew stepped down from the Board on 15 November 2019 the shareholding was correct at that date.
At 21 September 2020 there had been no movement in Directors’ shareholdings and share interests from 28 June 2020.
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Directors’ remuneration report continued
Outstanding share awards
The following share awards remain outstanding as at 28 June 2020 for the Executive Directors (excluding the 2017 LTIP award for which
performance has been tested):
Director
Tim Stacey
Mike Schmidt
Type of
award
2017 LTIP1
RSP
2018 LTIP
2019 LTIP
2017 RSP2
2018 RSP2
LTIP
2019 LTIP
Date of
grant
16/11/17
16/11/17
30/11/18
25/10/19
16/11/17
30/11/18
30/11/18
25/10/19
Number of
awards
125,000
106,484
281,690
248,275
35,789
18,309
32,042
148,965
Award
vested
Awards
lapsed
Outstanding
awards
Market price
on date of grant
Norma
vesting date
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
125,000
106,484
281,690
248,275
35,789
18,309
32,042
148,965
£1.90
£1.90
£2.13
£2.42
£1.90
£2.13
£2.13
£2.42
16/11/20
16/11/20
30/11/21
25/10/22
16/11/20
30/11/21
30/11/21
25/10/22
Notes:
1. The 2017 LTIP award will lapse on 16 November 2020.
2. Mike Schmidt’s 2017 and 2018 RSP awards were granted prior to him becoming an Executive Director.
Details of LTIP award performance conditions
LTIP award
2018 LTIP
Performance
conditions
EPS growth
TSR
2019 LTIP
EPS growth
TSR
Weighting
(% award)
Detail
Entry level
performance
Max
performance
Threshold
level vesting
Maximum
vesting
50%
15%
35%
50%
15%
35%
Reporting underlying EPS
TSR (FTSE 250 excl ITs)
TSR (FTSE 350 General
Retailers)
Reporting underlying EPS
TSR (FTSE 250 excl ITs)
TSR (FTSE 350 General
Retailers)
23.0p
Index
Index
23.5p
Index
28.5p
Index + 10% p.a.
Index + 10% p.a.
28.5p
Index + 10% p.a.
20%
20%
20%
20%
20%
100%
100%
100%
100%
100%
Index
Index + 10% p.a.
20%
100%
Statement of implementation of Policy for the year ending 28 June 2020
See pages 92 to 95.
Matters covered during the Committee’s meetings in FY20
As at 28 June 2020, the Committee consisted of the following members:
• Steve Johnson Chair
• Alison Hutchinson
• Jo Boydell
• Jane Bednall
The key matters covered by the Committee during the year are summarised below.
Matter
Approved bonus outcomes for 2019
Approved bonus scorecard for FY20 and monitored interim performance
Signed-off LTIP performance outcomes for 2016 LTIP
Approved LTIP performance targets for 2020 LTIP and monitored performance
Signed-off Directors Remuneration Report
Review of corporate governance code changes and market practice update
Chair Fee Review
Gender pay reporting and diversity and inclusiveness initiatives
Retail Management and Sale Colleague reward review
The Committee agreed to apply downward discretion to override the formulaic outcome for
the bonus outcomes for 2020 for Executive Directors
The Committee reviewed and made changes to remuneration for Directors and the senior
management team in light of Covid-19
Reviewed format for wider workforce remuneration reporting
Note:
Details of meeting attendance by Committee members can be found on page 71 of this Annual Report.
DFS Furniture plc
Annual Report & Accounts 2020
Sep 19
Dec 19
Mar 20
Jun 20
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
105
Internal and external support for the Committee
The Chairman, the CEO and the CFO attend meetings at the invitation of the committee but are not present when their own remuneration is
being discussed. The Company Secretary acts as Secretary to the Committee. The Committee is supported by the Group People Director,
Finance and Company Secretariat functions.
The Committee received external advice in FY20 from PwC during the year. The Committee appointed PwC as its advisers after a tender
process in July 2015. PwC are considered by the Committee to be objective and independent. PwC are members of the Remuneration
Consultants Group and, as such, voluntarily operate under the code of conduct in relation to executive remuneration consulting in the UK.
The Committee reviewed the nature of all the services provided during the year by PwC and was satisfied that no conflict of interest exists or
existed in the provision of these services. The total fees paid to PwC in respect of services to the Committee during the year were £72,387.
Fees were determined based on the scope and nature of the projects undertaken for the Committee.
Service Contracts for Executive Directors
When setting notice periods, the Committee has regard to market practice and corporate governance best practice. The table below
summarises the service contracts for our Executive Directors.
Tim Stacey
Mike Schmidt
Date of contract
Notice period
21 May 2018
6 months (Executive) or 12 months (Company)
12 July 2019
6 months (Executive) or 6 months (Company)
All service contracts are available for viewing at the Company’s registered office and at the AGM. The Executive Directors may accept
outside appointments subject to approval of the Board and provided that such appointments do not in any way prejudice their ability to
perform their duties as Executive Directors of the Company. The Executive Directors concerned may retain fees paid for these services.
Letters of appointment for Non-Executive Directors
The Non-Executive Directors do not have service contracts but are appointed under letters of appointment which provide for a review after
an initial three-year term terminable by either the Non-Executive Director or the Company with three month’s prior written notice.
Each Non-Executive Director is subject to annual re-election at the Company’s AGM.
The table below sets out the dates that each Non-Executive Director was first appointed as a Group Director.
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Ian Durant
Alison Hutchinson
Jo Boydell
Steve Johnson
Jane Bednall
For and on behalf of the Committee
Steve Johnson
Chair of the Remuneration Committee
24 September 2020
Date of appointment
2 May 2017
1 May 2018
6 December 2018
6 December 2018
1 January 2020
DFS Furniture plc
Annual Report & Accounts 2020
106
Directors’ report
DFS Furniture plc (the “Company”) is a company incorporated and domiciled in the UK, with registration number 07236769. It is the holding
company of the DFS Group of companies (the “Group”).
The shares of the Company have been traded on the main market of the London Stock Exchange throughout the 52 weeks ended
28 June 2020.
The Company has no overseas subsidiaries but operates branches in the Republic of Ireland, Spain and the Netherlands.
The Directors present their Annual Report and audited financial statements for the 52 weeks ended 28 June 2020, in accordance with
section 415 of the Companies Act 2006.
As permitted by legislation, some of the matters required to be included in the Directors’ Report have instead been included in the
Strategic Report on pages 1 to 63 as the Board considers them to be of strategic importance as well as some matters contained within
the Directors’ remuneration report on pages 84 to 105.
Specifically, these matters are:
• Future business developments and our strategy and objectives (contained throughout the Strategic Report);
• Employees, which can be found on pages 52 to 55;
• Risk management on pages 32 to 38;
• Total global Group greenhouse gas emissions for FY20 on page 51;
• The Corporate Governance statement, set out on pages 66 to 75; and
•
Information on how the Directors have had regard for the Company’s stakeholders and complied with their responsibilities under s172,
and the effect of that regard, on pages 60 to 63.
The Strategic Report and the Directors’ Report together form the Management Report for the purposes of the Disclosure Guidance and
Transparency Rules (DTR) 4.1.8R.
The Directors’ Report fulfils the requirements of the corporate governance statement for the purposes of DTR 7.2.3R.
Both the Strategic Report and the Directors’ Report have been drawn up and presented in accordance with and in reliance upon applicable
English company law, and the liabilities of the directors in connection with those reports shall be subject to the limitations and restrictions
provided by such law.
Board of Directors
The membership of the Board and biographical details of the Directors are provided on pages 64 and 65. Changes to the Directors during
the year and up to the date of this report are set out below. Details of Directors’ beneficial and non-beneficial interests in the shares of the
Company are shown on page 103. Options granted to directors under the Save As You Earn (SAYE) and Executive Share Option Schemes are
shown on page 104. Further information regarding employee share option schemes is provided in note 25 to the financial statements.
The Directors who served during the financial year were as follows:
Director
Ian Durant
Luke Mayhew
Mike Schmidt
Tim Stacey
Position
Chair
Service in the year ended 28 June 2020
Served throughout the year
Senior Independent Non-Executive Director
Resigned 14 November 2019
Chief Financial Officer
Chief Executive Officer
Appointed 11 July 2019
Served throughout the year
Alison Hutchinson
Senior Independent Non-Executive Director
Served throughout the year
Jo Boydell
Steve Johnson
Jane Bednall
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Served throughout the year
Served throughout the year
Appointed 1 January 2020
The appointment and replacement of directors is governed by the Company’s Articles of Association (the “Articles”), the UK Corporate
Governance Code (the “Code”), and the Companies Act 2006 and related legislation. The Articles of Association provide that a Director may
be appointed by an ordinary resolution of the shareholders or by the existing directors either to fill a vacancy or as an additional Director.
All of the Directors will, in accordance with the Code, retire from office and seek re-election at the Company’s Annual General Meeting (the
“AGM”) on 13 November 2020, with the exception of Jane Bednall who will seek election for the first time.
Subject to the Articles, the Companies Act 2006 and any directions given by special resolution, the business of the Company will be
managed by the Board who may exercise all the powers of the Company.
The Company may, by ordinary resolution, declare dividends not exceeding the amount recommended by the Board. Subject to the
Companies Act 2006, the Board may pay interim dividends and also any fixed rate dividend whenever the financial position of the Company,
in the opinion of the Board, justifies its payment.
DFS Furniture plc
Annual Report & Accounts 2020
107
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Executive Directors’ Contracts
The Executive Directors serve under rolling contracts that are terminable upon 6 months’ notice from the Company and 12 months’ notice
from the Executive Director. The Non- Executive Directors are under letters of appointment. Copies of service contracts and letters of
appointment are available for inspection at the Company’s registered office during normal business hours and will be available for inspection
at the Company’s AGM.
Following recommendations from the Nomination Committee, the Board considers that all Directors continue to be effective, committed
to their roles and able to devote sufficient time to discharge their responsibilities.
Directors’ interests
Information about the Directors’ interests in the Ordinary Shares of the Company on 28 June 2020, or date of appointment if later, and any
subsequent changes as at 23 September 2020 is set out in the Directors’ remuneration report on pages 103 to 104.
Directors’ indemnities and insurance
In accordance with the Companies Act 2006 and the Company’s Articles, the Company has purchased and maintains directors’ and officers’
liability insurance cover which remains in place as at the date of this report. A review is carried out on an annual basis to ensure that the Board
remains satisfied that an appropriate level of cover is in place.
Directors’ conflicts of interest
The Company has procedures in place for identifying and managing potential and actual conflicts of interest. Should a Director become
aware that they, or any of their connected parties, have an interest in an existing or proposed transaction with any Group company, they
should notify the Board in writing or at the next Board meeting. The Board has discretion whether to authorise any such conflicts of interest,
in accordance with the Companies Act 2006 and the Company’s Articles. Internal controls are in place to ensure that any related party
transactions involving Directors, or their connected parties, are conducted on an arm’s length basis. Directors have a continuing duty to
update any changes to these conflicts.
Change of control and significant agreements
The Company is not a party to any significant agreements which take effect, alter, or terminate, solely upon the event of a change of control
in the Company following a takeover bid. However, in the event of a change of control of the Company, the Company is obliged to give written
notice to its lenders. Each individual lender then has the right to give written notice to the Company to demand early repayment of its
outstanding loans to that lender and to cancel that lender’s commitments in full.
The Company’s share option plans, and its Long-Term Incentive Plan, contain provisions regarding a change of control. Outstanding options
and awards may vest on a change of control, subject to the satisfaction of any relevant performance conditions.
There are no agreements between the Company and its Directors or employees providing for additional compensation for loss of office or
employment (whether through resignation, redundancy or otherwise) that occurs because of a takeover bid.
Employees
As at the year end the Company employed 5,372 employees (as set out in the gender analysis table on page 55). The Group places
considerable value on the involvement of its employees and uses a number of ways to engage with employees on matters that impact them
and on the performance of the Group. These include the annual employee engagement survey as well as regular employee business
briefings by the Group Leadership Team in the form of “Town Hall” broadcasts across the Group and our Employee Voice Forums at which
the Non-Executive Directors meet with employee representatives to discuss key issues.
The Company believes in encouraging employee share ownership and operates an all-employee Save As You Earn Scheme.
Articles of Association
The Articles of Association of the Company can only be amended by special resolution at a general meeting of the shareholders.
No amendments are proposed at the 2020 AGM.
Financial Results
The Group’s results for the year are set out in the consolidated financial statements on pages 120 to 151. The Company only results of DFS
Furniture plc are set out on pages 152 to 156.
Dividends
On 25 March 2020, as part of our update on the impact of Covid-19, the Board of Directors announced its decision to cancel the intended
interim ordinary dividend of 3.7 pence per share which had been due to be paid to shareholders on 17 June 2020. This decision was made as
part of the proactive steps we have taken to strengthen our balance sheet and maximise liquidity for the likely duration of the crisis. This step
preserved close to £8m of cash. The terms of the £70m incremental banking facility obtained in April preclude the payment of dividends at
present and the Board has subsequently announced the decision not to pay a final dividend for FY20 and that it does not currently anticipate
paying a dividend for FY21. While this was a difficult decision, it was taken to protect the Group during the immediate crisis and throughout
the recovery period.
No interim dividend
No proposed final dividend
Total dividend of 0.00p per share for 2019/20
(last year 3.7p per share)
(last year 7.5p per share)
(last year 11.2p per share)
DFS Furniture plc
Annual Report & Accounts 2020
108
Directors’ report continued
Annual General Meeting (‘AGM’)
The Company’s next AGM will take place virtually, at 2.30pm on 13 November 2020 at DFS Head Office, 1 Rockingham Way, Redhouse
Interchange, Adwick-le-Street, Doncaster, DN6 7NA, and the Chair of each of the Board’s Committees will be available to answer questions
put to them by shareholders. The Annual Report and Accounts and Notice of the AGM, including the resolutions to be proposed, will be sent
to shareholders at least 21 clear days prior to the date of the meeting.
To encourage shareholders to participate in the AGM process, the Company provides electronic proxy voting through the CREST service
and all resolutions will be proposed and voted on at the meeting on an individual basis by shareholders or their proxies. Voting results will be
announced through the Regulatory News Service and made available on the Company’s corporate website.
Share capital
Details of the Company’s share capital are set out in note 22 to the consolidated financial statements. In order to maintain liquidity
during the year and at the peak of the Covid-19 pandemic, the Company increased the number of issued shares by 42,606,119 and as at
24 September 2020, the Company had an issued share capital of 255,636,720 Ordinary Shares of £1.50 each.
The rights and obligations attached to these shares are governed by UK law and the Company’s Articles of Association. Holders of Ordinary
Shares of the Company are entitled to participate in authorised dividends and to receive notice and to attend and speak at general meetings.
On a show of hands, every shareholder present in person or by proxy (or duly authorised corporate representatives) shall have one vote and,
on a poll, every member who is present in person or by proxy shall have one vote for every share held.
Other than the general provisions of the Articles of Association and prevailing legislation, there are no specific restrictions on the size of a
holding or on the transfer of the Ordinary Shares. The Directors are not aware of any agreements between holders of the Company’s shares
that may result in the restriction of the transfer of securities or on voting rights. No shareholder holds securities carrying any special rights or
control over the Company’s share capital.
Authority to purchase own shares
At the last AGM of the Company on 14 November 2019, the Company was authorised to purchase a maximum of 10% of the Company’s
issued share capital. This authority will expire at the close of the next AGM on 13 November 2020 unless revoked, varied or renewed prior to
that meeting.
Since the date of the last Annual Report, the Company purchased 400,000 shares in order to satisfy Long Term incentive plans and 978,246
treasury shares have been utilised to satisfy share-based employee-awards and SAYE options. As at the date of this Annual Report, 266,473
Ordinary shares of £1.50 each are held by the Company as treasury shares with the expectation that they will be utilised to satisfy future
share-based employee-award/SAYE option obligations.
A resolution will be proposed at the 2020 AGM to renew this authority.
Authority to allot shares
At the last AGM of the Company on 14 November 2019, the Company was granted a general authority by its shareholders to allot shares up
to an aggregate nominal amount of £106,092,941 (or up to £212,185,882 in connection with an offer by way of a rights issue).
As at the date of this Annual Report, 42,606,119 shares have been issued under this authority. This authority will expire at the conclusion of
the 2020 AGM unless revoked, varied or renewed prior to that meeting.
A resolution will be proposed at the 2020 AGM to renew this authority.
Substantial Shareholders
As at 21 September 2020, the Company has been notified of the following holdings of voting rights in its shares under Rule 5 of The
Disclosure Guidance and Transparency Rules of the Financial Conduct Authority:
Investor
Aviva Investors
Liontrust AssetMgt
Franklin Templeton Investments
JO Hambro Capital Mgt
Pelham Capital Mgt
Aberforth Partners
Stadium Capital Mgt
Aberdeen Standard Investments (Standard Life)
Number of voting rights
% voting rights
Date of last notification
19,900,155
19,709,335
19,451,033
19,253,988
18,742,760
16,311,222
15,624,674
13,045,209
7.8
7.7
7.6
7.5
7.3
6.4
6.1
5.1
30 Apr 2020
25 Nov 2019
13 Apr 2020
24 Nov 2017
12 Dec 2019
4 Oct 2018
26 Sept 2017
10 Apr 2020
DFS Furniture plc
Annual Report & Accounts 2020
109
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Financial risk management
The Company’s objectives and policies on financial risk management, including information on credit, liquidity and market risks can be found
in note 24 to the financial statements.
Political donations
The Company did not make any political donations or incur any political expenditure during the year ended 28 June 2020 or the previous
financial year. The Group has a policy of not making donations to political organisations or independent election candidates or incurring
political expenditure anywhere in the world as defined in the Political Parties, Elections and Referendums Act 2000.
Charitable donations
Charitable donations made by the Group during the year amounted to £115,378 (2019: £142,500). Further information regarding the
Company’s charitable donations can be found in the sustainability and responsibility report on pages 58 to 59.
Going concern
The Group has a £250.0m revolving credit facility in place until August 2022, and in April 2020, to increase resilience to the short-term effects
of the Covid-19 pandemic, secured an additional twelve month facility of £70.0m from the same group of lending banks. In the same month
the Group also secured to £63.9m of equity funding from a placing of ordinary shares. During the period from the inception of the additional
£70.0m facility through to June 2021, existing covenants on the revolving credit facility (of 3.0x net debt/EBITDA and 1.5x Fixed Charge
Cover) have been replaced by new minimum quarterly EBITDA and net debt covenants. At the date of approval of these financial statements,
none of the £70.0m facility had been utilised and a further £170.0m of the revolving credit facility remained undrawn, giving the Group a total
of £240.0m available facility in addition to cash in hand, at bank (£47.8m as at 21 September 2020).
The Directors have prepared cash flow forecasts for the Group covering a period of 18 months to March 2022. These forecasts indicate that
the Group will be in compliance with the minimum quarterly EBITDA and net debt covenants applicable for that period, which are assessed
monthly, as well as the original covenants which become effective once more from June 2021. These forecasts include a number of
assumptions in relation to: level of customer order intake; gross profit margins; and achievement of cost savings in line with the Group’s
strategic plans.
The Directors have also prepared severe but plausible downside sensitivity scenarios which cover the same period as the base case. These
downside scenarios include specific consideration of a range of impacts that could arise from the continued coronavirus pandemic and the
UK’s exit from the EU. These scenarios included: significantly reduced customer spending; a second lockdown during FY21 leading to
reduced order intake and customer deliveries; disruptions to manufacturing and supply chain causing delays in receiving stock; and possible
changes in the regulatory environment surrounding product warranty insurance. As part of this analysis, mitigating actions within the
Group’s control should these severe but plausible scenarios occur have also been considered. These mitigating actions included reducing
discretionary advertising expenditure, a pause on expansionary capital investment and other measures to protect cash balances. These
forecast cash flows, considering the ability and intention of the Directors to implement mitigating actions should they need to, indicate that
there remains sufficient headroom in the forecast period for the Group and Company to operate within the committed facilities and to
comply with all relevant banking covenants during the forecast period.
The Directors have considered all of the factors noted above, including the inherent uncertainty in forecasting the impact of the coronavirus
pandemic, and are confident that the Group and Company have adequate resources to continue to meet all liabilities as and when they fall
due for the foreseeable future and at least for the period of twelve months from the date of these financial statements. Accordingly, the
financial statements are prepared on a going concern basis.
Auditor and disclosure of information to auditor
The Directors who held office at the date of this Report confirm that, so far as they are each aware, there is no relevant audit information
of which the Company’s auditor is unaware; and each such Director has taken all the reasonable steps that they ought to have taken as a
Director to make himself or herself aware of any relevant audit information and to establish that the Company’s auditor is aware of the
information.
The confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
KPMG LLP has expressed its willingness to continue in office as auditor and a resolution to re-appoint it as the Company’s auditor
will be proposed at the forthcoming AGM.
Subsequent events
Following the end of the financial year, the Group completed the sale of The Sofa Workshop Limited on 18 September 2020. Between
28 June 2020 and the date of signing this report there have been no other reportable subsequent events.
Elizabeth McDonald
Group Company Secretary
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
110
Statement of Directors’ responsibilities in respect of the annual report
and the financial statements
The Directors are responsible for preparing the Annual Report and the Group and Parent Company Financial Statements in accordance with
applicable law and regulations.
Company law requires the Directors to prepare Group and Parent Company financial statements for each financial year. Under that law they
have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the
European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the Parent Company Financial Statements in
accordance with UK accounting standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 101 Reduced
Disclosure Framework.
Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of
the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent
Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable, relevant and reliable;
•
•
for the Group financial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU;
for the parent Company financial statements, state whether applicable UK accounting standards have been followed, subject to any
material departures disclosed and explained in the financial statements;
• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations,
or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that
its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and
other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Responsibility statement of the directors in respect of the annual financial report
We confirm that, to the best of our knowledge:
•
•
the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
the Annual Report includes a fair review of the development and performance of the business and the position of the issuer and the
undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that
they face.
In addition, the Directors consider the Annual Report and financial statements, take as a whole, are fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy.
The Directors’ Report was approved by a duly authorised committee of the Board of Directors on 23 September 2020 and signed on its
behalf by:
Elizabeth McDonald
Group Company Secretary
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
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Independent auditor’s report
111
Independent auditor’s report to the members of DFS Furniture plc
1. Our opinion is unmodified
We have audited the financial statements of DFS Furniture plc (“the Company”) for the 52 week period ended 28 June 2020 which comprise
the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, the Company Balance Sheet, the Company
Statement of Changes in Equity, and the related notes, including the accounting policies in note 1 to both the Group and parent Company
financial statements.
In our opinion:
•
the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 28 June 2020 and of
the Group’s loss for the 52 week period then ended;
the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as adopted
by the European Union;
the parent Company financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101
Reduced Disclosure Framework; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
•
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the Audit Committee.
We were first appointed as auditor by the shareholders on 6 July 2015. The period of total uninterrupted engagement is for the 6 financial
years ended 28 June 2020. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with,
UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities. No non-audit services prohibited by
that standard were provided.
Overview
Materiality: Group financial statements as a whole
Coverage
Key audit matters
Recurring risks
Transitional risk
£1.8m (2019:£1.4m)
3.6% (2019: 5.0%) of three financial year average absolute Group profit/loss before
tax excluding non-underlying items (2019: Group profit before tax excluding
non-underlying items)
72% (2019:100%) of Group loss before tax (2019: Group profit before tax)
vs 2019
Going concern
The impact of uncertainties due to the UK departure from the
European Union on our audit
Recoverability of goodwill and of the parent’s investment in
subsidiaries and receivables from other group companies
DFS Trading guarantee provision
New: Implementation of IFRS 16
2. Key audit matters: including our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements
and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which
had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement
team. We summarise below the key audit matters, in arriving at our audit opinion above, together with our key audit procedures to address
those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and our
results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a
whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on
these matters.
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2. Key audit matters: including our assessment of risks of material misstatement continued
Going concern.
Refer to page 39 (Viability reporting),
page 78 (Audit Committee Report),
page 109 (Directors’ report) and
page 125 (accounting policy).
Disclosure quality:
The financial statements explain how the
Board has formed a judgement that it is
appropriate to adopt the going concern basis
of preparation for the Group and parent
Company.
That judgement is based on an evaluation
of the inherent risks to the Group’s and the
parent Company’s business model and how
those risks might affect the Group’s and the
parent Company’s financial resources or
ability to continue operations over a period of
at least a year from the date of approval of the
financial statements.
The risks most likely to adversely affect the
Group’s and the parent Company’s available
financial resources over this period were:
• The impact of the Covid-19 pandemic and
the risk of any future periods of lockdown
either in the UK, China or other significant
supplier territories , leading to reduced
order intake and customer deliveries and
disruption to the Group’s manufacturing
or supply chain;
• The impact of Brexit on the Group’s supply
chain; and
• Regulatory changes to the sale of financial
products, including extended warranties.
There are also less predictable but realistic
second order impacts, such as the impact
of Brexit or Covid-19 on the erosion of
consumer confidence, which could result
in a rapid reduction in sales.
Our procedures included:
• Funding assessment: assessed the
committed level of finance, and its expiry,
to determine the level of financing available
to the Group and its associated covenants.
Considered covenant compliance, both in
the financial year and for the forecast
period;
• Historical comparisons: critically
assessed historical results in order to
consider the directors’ track record of
forecasts versus actual cash flows
achieved in the current financial year
and previously;
• Benchmarking assumptions:
Benchmarked the key assumptions behind
the cash flow forecasts to third party
evidence, including analyst reports and
market data;
• Sensitivity analysis: Considered
sensitivities over the level of available
financial resources, including associated
covenant compliance, indicated by the
Group’s financial forecasts taking account
of reasonably possible (but not unrealistic)
adverse effects that could arise from these
risks individually and collectively. This was
done through stress testing the forecasts
to reflect severe but plausible downside
situations, including various Covid-19
lockdown scenarios, a reduction in sales
due to a decrease in consumer confidence,
disruptions to manufacturing and supply
chain causing delays in receiving stock and
the potential impact of a change in
regulation around warranty insurance
products;
The risk for our audit was whether or not
those risks were such that they amounted to
a material uncertainty that may have cast
significant doubt about the ability to continue
as a going concern. Had they been such, then
that fact would have been required to have
been disclosed.
• Evaluation of directors’ intent: Evaluated
the achievability of the actions the
directors consider they would take to
improve the position should the risks
materialise, including reduction in non-
essential capital expenditure and marketing
costs.
• Assessing transparency: Assessed the
completeness and accuracy of the matters
covered in the going concern disclosure
through our specific entity understanding,
industry and market analysis and through
cumulative audit knowledge.
Our results
We found the going concern disclosure
without any material uncertainty to be
acceptable (2019: acceptable).
DFS Furniture plc
Annual Report & Accounts 2020
The impact of uncertainties consequent
upon the UK’s departure from the
European Union on our audit.
Refer to page 33 (principal risks), page 39
(Viability reporting), and page 78 (Audit
Committee Report)
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The risk
Our response
Extreme levels of uncertainty:
The UK left the European Union (EU) on
31 January 2020 and entered an
implementation period which is due to
operate until 31 December 2020. At that point
current trade agreements with the European
Union terminate. The UK is entering
negotiations over future trading relationships
with the EU and a number of other countries.
Where new trade agreements are not in
place World Trade Organisation (WTO)
arrangements will be in force, meaning among
other things import and export tariffs, quotas
and border inspections, which may cause
delivery delays. Different potential outcomes
of these trade negotiations could have wide
ranging impacts on the Group’s operations
and the future economic environment in the
UK and EU.
All audits assess and challenge the
reasonableness of estimates, in particular as
described in Recoverability of goodwill and of
the parent’s investment in subsidiaries and
receivables from other group companies below
and Going concern above, and related
disclosures; and the appropriateness of the
going concern basis of preparation of the
financial statements (see above). All of these
depend on assessments of the future
economic environment and the Group’s
future prospects and performance.
In addition, we are required to consider the
other information presented in the Annual
Report including the principal risks disclosure
and the viability statement and to consider
the directors’ statement that the annual
report and financial statements taken as a
whole is fair, balanced and understandable
and provides the information necessary for
shareholders to assess the Group’s position
and performance, business model and
strategy.
The uncertainty over the UK’s future trading
relationships with the rest of the world and
related economic effects give rise to extreme
levels of uncertainty, with the full range of
possible effects currently unknown.
We developed a standardised firm-wide
approach to the consideration of the
uncertainties arising from the UK’s departure
from the EU in planning and performing
our audits.
Our procedures included:
• Our knowledge of the business: We
considered the directors’ assessment of
risks arising from different outcomes to the
trade negotiations for the Group’s business
and financial resources compared with our
own understanding of the risks. We
considered the directors’ plans to take
action to mitigate the risks.
• Sensitivity analysis: When addressing
Recoverability of goodwill and of the parent’s
investment in subsidiaries and receivables
from other group companies , Going concern
and other areas that depend on forecasts,
we compared the directors’ analysis to our
assessment of the full range of reasonably
possible scenarios resulting from these
uncertainties and, where forecast cash
flows are required to be discounted,
considered adjustments to discount rates
for the level of remaining uncertainty.
• Assessing transparency: As well as
assessing individual disclosures as part
of our procedures on Recoverability of
goodwill and of the parent’s investment in
subsidiaries and receivables from other group
companies and Going concern we
considered all of the disclosures
concerning uncertainties related to the
UK’s future trading relationships together,
including those in the strategic report,
comparing the overall picture against our
understanding of the risks.
Our results
As reported under Recoverability of goodwill
and of the parent’s investment in subsidiaries
and receivables from other group companies ,
we found the resulting estimates and related
disclosures, and disclosures in relation to
going concern to be acceptable. However, no
audit should be expected to predict the
unknowable factors or all possible future
implications for a company and this is
particularly the case in relation to the impact
of the UK’s departure from the EU.
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Independent auditor’s report continued
2. Key audit matters: including our assessment of risks of material misstatement continued
The risk
Our response
Recoverability of goodwill and of the
parent’s investment in subsidiaries and
receivables from other group
companies.
(Group’s goodwill £509.3m; 2019 £514.6m;
impairment expense £5.3m (2019: nil)
parent Company’s investment in
subsidiaries £245.3m; 2019: £244.1m;
parent Company’s receivables £355.4m;
2019 £293m).
Refer to page 78 (Audit Committee
Report), pages 128 to 130 (accounting
policy), note 10 on pages 142 to 143
(financial disclosures), and notes 2 and 3 to
parent Company financial statements on
page 155 (financial disclosures).
Subjective estimate:
There is a risk, particularly in light of current
political and economic uncertainty and more
challenging market conditions, that the
business may not meet expected growth
projections in order to support the carrying
value of goodwill, or the parent Company’s
investment in subsidiaries, or recoverability of
its receivables from other group companies.
This risk remains significant in light of recent
financial years of trading performance for the
Group falling behind internal and market
expectations.
The directors considered the recoverability of
the goodwill balances, the parent Company
investment in subsidiaries and recoverability
of receivables from other group companies
through a value in use calculation that had
underlying assumptions of varying
sensitivities. The estimated recoverable
amount is subjective due to the inherent
uncertainty involved in forecasting and
discounting future cash flows.
The effect of these matters is that, as part of
our risk assessment, we determined that the
value in use has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as
a whole.
Our procedures included:
• Historical comparisons: Compared the
Group’s previous forecasts against actual
outcomes to assess the historical reliability
of the forecasting;
• Benchmarking assumptions: Compared
the Group’s trading forecasts against
current trading performance and
anticipated growth in the furniture retail
sector, and investigated any significant
deviations, in order to challenge the
assumptions included in the forecasts.
This was performed by comparing the
anticipated growth in the forecasts to
industry projections and applying our
knowledge of the Group and of the
retail sector;
• Sensitivity analysis: Performed sensitivity
analysis over revenue, profit margins,
terminal growth rate, and discount factor in
order to determine their impact on the
value in use calculations;
• Our sector experience: Engaged our
own valuation specialists to assess and
challenge the discount rate by obtaining
the detail of the inputs used in the discount
rate calculation, benchmarking each input
against our own expectations, and
comparing the overall rate to an expected
range based on our own benchmarks;
• Comparing valuations: Compared the
sum of the discounted cash flows for all
CGUs and the parent company net asset
position to the Group’s market
capitalisation to assess the reasonableness
of those cash flows and the
reasonableness of the carrying value of
those assets; and
• Assessing transparency: Considered the
adequacy of the Group’s disclosures
around the carrying value of goodwill and
the impairment analysis, as well as the
disclosures around the recoverability of
parent company investments.
Our results
We found the carrying amount of goodwill in
the Group, the parent Company’s investment
in subsidiaries and recoverability of
receivables from other group companies to
be acceptable (2019: acceptable).
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The risk
Our response
DFS Trading guarantee Provision.
Refer to page 78 (Audit Committee Report),
pages 128 to 130 (accounting policy) and
note 20 on page 146 (financial disclosures).
Subjective estimate:
The guarantee provision reflects the
estimated cost of fulfilling the obligations
arising from the product guarantee provided
to retail customers of DFS Trading. The
amount of the provision is inherently
uncertain and there is significant estimation
involved in the provision model, including
assumptions around: average cost per claim,
volume of claims, and the average period over
which customer service telephone calls are
received (“phasing assumption”).
The effect of these matters is that, as part of
our risk assessment, we determined that the
guarantee provision has a high degree of
estimation uncertainty, with a potential range
of reasonable outcomes greater than our
materiality for the financial statements as a
whole. In conducting our final audit work we
reassessed the degree of estimation
uncertainty to be less than that materiality.
Our procedures included:
• Historical comparisons: Compared
expected volumes of customer service
calls and assumptions relating to the
number and value of claims received per
service call, against historical data;
• Test of details: Tested key inputs of the
calculated cost per customer service call to
supporting internal documentation and
benchmarking to third party costs per call.
• Expectation vs outcome: Compared the
timing of when items were sold to the
timing over which calls are expected to
arise in order to corroborate the phasing
assumption;
• Methodology evaluation: Assessed the
reasonableness of Group’s forecasting
methodology by comparing the prior
period’s provision recognised to the costs
incurred during the current financial year in
relation to servicing calls received.
Assessed alternative methodologies
considered and prepared by the Group as
confirming evidence;
• Sensitivity analysis: Performed sensitivity
analysis on key inputs to the calculation of
the provision, including average cost per
claim and the percentage of orders on
which calls are received, in order to
determine their impact on the calculations;
and
• Assessing transparency: Determined
whether the Group’s disclosures in relation
to the provision, the assumptions on which
it is based and sensitivities around those
assumptions are adequate.
Our results
We found the resulting estimate of the
guarantee provision to be acceptable
(2019: acceptable).
DFS Furniture plc
Annual Report & Accounts 2020
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Independent auditor’s report continued
2. Key audit matters: including our assessment of risks of material misstatement continued
IFRS 16 transition.
(Right of Use Asset on transition £445.0m;
Lease Liability on transition £548.6m)
Refer to page 78 Audit Committee Report),
pages 130 to 131 (accounting policy) and
note 1.18 on pages 130 to 134 (financial
disclosures).
The risk
Our response
Accounting Application/Subjective
Estimate:
The Group adopted IFRS 16 – Leases from
1 July 2019 using the modified retrospective
method. Given the magnitude of the
adjustment arising on its adoption, there
exists a material risk of error on transition.
IFRS 16 requires that what was previously
operating lease liabilities be recognised on
the balance sheet for the first time together
with the associated right-of-use (ROU)
assets.
The calculation of ROU assets and lease
liabilities require assumptions to be made.
These assumptions include, but are not
limited to, duration of the lease term and
discount rate.
The effect of these matters is that, as part of
our risk assessment, we determined that the
amount of ROU assets and liabilities
contained a high degree of estimation
uncertainty, with a potential range of
reasonable customer outcomes greater than
our materiality for the financial statements as
a whole.
Our procedures included:
• Accounting analysis: We assessed the
Group’s accounting policy in light of the
adoption of IFRS 16 in the financial year to
assess if the transition adjustments were
made appropriately.
• Benchmarking assumptions: We
compared the discount rates calculated
and used by the Group to external and
internal data such as confirmations from
the Group’s bank syndicate and
independent property yield valuation;
• Test of details: Tested a sample of leases
to assess if the key terms had been
recorded appropriately and performed
recalculation procedures for management’s
models; and
• Assessing transparency: We assessed
whether the Group’s disclosures detailing
the transition adjustments on adoption of
IFRS 16 are adequately disclosed.
Our results
We found the resulting amounts adopted for
IFRS 16 assets and liabilities on transition to
be acceptable.
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £1.8m (2019: £1.4m), determined with reference to a benchmark of three
financial year average absolute Group profit/loss before tax excluding non-underlying items, of which it represents 3.6% (2019: 5.0% of
Group profit before tax, excluding non-underlying items).
The group audit team performed procedures on the items excluded from normalised Group profit before tax.
Materiality for the parent Company financial statements as a whole was set at £1.0m (2019: £0.7m), determined with reference to a
benchmark of the parent Company total assets, of which it represents 0.17% (2019: 0.13%).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.09m (2019: £0.07m),
in addition to other identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 9 (2019: 9) reporting components, we subjected 4 (2019: 4) to full scope audits for Group purposes.
For the residual components, we performed analysis at an aggregated Group level to re-examine our assessment that there were no
significant risks of material misstatement within these.
* The remaining 28% (2019: 7%) of total Group loss before tax is represented by 5 (2019: 5) reporting components, none of which individually
represented more than 5% (2019: 5%) of either of total Group revenue or total Group assets.
The work on all components, including the audit of the parent company, was performed by the Group audit team. Component materialities
ranged from £1.0m to £1.5m (2019: £0.7m to £1.2m), having regard to the mix of size and risk profile of the Group across the components.
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Three financial year average
absolute Group profit/loss
before tax, excluding non-
underlying items (2019: Group
profit before tax excluding
non-underlying items)
50.2m (2019: £28.2m)
Group materiality
£1.8m (2019: £1.4m)
2.0
£1.8m
Whole financial statements materiality (2019: £1.4m)
1.5
£1.5m
Range of materiality at 9 components (£0.1m-£1.5m)
(2019: £0.7m to £1.2m)
1.0
0.5
£0.09m
Misstatements reported to the audit committee (2019: £0.07m)
0.0
Revenue
Group materiality
Group Revenue
Group loss before tax
Group total assets
93%
(2019 93%)
72%
(2019 93%)
97%
(2019 97%)
Full scope for group/statutory audit purposes 2020
Full scope for group/statutory audit purposes 2019
Residual components
4. We have nothing to report on going concern
The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the parent Company or the
Group or to cease their operations, and as they have concluded that the parent Company’s and the Group’s financial position means that this is
realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue
as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). Our responsibility is
to conclude on the appropriateness of the directors’ conclusions and, had there been a material uncertainty related to going concern, to
make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may
result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a
material uncertainty in this auditor’s report is not a guarantee that the Group and the parent Company will continue in operation.
We identified going concern as a key audit matter (see section 2 of this report). Based on the work described in our response to that key audit
matter, we are required to report to you if:
• we have anything material to add or draw attention to in relation to the directors’ statement in Note 1 to the financial statements on the
use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and the parent
Company’s use of that basis for a period of at least twelve months from the date of approval of the financial statements; or
the related statement under the Listing Rules set out on page 109 is materially inconsistent with our audit knowledge.
•
We have nothing to report in these respects.
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Independent auditor’s report continued
5. We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion
on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly
stated below, any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work
we have not identified material misstatements in the other information.
Strategic report and directors’ report
Based solely on our work on the other information:
• we have not identified material misstatements in the strategic report and the directors’ report;
•
•
in our opinion the information given in those reports for the financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Disclosures of emerging and principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements audit, we have nothing material to add or draw attention to in
relation to:
•
the directors’ confirmation within the Viability Reporting (page 39) that they have carried out a robust assessment of the principal risks
facing the Group, including those that would threaten its business model, future performance, solvency and liquidity;
the Risks and Uncertainties disclosures describing these risks and explaining how they are being managed and mitigated; and
the directors’ explanation in the Viability Reporting of how they have assessed the prospects of the Group, over what period they have
done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including
any related disclosures drawing attention to any necessary qualifications or assumptions.
•
•
Under the Listing Rules we are required to review the Viability Reporting. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit. As we
cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that
were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group’s
and the parent Company’s longer-term viability.
Corporate governance disclosures
We are required to report to you if:
• we have identified material inconsistencies between the knowledge we acquired during our financial statements audit and the directors’
statement that they consider that the annual report and financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Group’s position and performance, business model and strategy; or
the section of the annual report describing the work of the Audit Committee does not appropriately address matters communicated by
us to the Audit Committee.
•
We are required to report to you if the Corporate Governance Statement does not properly disclose a departure from the provisions of the
UK Corporate Governance Code specified by the Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
•
branches not visited by us; or
the parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
We have nothing to report in these respects.
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7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 110, the directors are responsible for: the preparation of the financial statements
including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting
unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a
high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statements from our
general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards),
and from inspection of the Group’s regulatory and legal correspondence and discussed with the directors and other management the policies
and procedures regarding compliance with laws and regulations. We communicated identified laws and regulations throughout our team and
remained alert to any indications of non-compliance throughout the audit.
The potential effect of these laws and regulations on the financial statements varies considerably.
Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation
(including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance
with these laws and regulations as part of our procedures on the related financial statement items.
Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a material effect
on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation or the loss of the Group’s
licence to operate. We identified financial service litigation as the area most likely to have such an effect, recognising the nature of the
Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to
enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. These limited procedures did
not identify actual or suspected non-compliance.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the
financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example,
the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial
statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit,
there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to
detect non-compliance with all laws and regulations.
8. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Frances Simpson (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants 1 Sovereign Square Sovereign Street Leeds
LS1 4DA
24 September 2020
DFS Furniture plc
Annual Report & Accounts 2020
120
Consolidated income statement
for 52 weeks ended 28 June 2020 (48 weeks ended 30 June 2019)
52 weeks to 28 June 2020
48 weeks to 30 June 2019
Notes
1, 2
Underlying
£m
935.0
Non-
underlying
£m
Total
£m
Underlying
£m
Non-
underlying
£m
–
935.0
1,165.0
–
(3.1)
(3.1)
(2.1)
(0.2)
(5.4)
–
–
(11.2)
(16.6)
–
–
(16.6)
0.9
(15.7)
724.5
(310.5)
414.0
(289.6)
(67.9)
56.5
(81.9)
(6.8)
(11.5)
(43.7)
0.1
(37.6)
(81.2)
12.0
(69.2)
901.0
(383.8)
517.2
(392.8)
(59.3)
65.1
(23.3)
(4.9)
–
36.9
0.2
(10.3)
26.8
(5.1)
21.7
–
–
–
–
–
(4.4)
(4.4)
–
–
–
(4.4)
–
–
(4.4)
0.8
(3.6)
Total
£m
1,165.0
901.0
(383.8)
517.2
(392.8)
(63.7)
60.7
(23.3)
(4.9)
–
32.5
0.2
(10.3)
22.4
(4.3)
18.1
724.5
(307.4)
417.1
(287.5)
(67.7)
61.9
(81.9)
(6.8)
(0.3)
(27.1)
0.1
(37.6)
(64.6)
11.1
(53.5)
(24.3)p
(24.3)p
(7.1)p
(7.1)p
(31.4)p
(31.4)p
10.3p
10.1p
(1.7)p
(1.7)p
8.6p
8.4p
2
3
2, 3
5
5
6
7
7
Gross sales
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating profit before depreciation, amortisation
and impairment
Depreciation
Amortisation
Impairments
Operating (loss)/profit
Finance income
Finance expenses
(Loss)/profit before tax
Taxation
(Loss)/profit for the period
Earnings per share
Basic
Diluted
DFS Furniture plc
Annual Report & Accounts 2020
Consolidated statement of comprehensive income
for 52 weeks ended 28 June 2020 (48 weeks ended 30 June 2019)
(Loss)/profit for the period
Other comprehensive income
Items that are or may be reclassified subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges reclassified to profit or loss
Recognised in cost of sales
Recognised in finance expense
Income tax on items that are or may be reclassified subsequently to profit or loss
Other comprehensive (expense)/income for the period, net of income tax
Total comprehensive (expense)/income for the period
121
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52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(69.2)
18.1
3.9
(8.3)
0.7
0.4
(3.3)
(72.5)
9.7
(6.1)
(0.6)
(0.5)
2.5
20.6
DFS Furniture plc
Annual Report & Accounts 2020
122
Consolidated balance sheet
at 28 June 2020 (30 June 2019)
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Other financial assets
Deferred tax assets
Current assets
Inventories
Other financial assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Trade payables and other liabilities
Lease liabilities
Provisions
Other financial liabilities
Current tax liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Provisions
Other financial liabilities
Other liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Share capital
Share premium
Merger reserve
Treasury shares
Cash flow hedging reserve
Retained earnings
Total equity
28 June 2020
£m
30 June 2019
£m
Note
8
8, 9
10
12
13
14
12
15
16
9, 16
20
17
18
9, 16
20
17
16
22
22
22
22
22
74.1
384.5
532.5
0.8
24.0
1,015.9
58.9
4.5
22.2
7.8
62.3
155.7
1,171.6
(216.0)
(88.6)
(11.9)
(0.1)
–
(316.6)
(218.7)
(428.6)
(3.9)
(1.9)
–
(653.1)
(969.7)
201.9
383.4
40.4
18.6
(0.7)
3.3
(243.1)
201.9
89.9
–
539.0
1.4
8.7
639.0
54.8
6.3
32.8
–
29.8
123.7
762.7
(225.1)
–
(5.0)
–
(0.8)
(230.9)
(194.0)
–
(5.6)
(0.7)
(79.7)
(280.0)
(510.9)
251.8
319.5
40.4
18.6
(2.1)
7.0
(131.6)
251.8
These financial statements were approved by the Board of Directors on 24 September 2020 and were signed on its behalf by
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
Company registered number: 7236769
DFS Furniture plc
Annual Report & Accounts 2020
Consolidated statement of changes in equity
123
Balance at 28 July 2018
Profit for the period
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the period
Dividends
Treasury shares issued
Share based payments
Balance at 30 June 2019
Adjustment on initial application of IFRS 16 (net of tax)
Adjusted balance at 1 July 2019
Loss for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Dividends
Purchase of own shares
Treasury shares issued
Shares issue
Settlement of share based payments
Share based payments
Balance at 28 June 2020
Share
capital
£m
319.5
Share
premium
£m
40.4
Merger
reserve
£m
18.6
Treasury
shares
£m
Cash flow
hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
(3.3)
4.0
(126.8)
252.4
–
–
–
–
–
–
319.5
–
319.5
–
–
–
–
–
–
63.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40.4
–
40.4
18.6
–
18.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
383.4
40.4
18.6
–
–
–
–
1.2
–
(2.1)
–
(2.1)
–
–
–
–
(1.1)
2.5
–
–
–
(0.7)
–
3.0
3.0
–
–
–
7.0
–
7.0
–
(3.7)
(3.7)
–
–
–
–
–
–
18.1
(0.5)
17.6
(23.8)
(1.2)
2.6
(131.6)
(26.4)
18.1
2.5
20.6
(23.8)
–
2.6
251.8
(26.4)
(158.0)
225.4
(69.2)
0.4
(68.8)
(15.9)
–
(1.2)
–
(1.6)
2.4
(69.2)
(3.3)
(72.5)
(15.9)
(1.1)
1.3
63.9
(1.6)
2.4
3.3
(243.1)
201.9
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Annual Report & Accounts 2020
124
Consolidated cash flow statement
for 52 weeks ended 28 June 2020 (48 weeks ended 30 June 2019)
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
Note
(69.2)
(12.0)
(0.1)
37.6
21.3
60.6
6.8
11.5
(1.1)
(1.6)
2.4
(1.6)
(4.1)
4.7
6.6
61.8
(6.1)
55.7
1.4
0.1
(16.8)
(6.6)
(21.9)
(9.0)
(29.2)
(36.3)
25.0
63.9
(1.1)
1.3
(15.9)
(1.3)
32.5
29.8
62.3
18.1
4.3
(0.2)
10.3
23.3
–
4.9
–
(0.8)
–
2.6
(1.6)
(0.4)
(10.2)
(0.3)
50.0
(7.4)
42.6
1.2
0.2
(17.5)
(6.9)
(23.0)
(7.7)
–
(3.5)
(2.0)
–
–
–
(23.8)
(37.0)
(17.4)
47.2
29.8
(Loss)/profit for the period
Adjustments for:
Income tax expense
Financial income
Financial expenses
Depreciation of property, plant and equipment
Depreciation of right of use assets
Amortisation of intangible assets
Impairment of assets
Gain on sale of property, plant and equipment
Settlement of share based payments
Share based payment expense
Increase in trade and other receivables
Increase in inventories
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Net cash from operating activities before tax
Tax paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Interest received
Acquisition of property, plant and equipment
Acquisition of other intangible assets
Net cash from investing activities
Cash flows from financing activities
Interest paid
Interest paid on lease liabilities
Payment of lease liabilities1
Drawdown/(repayment) of borrowings
Proceeds on issue of shares
Purchase of own shares
Proceeds from sale of own shares
Ordinary dividends paid
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
26
1. Prior period interest and capital repayments on lease liabilities relate solely to finance leases recognised in accordance with IAS 17.
DFS Furniture plc
Annual Report & Accounts 2020
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Notes to the consolidated financial statements
at 28 June 2020
125
1 Accounting policies
DFS Furniture plc (“the Company”) is a public company incorporated and domiciled in England in the United Kingdom (Company number:
07236769). The address of the registered office is 1 Rockingham Way, Redhouse Interchange, Adwick-Le-Street, Doncaster, South
Yorkshire, DN6 7NA.
The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as “the Group”).
The parent company financial statements present information about the Company as a separate entity and not about its group.
These annual financial statements are the first in which the Group has applied IFRS 16 Leases, further details of which are presented in note
1.18. With the exception of the adoption of IFRS 16, the accounting policies set out below have, unless otherwise stated, been applied
consistently to all periods presented in these consolidated financial statements. Judgements made by the directors, in the application of
these accounting policies that have significant effect on the financial statements and estimates with a significant risk of material adjustment
in the next year are discussed in note 1.17.
1.1 Basis of preparation
The consolidated financial statements have been prepared and approved by the directors in accordance with International Financial
Reporting Standards as adopted by the EU (“Adopted IFRS”), other than the early adoption of the IFRS 16 Covid-19 Related Rent
Concessions Amendment which has yet to be endorsed by the EU (as detailed in note 1.18). The financial statements are prepared on the
historical cost basis except for certain financial instruments and share based payment charges which are measured at their fair value. The
financial statements are for the 52 weeks to 28 June 2020 (last year 48 weeks to 30 June 2019).
The Company has elected to prepare its parent company financial statements in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS 101”); these are presented on pages 152 to 156.
Going concern
The financial statements are prepared on a going concern basis, which the directors believe to be appropriate for the following reasons.
The Group has a £250.0m revolving credit facility in place until August 2022, and in April 2020, to increase resilience to the short-term effects
of the Covid-19 pandemic, secured an additional twelve month facility of £70.0m from the same group of lending banks. In the same month
the Group also secured £63.9m of equity funding from a placing of ordinary shares. During the period from the inception of the additional
£70.0m facility through to June 2021, existing covenants on the revolving credit facility (of 3.0x net Debt / EBITDA and 1.5x Fixed Charge
Cover) have been replaced by new minimum quarterly EBITDA and net debt covenants. At the date of approval of these financial statements,
none of the £70.0m facility had been utilised and a further £170.0m of the revolving credit facility remained undrawn, giving the Group a total
of £240.0m available facility in addition to cash in hand, at bank (£47.8m as at 21 September 2020).
The Directors have prepared cash flow forecasts for the Group covering a period of 18 months to March 2022. These forecasts indicate that
the Group will be in compliance with the minimum quarterly EBITDA and net debt covenants applicable for that period, which are assessed
monthly, as well as the original covenants which become effective once more from June 2021. These forecasts include a number of
assumptions in relation to: level of customer order intake; gross profit margins; and achievement of cost savings in line with the Group’s
strategic plans.
The Directors have also prepared severe but plausible downside sensitivity scenarios which cover the same period as the base case. These
downside scenarios include specific consideration of a range of impacts that could arise from the continued coronavirus pandemic and the
UK’s exit from the EU. These scenarios included: significantly reduced customer spending; a second lockdown during FY21 leading to
reduced order intake and customer deliveries; and disruptions to manufacturing and supply chain causing delays in receiving stock; and
possible changes in the regulatory environment surrounding product warranty insurance. As part of this analysis, mitigating actions within
the Group’s control should these severe but plausible scenarios occur have also been considered. These mitigating actions included
reducing discretionary advertising expenditure, a pause on expansionary capital investment and other measures to protect cash balances.
These forecast cash flows, considering the ability and intention of the Directors to implement mitigating actions should they need to,
indicate that there remains sufficient headroom in the forecast period for the Group and Company to operate within the committed facilities
and to comply with all relevant banking covenants during the forecast period.
The Directors have considered all of the factors noted above, including the inherent uncertainty in forecasting the impact of the coronavirus
pandemic, and are confident that the Group and Company have adequate resources to continue to meet all liabilities as and when they fall
due for the foreseeable future and at least for the period of twelve months from the date of these financial statements. Accordingly, the
financial statements are prepared on a going concern basis.
1.2 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company
(its subsidiaries). Control exists when the Group is exposed to or has rights to variable returns from its investment with the investee and
has the ability to affect those returns through its power over the investee. In assessing control, potential voting rights that are currently
exercisable or convertible are taken into account.
The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the date
that control commences until the date that control ceases. The acquisition method is used to account for the acquisition of subsidiaries.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
DFS Furniture plc
Annual Report & Accounts 2020
126
Notes to the consolidated financial statements continued
at 28 June 2020
1 Accounting policies continued
1.3 Gross sales and revenue
Revenue is measured at the fair value of the consideration receivable by the Group for the provision of goods to external customers, being
the total amount payable by the customer (“gross sales”) less: value added and other sales taxes, the costs of obtaining interest free credit
on behalf of customers and the amounts payable to third parties relating to products for which the Group acts as an agent. For products
where the Group acts as an agent, the amount recognised in revenue is the net fee receivable by the Group.
Many of the Group’s customers choose to take advantage of the interest-free credit that the Group makes available. This credit is provided
by external finance houses, who pay the Group the gross sales value of the customer order on delivery, less a fee for taking responsibility for
payment collection and bearing the full credit risk for any future default by the customer. The fee due to the finance house varies depending
on the amount borrowed by the customer, the length of the repayment term and the LIBOR rate at the time of the transaction.
In calculating reported revenue in accordance with IFRS the Group is required to deduct these fees from the value of the customer order.
Reported revenue will therefore vary depending on the proportion of customers who choose to take up the interest free credit offer, the
average duration of the interest free loan period and the prevailing LIBOR rates.
For the purposes of managing its business the Group focuses on gross sales, which is defined as the total amount payable by customers,
inclusive of VAT and other sales taxes and prior to any accounting adjustments for interest-free credit fees or aftercare product costs. The
directors believe gross sales is a more transparent measure of the activity levels and performance of its stores and online channels as it is
not affected by customer preferences on payment options. Accordingly gross sales is presented in this annual report in addition to statutory
revenue, with a reconciliation between the two measures provided in note 2 to the financial statements.
Both gross sales and revenue are stated net of returns and sales allowances, and are recognised when goods have been delivered to the
customer, the revenue and costs in respect of the transaction can be measured reliably and collectability is reasonably assured. Receipt of
goods by the customer represents the completion of the Group’s performance obligation under the sales contract and payment is received
prior to or immediately after delivery. Expected future costs of satisfying the Group’s obligations under long-term product guarantees
offered to customers are determined at the time of the sale, provided for separately (note 20) and charged to cost of sales.
1.4 Expenses
Non-underlying items
Items that are material in size, unusual or non-recurring in nature are disclosed separately in the income statement in order to provide an
indication of the Group’s underlying business performance. The principal items which may be included as non-underlying are:
• significant profit or loss on the disposal of non-current assets
• material impairment charges
• significant non-recurring tax charges or credits
• costs associated with significant corporate, financial or operating restructuring, including acquisitions
•
initial costs of establishing operations in new geographical territories
Material finance income or expenses associated with significant changes in the Group’s borrowings are disclosed separately as non-underlying
items below operating profit.
Royalty payments
Royalties payable to brand partners on sales of branded products are charged to cost of sales when the related product is delivered to the
customer.
Finance income and expenses
Finance expenses comprise interest payable, finance charges on lease liabilities recognised in profit or loss using the effective interest
method and unwinding of the discount on provisions and other liabilities measures at present value. Finance income comprises interest
receivable on funds invested, dividend income, and net foreign exchange gains.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method. Dividend income is
recognised in the income statement on the date the Group’s right to receive payments is established.
1.5 Employee benefits
Defined contribution plans
Payments to defined contribution pension plans are recognised as an expense in the income statement as they fall due.
Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
Share based payments
The fair value of equity settled share based payments is recognised as an expense over the vesting period of the related awards, with a
corresponding increase in equity. Fair values are calculated using option pricing models appropriate to the terms and conditions of the
awards. The amount charged as an expense is regularly reviewed and adjusted to reflect the achievement of service and non-market based
performance conditions.
DFS Furniture plc
Annual Report & Accounts 2020
127
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1 Accounting policies continued
1.6 Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement except to the extent
that it relates to a business combination, or items recognised directly in equity or other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable
profit or loss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable
future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
At interim reporting periods the tax charge is calculated in accordance with IAS 34, adjusted for material non-taxable items.
A deferred tax asset is recognised on deductible temporary differences only to the extent that it is probable that future taxable profits will be
available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
1.7 Foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling
at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the
foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement except
for differences arising on qualifying cash flow hedges, which are recognised directly in other comprehensive income.
1.8 Business combinations
Subject to the transitional relief in IFRS 1, all business combinations are accounted for by applying the acquisition method. Business
combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to
the Group.
Goodwill is initially measured at cost, being the excess of the acquisition cost over the Group’s interest in the assets and liabilities recognised.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity,
it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent
consideration are recognised in profit or loss.
Acquisitions prior to 31 July 2011 (date of transition to IFRSs)
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The Group and Company elected not
to restate business combinations that took place prior to 31 July 2011. In respect of acquisitions prior to transition, goodwill is included at
31 July 2011 on the basis of its deemed cost, which represents the amount recorded under UK GAAP which was broadly comparable save
that goodwill was amortised. On transition, amortisation of goodwill ceased as required by IFRS 1.
1.9 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property,
plant and equipment.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property,
plant and equipment. Land is not depreciated. The estimated useful lives are as follows:
• buildings
• plant and equipment
• motor vehicles
50 years
3 to 10 years
4 years
Depreciation methods, useful lives and residual values are reviewed at each balance sheet date.
DFS Furniture plc
Annual Report & Accounts 2020
128
Notes to the consolidated financial statements continued
at 28 June 2020
1 Accounting policies continued
1.10 Leases
Policy applicable to 30 June 2019.
Leases in which the Group assumed substantially all the risks and rewards of ownership of the leased asset were classified as finance leases.
Where land and buildings were held under leases the accounting treatment of the land was considered separately from that of the buildings.
Leased assets acquired by way of finance lease were stated at an amount equal to the lower of their fair value and the present value of the
minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses.
Operating lease payments
Payments made under operating leases were recognised in the income statement on a straight-line basis over the term of the lease. Lease
incentives received were recognised in the income statement as an integral part of the total lease expense. The Group had no significant
contingent rental arrangements.
Finance lease payments
Minimum lease payments were apportioned between the finance charge and the reduction of the outstanding liability. The finance charge
was allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability.
1.11 Intangible assets and goodwill
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is
tested annually for impairment.
Other intangible assets
Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses.
Amortisation
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets unless such
lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet
date. Other intangible assets are amortised from the date they are available for use. Estimated useful lives are as follows:
• computer software and website costs
• acquired brand names
3 years
10 to 20 years
1.12 Inventories
Inventories are stated at the lower of cost and net realisable value. The cost of finished goods manufactured by the Group includes direct
materials, direct labour and appropriate overhead expenditure.
1.13 Impairment
The carrying amounts of the Group’s tangible and intangible assets other than goodwill are reviewed at each reporting date to determine
whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill,
and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at
the same time.
An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairment losses are
recognised in profit or loss.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are
assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that
the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation,
if no impairment loss had been recognised.
1.14 Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,
that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Details of provisions recognised are in note 20 and the related significant estimates and judgements in note 1.17.
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1.15 Non-derivative financial instruments
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash
equivalents, loans and borrowings, and trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using
the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using
the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost using the effective interest method.
1.16 Derivative financial instruments and hedging
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in
profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the
item being hedged (see below).
Cash flow hedges
On adoption of IFRS 9, the Group made the election to continue to apply the hedge accounting requirements of IAS 39 to all of its hedging
relationships. Therefore, where a derivative financial instrument is designated as a hedge of the variability in cash flows of a highly probable
forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised in other comprehensive
income and presented within the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.
When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated
cumulative gain or loss remains in the hedging reserve and is reclassified into profit or loss in the same period or periods during which the
asset acquired or liability assumed affects profit or loss.
For other cash flow hedges the associated cumulative gain or loss is removed from equity and recognised in the income statement in the
same period or periods during which the hedged forecast transaction affects profit or loss.
When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the
hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in
accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative
unrealised gain or loss recognised in equity is recognised in the income statement immediately.
1.17 Significant areas of estimation and judgement
In the application of the Group’s accounting policies, the Directors are required to make judgments, estimates and assumptions that affect
the value of reported assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical
experience and other relevant factors, and may differ from actual results. No significant areas of judgement arose in the current financial
statements. Significant areas of estimation for the Group are explained below:
Contingent consideration
The terms of the acquisition of Sofology Limited included deferred contingent consideration payable based on profits of the acquired
business post-acquisition. The value of this deferred consideration has yet to be finalised, and therefore the financial statements include a
provision for the amount potentially payable of £5.0m. This estimate is based on an analysis of the detailed terms of the sale and purchase
agreement and consideration of the possible outcomes of the expert determination process. The final value of the consideration payable
may therefore materially differ from the amount accrued.
DFS Furniture plc
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130
Notes to the consolidated financial statements continued
at 28 June 2020
1 Accounting policies continued
1.17 Significant areas of estimation and judgement continued
The following are other areas of important estimates and judgements relating to material balances in the Group’s financial statements, but
which do not meet the IFRS-defined criteria of a significant estimate:
Going concern
In making the assessment of going concern for the Group and the Company, the Directors consider a number of assumptions and estimates
relating to the future performance of the Group, as detailed in note 1.1. The Directors are satisfied that no reasonably possible change in
these estimate would result in a change in the going concern assessment of the Group or the Company and therefore it is not considered a
significant estimate as at 28 June 2020.
Goodwill impairment
Goodwill is tested annually for impairment by comparing its carrying value to a calculation of the value in use of the relevant cash-generating
units. This exercise requires estimates to be made of future cash flows arising from each cash-generating unit and the appropriate discount
rate to apply. Further details of the key assumptions underlying the calculation detailed in note 10. The Directors are satisfied that no
reasonably possible change in these estimates would result in a change in the going concern assessment of the Group or the Company and
therefore it is not considered a significant estimate as at 28 June 2020.
Customer guarantees
The Group maintains a provision for its obligations under long term product guarantees offered to its customers. In determining the value of
this provision estimates are made of the number of future claims that will be received and the cost of satisfying those claims. Further details
are provided in note 20. The Directors are satisfied that no reasonably possible change in these estimates would result in a material
difference to the value of the provision and therefore it is not considered a significant estimate as at 28 June 2020.
Discount rates (IFRS 16)
The lease liability is initially recognised at the present value of the remaining lease payments, discounted at the interest rate implicit in the
lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The Group has used judgement to calculate the
appropriate incremental borrowing rate.
The incremental borrowing rates depend on the asset type and the lease term and are determined using the following inputs:
•
the risk-free rate based on the UK bond market, with the lease term being used to determine the appropriate length bond
• a Group specific adjustment to reflect the Group’s specific borrowing conditions
Taking these factors into consideration the Group has calculated a number of discount rates to be applied to the portfolio of leases in the
range of 3.67% to 6.35%.
Net realisable value of inventories
As detailed in note 14, the Group makes estimates of applicable selling prices to determine the net realisable value of inventories. The
Directors are satisfied that no reasonably possible change in these estimates would result in a material difference to the value of the
provision and therefore it is not considered a significant estimate as at 28 June 2020.
1.18 New accounting standards
In the period ended 28 June 2020, the Group has adopted IFRS 16. Further details of the impact of the adoption of this standard are given
below. There are no other new standards, amendments to existing standards or interpretations that are effective for the first time in the
period ended 28 June 2020 that have a material impact on the Group’s results.
A number of new or revised standards and interpretations have been issued which are not yet effective or endorsed by the EU, and which
have not therefore been applied by the Group in these financial statements.
IFRS 16 Leases
IFRS 16 Leases replaces existing lease guidance under IAS 17 Leases and introduces a fundamental change to the recognition,
measurement, presentation and disclosure of leases for lessees. IFRS 16 eliminates the current dual accounting model for lessees under
IAS 17 (operating leases and finance leases) and requires lessees to account for most leases under a single, on-balance sheet model.
Accordingly, figures presented for the 48 weeks ended 30 June 2019 reflect the requirements of IAS 17, while those presented for the
52 weeks ended 28 June 2020 are in accordance with IFRS 16.
Definition of a lease
At the inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
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1.18 New accounting standards continued
Transition method and practical expedients used
The Group has opted to apply the modified retrospective approach to transition; under this approach the Group is not required to restate
prior year figures.
Under the modified retrospective approach, IFRS 16 provides for a number of optional practical expedients. On transition, the Group has
applied the following practical expedients:
• application of IFRS 16 to contracts that were previously identified as leases applying IAS 17 Leases and IFRIC 4;
• use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
• accounting for short term (less than 12 months as at 30 June 2019) leases and low value leases on transition as operating leases;
• exclusion of initial direct costs from the measurement of the right of use asset on transition;
•
• use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease; and
• Covid-19-related rent concessions amendment – deferrals of lease payments as a direct result of Covid-19 have been assessed
reliance on IAS 37 onerous lease assessment to determine whether leases are onerous on transition;
as non-modifying.
The published Covid-19 related rent concessions amendment has been applied to all relevant rent concessions during the financial year.
These concessions did not include waivers of rent payable. The amount recognised in the income statement as a consequence of applying
the practical expedient to changes in lease payments arising from rent concessions was £0.3m, all rent concessions relate to deferrals of
lease payments. The Group has elected to adopt the amendment early, although it has yet to be endorsed by the EU.
Lease liability – initial recognition
At 1 July 2019 the Group has recognised a lease liability and a right of use asset. On transition, the lease liabilities are recognised at the
present value of future lease payments discounted at the incremental borrowing rate applicable to the lease. On transition, the Group’s
weighted average incremental borrowing rate was 5.6%.
Lease payments included in the measurement of the lease liability comprise the following:
•
• amounts expected to be payable under a residual value guarantee.
fixed payments, including in-substance fixed payments; and
Lease liability – subsequent measurement
The lease liability is subsequently increased by the interest cost arising from the unwind of the discount, and decreased by the cash lease
payments made.
Lease liability – remeasurement
The lease liability is remeasured if:
•
•
there is a change in either the lease term or the assessment of an option to purchase the underlying asset. In these circumstances,
the lease liability is remeasured using a revised discount rate; or
there is a change in the amounts expected to be payable under a residual guarantee or if there is a change in future lease payments
resulting from a change in an index or a rate used to determine those payments. In these circumstances, the discount rate remains
unchanged, unless the change in lease payments results from a change in floating interest rates.
In both scenarios, the carrying value of the right of use asset will be adjusted by the amount of the remeasurement of the lease liability,
to the extent that the right of use asset will be reduced to nil, with any further adjustment required from the remeasurement being recorded
in profit or loss.
Right of use asset – initial recognition
IFRS 16 defines a right of use asset as an asset which represents a lessee’s right to use an underlying asset for the lease term.
At transition, the right of use assets are measured at either:
•
•
“Mod A”: the carrying value as if IFRS 16 had been applied since the lease commencement date, discounted by the Group’s incremental
borrowing rate as at 1 July 2019. This methodology has been applied where the historical information has been available to facilitate this; or
“Mod B”: an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised in the
statement of financial position immediately before the date of initial application. This methodology has been applied to the majority of
the Group’s leases.
Right of use asset – subsequent measurement
Right of use assets are subsequently measured at initial carrying value:
•
• adjusted for any remeasurement of the lease liability
less any accumulated depreciation and any accumulated impairment losses; and
The right of use asset is subsequently depreciated on a straight line basis from the commencement date to the end of the lease term. In
addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
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Notes to the consolidated financial statements continued
at 28 June 2020
1 Accounting policies continued
1.18 New accounting standards continued
Impact on the Group financial statements
The impact of the IFRS 16 transition adjustments on the 30 June 2019 balance sheet are summarised below:
30 June 2019
IAS 17
£m
IFRS 16
adjustment
£m
Note
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Other financial assets
Deferred tax assets
Current assets
Inventories
Other financial assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade payables and other liabilities
Lease liabilities
Provisions
Other financial liabilities
Current tax liabilities
Non-current liabilities
Interest bearing loans and borrowings
Lease liabilities
Provisions
Other financial liabilities
Other liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Share capital
Share premium
Merger reserve
Treasury shares
Cash flow hedging reserve
Retained earnings
Total equity
i
ii
iii
iv
v
vi
vi
vii
v
89.9
–
539.0
1.4
8.7
639.0
54.8
6.3
32.8
29.8
123.7
762.7
(225.1)
–
(5.0)
–
(0.8)
(230.9)
(194.0)
–
(5.6)
(0.7)
(79.7)
(280.0)
(510.9)
251.8
319.5
40.4
18.6
(2.1)
7.0
(131.6)
251.8
(10.5)
445.0
–
–
5.4
439.9
–
–
(12.3)
–
(12.3)
427.6
13.5
(88.8)
–
–
–
(75.3)
–
(459.8)
1.4
–
79.7
(378.7)
(454.0)
(26.4)
–
–
–
–
–
(26.4)
(26.4)
1 July 2019
IFRS 16
£m
79.4
445.0
539.0
1.4
14.1
1,078.9
54.8
6.3
20.5
29.8
111.4
1,190.3
(211.6)
(88.8)
(5.0)
–
(0.8)
(306.2)
(194.0)
(459.8)
(4.2)
(0.7)
–
(658.7)
(964.9)
225.4
319.5
40.4
18.6
(2.1)
7.0
(158.0)
225.4
Notes:
i. Reclassification of net book value of assets classified as finance leases under IAS 17.
ii. Recognition of right of use assets on transition (including reclassification in 1. above).
iii. Movement in deferred tax arising from IFRS 16 transition adjustments.
iv. Elimination of IAS 17 lease prepayment balances.
v. Elimination of IAS 17 lease incentive balances (capital contributions, rent-free periods and fixed rent reviews), adjusted for in right of use asset (or opening retained earnings
where Mod A has been applied).
vi. Recognition of lease liabilities arising under IFRS 16 and reclassification of finance lease liabilities previously recognised under IAS 17.
vii. Elimination of IAS 37 onerous lease provisions, adjusted for in value of right of use asset.
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1 Accounting policies continued
1.18 New accounting standards continued
The following table reconciles the undiscounted commitments under non-cancellable operating leases as at 30 June 2019, as presented in
the Group’s Annual Report for the 48 weeks to 30 June 2019, to the amount of lease liabilities recognised on transition to IFRS 16 at 1 July 2019:
Commitments under non-cancellable operating leases as at 30 June 2019
Effect of discounting
Leases previously accounted for as finance leases
Other
Lease liabilities recognised as at 1 July 2019
The impact of IFRS 16 to the income statement for the 52 week period to 28 June 2020 is summarised below:
1 July 2019
IFRS 16
£m
695.1
(156.0)
12.1
(2.6)
548.6
Gross sales
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating (loss)/profit before depreciation, amortisation and impairment
Depreciation
Amortisation
Impairments
Operating loss
Finance income
Finance expenses
Loss before tax
Taxation
Loss for the period
Notes:
i. Reversal of operating lease rental charges recognised under IAS 17.
ii. Depreciation charge on right of use assets recognised under IFRS 16.
iii. Right of use asset impairment recognised under IFRS 16
iv. Unwind of discount on IFRS 16 lease liabilities.
v. Tax effect on net income statement differences.
52 weeks to 28 June 2020
Presented under
IAS 17
£m
Note
Impact of
IFRS 16
£m
Presented under
IFRS 16
£m
935.0
724.5
(310.5)
414.0
(369.0)
(68.3)
(23.3)
(25.9)
(6.8)
(7.1)
(63.1)
0.1
(11.9)
(74.9)
11.9
(63.0)
–
–
–
–
79.4
0.4
79.8
(56.0)
–
(4.4)
19.4
–
(25.7)
(6.3)
0.1
(6.2)
935.0
724.5
(310.5)
414.0
(289.6)
(67.9)
(56.5)
(81.9)
(6.8)
(11.5)
(43.7)
0.1
(37.6)
(81.2)
12.0
(69.2)
i
ii
iii
iv
v
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Annual Report & Accounts 2020
134
Notes to the consolidated financial statements continued
at 28 June 2020
1 Accounting policies continued
1.18 New accounting standards continued
The impact of IFRS 16 to the balance sheet as at 28 June 2020 is summarised below:
Non-current assets
Property, plant and equipment
Right of use assets
Intangible assets
Other financial assets
Deferred tax assets
Current assets
Inventories
Other financial assets
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Trade payables and other liabilities
Lease liabilities
Provisions
Other financial liabilities
Current tax liabilities
Non-current liabilities
Interest bearing loans and borrowings
Lease liabilities
Provisions
Other financial liabilities
Other liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Share capital
Share premium
Merger reserve
Treasury shares
Cash flow hedging reserve
Retained earnings
Total equity
28 June 2020
IAS 17
£m
IFRS 16
adjustment
£m
28 June 2020
IFRS 16
£m
Note
i
ii
iii
iv
v
vi
vi
vii
v
85.0
–
532.5
0.8
18.5
636.8
58.9
4.5
23.8
7.8
62.3
157.3
794.1
(243.2)
–
(13.2)
(0.1)
–
(256.5)
(218.7)
–
(8.8)
(1.9)
(73.7)
(303.1)
(559.6)
234.5
383.4
40.4
18.6
(0.7)
3.3
(210.5)
234.5
(10.9)
384.5
–
–
5.5
379.1
–
–
(1.6)
–
–
(1.6)
377.5
27.2
(88.6)
1.3
–
–
(60.1)
–
(428.6)
4.9
–
73.7
(350.0)
(410.1)
(32.6)
–
–
–
–
–
(32.6)
(32.6)
74.1
384.5
532.5
0.8
24.0
1,015.9
58.9
4.5
22.2
7.8
62.3
155.7
1,171.6
(216.0)
(88.6)
(11.9)
(0.1)
–
(316.6)
(218.7)
(428.6)
(3.9)
(1.9)
–
(653.1)
(969.7)
201.9
383.4
40.4
18.6
(0.7)
3.3
(243.1)
201.9
Notes:
i. Reclassification of net book value of assets classified as finance leases under IAS 17.
ii. Recognition of right of use assets on transition (including reclassification in 1. above).
iii. Movement in deferred tax arising from IFRS 16 transition adjustments.
iv. Elimination of IAS 17 lease prepayment balances.
v. Elimination of IAS 17 lease incentive balances (capital contributions, rent-free periods and fixed rent reviews), adjusted for in right of use asset (or opening retained earnings
where Mod A has been applied).
vi. Recognition of lease liabilities arising under IFRS 16 and reclassification of finance lease liabilities previously recognised under IAS 17.
vii. Elimination of IAS 37 onerous lease provisions, adjusted for in value of right of use asset.
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2 Segmental analysis
The Group’s operating segments under IFRS 8 have been determined based on management accounts reports reviewed by the Executive
Board. Segment performance is assessed based upon brand contribution. Brand contribution is defined as underlying EBITDA (being earnings
before interest and tax excluding depreciation charges and non-underlying items) excluding property costs and central administration costs.
The Group reviews and manages the performance of its operations on a retail brand basis, and the identified reportable segments and the
nature of their business activities are as follows:
DFS:
Sofology: the retailing of upholstered furniture and related products through Sofology branded stores and website.
the manufacture and retailing of upholstered furniture and related products through DFS branded stores and websites.
Other segment activities comprise the retailing of upholstered and other furniture and related products through other brands, including
Dwell and Sofa Workshop.
DFS
Sofology
Other segments
Eliminations
Gross sales
External sales
Internal sales
Total gross sales
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
697.1
181.7
56.2
–
935.0
850.2
237.7
77.1
–
1,165.0
–
–
0.1
(0.1)
–
–
–
0.5
(0.5)
–
697.1
181.7
56.3
(0.1)
935.0
850.2
237.7
77.6
(0.5)
1,165.0
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
t
r
o
p
e
r
c
i
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e
t
a
r
t
S
e
c
n
a
n
r
e
v
o
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e
t
a
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o
p
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C
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
F
Total segments gross sales
Less: value added and other sales taxes
Less: costs of interest free credit and aftercare products
Revenue
Of which:
Furniture sales
Sales of aftercare products
Revenue
52 weeks to 28 June 2020
Revenue
Cost of sales
Gross profit
Selling & distribution costs (excluding property costs)
Brand contribution (segment profit)
Property costs
Underlying administrative expenses
Underlying EBITDA
48 weeks to 30 June 2019
Revenue
Cost of sales
Gross profit
Selling & distribution costs (excluding property costs)
Brand contribution (segment profit)
Property costs
Underlying administrative expenses
Underlying EBITDA
935.0
(146.4)
(64.1)
724.5
676.0
48.5
724.5
Other
£m
45.6
(22.5)
23.1
(20.9)
2.2
Other
£m
62.7
(29.0)
33.7
(23.9)
9.8
1,165.0
(183.5)
(80.5)
901.0
839.5
61.5
901.0
Total
£m
724.5
(307.4)
417.1
(260.3)
156.8
(27.2)
(67.7)
61.9
Total
£m
901.0
(383.8)
517.2
(293.7)
223.5
(99.1)
(59.3)
65.1
DFS Furniture plc
Annual Report & Accounts 2020
DFS
£m
535.2
(212.6)
322.6
(191.6)
131.0
DFS
£m
650.6
(262.5)
388.1
(217.1)
171.0
Sofology
£m
143.7
(72.3)
71.4
(47.8)
23.6
Sofology
£m
187.7
(92.3)
95.4
(52.7)
42.7
136
Notes to the consolidated financial statements continued
at 28 June 2020
2 Segmental analysis continued
Underlying EBITDA
Non-underlying items
Depreciation & amortisation
Impairments
Operating (loss)/profit
Finance income
Finance expenses
(Loss)/profit before tax
A geographical analysis of revenue is presented below:
United Kingdom
Europe
Total revenue
DFS
Sofology
Other segments
Total segments
Loans and financing
Financial assets/(liabilities)
Current tax
Deferred tax
Eliminations
Total Group
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
61.9
(16.6)
(88.7)
(0.3)
(43.7)
0.1
(37.6)
(81.2)
65.1
(4.4)
(28.2)
–
32.5
0.2
(10.3)
22.4
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
701.7
22.8
724.5
872.0
29.0
901.0
Assets
Liabilities
28 June 2020
£m
30 June 2019
£m
28 June 2020
£m
30 June 2019
£m
1,009.8
145.5
23.5
1,178.8
–
5.3
7.8
24.0
(44.3)
1,171.6
645.4
91.0
34.6
771.0
–
7.7
–
8.7
(24.7)
762.7
(594.3)
(143.9)
(55.1)
(793.3)
(218.7)
(2.0)
–
–
44.3
(969.7)
(236.6)
(66.1)
(37.4)
(340.1)
(194.0)
(0.7)
(0.8)
–
24.7
(510.9)
Segment assets comprise tangible and intangible non-current assets including goodwill and brand names, inventories, trade and other
receivables, cash and cash equivalents. Segment liabilities comprises trade payables and current and non-current other liabilities and provisions.
DFS
Sofology
Other segments
Total Group
Additions to non-current assets
Depreciation, amortisation
and impairment
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
22.2
7.6
1.3
31.1
24.5
3.8
1.1
29.4
66.21
18.82
15.23
100.2
19.5
5.9
2.8
28.2
Additions to non-current assets include both tangible and intangible non-current assets but excludes amounts arising on transition to IFRS 16.
1. DFS: includes impairment charges of £1.2m (2019: £nil).
2. Sofology: includes impairment charges of £0.3m (2019: £nil).
3. Other segments: includes impairment charges of £10.0m (2019: £nil).
DFS Furniture plc
Annual Report & Accounts 2020
3 Operating profit
Group operating profit is stated after charging/(crediting):
Depreciation on tangible assets (including depreciation on right of use assets)
Amortisation of intangible assets
Impairment of tangible assets
Impairment of intangible assets
Impairment of goodwill
Net gain on disposal of property, plant and equipment
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Other costs of sales
Operating lease rentals
137
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52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
81.9
6.8
5.2
1.0
5.3
(1.1)
317.1
7.2
(13.8)
1.9
23.3
4.9
–
–
–
(0.8)
393.8
0.2
(10.2)
73.6
During the period the Group received Government support through the Coronavirus Job Retention Scheme totalling £19.5m (2019: £nil).
Non-underlying items
Acquisition related professional fees
Integration costs
Restructuring costs
Impairment of goodwill and brand names
Impairment of tangible and right of use assets
Write down of inventories on restructuring
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
–
–
2.3
6.3
4.9
3.1
16.6
0.2
3.3
0.9
–
–
–
4.4
Non-underlying costs in the current year arose in connection with the restructure of the Dwell brand and the sale of Sofa Workshop following
the end of the financial year. The goodwill and intangible brand name relating to Sofa Workshop was fully impaired, together with right of use
and other tangible assets relating to stores being closed. In addition, related inventories impacted by the restructure were written down to a
reduced net realisable value. Other restructuring costs included redundancy costs and operational costs associated with exiting closed locations.
In the prior period acquisition related fees, additional consideration and integration costs arose on the Group’s acquisition of Sofology Limited.
Restructuring costs related to exceptional restructuring activity within the DFS brand and Group support centre, to align with the revised
ways of working following the Sofology Limited acquisition.
Auditor’s remuneration:
Audit of these financial statements
Audit of the financial statements of Group subsidiaries
Amounts receivable by the Company’s auditor and its associates in respect of:
All other services
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
0.3
0.1
–
0.4
0.2
0.1
–
0.3
During the period, an amount of £20,000 was receivable by the Company’s auditor in respect of the review of the Group’s interim financial
statements (2019: £20,000).
4 Staff numbers and costs
The average number of persons employed by the Group during the period, analysed by category, was as follows:
Production
Warehouse and transport
Sales and administration
Number of employees
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
1,160
1,056
3,281
5,497
1,132
1,097
3,227
5,456
DFS Furniture plc
Annual Report & Accounts 2020
138
Notes to the consolidated financial statements continued
at 28 June 2020
4 Staff numbers and costs continued
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Share based payment expense (equity settled)
Coronavirus Job Retention Scheme income
Aggregate remuneration payable to directors in respect of qualifying services was as follows:
Emoluments
Pension contributions
Gain on exercise of share options
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
163.1
15.5
5.5
184.1
2.4
186.5
(19.5)
167.0
145.7
15.5
3.7
164.9
2.6
167.5
–
167.5
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
1.1
0.1
0.1
1.2
0.1
0.4
One director accrued retirement benefits under pension schemes in the period (2019: nil). All of the directors’ pension contributions were to
defined contribution schemes.
5 Finance income and expense
Finance income
Interest income on bank deposits
Total finance income
Finance expense
Interest payable on senior revolving credit facility
Bank fees
Fair value lease adjustment unwind
Unwind of discount on provisions
Interest on lease liabilities
Other interest
Total finance expense
6 Taxation
Recognised in the income statement
Current tax
Current period
Adjustments for prior years
Current tax (credit)/expense
Deferred tax
Origination and reversal of temporary differences
Deferred tax rate change
Adjustments for prior years
Deferred tax credit
Total tax (credit)/expense in income statement
DFS Furniture plc
Annual Report & Accounts 2020
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
0.1
0.1
(7.6)
(0.5)
–
–
(29.2)
(0.3)
(37.6)
0.2
0.2
(6.8)
(0.2)
(2.7)
(0.1)
(0.5)
–
(10.3)
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(2.6)
–
(2.6)
(6.8)
(1.9)
(0.7)
(9.4)
(12.0)
5.8
(0.3)
5.5
(1.4)
0.1
0.1
(1.2)
4.3
6 Taxation continued
Reconciliation of effective tax rate
(Loss)/profit before tax for the period
Tax using the UK corporation tax rate of 19% (2019: 19%)
Non-deductible expenses
Tax exempt revenues
Effect of tax rates in foreign jurisdictions
Amounts not recognised/(previously not recognised) on losses
Adjustments in respect of share options
Adjustment in respect of prior years
Impact of change in tax rate on deferred tax balances
Total tax (credit)/expense
139
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52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(81.2)
22.4
(15.4)
2.5
–
0.2
2.9
0.4
(0.8)
(1.8)
(12.0)
4.3
1.1
(0.3)
0.3
(0.9)
–
(0.3)
0.1
4.3
The Finance Act 2016, which was substantively enacted in September 2016, included provisions to reduce the rate of UK corporation tax to
19% with effect from 1 April 2017 and 17% with effect from 1 April 2020. In November 2019 a change to this provision was made which holds
the rate of UK corporation tax at 19% with no further reduction.
Deferred taxation is measured at tax rates that are expected to apply in the periods in which temporary timing differences are expected to
reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Accordingly, a tax rate of
19% has been applied when calculating deferred tax assets and liabilities at 28 June 2020 (17% at 30 June 2019).
Income tax recognised in other comprehensive income
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of cash flow hedges reclassified to profit or loss
Adjustments in respect of share options
Impact of change in tax rate on deferred tax balances
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
0.9
(1.6)
0.1
0.2
(0.4)
1.6
(1.1)
–
–
0.5
7 Earnings per share
Statutory earnings per share
Basic earnings per share is calculated by dividing the net profit or loss for the financial period attributable to ordinary equity holders of the
parent company by the weighted average number of ordinary shares outstanding during the period. The weighted average number of shares
reflects the movements in share capital detailed in note 21 and the impact of movements in treasury shares held by the Company. Changes
in the Company’s capital structure with no corresponding change in resources are reflected as if they had occurred at the beginning of the
earliest period presented.
Diluted earnings per share is calculated using the same net profit or loss for the financial period attributable to ordinary equity holders of the
parent company, but increasing the weighted average number of ordinary shares by the dilutive effect of potential ordinary shares. Potential
ordinary shares arise from employee based payment arrangements (note 24). Where share based payments are subject to performance
conditions, they are included as potential ordinary shares to the extent that the performance conditions have been met at the reporting
date. Details of share based payment vesting conditions are provided in the Director’s Remuneration Report.
Basic total earnings per share
Diluted total earnings per share
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(31.4)
(31.4)
8.6
8.4
DFS Furniture plc
Annual Report & Accounts 2020
140
Notes to the consolidated financial statements continued
at 28 June 2020
7 Earnings per share continued
Statutory earnings per share continued
(Loss)/profit for the period attributable to equity holders of the parent Company
Weighted average number of shares in issue for basic earnings per share
Dilutive effect of employee share based payment awards
Weighted average number of shares in issue for diluted earnings per share
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(69.2)
18.1
28 June 2020
No.
30 June 2019
No.
220,289,976
–
212,008,955
3,144,296
220,289,976
215,153,251
Underlying earnings per share
Underlying basic earnings per share and underlying diluted earnings per share are calculated by dividing the profit for the period attributable
to ordinary equity holders of the parent company, as adjusted to exclude the effect of non-underlying items, by the same weighted average
numbers of ordinary shares above used for basic and diluted earnings per share respectively.
(Loss)/profit for the period attributable to equity holders of the parent Company
Non-underlying loss after tax
Underlying (loss)/profit for the period attributable to equity holders of the parent Company
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(69.2)
15.7
(53.5)
18.1
3.6
21.7
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
(24.3)
(24.3)
10.3
10.1
Underlying basic earnings per share
Underlying diluted earnings per share
8 Property, plant and equipment
Cost
Balance at 28 July 2018
Additions
Disposals
Balance at 30 June 2019
Recognised on adoption of IFRS 16
Reclassifications
Additions
Remeasurements
Disposals
Balance at 28 June 2020
Depreciation and impairments
Balance at 28 July 2018
Depreciation charge for the period
Disposals
Balance at 30 June 2019
Reclassifications
Depreciation charge for the period
Disposals
Impairments
Balance at 28 June 2020
DFS Furniture plc
Annual Report & Accounts 2020
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
£m
Right of use
assets
£m
8.4
0.3
(0.1)
8.6
–
–
–
–
–
144.0
17.8
(0.2)
161.6
–
(1.3)
15.9
–
(1.8)
8.6
174.4
1.1
0.2
–
1.3
–
0.2
–
–
1.5
74.5
17.6
(0.1)
92.0
(0.7)
19.3
(1.9)
0.8
109.5
27.2
4.4
(3.3)
28.3
–
(17.1)
0.9
–
(0.1)
12.0
12.9
5.5
(3.1)
15.3
(7.2)
1.8
–
–
9.9
–
–
–
–
434.5
18.4
7.7
(2.9)
(3.3)
454.4
–
–
–
–
7.9
60.6
(3.0)
4.4
69.9
Total
£m
179.6
22.5
(3.6)
198.5
434.5
–
24.5
(2.9)
(5.2)
649.4
88.5
23.3
(3.2)
108.6
–
81.9
(4.9)
5.2
190.8
141
8 Property, plant and equipment continued
Net book value
At 28 July 2018
At 30 June 2019
At 28 June 2020
7.3
7.3
7.1
69.5
69.6
64.9
14.3
13.0
2.1
–
–
384.5
91.1
89.9
458.6
Leased plant and equipment
For the period to 30 June 2019, the total net book value of motor vehicles and plant and equipment was £10.5m in respect of assets held
under finance leases. Depreciation for that period on these assets was £3.6m. These have been reclassified to right of use assets on
transition to IFRS 16.
Capital commitments
At 28 June 2020 the Group had contracted capital commitments of £1.7m (2019: £5.4m) for which no provision has been made in the
financial statements.
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9. Leases
Right of use assets
Cost
On adoption of IFRS 16
Reclassification
Additions
Remeasurements
Disposals
At 28 June 2020
Depreciation and impairment
Reclassification
Depreciation charge for the period
Disposals
Impairment of right of use asset
At 28 June 2020
Net book value at 28 June 2020
Property
£m
Vehicles
£m
Equipment
£m
434.5
–
2.4
(2.9)
–
434.0
–
56.1
–
4.4
60.5
373.5
–
17.1
5.3
–
(3.3)
19.1
7.2
4.2
(3.0)
–
8.4
10.7
–
1.3
–
–
–
1.3
0.7
0.3
–
–
1.0
0.3
Amounts recognised in the consolidated balance sheet as at 28 June 2020:
Current lease liabilities
Non-current lease liabilities
For more information on the maturity of the Group’s lease liabilities, see note 24.
Amounts recognised in the consolidated income statement for the 52 weeks to 28 June 2020:
Interest on lease liabilities
Variable lease payments not included in the measurement of lease liabilities
Income from subleasing right of use assets
Expenses relating to short term leases and low value leases
Amounts recognised in the consolidated cash flow statement for the 52 weeks to 28 June 2020:
Total cash outflow for lease liabilities
Total
£m
434.5
18.4
7.7
(2.9)
(3.3)
454.4
7.9
60.6
(3.0)
4.4
69.9
384.5
2020
£m
88.6
428.6
52 weeks to
28 June 2020
£m
29.2
2.1
(1.0)
0.8
52 weeks to
28 June 2020
£m
64.9
DFS Furniture plc
Annual Report & Accounts 2020
142
Notes to the consolidated financial statements continued
at 28 June 2020
9 Leases continued
Right of use assets continued
Non-cancellable short term lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
28 June 2020
£m
30 June 2019
£m
1.2
–
–
1.2
84.4
312.0
298.7
695.1
The Group has entered into short term leases in respect of warehouses and equipment.
At 28 June 2020, future rentals receivable under non-cancellable leases where the Group is the lessor were £2.1m (2019: £8.1m).
10 Intangible assets
Cost
Balance at 28 July 2018
Additions
Balance at 30 June 2019
Additions
Balance at 28 June 2020
Amortisation and impairments
Balance at 28 July 2018
Amortisation charge for the period
Balance at 30 June 2019
Amortisation charge for the period
Impairments
Balance at 28 June 2020
Net book value
At 28 July 2018
At 30 June 2019
At 28 June 2020
Goodwill
The carrying amount of goodwill is allocated to the following cash generating units:
DFS Trading Limited
Sofology Limited
The Sofa Workshop Limited
DFS Spain Limited
Computer
software
£m
21.1
6.9
28.0
6.6
34.6
14.0
3.5
17.5
5.3
–
22.8
7.1
10.5
11.8
Brand
Names
£m
16.8
–
16.8
–
16.8
1.5
1.4
2.9
1.5
1.0
5.4
15.3
13.9
11.4
Goodwill
£m
514.6
–
514.6
–
514.6
–
–
–
–
5.3
5.3
514.6
514.6
509.3
Total
£m
552.5
6.9
559.4
6.6
566.0
15.5
4.9
20.4
6.8
6.3
33.5
537.0
539.0
532.5
Goodwill
28 June 2020
£m
30 June 2019
£m
479.9
28.4
–
1.0
509.3
479.9
28.4
5.3
1.0
514.6
Goodwill is tested annually for impairment on the basis of value in use. The key assumptions underlying the calculations are: factors
influencing the cash flows generated, such as future sales volumes and changes in selling prices and direct costs; the long term growth rate
expected for the market; and the discount rate applied.
Cash flow forecasts are prepared from the latest financial results and internal budgets for the next four years, which take into account
external macroeconomic indicators as well as internal growth expectations for each cash generating unit. Selling prices and related costs are
based on past practice and expected future changes in the market. A terminal value was then calculated on the basis of the four year plan
and the expected long-term growth rate for the UK upholstery furniture sector of 2.0%. These cash flow forecasts were then discounted
at pre-tax discount rates between 8.0% and 11.1% (2019: 10.7%-12.2%). The discount rates are estimated based on the Group’s weighted
average cost of capital, risk adjusted for an individual unit’s circumstances.
DFS Furniture plc
Annual Report & Accounts 2020
143
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10 Intangible assets continued
For the DFS brands and Sofology, these calculations showed a significant headroom between the calculated value in use and the carrying
value of goodwill in the financial statements. A number of sensitivities were then applied to the base case model to assess whether any
reasonably possible changes in assumptions could cause an impairment that would be material to these consolidated financial statements.
This analysis applied a number of challenging scenarios, including: possible shortfalls in cash flows compared to plan, a decrease in the long
term growth rate of the UK upholstery market, and changes in applicable discount rates. On the basis of this analysis the Directors
concluded that a reasonably possible change in assumptions would not lead to an impairment being recognised.
Subsequent to the end of the financial year, The Sofa Workshop Limited was disposed of by the Group (see note 28). The market value of the
business, as evidenced by the sale proceeds receivable on disposal, was below the carrying value of the related assets and accordingly the
associated goodwill and brand name were fully impaired at 28 June 2020.
11 Investments in subsidiaries
The following companies are incorporated in England and Wales, are wholly owned by the Group and have been consolidated:
Diamond Holdco 2 Limited1
Diamond Holdco 7 Limited1
DFS Furniture Holdings plc1
DFS Furniture Company Limited1
DFS Trading Limited1
Coin Retail Limited (Jersey)2
Coin Furniture Limited1
The Sofa Workshop Limited3
DFS Spain Limited1
Sofology Limited4
C.S Lounge Suites Limited1
Soundsofa Limited1
Loveseats Limited1
Slothworks Limited1
Sofaworks Limited1
Sleepology Limited1
Haydock Furniture Limited5
Registered offices:
1. Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster DN6 7NA.
2. 13-14 Esplanade, St Helier, Jersey JE1 1BD.
3. 2nd Floor, Mill Pool House, Mill Lane, Godalming, Surrey, GU7 1EY.
4. Ashton Road, Golborne, Warrington, WA3 3UL.
12 Other financial assets
Non-current
Foreign exchange contracts
Current
Foreign exchange contracts
Principal activity
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Furniture retailer
Intermediate holding company
Furniture retailer
Furniture retailer
Furniture retailer
Furniture retailer
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
28 June 2020
£m
30 June 2019
£m
0.8
4.5
1.4
6.3
Foreign exchange contracts comprise forward contracts which are used to hedge exchange risk arising from the Group’s overseas purchases
(note 24).
DFS Furniture plc
Annual Report & Accounts 2020
144
Notes to the consolidated financial statements continued
at 28 June 2020
13 Deferred tax
Deferred tax assets and liabilities are attributable to the following:
Fixed asset timing differences
Fair value lease creditor
IFRS 16
Remeasurement of derivatives to fair value
Tax losses carried forward
Brand names
Share based payments
Corporate interest restriction
Other temporary differences
Net tax assets
At start of period
Recognised on adoption of IFRS 16
Credited/(charged) to the income statement:
Fixed asset timing differences
Fair value lease creditor
IFRS 16
Tax losses carried forward
Brand names
Share based payments
Corporate interest restriction
Other temporary differences
Recognised in the statement of comprehensive income
At end of period
28 June 2020
£m
30 June 2019
£m
6.2
–
10.3
(0.6)
6.3
(2.0)
1.0
1.8
1.0
24.0
3.9
4.8
–
(1.1)
1.5
(2.2)
1.1
–
0.7
8.7
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
8.7
5.4
2.3
–
0.1
4.8
0.2
–
1.8
0.3
0.4
24.0
8.0
–
0.1
(0.2)
–
0.6
–
0.3
–
0.4
(0.5)
8.7
Deferred tax assets on losses of £6.8m (2019: £3.5m) have not been recognised as there is uncertainty over the utilisation of these losses.
14 Inventories
Raw materials and consumables
Finished goods and goods for resale
Provision for net realisable value
28 June 2020
£m
30 June 2019
£m
7.4
63.2
70.6
(11.7)
58.9
5.9
56.5
62.4
(7.6)
54.8
In applying its accounting policy for inventory, the Group identifies those items where there is a risk that net realisable value does not exceed
cost, due to either the age of condition of the item. An estimate of the net realisable value of such items is made based on the sale of similar
items in the past, taking into account expected future opportunities for sale, and their carrying value reduced by an appropriate provision.
15 Trade and other receivables
Trade receivables
Prepayments
Accrued income
Other receivables
28 June 2020
£m
30 June 2019
£m
10.4
10.1
0.9
0.8
22.2
9.1
22.8
0.6
0.3
32.8
No interest is charged on trade receivables; the Group bears no credit risk in respect of amounts due from retail customers under interest
free credit arrangements. Prepayments and accrued income do not include impaired assets.
DFS Furniture plc
Annual Report & Accounts 2020
16 Trade payables and other liabilities
Current
Payments received on account
Trade payables
Other creditors including other tax and social security
Accruals
Deferred income
Lease liabilities
Non-current
Fair value lease creditor
Accruals
Deferred income
Lease liabilities
145
28 June 2020
£m
30 June 2019
£m
86.8
41.9
39.0
48.3
–
88.6
304.6
42.2
106.9
26.9
43.3
1.9
3.9
225.1
28 June 2020
£m
30 June 2019
£m
–
–
–
428.6
428.6
24.0
34.1
13.4
8.2
79.7
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Payments on account represent contract liabilities under IFRS 15, which will be realised through revenue in the subsequent financial year.
Trade payables do not bear interest and are paid within agreed credit terms. Property lease incentives are classified as non-current to the
extent that they will be credited to the income statement more than one year from the reporting date.
For more information on lease liabilities, see note 1.18.
17 Other financial liabilities
Non-current
Interest rate derivatives
Current
Foreign exchange contracts
28 June 2020
£m
30 June 2019
£m
1.9
0.1
0.7
–
Foreign exchange contracts comprise forward contracts which are used to hedge exchange risk arising from the Group’s overseas
purchases (note 23). Interest rate derivatives are used to hedge interest rate risk on the Group’s floating rate debt (note 23).
18 Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at
amortised cost. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 23.
Senior revolving credit facility
Unamortised issue costs
Lease liabilities
28 June 2020
£m
30 June 2019
£m
220.0
(1.3)
218.7
195.0
(1.0)
194.0
The revolving credit facility bears interest at a rate of 3 month LIBOR plus 2.60% and is repayable in full on 2 August 2022. The revolving
credit facility is secured on a first priority basis with fixed and floating charges over substantially all of the assets of the Company and DFS
Furniture Holdings plc. On 25 September 2019 the Group increased the size of the revolving credit facility from £230.0m to £250.0m through
an accordion facility. On 28 April 2020 an additional Facility B of £70.0m was made available through the revolving credit facility bearing
interest at a rate of LIBOR plus 3.75% and repayable on 28 April 2021. The Facility B has not been drawn to date.
For more information on the maturity of the Group’s lease liabilities, see note 24.
DFS Furniture plc
Annual Report & Accounts 2020
146
Notes to the consolidated financial statements continued
at 28 June 2020
19 Employee benefits
Defined contribution pension plans
The Group operates a number of defined contribution pension plans under which contributions by the employees and the Group are
administered by trustees in funds separate from the Group’s assets. The costs of these schemes are charged to the income statement
as they become payable under the rules of the scheme. The total pension cost of the Group for the period was £5.5m (2019: £3.7m).
20 Provisions
Balance at 30 June 2019
Impact of IFRS 16
Balance at 1 July 2019
Provisions made during the period
Transferred from accruals
Provisions used during the period
Balance at 28 June 2020
Current
Non-current
Guarantee
provision
£m
Property
provisions
£m
Other
provisions
£m
7.4
–
7.4
5.2
–
(4.5)
8.1
5.6
2.5
8.1
2.4
(1.4)
1.0
0.7
–
(0.1)
1.6
0.2
1.4
1.6
0.8
–
0.8
0.4
5.0
(0.1)
6.1
6.1
–
6.1
Total
£m
10.6
(1.4)
9.2
6.3
5.0
(4.7)
15.8
11.9
3.9
15.8
The Group offers a long-term guarantee on its upholstery products and in accordance with accounting standards a provision is maintained
for the expected future cost of fulfilling these guarantees on products which have been delivered before the reporting date. In calculating
this provision the key areas of estimation are the number of future claims, average cost per claim and the expected period over which claims
will arise (nearly all claims arise within two years of delivery). The Group has considered the sensitivity of the calculation to these key areas of
estimation, and determined that a 10% change in either the average cost per claim or the number of expected future calls would change the
value of the calculated provision by £0.6m. The directors have therefore concluded that reasonably possible variations in estimate would not
result in a material difference.
Property provisions relate to an estimate of dilapidation costs based on anticipated lease expiries and renewals and will predominantly be
utilised more than five years from the reporting date.
Other provisions relate to payment of refunds to customers for payment protection insurance policies and other regulatory costs, and
deferred consideration payable on the Group’s November 2017 acquisition of Sofology. Under the terms of the acquisition, deferred
contingent consideration was payable based on underlying earnings before interest, tax, depreciation and amortisation of the acquired
business for the twelve months ended 30 September 2018. The acquisition accounting reflected the Directors’ estimate that no further
consideration would be payable, based on the immediate post-acquisition performance. Subsequent performance of the acquired business
strengthened and in FY18 £5.0m of additional consideration was accrued and recognised as a non-underlying expense in the income
statement. While the Directors’ view of the amount potentially payable has not changed, there is increased uncertainty on the timing of the
settlement and accordingly the £5.0m accrued has been reclassified to provisions. On determination and settlement, any difference
between the final amount due and the amount provided will be recognised as a non-underlying expense or credit.
21 Dividends
The following dividends were recognised and paid during the period:
Final ordinary dividend for FY18
Interim ordinary dividend for FY19
Final ordinary dividend for FY19
Pence per
ordinary share
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
7.5p
3.7p
7.5p
–
–
15.9
15.9
15.9
7.9
–
23.8
The Directors do not recommend a final dividend in respect of the financial period ended 28 June 2020.
DFS Furniture plc
Annual Report & Accounts 2020
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22 Capital and reserves
Share capital
Ordinary shares of £1.50 each
Allotted, called up and fully paid
At the start of the financial period
Issued during the year
At the end of the financial period
147
Number of shares
‘000
Ordinary shares
£m
213,030
42,607
255,637
319.5
63.9
383.4
On 23 April 2020, 42,606,119 new ordinary shares were issued at nominal value of £1.50 for cash consideration of £63,909,179. The Company
has just one class of share in issue and so all shareholders benefit from the same rights, as set out in Company’s Articles of Association and
the Companies Act 2006. Further information on share capital is given in the Directors’ Report on page 108.
Share premium
The share premium account represents the surplus of consideration received for issued ordinary share capital over its nominal value. This
arose on the issue ordinary shares on 11 March 2015.
Merger reserve
The merger reserve arose on the issue of shares in the Company in exchange for minority interests in the issued share capital of a subsidiary
company on 10 March 2015.
Treasury shares
Where the Company purchases the Company’s equity share capital into treasury (treasury shares), the consideration paid, including any
directly attributable incremental costs is deducted from equity attributable to the Company’s equity holders until the shares are cancelled,
reissued or disposed of.
During the period ending 28 June 2020 the Company purchased 400,000 of its own ordinary shares at a total cost of £1.1m for the purpose
of satisfying employee share based payment awards. During the period 990,451 of these shares (2019: 511,489) were used to satisfy
employee share based payment awards. At 28 June 2020 the company had 266,473 ordinary shares held in treasury (2019: 856,924).
Cash flow hedging reserve
The cash flow hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
23 Financial instruments: categories and fair value
Financial assets
Derivatives in designated hedging relationships
Loans and receivables
Cash
Financial liabilities
Derivatives in designated hedging relationships
Senior revolving credit facility
Amortised cost
Fair value
Finance lease obligations
28 June 2020
£m
30 June 2019
£m
5.3
11.2
62.3
(2.0)
(218.7)
(101.0)
(5.0)
(517.2)
7.7
9.4
29.8
(0.7)
(194.0)
(210.2)
–
(12.1)
All derivatives are categorised as Level 2 under the requirements of IFRS 7 as they are valued using techniques based significantly on
observed market data.
Financial liabilities measured at fair value through profit and loss relate to acquisition contingent consideration and are categorised as level 3
under the requirements of IFRS 7 as they are not based on observable market data.
The Directors consider that the fair values of each category of the Group’s financial instruments are the same as their carrying values in the
Group’s balance sheet.
DFS Furniture plc
Annual Report & Accounts 2020
148
Notes to the consolidated financial statements continued
at 28 June 2020
24 Financial instruments: risk management
The objectives, policies and processes governing the treasury activities of the Group are reviewed and approved by the Board. The Group’s
documented treasury policy includes details of authorised counterparties, instrument types and transaction limits and principles for the
management of liquidity, interest and foreign exchange risks. As part of its strategy for the management of these risks the Group uses
derivative financial instruments. The Group does not enter into or trade financial instruments, including derivative financial instruments,
for speculative purposes.
Liquidity risk
The Group manages its cash and borrowing requirements to ensure that it has sufficient liquid resources to meet its obligations as they fall
due while making efficient use of the Group’s financial resources.
The table below shows the maturity analysis of the undiscounted remaining contractual cash flows (including interest) of the Group’s
financial liabilities:
28 June 2020
Trade and other payables
Lease liabilities
Senior revolving credit facility
Other liabilities
Derivatives: net settled
Derivatives: gross settled
Cash in flows
Cash out flows
Total cash flows
30 June 2019
Trade and other payables
Lease liabilities
Senior revolving credit facility
Other liabilities
Derivatives: net settled
Derivatives: gross settled
Cash in flows
Cash out flows
Total cash flows
Less than 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
90.2
88.0
4.6
11.9
194.7
0.9
(107.7)
114.5
202.4
–
85.9
3.9
2.5
92.3
0.8
(34.3)
27.1
85.9
–
214.5
220.6
–
435.1
0.1
–
–
–
235.3
–
1.4
236.7
–
–
–
435.2
236.7
Less than 1 year
£m
1 to 2 years
£m
2 to 5 years
£m
Over 5 years
£m
199.6
4.3
5.8
4.9
214.6
0.7
(135.9)
143.6
223.0
–
3.6
5.8
2.2
11.6
–
(68.6)
55.7
(1.3)
–
5.1
211.5
0.6
217.2
–
–
–
217.2
–
–
–
2.1
2.1
–
–
–
2.1
Total
£m
90.2
623.7
229.1
15.8
958.8
1.8
(142.0)
141.6
960.2
Total
£m
199.6
13.0
223.1
9.8
445.5
0.7
(204.5)
199.3
441.0
Interest rate risk management
The Group’s operating profit is affected by the cost of providing interest free credit to its customers. A fall in LIBOR rates would have a
positive impact on operating profit and a rise in LIBOR rates would impact operating profit negatively. However, with the current low LIBOR
rates any increases or decreases at present would largely be mitigated by the LIBOR ‘floor’ mechanisms used by the external providers of
credit to the Group’s customers. Excluding the effect of these floors, an increase in LIBOR of one percentage point would reduce the
Group’s reported revenue by 0.5%.
The Group is exposed to interest rate risk on its senior revolving credit facility, which bears interest at a floating rate of 3 month GBP LIBOR
plus 2.10%. In order to provide some certainty over the future cash flows associated with this debt, the Group has in place four participating
interest rate swaps and caps. The effect of these instruments is to fix the interest rate payable on the senior revolving credit facility to a
maximum level while allowing the Group to retain some benefit on a proportion of the facility where LIBOR remained below 1.39%. The fair
values of the Group’s interest rate derivatives are as follows:
Interest rate swaps
Derivatives in designated hedging relationships
28 June 2020
£m
30 June 2019
£m
(1.9)
(0.7)
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Annual Report & Accounts 2020
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24 Financial instruments: risk management continued
Foreign exchange risk management
The Group is exposed to the risks of exchange rate fluctuations on the purchase of products denominated in foreign currencies. Currency
requirements are assessed by analysis of historic purchasing patterns by month, adjusted as appropriate to take into account current trading
expectations. The Group’s treasury policy allows for the use of forward foreign exchange contracts to hedge the exchange rate risk arising
from these anticipated future purchases up to 18 months in advance. These contracts are designated as cash flow hedges.
The table below summarises the forward foreign exchange contracts outstanding at the period end:
Derivatives in designated hedging relationships
US Dollar
28 June 2020
30 June 2019
Notional amount
£m
Fair value
£m
Notional amount
£m
Fair value
£m
141.7
4.1
199.3
5.9
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as
follows:
US Dollar
Euro
Assets
Liabilities
28 June 2020
£m
30 June 2019
£m
28 June 2020
£m
30 June 2019
£m
7.7
4.4
6.4
4.8
(7.8)
(0.1)
(16.3)
(1.1)
Foreign currency sensitivity analysis
The Group’s primary foreign currency exposures are to US Dollars and the Euro. The table below illustrates the hypothetical sensitivity of
the Group’s reported profit and closing equity to a 10% weakening of these currencies against Sterling, assuming all other variables were
unchanged. The sensitivity rate of 10% represents the Directors’ assessment of a reasonably possible change, based on historic volatility.
The analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a
10% change in foreign currency rates. The analysis assumes that exchange rate fluctuations on currency derivatives that form part of an
effective cash flow hedge relationship affect the cash flow hedging reserve in equity.
Positive figures represent an increase in profit or equity.
US Dollar
Euro
Income statement
Equity
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
–
(0.4)
1.0
(0.4)
(14.7)
–
(20.7)
–
A 10% strengthening of the above currencies against the Sterling at the period end would have had the equal but opposite effect on the
above currencies to the amounts shown above, on the basis that all other variables remain constant.
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s investment securities.
Investments of cash, borrowings and derivative instruments are transacted only through counterparties meeting the credit rating and
investment criteria specified in the Group’s treasury policy. The Group’s exposure and the credit ratings of its counterparties are regularly
reviewed. Concentrations of risk are mitigated through the use of multiple counterparties and by counterparty limits which are reviewed and
approved by the Board.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar
characteristics.
Capital management
The capital structure of the Group consists of debt, as analysed in note 26, and equity attributable to the equity holders of the parent
company, comprising issued capital, reserves and retained earnings as shown in the consolidated statement of changes in equity. The Group
manages its capital with the objective that all entities within the Group continue as going concerns while maintaining an efficient structure to
minimise the cost of capital. The Group is not restricted by any externally imposed capital requirements.
DFS Furniture plc
Annual Report & Accounts 2020
150
Notes to the consolidated financial statements continued
at 28 June 2020
25 Share based payments
The Group has three share based payment schemes in operation:
Long Term Incentive Plan (LTIP)
The LTIP is a discretionary executive reward plan that allows the Group to grant conditional share awards or nil-cost options to selected
executives at the discretion of the Remuneration Committee. The scheme is focused on the senior leadership roles in the Group, including
Executive Directors. The maximum value of LTIP awards granted to an individual is 150% of base salary, although the Remuneration
Committee may in exceptional circumstances increase this to 300%.
LTIP awards vest after a three year performance period subject to the achievement of performance measures based on earnings per share
and total shareholder return targets. Further information on LTIP performance targets and awards made to Directors is given in the
Directors’ Remuneration Report on pages 101 to 102.
Restricted Share Plan (RSP)
The RSP is also a discretionary reward plan under which conditional share awards or nil-cost options may be granted to individuals in key
executive roles in the Group, excluding Executive Directors and other recipients of LTIP awards. Awards may not exceed 50% of an
individual’s salary for a particular financial year.
RSP awards vest after a three year performance period (other than those granted shortly after Admission vested in July 2017). Awards
granted prior to June 2019 were not subject to other performance conditions. For awards granted in FY20, 50% of an individual participant’s
award is subject to a performance measure based on earnings per share.
Save as Your Earn (SAYE)
SAYE schemes are currently available to all employees in the UK and Republic of Ireland, with invitations to participate generally issued on an
annual basis and subject to HMRC rules. The current maximum monthly savings limit for the schemes is £500. Options are granted at the
prevailing market rate less a discount of 20% and vest three years from the date of grant.
The movements in outstanding awards under each of the schemes are summarised below:
LTIP
No.
Outstanding at the beginning of the period
Granted
Forfeited
Exercised
Lapsed
Cancelled
Outstanding at the end of the period
Weighted average remaining contractual life (months)
Weighted average share price at exercise
2,027,337
616,340
(370,663)
(170,380)
(426,412)
–
1,676,222
17.3
£2.15
RSP
No.
3,560,690
1,132,586
(240,604)
(847,608)
–
–
3,605,064
15.5
£2.15
SAYE
No.
2,613,436
1,376,384
(52,413)
(715,925)
(262,356)
(450,668)
2,508,458
20.3
£2.56
At 28 June 2020 the weighted average exercise price of outstanding SAYE options was £1.79 (2019: £1.83) and the range of exercise prices
was £1.61 to £1.88 (2019: £1.61 to £2.62).
Fair value calculations
The LTIP, RSP and SAYE awards are all accounted for as equity-settled under IFRS 2. The fair value of LTIP awards which are subject to a
market based performance condition (total shareholder return) is calculated using a stochastic (Monte Carlo) option pricing model. RSP
awards, SAYE awards and LTIP awards subject to a non-market based performance condition (earnings per share) are valued using a
Black-Scholes option pricing model. The inputs to these models for awards granted during the financial period are detailed below:
Grant date
Share price at date of grant
Exercise price
Volatility3
Expected life
Risk free rate
Dividend yield
LTIP
RSP
SAYE
25 October 2019
£2.46
Nil
28.0-29.4%
3 years
0.4%
–1
25 October 2019
£2.46
Nil
–2
3 years
–2
4.6%
25 November 2019
£2.35
£1.88
29.4%
3.1 years
0.4%
4.6%
Fair value per share
Market based performance conditions3
Non-market based performance condition / no performance condition
£1.00-£1.10
£2.46
–
£2.15
–
£0.50
1. LTIP participants are entitled to receive dividend equivalents on unvested awards therefore dividend yield does not impact the fair value calculation.
2. Volatility and risk free rates do not impact the fair value calculation for awards with no exercise price or market based performance condition.
3. The 2019 LTIP grant included a number of required holdings periods, giving a range of volatility and fair values.
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25 Share based payments continued
As the Company had only limited share price history at the date of grant, expected volatility was based on a proxy volatility determined from
the median volatility of a group of appropriate comparator companies within the FTSE All Share index. Expected life has been assumed to
equate to the vesting period of the awards.
The total share based payment expense included in administration costs in respect of the above schemes was £2.4m (2019: £2.6m).
26 Net debt
Cash in hand, at bank
Cash and cash equivalents
Senior revolving credit facility
Lease liabilities
Total net debt
Cash in hand, at bank
Cash and cash equivalents
Senior revolving credit facility
Finance lease liabilities
Total net debt
30 June 2019
£m
IFRS 16 transition
£m
Cash flow
£m
Other non-cash
changes
£m
28 June 2020
£m
29.8
29.8
(194.0)
(12.1)
(176.3)
–
–
–
(536.6)
(536.6)
32.5
32.5
(25.0)
36.3
43.8
–
–
0.3
(4.8)
(4.5)
62.3
62.3
(218.7)
(517.2)
(673.6)
28 July 2018
£m
Cash flow
£m
Other non-cash
changes
£m
30 June 2019
£m
47.2
47.2
(195.7)
(10.5)
(159.0)
(17.4)
(17.4)
2.0
3.5
(11.9)
–
–
(0.3)
(5.1)
(5.4)
29.8
29.8
(194.0)
(12.1)
(176.3)
Non-cash changes include the addition of new finance leases within the period of £7.7m (2019: £5.1m) and the amortisation of capitalised
debt issue costs of (£0.3m) (2019: £0.3m).
27 Related parties
Key Management Personnel
At 28 June 2020, Directors of the Company held 0.3% of its issued ordinary share capital (2019: 0.2%), and a further 0.1% (2019: 0.0%) was
held by other key management personnel.
The compensation of key management personnel (including the Directors) is as follows:
Emoluments
Share based payments expense
Company contributions to money purchase schemes
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
2.9
0.7
0.2
3.8
3.9
0.8
0.1
4.8
28 Subsequent events
On 26 August 2020, the Group agreed the sale of the entire issued share capital of The Sofa Workshop Limited for cash consideration of
£0.3m. This sale was subject to the receipt of regulatory approval from the FCA which was received on 1 September 2020 and the
transaction formally completed on 18 September 2020.
DFS Furniture plc
Annual Report & Accounts 2020
152
Company balance sheet
at 28 June 2020
Non-current assets
Investments
Current assets
Amounts due from group companies
Current liabilities
Amounts due to group companies
Net assets
Capital and reserves
Called up share capital
Share premium
Merger reserve
Treasury shares
Retained earnings
Equity shareholders’ funds
28 June 2020
£m
30 June 2019
£m
Note
2
3
4
5
5
5
5
246.5
244.1
356.7
293.0
(112.0)
(94.9)
491.2
442.2
383.4
40.4
18.6
(0.7)
49.5
491.2
319.5
40.4
18.6
(2.1)
65.8
442.2
These financial statements were approved by the Board of Directors on 24 September 2020 and were signed on its behalf by:
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
DFS Furniture plc
Annual Report & Accounts 2020
Company statement of changes in equity
at 28 June 2020
153
Balance at 28 July 2018
Profit for the period
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the period
Dividends
Treasury shares issued
Share based payments
Balance at 30 June 2019
Profit for the period
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the period
Dividends
Purchase of own shares
Treasury shares issued
Shares issue
Settlement of share based payments
Share based payments
Balance at 28 June 2020
Share
capital
£m
319.5
Share
premium
£m
40.4
Merger
reserve
£m
18.6
Treasury
shares
£m
Retained
earnings
£m
Total
equity
£m
(3.3)
88.1
463.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.2
–
319.5
40.4
18.6
(2.1)
–
–
–
–
–
–
63.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
383.4
40.4
18.6
–
–
–
–
(1.1)
2.5
–
–
–
(0.7)
–
–
–
(23.7)
(1.2)
2.6
65.8
–
–
–
(15.9)
–
(1.2)
–
(1.6)
2.4
49.5
–
–
–
(23.7)
–
2.6
442.2
–
–
–
(15.9)
(1.1)
1.3
63.9
(1.6)
2.4
491.2
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DFS Furniture plc
Annual Report & Accounts 2020
154
Notes to the Company financial statements
at 28 June 2020
1 Accounting policies
Basis of preparation
The financial statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
In these financial statements the Company has applied the exemption available under FRS101 in respect of the following disclosures:
• a cash flow statement and related notes
• comparative period reconciliations
• disclosures in respect of transactions with wholly owned subsidiaries
• disclosures in respect of capital management
the impact of new but not yet effective IFRSs
•
As the consolidated accounts of the Company include the equivalent disclosures, the Company has also taken the exemption available
under FRS 101 in respect of IFRS 2 Share Based Payments disclosures of group settled share based payments. Under Section 408 of the
Companies Act 2006, the Company is not required to present its own profit and loss account. The Company’s profit for the period was £nil
(2019: £nil).
The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial
statements.
Going concern
The financial statements are prepared on a going concern basis, which the directors believe to be appropriate for the following reasons.
The Company heads a Group which has a £250.0m revolving credit facility in place until August 2022, and in April 2020, to increase resilience
to the short-term effects of the Covid-19 pandemic, secured an additional twelve month facility of £70.0m from the same group of lending
banks. In the same month the Group also secured £63.9m of equity funding from a placing of ordinary shares. During the period from the
inception of the additional £70.0m facility through to June 2021, existing covenants on the revolving credit facility (of 3.0x Net Debt/EBITDA
and 1.5x Fixed Charge Cover) have been replaced by new minimum quarterly EBITDA and net debt covenants. At the date of approval of
these financial statements, none of the £70.0m facility had been utilised and a further £170.0m of the revolving credit facility remained
undrawn, giving the Group a total of £240.0m available facility in addition to cash in hand, at bank (£47.8m as at 21 September 2020).
The Directors have prepared cash flow forecasts for the Company and its Group covering a period of 18 months to March 2022. These
forecasts indicate that the Group will be in compliance with the minimum quarterly EBITDA and net debt covenants applicable for that
period, which are assessed monthly, as well as the original covenants which become effective once more from June 2021. These forecasts
include a number of assumptions in relation to: level of customer order intake; gross profit margins; and achievement of cost savings in line
with the Group’s strategic plans.
The Directors have also prepared severe but plausible downside sensitivity scenarios which cover the same period as the base case. These
downside scenarios include specific consideration of a range of impacts that could arise from the continued coronavirus pandemic and the
UK’s exit from the EU. These scenarios included: significantly reduced customer spending; a second lockdown during FY21 leading to
reduced order intake and customer deliveries; disruptions to manufacturing and supply chain causing delays in receiving stock; and possible
changes in the regulatory environment surrounding product warranty insurance. As part of this analysis, mitigating actions within the
Group’s control should these severe but plausible scenarios occur have also been considered. These mitigating actions included reducing
discretionary advertising expenditure, a pause on expansionary capital investment and other measures to protect cash balances. These
forecast cash flows, considering the ability and intention of the Directors to implement mitigating actions should they need to, indicate that
there remains sufficient headroom in the forecast period for the Group and Company to operate within the committed facilities and to
comply with all relevant banking covenants during the forecast period.
The Directors have considered all of the factors noted above, including the inherent uncertainty in forecasting the impact of the coronavirus
pandemic, and are confident that the Group and Company have adequate resources to continue to meet all liabilities as and when they fall
due for the foreseeable future and at least for the period of twelve months from the date of these financial statements. Accordingly, the
financial statements are prepared on a going concern basis.
Investments
Investments are stated at cost, less any accumulated impairment losses. Carrying values of investments in subsidiary companies are
reviewed at each reporting date to determine whether there is any indication of impairment. If any such exists, then the investment’s
recoverable amount is estimated based on a value in use calculation. An impairment loss is recognised if the carrying amount of the
investment exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.
Amounts due from and to group companies
Amounts receivable from or payable to other companies within the Company’s group are recognised initially and fair value and subsequently
measured at amortised cost less any provision for impairment.
DFS Furniture plc
Annual Report & Accounts 2020
155
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1 Accounting policies continued
Taxation
Tax on the profit or loss for the period comprises current and deferred tax. Tax is recognised in the income statement except to the extent
that it relates to a business combination, or items recognised directly in equity or other comprehensive income. Deferred tax is provided on
temporary differences between the carrying amounts if assets and liabilities for financial reporting purposes and the amounts used for
taxation purposes.
Share based payments
Awards (options or conditional shares) granted by the Company over its own shares to the employees of subsidiary companies are
recognised in the Company’s own financial statements as an increase in the cost of investment in subsidiaries. The amount recognised is
equivalent to the equity-settled share based payment charge recognised in the consolidated financial statements. The corresponding credit
is recognised directly in equity.
Treasury shares
Where the Company purchases the Company’s equity share capital into treasury (treasury shares), the consideration paid, including any
directly attributable incremental costs is deducted from equity attributable to the Company’s equity holders until the shares are cancelled,
reissued or disposed of.
Audit fees
Amounts receivable by the Company’s auditor and its associates in respect of services to the Company and its associates, other than the
audit of the Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a
consolidated basis in the consolidated financial statements.
Directors’ remuneration and staff numbers
The Company has no employees other than the Directors, who did not receive any remuneration for their services directly from the
Company in either the current or preceding period. See note 27 in the Group consolidated accounts for Key Management Personnel
compensation.
2 Investments
Cost and net book value
At the start of the financial period
Additions
At the end of the financial period
Shares in subsidiary undertakings
52 weeks to
28 June 2020
£m
48 weeks to
30 June 2019
£m
244.1
2.4
246.5
241.5
2.6
244.1
Details of the Company’s investments are given in note 10. Additions in the current and prior period relate to capital contributions made
in respect of share based payments schemes for the Group’s employees. Although the value of the Company’s market capitalisation at
28 June 2020 relative to its net assets was a potential impairment indicator, value in use calculations derived from cash flow forecasts
prepared for the Company and its Group supported the carrying value of the Company’s investments in subsidiary undertakings and
accordingly no impairment loss was recognised.
3 Debtors
Amounts due from subsidiary undertakings (non-interest bearing, repayable on demand)
4 Creditors: amounts due in less than one year
Amounts due to subsidiary undertakings (non-interest bearing, repayable on demand)
28 June 2020
£m
356.7
30 June 2019
£m
293.0
28 June 2020
£m
30 June 2019
£m
112.0
94.9
DFS Furniture plc
Annual Report & Accounts 2020
156
Notes to the Company financial statements continued
at 28 June 2020
5 Capital and reserves
Share capital
Ordinary shares of £1.50 each
Allotted, called up and fully paid
At the start of the financial period
Issued during the year
At the end of the financial period
Number of shares
‘000
Ordinary shares
£m
213,030
42,607
255,637
319.5
63.9
383.4
On 23 April 2020, 42,606,119 new ordinary shares were issued at the nominal value of £1.50. The Company has just one class of share
in issue and so all shareholders benefit from the same rights, as set out in Company’s Articles of Association and the Companies Act 2006.
Share premium
The share premium account represents the surplus of consideration received for issued ordinary share capital over its nominal value.
This arose on the issue ordinary shares on 11 March 2015.
Merger reserve
The merger reserve arose on the issue of shares in the Company in exchange for minority interests in the issued share capital of a subsidiary
company on 10 March 2015.
Treasury shares
Where the Company purchases the Company’s equity share capital into treasury (treasury shares), the consideration paid, including any
directly attributable incremental costs is deducted from equity attributable to the Company’s equity holders until the shares are cancelled,
reissued or disposed of.
During the period ending 28 June 2020 the Company purchased 400,000 of its own ordinary shares at a total cost of £1.1m for the purpose
of satisfying employee share based payment awards. During the period 990,451 of these shares (2019: 511,489) were used to satisfy
employee share based payment awards. At 28 June 2020 the Company had 266,473 ordinary shares held in treasury (2019: 856,924).
DFS Furniture plc
Annual Report & Accounts 2020
157
FY20
935.0
724.5
61.9
(63.1)
(81.2)
(31.4)
–
–
1.1
FY20
pre IFRS 16
FY193
52 weeks
FY192
48 weeks
FY181
935.0
724.5
(13.8)
(55.3)
(74.9)
(28.5)
–
–
1.1
1,287.2
1,165.0
1,125.6
996.2
90.2
901.0
65.1
870.5
76.1
50.2
43.6
16.5
11.2
–
–
28.2
22.4
8.6
11.2
–
–
38.3
25.8
8.9
11.2
–
–
FY17
990.8
762.7
82.4
50.2
50.1
18.7
11.2
9.5
–
FY16
980.4
756.0
94.4
64.6
64.5
28.3
11.0
–
3.7
-32.5
-32.5
+31.9
+31.5
+1.9%
+6.5%
-21.5%
£m
£m
£m
£m
£m
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£m
%
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Financial history
Gross sales
Revenue
Underlying EBITDA
Underlying (loss)/profit before tax excluding
brand amortisation
(Loss)/profit before tax
Basic earnings per share
Ordinary dividends per share
Special dividends per share
Purchase of own shares
Total shareholder return
Notes:
1. Sofology acquired 30 November 2017.
2. Audited statutory period: 48 weeks ended 30 June 2019.
3. Unaudited pro-forma period: 52 weeks ended 30 June 2019.
DFS Furniture plc
Annual Report & Accounts 2020
158
Alternative performance measures
In reporting the Group’s financial performance, the Directors make use of a number of alternative performance measures (APMs) in addition
to those defined or specified under EU-adopted International Financial Reporting Standards (IFRS).
The Directors consider that these APMs provide useful additional information to support understanding of underlying trends and business
performance. In particular, APMs enhance the comparability of information between reporting periods by adjusting for non-underlying
items. APMs are therefore used by the Group’s Directors and management for internal performance analysis, planning and incentive setting
purposes in addition to external communication of the Group’s financial results.
In order to facilitate understanding of the APMs used by the Group, and their relationship to reported IFRS measures, definitions and
numerical reconciliations are set out below. Definitions of APMs may vary from business to business and accordingly the Group’s APMs may
not be directly comparable to similar APMs reported by other entities.
Notes to FY20
The Group changed its accounting reference date to 30 June in the previous year and accordingly the statutory audited results for FY19
were the 48 weeks ended 30 June 2019. To enable meaningful comparatives for reported key performance indicators, unaudited pro-forma
figures for the 52 weeks ended 30 June 2019 have also been presented. These pro-forma figures are calculated by adding unaudited results
per the Group management accounts for the 4 weeks to 28 July 2018 to the audited statutory results for the 48 weeks to 30 June 2019.
APM
Like-for-like revenue
LTM FY19
Gross sales
Brand contribution
EBITDA
Non-underlying items
Definition
Rationale
Revenue from all online and telephone channels and
those retail showrooms which have been open for at
least one full financial year and not identified as
impacted by new showroom openings in the current or
comparative period.
Last twelve months/52 weeks ended 30 June 2019
(unaudited, pro-forma period).
Provides insight into year on year changes in
the underlying trading environment by
excluding distortions from new showroom
openings.
A twelve month period is required to enable
comparison to reported results for previous
periods. The seasonal nature of the Group’s
activity means that many KPIs are only
meaningful when assessed on a full year basis.
Amounts payable by external customers for goods and
services supplied by the Group, including aftercare
services (for which the Group acts as an agent), delivery
charges and value added and other sales taxes.
Key measure of overall sales performance
which unlike IFRS revenue is not affected by
the extent to which customers take up the
Group’s interest free credit offering.
Gross profit less selling and distribution costs,
excluding property and administration costs.
Measure of brand-controllable profit as it
excludes shared Group costs.
Earnings before interest, taxation, depreciation and
amortisation.
A commonly used simple cash profit measure.
Certain material, unusual or non-recurring items which
the directors believe are not indicative of the Group’s
underlying performance.
Clear and separate identification of such items
facilitates understanding of underlying trading
performance.
Underlying EBITDA
Earnings before interest, taxation, depreciation and
amortisation, as adjusted for non-underlying items.
Profit measure reflecting underlying trading
performance.
Underlying profit before tax and
brand amortisation
Profit before tax adjusted for non-underlying items and
amortisation associated with the acquired brands of
Sofology, Dwell and Sofa Workshop.
Profit measure widely used by investors and
analysts.
Underlying earnings per share
Post-tax earnings per share as adjusted for non-
underlying items.
Free cash flow
Sum of Underlying EBITDA, less gross capital
expenditure and changes in working capital.
Leverage (or gearing)
The ratio of period end net debt to underlying EBITDA
for the previous twelve months.
Return on capital employed
(ROCE)
Post-tax operating profit before non-underlying items
plus operating lease charges, expressed as a
percentage of the sum of: property, plant & equipment,
computer software, working capital and 8x operating
lease charges.
Exclusion of non-underlying items facilitates
year on year comparisons of the key investor
measure of earnings per share.
Measure of the cash flow generated by the
Group beyond that required to invest in its
business activities.
Key measure for banking facilities which
indicates the relative level of borrowings to
profit.
Represents the post-tax return the Group
achieves on the investment it has made in its
business.
DFS Furniture plc
Annual Report & Accounts 2020
Key performance indicators
Reconciliations to IFRS measures
EBITDA
Operating (loss)/profit
Depreciation
Amortisation
Impairments
EBITDA
Underlying EBITDA
EBITDA
Non-underlying operating items
Underlying EBITDA
EBITDA (pre-IFRS 16)
Operating (loss)/profit
Impact of IFRS 16
Operating (loss)/profit (pre-IFRS 16)
Depreciation (pre-IFRS 16)
Amortisation (pre-IFRS 16)
Impairments (pre-IFRS 16)
EBITDA (pre-IFRS 16)
Underlying EBITDA (pre-IFRS 16)
EBITDA (pre-IFRS 16)
Non-underlying operating items (pre-IFRS 16)
Underlying EBITDA (pre-IFRS 16)
Free cash flow (pre-IFRS 16)
Underlying EBITDA (pre-IFRS 16)
Acquisition of property, plant and equipment (pre-IFRS 16)
Acquisition of other intangible assets
Cash capital expenditure (pre-IFRS 16)
Share based payment expense
Increase in debtors (pre-IFRS 16)
Increase in inventories
Increase in trade and other payables (pre-IFRS 16)
Decrease in provisions (pre-IFRS 16)
Change in working capital (pre-IFRS 16)
Free cash flow generation (pre-IFRS 16)
Underlying profit before tax and brand amortisation (pre-IFRS 16)
(Loss)/profit before tax
Impact of IFRS 16
(Loss)/profit before tax (pre-IFRS 16)
Non-underlying items (pre-IFRS 16)
Amortisation of brand names
Underlying (loss)/profit before tax and brand amortisation (pre-IFRS 16)
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159
FY19
£m
32.5
23.3
4.9
–
60.7
FY19
£m
60.7
4.4
65.1
FY19
£m
60.7
–
32.5
23.3
4.9
–
60.7
FY19
£m
60.7
4.4
65.1
LTM FY19
£m
54.3
25.8
5.0
–
85.1
LTM FY19
£m
85.1
5.1
90.2
LTM FY19
£m
54.3
–
54.3
25.8
5.0
–
85.1
LTM FY19
£m
85.1
5.1
90.2
FY20
£m
LTM FY19
£m
(13.8)
90.2
(16.8)
(6.6)
(23.4)
2.4
9.1
(4.0)
8.6
11.3
27.4
(19.4)
(6.9)
(26.3)
2.6
(1.9)
3.2
25.5
(0.7)
28.7
(9.8)
92.6
Note
2
3
3
3
Note
2
1.18
1.18
1.18
1.18
1.18
1.18
Note
1.18
FY20
£m
(43.7)
81.9
6.8
11.5
56.5
FY20
£m
56.5
5.4
61.9
FY20
£m
(43.7)
19.4
(63.1)
25.9
6.8
7.1
(23.3)
FY20
£m
(23.3)
9.5
(13.8)
Note
8
10
4
Note
2
1.18
1.18
10
FY20
£m
LTM FY19
£m
(81.2)
6.3
(74.9)
16.6
1.5
(56.8)
43.6
–
43.6
5.1
1.5
50.2
FY19
£m
22.4
–
22.4
4.4
1.4
28.2
DFS Furniture plc
Annual Report & Accounts 2020
160
Alternative performance measures continued
Key performance indicators continued
Net debt (pre-IFRS 16)
Cash in hand, at bank
Cash and cash equivalents
Senior revolving credit facility
Finance lease liabilities (pre-IFRS 16)
Total net debt
Return on capital employed
Operating (loss)/profit (pre-IFRS 16)
Non-underlying operating items (pre-IFRS 16)
Operating lease charge (pre-IFRS 16)
Pre-tax return (pre-IFRS 16)
Effective tax rate
Tax adjusted return (A) (pre-IFRS 16)
Property, plant and equipment (pre-IFRS 16)
Computer software
Inventories
Trade receivables
Prepayments (pre-IFRS 16)
Accrued income
Other receivables
Payments received on account
Trade payables
Working capital (pre-IFRS 16)
8 times lease charge (pre-IFRS 16)
Total capital employed (B) (pre-IFRS 16)
30 June 2019
£m
Cash flow
£m
Other
non-cash
changes
£m
28 June 2020
£m
29.8
32.5
–
62.3
29.8
(194.0)
(12.1)
(176.3)
32.5
(25.0)
4.5
12.0
Note
1.18
10
14
15
15
15
16
16
–
0.3
(5.2)
(4.9)
62.3
(218.7)
(12.8)
(169.2)
FY20
£m
(63.1)
16.6
79.9
33.4
17.1%
27.7
85.0
11.8
96.8
58.9
10.4
11.7
0.9
0.8
(86.8)
(41.9)
(46.0)
639.2
690.0
LTM FY19
£m
54.3
5.1
80.2
139.6
19.0%
113.1
89.9
10.5
100.4
54.8
9.1
22.8
0.6
0.3
(42.2)
(106.9)
(61.5)
641.6
680.5
ROCE (A/B) (pre-IFRS 16)
4.0%
16.6%
DFS Furniture plc
Annual Report & Accounts 2020
Shareholder information
Contacts
Chief Executive Officer
Tim Stacey
Chief Financial Officer
Mike Schmidt
Group Company Secretary & General Counsel
Elizabeth McDonald
Investor relations
Philip Hutchinson
Corporate website
www.dfscorporate.co.uk
Registered office
DFS Furniture plc
1 Rockingham Way
Redhouse Interchange
Adwick-le-Street
Doncaster
DN6 7NA
Corporate advisers:
Auditor
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Remuneration advisor
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Embankment Place London
WC2N 6RH
Brokers
Peel Hunt Limited & Jefferies International Limited
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161
161
Shareholder enquiries
The Company’s registrar is Equiniti. They will be pleased to deal
with any questions regarding your shareholding or dividends.
Please notify them of your change of address or other personal
information. Their address details are:
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
Equiniti is a trading name of Equiniti Limited.
Equiniti helpline: 0371 384 2030.
Overseas holders should contact +44 (0)121 415 7047.
Lines are open 9.00am to 5.00pm, Monday to Friday
(excluding public holidays).
Shareholders are able to manage their shareholding online and
facilities include electronic communications, account enquiries,
amendment of address and dividend mandate instructions.
For institutional investor enquiries, please contact:
Tulchan Group
85 Fleet Street
London EC4Y 1AE
+44 20 7353 4200
Annual General Meeting 2019
This year’s AGM will be held virtually, at 2.30pm on 13 November
2020 at DFS Head Office, 1 Rockingham Way, Redhouse
Interchange, Adwick-le-Street, Doncaster, DN6 7NA
24 September 2020
13 November 2020
Financial calendar
FY20 full year results
Annual General Meeting
DFS Furniture plcw
1 Rockingham Way
Redhouse Interchange
Adwick-le-Street
Doncaster
DN6 7NA
www.dfscorporate.co.uk
www.dfs.co.uk
Report and Accounts
Registered number 7236769
28 June 2020
Company No. 07236769
DFS Furniture plc
DFS Furniture plc
Annual Report & Accounts 2020
Annual Report & Accounts 2020
DFS Furniture plc
1 Rockingham Way
Redhouse Interchange
Adwick-le-Street
Doncaster
DN6 7NA
www.dfscorporate.co.uk
www.dfs.co.uk
www.sofology.co.uk
www.dwell.co.uk
Halo Luxe Space