DFS Furniture plc
Annual Report & Accounts 2021
A closer
look
I N T R O D U C T I O N
This year’s report details a strong year, delivering record
revenues, profit and cash flow. We’ve also delivered another
year of market share growth and progressed our strategic
agenda to lead sofa retailing in the digital age.
W H O W E A R E
C O N T E N T S
DFS Furniture Group is
the largest sofa retailing
specialist in the UK.
See page 4 to 7 to read more about our brands
Strategic report
1-70
Highlights
1
2 Our purpose
4
At a glance
8 Our fundamentals
9
Chair’s statement
11 Chief Executive’s report
16 Market overview
18 Our customer journey
19 Our business model
20 Our strategy
22 Strategy in action
25 Key performance indicators
27 Financial review
33 Alternative performance measures
36 Risks and uncertainties
46 Section 172 statement
51 Responsibility and sustainability report
Governance report
71-124
72 Board of Directors
75 Corporate governance report
83 Audit Committee report
89 Nomination Committee report
91 Directors’ remuneration report
114 Directors’ report
117 Statement of Directors’ responsibilities
in respect of the annual report and
the financial statements
118 Independent auditor’s report
Financial statements
125-166
126 Consolidated income statement
127 Consolidated statement of
comprehensive income
128 Consolidated balance sheet
129 Consolidated statement of changes in equity
130 Consolidated cash flow statement
131 Notes to the consolidated financial statements
160 Company balance sheet
161 Company statement of changes in equity
162 Notes to the Company financial statements
165 Financial history
166 Shareholder information
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.
F I N A N C I A L H I G H L I G H T S
FY21 and FY20 are both prepared under IFRS 16.
FY19 was prepared under IAS 17.
As previously published, in 2019 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. Definitions and reconciliations of these
alternative performance measures can be found
on pages 33 to 35.
Group revenue
£1,067.7m
£724.5m
£1,067.7m
£996.2m
FY21
FY20
FY19*
0
0
FY19
FY18
Post purchase NPS2
86.4%
FY21
FY20
FY19
FY18
Established customer NPS2
30.7%
86.4%
85.7%
84.2%
84.9%
Profit/(loss) before tax
£99.2m
Underlying profit/(loss) before tax, excluding
amortisation of brand names1
£105.8m
FY21
£99.2m
FY21
£105.8m
£(81.2)m
FY20
£(63.1)
FY20
FY19*
£43.6m
FY19*
£50.2m
0
FY19
0
FY19
0
Earnings per share
FY18
34.5p
0
Underlying earnings per share1
FY18
36.0p
FY21
FY20
FY19
FY18
30.7%
FY21
34.5p
FY21
36.0p
42.9%
(31.4p)
FY20
(24.3)p
FY20
33.0%
35.8%
FY19*
16.5p
FY192 8.6p
FY18 8.9p
FY19*
18.4p
0
0
FY19
FY18
1. Refer to pages 33 to 35 for APM definitions.
2. Net Promoter Scores for the DFS brand.
* 52 weeks pro-forma.
1
O P E R AT I O N A L A N D
S T R AT E G I C H I G H L I G H T S
– Progressed our strategic agenda, responding
rapidly to the fast-changing operating and
trading environment.
– Gained market share through our integrated
retail model, demonstrating the strength of
our business model and our ability to attract
customers through digital and physical retail
channels at scale.
– Delivery of £9m of incremental efficiency
savings in the year across our property and
marketing platforms.
– Opened five new Sofology showrooms in FY21
with eight openings planned in FY22, driving
additional upholstery market share gain through
a proven approach.
– Integration of Dwell into the DFS brand
operating structure increasing efficiency and
creating a competitive fulfillment solution for
DFS’s extended homeware offer.
– Launched 15 upholstered bed ranges through
our DFS brand, with positive early results,
and strengthened our beds commercial
partnerships, driving the opportunity to gain
share in the £5bn+ bed and non-upholstery
living room market.
– Significant ESG progress since the launch of our
new strategy in September 2020, with progress
across all target areas and a good consumer
response to our newly launched sustainable
ranges including our partnership with Grand
Designs. Formation of Responsible and
Sustainable Business Committee to ensure
Board oversight of ESG strategy.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Our purpose driven approach
O U R P U R P O S E
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.
C U LT U R E A N D V A L U E S
Our values run through
everything we do.
They guide our actions to create a
sustainable and responsible business.
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.
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.
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.
2
O U R S T R AT E G Y F O R G R O W T H
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.
Drive
DFS core
A renewed focus
on driving the core DFS
business across
all channels
Build the
platforms
Build platforms
to enable profitable
Group growth
Unlock
new growth
Unlock and deliver
new profitable
growth
See page 20 for more information on our strategy
R E S P O N S I B I L I T Y A N D S U S TA I N A B I L I T Y
As our Group purpose states, we
want to bring great design and
comfort into every living room.
But we want to do it in an affordable,
responsible and sustainable manner.
This means making sure our business is
built on the right ethical foundations – to
ensure that, with our sofas, people feel
more comfortable – in every way.
O U R S TA K E H O L D E R S
Committed to
building a sustainable
business model for:
— Colleagues
— Customers
— Suppliers
— Communities
— Environment
— Investors
— Regulators
See page 51 for more information on
responsibility and sustainability at DFS
See page 46 for more information
on how we consider and engage
with our stakeholders
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
D F S F U R N I T U R E P L C
A N N U A L R E P O R T & A C C O U N T S 2 0 2 1
3
Strategic
report
We aim to lead sofa retailing in the digital age. Our strategy
will transform the Group in the medium-term by focusing
on three interrelated pillars – drive the DFS core, build the
platforms for growth and unlock new growth.
C O N T E N T S
4
At a glance
8 Our fundamentals
9
Chair’s statement
11 Chief Executive’s report
16 Market overview
18 Our customer journey
19 Our business model
20 Our strategy
22 Strategy in action
25 Key performance indicators
27 Financial review
33 Alternative performance measures
36 Risks and uncertainties
46 Section 172 statement
STRATEGIC REPORT
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
D F S F U R N I T U R E P L C
A N N U A L R E P O R T & A C C O U N T S 2 0 2 1
4
At a glance
Read more about DFS on page 5
Read more about Sofology on page 6
Read more about The Sofa Delivery Co on page 7
Read more about Dwell on page 7
STRATEGIC REPORT
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
D F S F U R N I T U R E P L C
A N N U A L R E P O R T & A C C O U N T S 2 0 2 1
5
At a glance continued
We are the leading sofa retailing group in the UK
– we operate across three brands, each appealing
to different customer segments.
– DFS is the leading retailer of sofas in the UK with
over 50 years’ heritage.
– Headquartered in Doncaster, it operates 118
showrooms in the UK and Republic of Ireland,
eight across the Netherlands and Spain 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 2.7m unique
visitors each month in the 12 months to
June 2021.
– Sofa orders are fulfilled on a made to order basis.
F Y 2 1 N U M B E R
O F S H O W R O O M S
126
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.
Brand revenue (including Dwell)
£848.0m
FY21
FY20
FY191
£848.0m
£566.5m
£762.6m
1. 52 weeks pro forma.
O T H E R
S H O W R O O M S
N E T H E R L A N D S
S P A I N
2
6
STRATEGIC REPORT
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
D F S F U R N I T U R E P L C
A N N U A L R E P O R T & A C C O U N T S 2 0 2 1
6
At a glance continued
– Sofology is the third largest retailer of sofas
Brand revenue
in the UK.
– Headquartered near Warrington, it trades
through its growing national footprint of 50
showrooms and its website.
– We see an opportunity to expand the
showroom portfolio with a medium-term
target of 65-70 showrooms.
– 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.
– Its products are made to order.
£214.6m
FY21
FY20
FY191
£214.6m
£181.7m
£205.9m
1. 52 weeks pro forma.
F Y 2 1 N U M B E R
O F S H O W R O O M S
50
F Y 2 0 N U M B E R
O F S H O W R O O M S
45
STRATEGIC REPORT
At a glance continued
7
– Our group-wide logistics platform is one
of several key infrastructure components
supporting our retail brands.
– The Sofa Delivery Company also plays an
important role in achieving the Group’s
environmental targets in relation to emissions,
waste and recycling.
– Our unique branding and vehicle livery is
currently being rolled out across our 30
customer delivery centres.
– Offering extended hours delivery to our
customers seven days a week, virtually
all year round.
U K C U S T O M E R
D E L I V E R Y C E N T R E S
30
– Dwell sells stylish, modern furniture, lighting
and home accessories.
– Dwell’s products are on display in a selection
of DFS showrooms as well as on its own
standalone website.
– Its customers tend to be affluent 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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Our fundamentals
Delivering sustainable growth
Our Group benefits from four fundamental advantages that provide
our business model with resilience and position us well for the future.
8
Clear market leader
With over a third of the sofa retailing market,
the DFS Group is over three times the size of our
nearest competitor. This market leadership enables
significant economies of scale and industry-leading
profit margins.
Integrated retail business
We believe that our combination of digital and
physical channels is the right long-term approach
for the sofa market. With our integrated platform,
we’re increasingly ‘channel agnostic’ and flexible
to support customers however they want to shop.
This is supported by our own dedicated
manufacturing and supply chain operations.
See more in our market overview on page 16
See more in our business model on page 19
Sustainable business model
We are committed to building a sustainable
business model, both in terms of our impact on
the environment and our long-term success and
resilience as a Group. Our scale and profitability has
allowed us to invest for the long-term throughout
the economic cycle, leaving us with well-invested
platforms relative to our competition.
See more in our responsibility and
sustainability report on page 51
Homeware market growth
The UK homeware market is currently benefiting
from a shift of consumer spending to the home
and away from travel, leisure & fashion. We believe
the resilient homeware market should fuel the
fundamentals of our business model.
See more in our market growth on page 16
Sustainable
growth
We believe these fundamental attractions of our business model above, as well as the homeware market tailwind, leave the Group well positioned
for medium-term growth in shareholder returns. High levels of free cash flow generation are a long-term feature of our business model.
Read more about our
strategy on page 20
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Chair’s statement
9
Focused on
the future
We remain committed
to developing the Group to
deliver on the expectations
of our customers”
I A N D U R A N T
N O N - E X E C U T I V E C H A I R
I N B R I E F
– A resilient and agile response
to the Covid-19 pandemic,
allowing the Group to benefit
from strong demand in our
market.
– Record financial results, with
Group revenue exceeding
£1 billion for FY21.
– Creation of The Sofa Delivery
Company to improve
customer experience and
deliver on our strategic plans.
– Further new store openings
for Sofology.
– High levels of customer
demand provide
opportunities and challenges
for the year ahead.
– Restart of dividends with
7.5 pence per share
recommended.
O V E R V I E W
The year to 27 June 2021 is the second year affected by the far-reaching
consequences of the Covid-19 pandemic. In facing the multi-faceted
challenges this has thrown up, our 5,000 colleagues have demonstrated
high levels of resilience, tenacity, and loyalty in maintaining the
momentum of recovery. Learning from the experience of the first UK
lockdown and taking an agile approach in the face of ever changing
lockdown restrictions and international supply chain disruption, the
Group kept its manufacturing and supply chain operational and safe
throughout the year. Online sales increased year on year by 184%
benefiting from the investments in technology to improve the online
experience for our customers, and our showroom colleagues provided
additional support to customers wishing to purchase over the telephone.
From the outset of the pandemic a priority has been to look after our
people. During the year I am pleased to say that despite many of our
showrooms being closed for up to 21 weeks of the year the Group did
not furlough any colleagues, and instead introduced a ‘Coronavirus
Absence Pay Scheme’. The aim of the scheme, which paid colleagues
80% of their pay, was to ensure that our colleagues had the peace
of mind that they would be supported if they were absent from
work because they were ill with the virus or could not work for other
Covid-related reasons.
S T R AT E G I C P R O G R E S S
We have continued to progress the implementation of the Group’s
strategy and refine its priorities in response to changing market conditions
and opportunities. This has included aspiring to ESG leadership in our
sector and planning improvements to the effectiveness and scalability
of our UK manufacturing.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
10
Chair’s statement continued
A number of initiatives have been launched to
develop the product ranges and the integrated
retailer proposition of our two larger brands, which
have led to an increase of c.2%pts in the Group’s
market share.
Sofology, which targets a different customer
demographic to DFS, is continuing to perform well.
The brand is now gaining national coverage after
opening five showrooms in the year and with a strong
pipeline in place is in a good position to take advantage
of the growth in the home furnishings market.
Progress has also been made with the creation of
our new Group final mile logistics operation; The Sofa
Delivery Company which will significantly improve the
UK logistics capability for both our brands. Over a
thousand of our colleagues within DFS and Sofology
joined the new business, with the aim of improving
the customer experience and reducing both our
operating costs and our carbon footprint.
F I N A N C I A L R E S U LT S
Showrooms were closed for a significant portion
of the year, but the periods when they were open
saw exceptional levels of demand and similarly our
online channels had a busy year. This has enabled
suppliers and internal manufacturing operations
to operate at high production levels and for the
business to deliver an elevated volume of orders
to our customers. Consequently, the Group has
achieved a record level of revenue and profits.
Total group revenue exceeded £1bn for the
first time, generating underlying profit before tax
and brand amortisation1 of £105.8m. Reported
profit before tax was £99.2m, giving rise to earnings
per share of 34.5 pence.
Looking forward the Group has started the year
with strong trading momentum, supported by a
higher than normal order bank entering the current
financial year and a continued enthusiasm amongst
customers for enhancing the comfort of their
homes. This means the Group now holds relatively
higher levels of visibility on customer demand for
FY22 and alters the principal driver of our overall
1. Refer to pages 33 to 35 for APM definitions.
financial performance in the new financial year to
maximising our supply chain throughput, and
mitigating any operating and raw material cost
inflation or other Covid-19 disruption experienced.
The operating conditions in the new financial year
are currently demanding and whilst the high levels
of demand are welcome, they do present
substantial operational challenges for our supply
chain and manufacturing teams to overcome.
Further, despite the roll out of the UK vaccination
programme we may still have to change our ways
of working to adapt to the continued impact of
Covid-19. I am however confident that, given the
way in which the Group has addressed all of the
challenges of the last year, we are positioned to
respond, with well-established leadership and
appropriate structures in place to manage
these risks.
O U R P U R P O S E , O U R V A L U E S ,
A N D O U R P E O P L E
The Group, the outright market leader in its sector
in the UK, has a distinctive culture. There is a great
sense of pride, loyalty, and commitment from our
colleagues across the Group. Our purpose, built
on our values of “Think Customer, Be Real and Aim
High”, is to bring great design and comfort into
every living room, in an affordable, responsible, and
sustainable manner. That our people live our values
has been evident from their continued dedication
and enthusiasm over the past year as they have
worked hard to support our customers and
each other through the challenges brought
by the pandemic.
We are aware that the pandemic has had a serious
impact on people’s health and wellbeing. Over the
year the Group has invested in resources to support
our colleagues through the pandemic. This includes
a new sick-pay scheme, increasing the number of
mental health first aiders and working with partners
to launch digital tools to help us understand how
our colleagues are feeling and to help them try to
deal with any health issues.
E N V I R O N M E N TA L , S O C I A L A N D
G O V E R N A N C E ( “ E S G ” )
Over the last year the Group has made good
progress against our initial ESG targets. Our
strategy is to leverage our influence and scale as
market leader to offer sustainable and ethical
products, to drive a more circular product lifecycle
and to act in a responsible manner with our
customers, suppliers, and wider stakeholders.
Significant effort has been made in improving the
traceability of the raw materials used in our
products and obtaining third party certification and
verification that our suppliers meet our sustainable
sourcing requirements. This has initially focused on
timber and leather, and we have now published new
targets covering the fabrics we use. Both Sofology
and DFS have introduced sustainable sofas during
the year. For example, the DFS ‘Grand Designs’
range uses fabric made from recycled polyester
yarns, with sustainably sourced timber and
sustainable sofa cushions made using 50%
recycled plastic from Plastic Bank, globally
recognised as one of the leading solutions to
reduce ocean plastic.
The Group has also committed to the BRC Climate
Action Roadmap to be net zero by 2040 and we are
in the process of securing a specialist advisor to
help us understand our Scope 3 emissions and
establish science-based targets to allow us to
achieve our net zero ambitions.
During the year the Group’s Leadership Team has
developed our Inclusivity and Diversity strategy. The
mission is to make DFS a place where “Everyone is
Welcome” and whose ethnic make-up reflects the
society in which we operate our business.
We believe this approach to sustainability and to
responsible business is expected by our colleagues,
our customers and our wider stakeholders and indeed
embedding sustainability into everything we do is a key
priority for the future. To support our progress and
ensure that continuing appropriate focus is given, the
Board has now decided to establish a Responsible and
Sustainable Business Committee to directly
address these topics, with the committee’s terms
of reference available on our corporate website.
T H E B O A R D
In late June 2021 we welcomed Loraine Martins to
the Board as a Non-Executive Director. Loraine is
already fully engaged within the business and brings a
wealth of experience in inclusivity, diversity and health
and safety to the Group. Further information about
our Board and our engagement with stakeholders
is set out on pages 72 and 46 respectively.
D I V I D E N D
Last year the Board took the decision not to
recommend the payment of a dividend in order
to support the Group’s financial resilience. We do
however recognise that dividends are an important
element of the investment case for our
shareholders, as stated in our Capital and
Distribution policy, and we have the intention of
steadily growing our dividends over time in line
with our cash generation and prospects, while
prioritising the Group’s long-term financial health.
As set out in greater detail in the CFO’s report, this
year, as a result of our strong financial performance
I am pleased to confirm we will be recommending a
final FY21 dividend of 7.5p per share.
L O O K I N G A H E A D
As the UK’s leading upholstery retailer and
manufacturer, the Board is confident that our
expertise in designing new and innovative products,
our brand heritage, vertical integration, and financial
strength, places the Group in a relatively strong
position over the long term. We remain committed
to developing the Group to deliver on the
expectation of our customers, drive shareholder
returns, have a positive impact on society and to
provide an inclusive and rewarding place for our
colleagues to work.
Ian Durant
Chair of the Board
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Chief Executive’s report
Delivering this growth would not
have been possible without our loyal
colleagues – they all deserve a huge
thank you for their commitment and
resilience during the year, as well as
their unwavering application of our
Group core values, ‘Think Customer’,
‘Be Real’ and ‘Aim High’, as we have
sought to meet unprecedented
customer demand.”
T I M S TA C E Y
C H I E F E X E C U T I V E O F F I C E R
I N B R I E F
– Progressed our strategic agenda, responding rapidly to
the fast-changing operating and trading environment.
– Gained market share through our integrated retail
model, demonstrating the strength of our business
model and our ability to attract customers through
digital and physical retail channels at scale.
– Significant ESG progress since launch of new strategy in
September 2020, with progress across all target areas
and a good consumer response to our newly launched
sustainable ranges including our partnership with Grand
Designs. Formation of Responsible and Sustainable
Business Committee to ensure Board oversight of
ESG strategy.
– As we enter a new financial year, the Group is very well
positioned to build on its market leadership position in
sofa retailing and to target further growth as we invest to
strengthen our business platforms and extend our retail
proposition into adjacent product categories.
11
Values-led
leadership
Our ‘Be Real’ core value is about
accepting each other for who we are
and respecting each other as part of
one big family. Embracing diversity
and inclusion is therefore a key focus
for the Group. We’ve been listening,
learning and educating ourselves
about different races, genders,
abilities, sexual orientations, religions
and nationalities, with the aim of being
a Group where “everyone is welcome”.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Chief Executive’s report continued
O V E R V I E W
I am pleased to report a strong recovery in FY21
following a challenging FY20 which was impacted
by the early stages of the Covid-19 pandemic.
The Group delivered record sales and profit and
further extended our market leadership. This
performance reflects the benefit of our own
historical investments in our online capability,
showroom estate and business platforms, a
favourable environment for consumer spending
on homeware products as well as pent-up demand
at the start of the financial year.
Delivering this growth would not have been
possible without our loyal colleagues and they all
deserve a huge thank you for their commitment and
resilience during the year, as well as their unwavering
application of our Group core values ‘Think
Customer’, ‘Be Real’ and ‘Aim High’, as we have
sought to meet unprecedented customer demand.
I would also like to thank all our customers for their
continued loyalty and patience in relation to
extended lead times as we dealt with exceptional
levels of demand and faced disruption to our supply
chains. Reflecting shareholders’ support during the
peak of the pandemic in the spring of 2020, I am
also pleased that we are able to repay their
commitment to the Group with a year of strong
profits, a positive outlook, a strengthened balance
sheet and a return to dividend payments.
While furniture and homewares markets have grown
strongly, our market share also continues to grow, at
least in line with the 2%+ rate that we experienced in
the first half of FY21, based on our own proprietary
data developed with Barclaycard. I believe that these
gains are due to the fundamental attractions of our
Group, which I set out in our interim results: the
Group’s market leadership position, which drives
multiple economies of scale; our ‘channel agnostic’
integrated retail model, which allows us to meet
fast changing customer shopping habits; and our
sustainable business approach, both in terms of
1. Refer to pages 33 to 35 for APM definitions.
our impact on the environment and preserving our
long-term success as a Group. With these strong
foundations in place, we believe our strong
operating performance will continue and we
are set to grow further into the medium term.
F I N A N C I A L R E S U LT S
Revenue rose 47.4% on the previous year, or 49.6%
on a comparable basis (excluding Sofa Workshop,
which was sold in September 2020), however our
FY20 revenues and profits were severely impacted
by the pause in deliveries for the majority of the
final quarter to comply with Covid-19 restrictions.
A more representative, pre-pandemic comparator
period is therefore the pro-forma 52 week period
ended 30 June 20191 (“Pro-forma FY19”). Against
this period, FY21 revenue increased by 7.2% (+9.7%
excluding Sofa Workshop). This performance
reflects market share gains as well as the ongoing
benefit of a shift in consumer spending to
home-related categories.
Underlying profit before tax and brand
amortisation1 rose to £105.8m compared to a loss
of £63.1m in FY20 and an IAS17 profit of £50.2m in
the pre-pandemic Pro-forma FY19. Reported profit
before tax was £99.2m compared to a loss of
£81.2m in FY20. Driven by strong trading alongside
a favourable movement in working capital, net bank
debt1 reduced by £138.7m in the period to £19.0m.
Adjusting for the working capital position, which we
expect to unwind, our year end leverage ended the
year within our targeted 0.5-1.0x range. Reflecting
our robust underlying cash generation, significantly
reduced financial leverage and our positive start
to FY22, we recommend a final dividend of 7.5p
per share.
As detailed in our June pre-close statement, the
Group recognises revenue at the point of delivery
to customers and therefore the strong order
intake seen in the final quarter of FY21 will benefit
revenues and profits in FY22. We address current
year prospects in more detail in the Financial Review.
12
O P E R AT I O N A L U P D AT E
One of our fundamental advantages is our
increasingly integrated sales model. Our integrated
retail ambition puts the customer at the centre of
our business and aims to deliver a customer
journey that is consistent across all our sales
channels. The strength of our digital infrastructure
and the Group’s integrated approach proved
invaluable as we have adapted to the rapidly-
changing retail environment. Our digital platforms
allowed us to rapidly redeploy showroom colleagues
into online sales and customer service roles during
those periods when our showrooms were closed.
Due to restrictions around showroom openings in
the year, the strength of our online sales was a clear
highlight of our integrated approach, and a key
point of differentiation versus our specialist
competitors. Gross sales1 via our online channel
increased by 184% compared with a year earlier
and in lockdown periods our market share gains
were particularly elevated.
Our strong profit delivery was achieved despite
a number of operational challenges in the year,
principally disruption due to the Covid-19 pandemic
and external supply chain factors. Our management
of Covid-19 benefited from our learnings in the
previous financial year, as we were once again
required to close and reopen showrooms at
different times according to national restrictions,
often at short notice. The safety and wellbeing of
our customers and colleagues remained our
priority throughout. Colleagues have been regularly
reminded to adhere to our health and safety
“Golden Rules”, which remained in place
throughout the financial year.
Performance throughout the year was particularly
affected by shipping disruption from the Far East
and raw materials supply issues relating primarily
to foam availability in Europe. We have also faced
internal and external manufacturing capacity and
delivery constraints and cost inflation due to high
levels of demand for our products.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Chief Executive’s report continued
As we stated in our interim results, in relation to
Brexit, limited disruption has been experienced to
date and we continue to believe that the Group is
well placed in its key markets following the UK’s
departure from the EU.
R E V I E W O F S T R AT E G I C P R O G R E S S
The aim of our strategy is to lead sofa retailing in
the digital age. The strategy is centred on three
interrelated pillars (Drive DFS Core, Build The
Platforms and Unlock New Growth) across which
we identified initiatives to drive £40m of incremental
pre-tax profit as originally set out in 2018.
We are pleased with our strategic progress,
particularly in relation to the strength of our digital
infrastructure during the pandemic and the growth
and integration of the Sofology acquisition. While
our FY21 PBT and current FY22 PBT guidance
indicates that we are well down the road in relation
to our original profit targets, we still see significant
growth potential across the Group. We provide a
progress update on the individual pillars below.
D R I V E T H E C O R E
The DFS brand is the largest and most profitable in
the Group, accounting for c.80% of Group revenue
and brand contribution1 in the last financial year.
The key priority of this strategic pillar is to drive the
growth of the DFS brand across all our channels.
Key initiatives in the year centred on delivering
further enhancements to our seamless customer
journey, developing new innovative products and
making improvements to our showroom estate
and customer service provision.
Our integrated retail investment programme
encompasses a range of initiatives including:
continuous enhancements to our website with a
focus on imagery, page load speeds and checkout;
further investment in text chat to deliver an
improved customer experience; shared baskets
in place to support the customer journey across
website and showrooms; improvements to our
resourcing and reward models, driving greater
efficiency and conversion; and the development of
1. Refer to pages 33 to 35 for APM definitions.
a consistent approach to refreshing our showroom
format. Reflecting the strength of our websites, we
have begun to focus our efforts on pursuing a range
of opportunities to grow our total addressable
market by targeting incremental product sales from
items, such as beds and homewares, that we are
not able to range extensively in our showrooms.
Attractive, exclusive products are a key point
of differentiation versus our competitors and
we continually refine our use of data and insights
to improve our customer targeting, range
management and new product development.
This allows us to maximise the customer appeal
of our product portfolio, ensure there are no
gaps in the key style groups, promptly replace
any underperformers and increasingly embed
sustainability in our ranges.
A product launch highlight in the first half of the
financial year was our aspirational ‘Halo Luxe’
luxury leather range with its own product-led TV
advertising campaign. In the second half we
introduced our new partnership with ‘Grand
Designs’ for a new range of sofas combining design
integrity and a sustainability ethos. We’ve also
expanded our bed offer, featuring exclusive ranges
from our brand partners Joules and French
Connection, as we target incremental growth from
this sizeable market opportunity. Finally, reflecting
DFS’s status as Team GB’s official Olympics
homeware partner, we launched the new limited
edition Yuttari range to both honour and help
provide relaxation for our elite Team GB athletes
on their journey to Tokyo.
We’re constantly seeking to improve our customer
proposition and develop new innovative services to
engage customers. Consistent surges in demand
as we reopened our showrooms following various
national government lockdowns highlight just how
much customers appreciate our well-invested
showrooms. We believe the combination of digital
and physical is the right long-term approach to
address consumers within the sofa market.
We continued to invest in showrooms in the year,
scheduling works during lockdowns where possible
to minimise disruption on trading. We are
undertaking a programme to update our
showrooms, which includes space optimisation of
Dwell and former Sofa Workshop space, relocation
of the administrative area, and an improved layout
for customers. These changes typically result in a
significant increase in upholstery bays boosting
productivity. In FY21 we completed 16
refurbishments and plan an additional 16 in the
current year. Our online appointment booking
service remains popular with customers and we
continue to evaluate our live ‘video in store’
proposition.
Customer service helps drive our brand reputation
and therefore remains a key area of focus,
particularly given the twin challenges of the
pandemic and supply chain disruption. I highly value
our customer service, delivery and repair teams
who continue to work incredibly hard on behalf of
our customers. We 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 remains around its
all-time high at 86.4% (FY20 85.7%). In contrast,
our established customer satisfaction score
declined year-on-year to 30.7% (FY20 42.1%),
reflecting the volatile supply chain environment.
Based on a survey sent to customers four months
after delivery, this June figure captures those
customers most impacted by delivery delays
caused by disruption to shipping as a result of
Covid-19 and raw material supply. We are working
very hard to mitigate these factors outside our
control and are in the process of centralising our
customer service activities to deliver improved
service levels from a more efficient and flexible
Group-wide platform.
13
While we’ve achieved significant progress in the
year, we are only two years into our strategy and
seeing no shortage of opportunities to extend the
market leadership of our core DFS brand.
B U I L D T H E P L AT F O R M S
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.
In recent results presentations we’ve highlighted the
attractive characteristics of platform-led retailers,
which include greater commercial, operational and
technical resilience, delivery of valuable customer
data and insights and increased scale and reach.
In FY21 our focus was on achieving ongoing cost
savings and efficiency targets across our
showroom property estate, driving a range of
marketing efficiency improvements, and continuing
our plans to develop the best two-man sofa
delivery company in the UK.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Chief Executive’s report continued
14
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 £1.3m of annualised savings,
bringing the total annualised saving since the
program began to £5.6m. We are confident of
achieving the £6-8m targeted annual savings by
FY23 as previously communicated. We expect to
achieve further savings in the medium term as
leases expire beyond FY23.
Turning to logistics, we have delivered another year
of progress in our objective of building a leading
Group-wide logistics platform, The Sofa Delivery
Company. Our aim is to improve efficiency,
including improved customer service and a more
flexible working environment for colleagues whilst
also reducing the Group’s environmental impact.
1. Refer to pages 33 to 35 for APM definitions.
Our development plans are on track as we target
annualised savings of at least £3m from the end
of the current financial year. We are currently
integrating our logistics IT systems across the
Group, a key enabler for multi-brand order
fulfilment, and will complete roll-out of our delivery
vehicle routing and inventory management
systems across all vehicles in the re-branded fleet
by the end of FY22.
Following the completion of our colleague
consultation process and the creation of an
independent logistics subsidiary, the Sofa Delivery
Company is now able to offer Group-wide
extended hours delivery to customers seven days
a week, increasingly important given customers’
busy lifestyles.
Our ongoing marketing transformation programme
continues to move ahead at pace. Alongside our
focus on data and insights to drive our omnichannel
marketing investment, we have recently reviewed
our DFS retail brand activities which has resulted in
the appointment of a new communications agency,
to help support and drive the next phase in our DFS
retail brand marketing. Additionally, we are currently
reviewing our marketing production and automation
capabilities in an effort to secure further efficiencies
across our key customer communications channels.
Finally, we are leveraging our marketing capabilities
across the group, enabling our Sofology marketing
colleagues to adopt and adapt our Group
econometric modelling platform to help inform their
marketing and channel mix investment strategy.
U N L O C K N E W G R O W T H
Our third strategic pillar is to ‘Unlock New Growth’
from commercial initiatives beyond our core DFS
brand. Our main priority in the last financial year has
been to accelerate the roll-out of the Sofology
showroom estate to support its development into
a leading nationwide sofa retail brand. This pillar
also covers growth opportunities derived from
our Dwell homewares brand and our overseas
showrooms in Spain and the Netherlands.
S O F O L O G Y
We are making good progress in our plans to
develop our Sofology brand into a nationwide
business. Despite headwinds of shipping delays
and foam disruption, Sofology delivered sales and
brand contribution1 growth of c.4% and 20%
respectively compared with the pro-forma FY19
pre-pandemic year.
Following a pause in planned openings in FY20 as
we assessed the impact of the pandemic on the
property market, we opened five showrooms in
FY21, with new outlets in Hove, Stockport, Swindon,
Cambridge and Maidstone, to give a total of 50 UK
showrooms. In the current year we anticipate
opening a further eight showrooms.
Sofology has a reputation for fun, style and
sustainability, and we’re committed to retaining
the brand’s aspirational appeal in a Group context.
Following on from our successful Owen Wilson
campaign, Sofology’s latest advertising sees
Helena Bonham Carter encouraging customers
to ‘bring imagination to life’ in the way they make
their homes.
New product launches in the year included the
Pioneer ‘eco’ sofa in the first half, featuring zero
foam, 100% recyclable springs, sustainably sourced
timber, fabric made from recycled yarns plus a
20-year guarantee. Just before the year end,
Sofology introduced ‘Loop’, a flexible, sustainable
upholstery rental service, whereby customers can
select a stylish, fully recyclable sofa on a 6-18
month rental plan with options to renew as
required. At the end of the customer agreement,
each part of the sofa can be repurposed or
recycled, ensuring nothing goes to landfill. We have
also recently introduced three exclusive sofa ranges
from the Paloma Faith Home range, including the
aptly named Rock N Roll model.
We continue to see the opportunity to grow the
Sofology brand to 65-70 outlets in the medium-
term, targeting revenue of c.£300m at a pre-tax
profit margin of 5-7%.
D W E L L A N D I N T E R N AT I O N A L
As detailed in last year’s results, we restructured
Dwell’s operations to enable its wide range of
attractive products to be sold more seamlessly
to DFS customers, as well as online.
Dwell’s integration into the DFS brand operating
structure resulted in the elimination of the operating
losses incurred in the previous year and a more
efficient real estate footprint as we integrated Dwell’s
offer into the DFS showrooms and progressed the
closure of Dwell’s remaining standalone retail outlets.
Dwell’s sourcing expertise and supplier relationships
are also contributing to the development of DFS’s
extended homeware offer.
With a total addressable market of c.£5bn, we see
the beds and non-upholstery living room market as
a particularly attractive growth opportunity for the
Group. We are able to leverage many of the Group’s
assets, including manufacturing capability for
upholstered furniture, web and logistics platforms,
marketing expertise and brand partnerships to
develop a truly compelling bedroom offering. Sales
of beds through our online channels were particularly
strong in the year and we continue to develop our
showroom proposition in selected key locations.
We continue to review our growth options for
our international business, which includes six
showrooms in the Netherlands and two in Spain.
I N V E S T O R E V E N T
Reflecting upon the operational volumes currently
in the business and our focus on looking after our
customers and colleagues to drive long-term value
creation, the Group has decided to defer the
investor event planned for November 2021 until
Spring 2022. This event will provide investors with a
detailed update on the development of our various
platforms alongside an opportunity to view the
latest evolution of our DFS and Sofology growth
strategies. We also look forward to providing more
details on our manufacturing investment, as well as
our plans to grow our sales of living room furniture
and beds.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 15
Chief Executive’s report continued
E S G
We remain guided by our Group purpose, which is
to bring great design and comfort into every living
room, in an affordable, responsible and sustainable
manner. FY21 has been a year of progress on a range
of fronts for our key stakeholders, as detailed below.
Whilst the achievement of our record financial
results is undoubtedly a highlight, this performance
would not have been possible without the strength,
resilience and spirit of our people. The Group has a
unique culture underpinned by our core ‘family’
values of ‘Think Customer’, ‘Aim High’ and ‘Be Real’.
Rising to challenges at work and at home, our
colleagues have enabled the Group to emerge from
the pandemic much stronger than when we
entered. On behalf of the management team and
the Board, I would like to thank all our colleagues for
their sterling efforts in the year.
We launched our ESG strategy in September 2020,
with a strong focus on the Environment based on
our “Sofa Cycle” approach and have made solid
progress against our Phase 1 targets in the last 12
months. One of the highlights of the financial year
was our first ESG Supplier Conference in March,
which is available on our Group corporate website. As
well as featuring contributions from ‘thought leaders’
such as CDP Co-Founder and environmental expert
James Cameron, the Conference set out our intent
to work with our suppliers to innovate and develop
new ways of making our products and our business
even more sustainable and transparent. In June
2021, the Group undertook a formal materiality
assessment, supported by a third party expert, in
order to identify and prioritise all of the Group’s
sustainability risks and opportunities.
Given ESG is a rapidly advancing subject, with
increasing Board time dedicated to it, the Group has
established a Responsible and Sustainable Business
Board Sub-Committee, which will meet at least three
times per year. Responsibility Champions have been
appointed at all levels of the business, ESG Working
Groups established for each brand and external
expert partners are in place to support us. We have
recently introduced our Phase 2 ESG targets, which
include an increased focus on Social criteria and
incorporate our work on diversity and inclusion.
E N V I R O N M E N TA L
Sustainability is a key element of our business model,
and having launched our ESG Strategy in September
2020, we’ve come a long way in a short amount of
time and are excited about the opportunities ahead.
With the Group’s ‘Sofa Cycle’ based on the circular
economy concept, sustainability is increasingly
embedded across the Group.
A key focus in FY21 was on our finished products
and the resources used in manufacturing them. We
have driven positive change, particularly in relation
to the sustainable sourcing of some key materials
in our sofas. Phase 2 targets expand our focus to
cover textiles and material certifications.
S O C I A L
The wellbeing of our colleagues has remained a top
priority during the last financial year. We continued
to follow various government rules and regulations
in our various markets during the period and regularly
reminded our employees to observe our five Covid-19
‘Golden Rules’ to keep colleagues and customers
safe. As we anticipate a hopeful return to more
‘normal’ lives, we’ve been surveying all our employees
on their ideal working conditions as well as providing
extensive wellbeing support. During the summer
we’ve also been refurbishing our Group Support
Centre and Sofology head office in preparation for
a more flexible hybrid working approach.
Our ‘Be Real’ core value is about accepting each
other for who we are and respecting each other
as part of one big family. Embracing diversity and
inclusion is therefore a key focus for the Group.
We’ve been listening, learning and educating
ourselves about different races, genders, abilities,
sexual orientations, religions and nationalities,
with the aim of being a Group where “everyone is
welcome.” For example, in the second half of FY21
we celebrated the range of international languages
spoken across the Group, International Women’s
Day and Pride month. With our ‘Everyone Welcome’
ambition in focus, I’d like to issue a warm welcome to
our newly appointed Non-Executive Director, Loraine
Martins OBE, FRSA. Loraine brings tremendous
experience of supporting employers to develop
equality, diversity and inclusion in the workplace.
G O V E R N A N C E
The Group continues to be rated highly by external
assessors for the strength of its governance,
maintaining 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.
C U R R E N T T R A D I N G
As detailed in our year end trading statement,
strong customer demand in the final quarter of
FY21 was already expected to underpin revenues
and profits in the first half of FY22. Order intake has
also remained strong in the current financial year to
date, well ahead of our previous scenario of +7%
growth on FY19, resulting in an order bank that
continues to grow and which in absolute terms
is very significantly ahead of normal levels.
This order intake provides significant resilience,
and confidence in our outlook. However the
constraining factor on our reported short-term
financial performance will be our pace of conversion
of the order bank which depends on both our
supplier partner manufacturing capacity and also
the capacity of our proprietary logistics operations.
We believe the Group is well placed to achieve the
medium scenario of our range of FY22 profit
outcomes identified back in June.
We already have increased output capacity
significantly in FY21. We continue to strengthen
our operations, increasing warehouse capacity
and resourcing levels, to meet customer demand.
Notwithstanding this, it should be recognised that
the short-term operational environment continues
to be exceptionally uncertain and difficult, given
well-reported logistics disruption, cost inflation
pressures and unplanned Covid-19 absences.
We believe that we have the right plans in place to
mitigate these impacts, underpinned by our scale,
operating experience and long-standing
relationships, and we are focused on delivering
good customer service, protecting our colleagues
and creating long-term value.
C O N C L U S I O N A N D O U T L O O K
Our record profits delivery in the last financial year is
a fitting tribute to all the hard work of our colleagues
and testament to the resilience and flexibility of
our integrated business model. Despite numerous
operational challenges during the pandemic
I’m proud that we have remained focused on our
strategic agenda to lead sofa retailing in the digital
age and are on track to achieve the incremental
£40m of profit benefits set out in 2018. We also
see further growth opportunities into the medium-
term derived from extending the reach of our retail
brands and optimising our operating platforms.
As we enter a new financial year, the Group is very
well positioned to build on its market leadership
position in sofa retailing and to target further
growth as we invest to strengthen our business
platforms and extend our retail proposition into
adjacent product categories.
We emerge from the pandemic stronger than
ever. This strength is underpinned by our fantastic
teams who have worked with dedication, care and
enthusiasm despite the many and varied challenges
we have faced. I want to personally thank every
single colleague for their unwavering support
and look forward with huge optimism, fuelled
by the position the business is now in and most
importantly the spirit, commitment and loyalty
of our people.
Tim Stacey
Chief Executive Officer
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Market overview
We are the leading
sofa retailer in
the digital age
Our integrated retail business model
enabled us to achieve further market
share gains as the market recovered
strongly year-on-year.
16
Large potential customer base
The DFS Group has a specialist focus on the retail
upholstered furniture segment. According to
GlobalData, the UK upholstery furniture market
value is estimated to be c.£3.4bn (incl. VAT) in
calendar 2021, a significant increase on the
previous year’s pandemic-distorted £2.8bn.
Using proprietary market data developed with
Barclaycard, we estimate that our sofa market
share increased by at least two percentage points
in our last financial year, due to the performance
of our online channels and also the exit of several
competitors. Reflecting the growing strength of
our Group-wide integrated retail platform, we have
identified a clear opportunity to extend our offering
into the beds and non-upholstery living room
furniture market increasing our Total Addressable
Market (“TAM”) by approximately £5bn.
Clear leader in the segment
The Group, through its DFS, Sofology and Dwell
brands, is the clear leader in the upholstered
furniture market, and accounts for over a third of
the market by value – approximately three times
the size of our nearest competitor. This market
remains highly fragmented and we see further
opportunities to grow our market share. We see
four broad categories of companies actively
competing in the upholstered furniture retail
market: specialist chains such as DFS, Sofology,
ScS and Furniture Village; independents that are
typically single store operations; predominantly
online furniture retailers such as Made.com and
Wayfair; and larger general merchandise or
homeware retailers such as Amazon, Argos,
Dunelm, Ikea, John Lewis, and Next. Physical store
closures, as part of government measures to
contain the spread of Covid-19, boosted revenue
of our online platforms in the period.
However, very strong demand in our showrooms
upon reopening illustrates that the majority of
customers still prefer to visit physical outlets or
shop a combination of stores and online. We
believe the integration of digital and physical is the
right long-term approach to serve our customers.
Our well-invested ‘integrated retail’ business model
allows us to adapt to fast-changing consumer
shopping habits, and positions us well for the future.
Steady growth over long-term periods
While the Covid-19 pandemic has led to
unprecedented volatility in the last 18 months,
the sofa market generally sees steady long-term
growth. 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, discussed below. In addition to these
market drivers we do see from time to time some
volatility in market demand levels caused by
particularly hot or cold weather and significant
public events.
U K U P H O L S T E R E D
F U R N I T U R E M A R K E T
£3.4bn*
* GlobalData calendar 2021 estimate.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
17
Market overview continued
Conditions in our core market have improved significantly compared with the previous
financial year. Government actions to support employment and the housing market have
benefited consumer confidence, and reduced discretionary spending on travel and leisure
has led to a shift towards home-related categories.
K E Y M A R K E T D R I V E R S
Consumer confidence
Levels of consumer spending, particularly for big
ticket items, are influenced by general consumer
confidence. UK consumer confidence, as measured
by GfK, has weakened since 2016 amid uncertainty
following the referendum vote to leave the
European Union. In spring 2020, consumer
confidence fell to near record lows due to economic
and financial uncertainty around the pandemic.
The measure has since recovered steadily to
pre-pandemic levels, due to a combination of
government economic stimulus, progress in
the management of the pandemic and reduced
Brexit uncertainty.
Consumer confidence1
5
0
-5
-10
-15
-20
-25
-30
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD
July
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. As the pandemic spread
in spring 2020, government social distancing
measures led to a sharp contraction in housing
market activity. Transactions have recovered
strongly since July 2020 as a result of temporary
government measures to reduce stamp duty
payable on residential property purchases. As at
June 2021 year-to-date UK housing transactions
are almost double those of 2020.
Housing transactions p.a. (‘000s2)
1500
1200
900
600
300
0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD
Jun 21
Consumer credit
Upholstered furniture typically has relatively high
unit prices and thus the availability of consumer
credit can facilitate purchases and upselling.
Consumer credit growth has slowed since the EU
referendum, reflecting increased economic and
political uncertainty. Since the beginning of the
pandemic, UK consumers have been reducing debt,
as government restrictions have reduced options
for discretionary spending e.g. foreign travel and
leisure. Certain sectors of the economy have
benefited, however, with consumers spending
relatively more on home improvements, including
furniture and DIY.
Net unsecured lending growth3 (%)
12
10
8
6
4
2
0
-2
-4
-6
-8
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD
Jun 21
1. GfK UK Consumer Confidence average of individual scores for
2. HMRC – number of residential property transaction completions
each year.
with a value over £40,000 for the UK, seasonally adjusted.
3. Monthly 12 month growth rate of total (excluding the Student Loans
Company) sterling net consumer credit lending to individuals (in
percent) seasonally adjusted.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Our customer journey
The customer is at the heart of our Group journey
18
9 0 % O F C U S T O M E R S
R E S E A R C H O N L I N E
90%
U K - B A S E D
D E S I G N S T U D I O S
2
G R O U P
S H O W R O O M S
178
U K
F A C T O R I E S
5
Design & inspire
1
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 the use of augmented reality technology. Sustainability is a
growing feature of our products. Our new Grand Designs ranges feature
all elements made from recycled or recyclable materials.
Integrated retail model
2
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 integrated retail
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.
Quality manufacturing
3
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 20% of all the furniture we sell.
S E R V I C E M A N A G E R S
226
D E L I V E R Y V E H I C L E S
329
Service
4
Aftercare is provided by highly skilled teams with the majority of
after-sales issues being addressed in customers’ homes by our
own colleagues.
Innovative delivery options
5
The Sofa Delivery Company is our leading Group-wide supply chain
platform. 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.
S O F A S S A V E D F R O M L A N D F I L L
>100,000
Sofa collection & recycling
6
Getting rid of an old sofa responsibly and conveniently is a real issue for
customers. Unless old sofas are passed on to family, friends or charity,
many go into landfill. Our experienced specialist partner Clearabee will
collect customers old sofas and take them to the nearest recycling
centre where it will be broken down to its component parts to reuse,
recycle or create new energy.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Our business model
How we create value…
How we deliver value…
O U R E N A B L E R S
W H AT W E D O
O U T C O M E S
V A L U E F O R S TA K E H O L D E R S
19
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.
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 over three
times that of our nearest competitor. As a
standalone business, we estimate our online
channel would be the fourth largest sofa
retailer in the UK.
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 20% of the Group’s sofa
orders in our own British factories, resulting in
shorter lead times, superior quality control and
greater oversight on sustainability.
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, lower emissions
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.
C U S T O M E R S
86.4%
DFS post purchase NPS
E M P L O Y E E S
40%
employees > five years’ service
S U P P L I E R S
36%
customer orders from British
factories1
S H A R E H O L D E R S
£135m
cash distributed since flotation
C O M M U N I T Y
£5.5m
raised since 2013 for BBC Children in
Need through customer donations
and fundraising initiatives
1.
Includes third party manufacturing and
internal manufacturing
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 20
Our strategy
Our strategy
for growth
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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Our strategy continued
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.
We are committed to building a sustainable
business model, both in terms of our impact on
the environment and preserving our long-term
success as a Group.
See pages 22 to 24 for more detail.
21
1 D R I V E
D F S C O R E
2 B U I L D T H E
P L AT F O R M S
3 U N L O C K
N E W G R O W T H
A renewed focus on driving the core
DFS business across all channels
Build platforms to enable profitable
Group growth
Unlock and deliver new profitable growth
Omnichannel
Develop seamless customer journey
across channels.
Cost efficiency & property cost reduction
Reduce our relative cost base.
Sofology
Develop a nationwide business.
Focus for 2021/22
– Continue investment to create integrated
Focus for 2021/22
– Continue progress towards £6-8m
customer journey
annualised property cost savings by FY23
– Enhancements to our website to further
optimise conversion
Focus for 2021/22
– Opening eight new showrooms in key
locations to reach 58 showrooms, on way
to 65-70 target
Product innovation
Enhance our unique and differentiated
product offer.
Supply chain
Best-in-market two person sofa delivery and
installation.
Dwell
Strengthen the brand through digital
and right space.
Focus for 2021/22
– Further development of brand partnerships
to attract new customers driving average
order value and conversion
Focus for 2021/22
– Complete Group-wide The Sofa Delivery
Company integration project to deliver £3+
savings for FY23
– Introduction of new supply partnerships to
– Integrate new consolidation centre into
enhance breadth of offer
Group logistics network
Focus for 2021/22
– Optimise sales through targeted marketing
and newly re-platformed website
– Leverage infrastructure to expand other
Group brands’ offer into adjacent markets
Customer proposition
and service innovation
New services to engage customers.
Focus for 2021/22
– Continue investment in
our showrooms’ offer
– Embed the new centralised
customer contact centre
Marketing investment
Data and insight driven efficiency and
effectiveness across the Group.
Focus for 2021/22
– Continued focus on channel mix
optimisation, with increasing emphasis and
investment in digital
– Early exploration regarding adoption of
marketing automation platform to help
drive further efficiency & effectiveness
International: Netherlands
Break-even and beyond on current model.
Focus for 2021/22
– Continue to optimise the existing
showroom estate
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
22
Strategy in action
01
Drive DFS core
A renewed focus on driving the core DFS
business across all channels
Recent investments in our digital
infrastructure have proved
invaluable during the pandemic
but consistent surges in demand
as our outlets reopened after
lockdown highlight how much
customers appreciate our
well-invested showrooms to
consult with our experienced
colleagues, view the products
with their own eyes, and perform
the all-important sit-test.
We believe the combination of physical and digital
in our integrated retail model is the best long-term
approach to serve the sofa market.
The first pillar of our strategy is to ‘drive the core’
DFS brand across all our retail channels, through
continuous investment in our seamless customer
journey, product innovation and service proposition.
The DFS brand is the largest and most profitable in
the Group so consistent incremental gains can
have a big impact on overall Group profitability.
Our record-breaking profit performance in the last
financial year was a testament to our omnichannel
approach. Investment in our integrated retail
business model over the last few years enabled the
brand to perform strongly online during periods
when our showrooms were closed due to
government restrictions, but equally, our
showrooms were able to capture significant levels of
pent-up demand once they were allowed to open.
This consistent pattern of remarkable demand
surges after all three UK Covid-19 lockdown periods
highlights beyond any doubt that most customers
love to test their sofas ‘for real’ before committing
to a purchase. This is a big reason why we believe
our well-invested, integrated retail business model
differentiates us from the competition, allowing us
to meet fast-changing consumer shopping habits,
positioning us well for the future.
We are continuing to invest in our DFS brand
showroom estate which occupies 126
predominantly prime retail locations in the UK
and Europe. Our latest format relocates the central
administrative area to a smaller-footprint, lower
traffic area and consolidates former sub-brand
space into one large open unit, improving the
customer experience and increasing the number
of sofa display bays from around 55 to around 70.
The extra space allows us to showcase more of our
innovative new product ranges including Grand
Designs and Halo Luxe.
Our integrated retail infrastructure has allowed us
to operate with greater agility during the pandemic.
In FY21, rather than placing showroom colleagues
on furlough during lockdown we chose to engage
them in online customer support roles to provide
specific product advice and detail on deliveries.
So after an extraordinary year, supported by the
relentless commitment of our DFS colleagues,
we believe that the brand is in better shape than
ever to deliver further profitable market share
growth into the medium-term.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 23
Using advanced systems to provide delivery across
all the Group’s brands allows us to optimise delivery
routes, minimise miles driven and put fewer vehicles
on the road. As the most frequent visitors to
customers’ homes, our delivery colleagues are also
at the forefront of our waste and recycling efforts in
relation to unwanted sofas and packaging materials.
While The Sofa Delivery Company is well on track
to achieving its project goals in the next year to
18 months, our ‘build the platforms’ strategy
has much further to run as we target a range of
improvements, including medium-term plans
to increase our manufacturing efficiency.
Strategy in action continued
02
Build the
platforms
Build platforms to enable profitable
Group growth
The Sofa Delivery Company
aims to ‘deliver moments that
matter’ for our customers.
Our Group-wide logistics
platform is one of several key
components of our Group
infrastructure which support our
retail brands and target a range
of efficiency improvements
including customer service
enhancements, flexible working
conditions for colleagues, cost
savings and environmental
impact reductions.
Our second strategic pillar is to ‘build the platforms’
in order to enable profitable growth across our retail
brands and support future growth initiatives. The
term ‘platforms’ covers a wide range of assets that
support our retail activities, including our property
portfolio, supply chain capability, marketing
expertise and manufacturing infrastructure.
Platform benefits include greater commercial,
operational & technical resilience, delivery of
valuable customer data & insights and increased
scale and reach. In the last financial year our focus
was on achieving ongoing cost savings and
efficiency targets across our showroom
estate, driving a range of marketing efficiency
improvements, and continuing our plans to develop
the most efficient two-man sofa delivery company
in the UK.
We focus here on our progress towards our
objective of building a leading Group-wide supply
chain platform, The Sofa Delivery Company.
Our current year roll-out plans are on track as we
work towards achieving annualised savings of at
least £3m by the end of financial year FY22. Our aim
is to offer improved customer service and a more
flexible working environment for colleagues, whilst
also reducing the Group’s environmental impact.
A priority in the year was the completion of a
range of IT projects that allow The Sofa Delivery
Company to track and deliver customer orders as
efficiently as possible for all our different retail
brands. We’ve also been busy rolling out our unique
branding and vehicle livery across our 30 customer
delivery centres.
At the heart of the project is a desire to do the best
for our colleagues and customers. The Sofa
Delivery Company operates a ‘4 days on, 4 days off’
work scheduling model aimed at providing an
attractive work-life balance for our drivers. In a
competitive market for large vehicle drivers, the
Group is committed to being an attractive employer
in the logistics industry, offering competitive
rewards and attractive working conditions. This
arrangement enables the Group to offer extended
hours delivery to our customers seven days a week,
virtually all year round, increasingly important given
customers’ busy lifestyles.
The Sofa Delivery Company also plays an important
role in achieving the Group’s environmental targets.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 24
Strategy in action continued
03
Unlock new
growth
Unlock and deliver new profitable growth
With revenue of £214.6m and
a brand contribution1 of £57.2m
in the last financial year, Sofology
is well on its way to justifying its
acquisition. We still see plenty
of potential growth however,
as we develop the brand into a
national chain, seize new product
development opportunities and
integrate the business into our
group-wide platforms.
Our third strategic pillar is to ‘unlock new growth’
from commercial initiatives beyond our core DFS
brand. Our main priority in the last financial year has
been to accelerate the roll-out of the Sofology
showroom estate to support its development into
a successful nationwide sofa retail brand. Alongside
this we’re broadening the reach of our Dwell
homeware brand through digital, wholesale and
retail space optimisation initiatives.
1. Refer to pages 33 to 35 for APM definitions.
Finally, we continue to evaluate medium-term
options for the development of our small
international DFS brand business.
Sofology was set up in north-west England and
is well established in the north but we see an
attractive opportunity to expand its presence
on some of the more successful retail parks in
the south of England. Following a pause in openings
in FY20 as we assessed the impact of the pandemic
on the property market, we opened five
showrooms in FY21, including new outlets in Hove,
Cambridge and Maidstone, to give a total of 50
UK showrooms. In the current year we anticipate
opening a further eight showrooms, taking us well
towards our medium-term target.
Sofology has a reputation for style and sustainability
and we’re committed to retaining the brand’s
unique and inspiring personality in a Group context.
Following on from our successful Owen Wilson
campaign, Sofology’s latest campaign sees
Helena Bonham Carter encouraging customers
to ‘bring imagination to life’ in the way they make
their homes. A wide range of new product
initiatives, including our Loop flexible, sustainable
sofa rental model and our recently launched
Paloma Faith Home sofas continue to capture
customers’ attention.
Sofology’s profitability will benefit from greater
integration into our Group platforms. Key initiatives
in the year included Sofology’s integration into
The Sofa Delivery Company logistics platform
and targeted efficiencies in Group-wide
shared services.
While FY21 was a stellar year for Sofology, we see
further growth to come as we work through our
record customer order bank and open more new
showrooms. We continue to see the opportunity
to grow the Sofology brand to 65-70 outlets in the
medium-term, targeting revenue of c.£300m at
a pre-tax profit margin of 5-7%.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Key performance indicators – Financial
Gross Sales
£1,368.7m
Underlying profit/(loss) before tax
excluding brand amortisation
£105.8m
Leverage
0.2x
£1,368.7m 46.4%
FY21‡
£105.8m
£935.0m
(27.4%)
(£63.1m)
FY20‡
(17.0x)
FY21
0.2x
FY20
FY21
FY20
FY19*
FY19**
FY18
£1,287.2m
14.4%
FY19* †
£50.2m
£1,165.0m
£1,125.6m
13.6%
FY19** † £28.2m
FY18†
£38.3m
Description
The ratio of period end net bank debt to cash
EBITDA for the previous twelve months.
Performance
Increase driven by reduced net bank debt and
positive cash EBITDA (negative cash EBITDA
in FY20).
Description
Profit before tax adjusted for non-underlying items
and amortisation associated with acquired brands.
Performance
Increase driven by the higher gross sales.
Description
Gross sales represents the total 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.
Performance
Increase in sales as a result of market share
gains, a shift in consumer spending to the
home and delivering to customers throughout
the period (note FY20 impacted by a pause in
deliveries for the majority of the final quarter
to comply with Covid-19 restrictions).
52 weeks pro-forma.
*
** 48 weeks.
‡
†
IFRS16.
IAS17.
1. Refer to pages 33 to 35 for APM definitions.
Underlying free cash flow to equity holders
Underlying return on capital employed
£141.7m
FY21
£141.7m
(£40.7m)
FY20
28.3%
(12.7%)
FY21
FY20
Lease adjusted ROCE
28.3%
Description
Underlying free cash flow to equity holders is the
change in net bank debt for the period after adding
back dividends, acquisition related consideration,
share based transactions and non-underlying
cash flows.
Description
Underlying return on Capital Employed (”underlying
ROCE”) is underlying post tax profits expressed
as a percentage of the sum of property, plant and
equipment, computer software, right of use assets
and working capital.
Performance
Increase driven by the higher underlying profit and
a working capital inflow as a result of increased
trading levels.
Performance
Increase driven by the underlying profit in the period
(FY20 loss) and a lower level of capital employed.
25
F Y 1 8 A N D F Y 1 9 H I S T O R I C A L K P Is
( P R E I M P L E M E N TAT I O N O F I F R S 1 6 )
The Group implemented IFRS16 in FY20 and after
a year of transition now discloses all financial data
solely on an IFRS16 basis. Consequently cash flow,
return on capital employed and gearing KPI metrics
have been redefined with the two years of data
presented below. Whilst not directly comparable
the metrics as disclosed in the FY18 and FY19
annual reports are shown in a separate table below.
Free cash flow
FY19*
FY18
Gearing
FY19*
FY18
FY19*
FY18
£92.6m
£60.4m
2.0x
2.1x
16.6%
15.6%
In FY19 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 alternative performance measures
for FY19 and FY18 were presented in the FY19 Annual Report.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
26
Key performance indicators – Non-financial
Net Promoter Score (%) – Post purchase customer
satisfaction
Suppliers – Avg days to pay
Sofology UK stores
86.4%
FY21
FY20
FY19
FY18
86.4%
85.7%
84.2%
84.9%
30.6 days
FY21
FY20
30.6
27.7
50
FY21
FY20
FY19
FY18
50
45
42
41
Description
Average across all DFS stores based on post
purchase customer satisfaction surveys.
Performance
Small year on year increase in very strong
overall level.
Description
Average number of days between receipt and
payment of supplier invoices.
Performance
The small increase reflects the changing mix
of suppliers and associated payment terms.
Description
Number of Sofology stores trading at the
end of the financial period.
Performance
5 additional stores opened in FY21 (Cambridge,
Maidstone, Hove, Stockport, Swindon).
Net Promoter Score (%) – Established customer
satisfaction
Suppliers – % paid on time
30.7%
FY21
FY20
FY19
FY18
30.7%
42.9%
33.0%
35.8%
Description
Average across all DFS stores based on
established customer satisfaction surveys
(six months after order).
Performance
Impact of delivery delays caused by disruption
to shipping as a result of Covid-19 and raw
material supply.
71.8%
FY21
FY20
71.8%
59.0%
Description
Percentage of supplier invoices paid within
agreed terms.
Performance
Recovery from covid-impacted final quarter
of FY20.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
D F S F U R N I T U R E P L C
A N N U A L R E P O R T & A C C O U N T S 2 0 2 1
27
The Group is in a strong position
having gained market share, holding
a significant order bank and having
strengthened our balance sheet.
Whilst the operating environment
will likely remain challenging, we are
confident in our ability to deliver
our strategy, achieve our previously
disclosed ambition to sustainably
grow our profits and thereby provide
strong returns to our shareholders.”
M I K E S C H M I D T
C H I E F F I N A N C I A L O F F I C E R
Financial
review
We continue to operate in
a market with high levels of
demand, and are trading well and
generating strong cash flows.
I N B R I E F
– Record revenues and profits achieved in challenging
conditions
– Strong cash flows have significantly reduced leverage
– Well positioned for FY22 and high levels
of demand continue
– Proposal to recommence dividends
STRATEGIC REPORT
In December 2020 we entered into a new three-
year agreement, with two one year extension
options for a £225m senior revolving credit facility
with our existing syndicate of seven banks all
continuing their involvement, but at different
proportional levels of participation. In order to align
our financing with our ESG sustainability ambitions
we agreed to have the option to link the interest
rate to the achievement of sustainability related
targets. I’m pleased to confirm that we have now
done this with targets covering sustainable sourcing
practices for wood and leather, greenhouse gas
emissions and diversity in our workforce.
Given our current financial position, confidence
in our enhanced market leading position and
anticipated future cash generation the Board are
recommending to shareholders that dividends are
restarted with a final FY21 dividend of 7.5p per share.
In what has obviously been challenging conditions
for our teams to work in given the pandemic,
compounded by unprecedented levels of demand
to fulfil throughout our operations I’d like to take
this opportunity to thank our colleagues for their
effort and perseverance in helping us achieve this
record financial performance.
28
B A S I S O F P R E P A R AT I O N
Following the reorganisation of our Dwell business
over the summer 2020 period we have this year
presented the Dwell and DFS brand segments as
one segment to reflect how these brands are now
managed.
As communicated in our FY20 annual report, we
sold the Sofa Workshop business in September
2020. In order to aid comparison of continuing
operating segments, the table below includes a
subtotal excluding Sofa Workshop.
Brand contribution1, which is reported before
property or administrative expenses, remains our
preferred measure of segment profitability.
As FY20 was significantly impacted by Covid-19
related government guidance preventing us from
delivering orders (and therefore recognising
revenue) we have also included unaudited
pro-forma results for the 52 weeks ended 30 June
2019 (“pro-forma FY19”*) below to provide
additional comparison with a non Covid-disrupted
trading period. The year-on-year commentary
covering gross sales, revenue, gross margin
and brand contribution that follows focuses on
comparing the results for this financial year to
the pro-forma FY19 period.
* As previously published, in 2019 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. Refer to pages 33 to 35 for
further details on alternative performance measures, and to the
FY19 financial statements for the reconciliation from the reported
48 week results to the pro-forma 52 weeks.
Financial review continued
O V E R V I E W
The Group has achieved record levels of revenues,
profit and cash flow in FY21 which has significantly
strengthened our financial position across the
course of the year. With market share gains made
through the year, a high opening order bank, strong
demand experienced to date in FY22 and good
strategic progress we have a positive outlook,
despite the potentially challenging and changeable,
Covid-impacted operating environment.
The strong financial performance in the FY21 year
was driven by a number of factors:
Firstly, we started the year with a high order book
that enabled us to manufacture and deliver orders
at a relatively high and consistent level to our
customers through the summer and autumn. The
size of the order book has also strengthened our
cash position, with customers typically placing a
cash deposit with us at the time of order.
Secondly, there were elevated levels of consumer
demand throughout the year driven by market
share gains and a sustained increase in consumer
interest in spending in home categories, reflecting
both growth in remote working and also reduced
leisure and travel spend. Our investment in our
integrated retail model positioned us well to capture
this demand during lockdown periods as well as
when restrictions eased.
Thirdly, as our various sales channels utilise the
same fulfillment operations we were able to keep
our internal manufacturing, external finished goods
suppliers and our final mile logistics operations
working efficiently through the majority of the year.
This enabled us to maintain elevated levels of
customer deliveries whilst keeping our cost base
well controlled.
While we incurred additional costs given the
disruption of up to 21 weeks of showroom closures
in the year, increased colleague sickness levels and
the introduction of self-isolation and operating
costs to support necessary changes to working
and retail environments, these costs were offset
through the suspension of UK retail business rates.
Given the growth in profits due to our trading
performance we therefore chose not to draw
upon either the Coronavirus Job Retention
Scheme or other Covid-19 support grants in FY21
(prior year details are presented in note 3 to the
financial statements).
Our revenue growth in FY21 was however
constrained by sector-wide pressures on supply
chains from raw materials availability, container
shipping delays (including the effects of disruption
in the Suez Canal) and Covid-19 disruption of
factory production, particularly in the final quarter
of the year. Consequently, the high demand
experienced in the second half and in the new
financial year to date has resulted in an order
bank at the end of the year even greater than
the elevated order bank that we started with,
providing resilience for FY22.
Our made to order model has enabled us to deliver
revenue growth without investing in stock and
our negative working capital model and strong
profitability has enabled us to significantly de-lever.
Having fully repaid the HMRC VAT liabilities that
were deferred from the previous financial year,
net bank debt1 reduced by £138.7m over the year
to £19.0m and our reported leverage1 was 0.2x.
This position does reflect a transitory working
capital benefit of £70m which will reverse over time
as the order book normalises (and related customer
deposits held reduce) and landlord payments
agreed to be deferred from FY20 are fully repaid.
1. Refer to pages 33 to 35 for APM definitions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Financial review continued
Audited 52 weeks ended 27 June 2021 – IFRS 16
Audited 52 weeks ended 28 June 2020 – IFRS 16
DFS
Sofology
Subtotal
1,093.2
848.0
(363.4)
484.6
(244.4)
240.2
269.2
214.6
(101.8)
112.8
(55.6)
57.2
1,362.4
1,062.6
(465.2)
597.4
(300.0)
297.4
Gross sales1
Revenue
Cost of Sales
Gross Profit
Selling & Distribution costs
Brand Contribution
Property Costs
Administrative Expenses
EBITDA1
Depreciation, amortisation and impairments excluding brand amortisation
Operating Profit
Interest
PBT pre brand amortisation1
Brand amortisation
PBT
Total
before non
underlying
items
Non
underlying
items
Sofa
Workshop
6.3
5.1
(1.3)
3.8
(0.5)
3.3
1,368.7
1,067.7
(466.5)
601.2
(300.5)
300.7
(2.9)
(75.2)
222.6
(83.9)
138.7
(32.9)
105.8
(1.4)
104.4
–
–
–
–
–
–
–
(2.1)
(2.1)
–
(2.1)
(3.1)
(5.2)
–
(5.2)
Total
1,368.7
1,067.7
(466.5)
601.2
(300.5)
300.7
(2.9)
(77.3)
220.5
(83.9)
136.6
(36.0)
100.6
(1.4)
99.2
DFS
Sofology
Subtotal
735.3
566.5
(227.5)
339.0
(205.3)
133.7
181.7
143.7
(72.3)
71.4
(47.8)
23.6
917.0
710.2
(299.8)
410.4
(253.1)
157.3
Total
before non
underlying
items
Non
underlying
items
Sofa
Workshop
18.0
14.3
(7.6)
6.7
(7.2)
(0.5)
935.0
724.5
(307.4)
417.1
(260.3)
156.8
(27.2)
(67.7)
61.9
(87.5)
(25.6)
(37.5)
(63.1)
(1.5)
(64.6)
–
–
(3.1)
(3.1)
(2.1)
(5.2)
–
(0.2)
(5.4)
(11.2)
(16.6)
–
(16.6)
–
(16.6)
29
Total
935.0
724.5
(310.5)
414.0
(262.4)
151.6
(27.2)
(67.9)
56.5
(98.7)
(42.2)
(37.5)
(79.7)
(1.5)
(81.2)
1. Refer to pages 33 to 35 for APM definitions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Financial review continued
Unaudited pro-forma 52 weeks ended 30 June 2019 – IAS 17
Gross sales1
Revenue
Cost of Sales
Gross Profit
Selling & Distribution costs
Brand Contribution
Property Costs
Administrative Expenses
EBITDA1
Depreciation, amortisation and impairments excluding brand amortisation
Operating Profit
Interest
PBT pre brand amortisation1
Brand amortisation
PBT
DFS
Sofology
Subtotal
Sofa
Workshop
992.1
762.6
(306.6)
456.0
(248.3)
207.7
260.7
205.9
(101.5)
104.4
(56.7)
47.7
1,252.8
968.5
(408.1)
560.4
(305.0)
255.4
34.4
27.7
(13.5)
14.2
(9.4)
4.8
Total
before non
underlying
items
1,287.2
996.2
(421.6)
574.6
(314.4)
260.2
(107.5)
(62.5)
90.2
(29.3)
60.9
(10.7)
50.2
(1.5)
48.7
Non
underlying
items
–
–
–
–
–
–
–
(5.1)
(5.1)
–
(5.1)
–
(5.1)
–
(5.1)
Total
1,287.2
996.2
(421.6)
574.6
(314.4)
260.2
(107.5)
(67.6)
85.1
(29.3)
55.8
(10.7)
45.1
(1.5)
43.6
1. Refer to pages 33 to 35 for APM definitions.
30
S A L E S A N D R E V E N U E
Gross sales1 increased 6.3% to £1,368.7m
compared to the pro-forma FY19 period (up 8.7%
excluding the disposed Sofa Workshop operation).
The drivers of this growth and the consequent
changes in revenues are as described in the
overview section above. Both Sofology and DFS
achieved high order intake growth significantly
above gross sales1 and revenue growth rates
relative to the pro-forma FY19 period. However, the
DFS brand was better able than Sofology to grow
the rate of delivery of manufactured goods in the
year, and given the strength of the dfs.co.uk online
website traded particularly well in the lockdown
period thereby achieving a 10.2% growth in
delivered gross sales1, with Sofology delivering 3.2%
gross sales1 growth. Given the current size of
Sofology’s order book and the growing use of
Group manufacturing relationships, we expect
strong delivered gross sales growth from Sofology
in FY22.
Revenue, which is stated after deducting VAT and
the costs of providing interest free credit and
aftercare products increased at a slightly higher
rate than gross sales1, up 7.2% (or 9.7% excluding
Sofa Workshop) driven by a higher proportion of
cash purchases resulting in lower interest free
credit costs.
G R O S S P R O F I T
Gross profit increased 4.6% to £601.2m compared
to the pro-forma FY19 period (up 6.6% excluding
Sofa Workshop).
Gross profit as a percentage of revenue decreased
from 57.7% in the pro-forma FY19 period to 56.3%.
This was principally due to a mix effect with our
internal manufacturing operation, which captures
an incremental manufacturing cash margin and
predominantly serves the DFS brand. Although
operating at full capacity in the first half of the year,
the overall greater sales volumes in FY21 meant
that internal manufacturing represented a lower
proportion of the total value of goods sold.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Financial review continued
This effect was exacerbated in the second half of
the year due to some Covid-19 related disruption
resulting in below-capacity production levels.
Adjusting for this mix effect, despite facing raw
materials and shipping cost inflation, underlying
retail gross margin was broadly flat year-on-year
due to growth in average order value. Sofology
gross margin increased 1.9%pts from the
pro-forma FY19 period to FY21, reflecting the
brand had no internal manufacturing mix impact
and also less of an increase in the web channel mix
(which typically has a lower gross margin).
While we have already seen and anticipate further
inflation in global shipping costs and raw materials,
these factors are industry-wide and are not
expected to cause a deterioration of sustainable
gross profit margins.
We source around one quarter of the finished goods
that we sell from the Far East, and we pay for these
in US dollars. We continue to manage the risk from
adverse US dollar exchange rate movements for our
annual spend of c.$180m-$190m, by hedging our
US dollar purchases to maintain 18 months cover by
value. Our hedged rate for FY21 was 6 cents lower
(adverse) than the rates secured for FY20 and
pro-forma FY19 period. Our hedged rate for FY22
is 3 cents higher (favourable) to the average rate
secured for FY21. 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 who we anticipate will
act to protect profitability in the case of adverse rate
movements and remain ‘price competitive’ in the
case of favourable movements.
S E L L I N G & D I S T R I B U T I O N C O S T S
A N D B R A N D C O N T R I B U T I O N 1
Underlying1 selling and distribution costs decreased
by £13.9m compared to the pro-forma FY19
period. Excluding Sofa Workshop, the reduction
in costs of £5.0m was driven by increased
effectiveness in our marketing approach through
improved targeting.
1. Refer to pages 33 to 35 for APM definitions.
This was partially offset by the higher sales volumes
driving the variable costs in our delivery network
and wage commission models, and Covid-19
related costs such as PPE.
Underlying brand contribution1 of £300.7m for the
year represents an increase of £40.5m relative to
the pro-forma FY19 period (an increase of £42.0m
including Sofa Workshop) reflecting the higher
revenues.
Due to the impact of preparing our pro-forma FY19
period under IAS 17 and subsequent periods under
IFRS 16, we now compare the following costs in
FY21 with those incurred in FY20.
P R O P E R T Y C O S T S A N D
A D M I N I S T R AT I V E E X P E N S E S
Property costs represent business rates and a small
amount of rental charges where we occupy
premises on a ‘hold-over’ basis (where the lease
has expired) or for short-term leases under a year
long. Property costs decreased £24.3m year-on-
year due to the suspension of UK business rates for
the majority of our showroom estate for the full
financial year and the final quarter of the previous
financial year.
Underlying1 administrative expenses of £75.2m
increased by £7.5m year-on-year due to
performance recognition payments across the
business, investment to support our ongoing
strategy, including better use of data to target
marketing, and some Covid-19 related additional
operating costs. As noted in our interim results, we
also recognised a one-off increase in our payment
protection insurance provision in connection with
historical sales transactions.
D E P R E C I AT I O N , A M O R T I S AT I O N
A N D I N T E R E S T
Total depreciation and amortisation charges
of £85.3m were £14.9m lower than FY20
predominantly due to non-underlying impairment
charges recognised last year in connection with
the disposal of Sofa Workshop.
Underlying1 depreciation and amortisation charges
(excluding brand amortisation) reduced by £3.6m
year-on-year primarily due to lower IFRS 16 charges
on our right of use property assets as a result of
savings secured on existing leases and from the
assignment of leases following the disposal of Sofa
Workshop. These savings are partially offset by the
impact of entering leases for new Sofology
showrooms.
Underlying1 interest charges decreased £4.6m
year-on-year due to lower utilisation of our
revolving credit facility and lower IFRS 16 interest
charges. Total interest of £36.0m included £3.1m of
non-underlying refinancing costs as noted below.
P R O F I T B E F O R E TA X
Underlying1 PBT excluding brand amortisation1 of
£105.8m compares to a prior year loss, impacted
by Covid, of £63.1m.
A total of £5.2m of non-underlying costs were
incurred in FY21 in relation to the loss on disposal
of Sofa Workshop (including legal fees and other
related costs), costs associated with the
refinancing of the Group’s revolving credit facility
and redundancy costs associated with a change
to the DFS brand administration function.
Non-underlying costs in FY20 totalled £16.6m in
relation to the restructuring of Sofa Workshop and
Dwell brand and goodwill, brand name and property
right of use asset impairments.
Reported PBT of £99.2m was £180.4m higher than
FY20, and more than double the £43.6m for the
pro-forma FY19 period.
Compared to the pro-forma FY19 period the
increase in underlying profit before brand
amortisation1 of £55.6m was driven by the same
factors as explained above. With a similar amount of
non-underlying costs incurred in FY19 the reported
profit growth was also £55.6m.
31
£m
(3.1)
N O N - U N D E R LY I N G I T E M S
FY20
£m FY21
(11.2)
Refinancing
costs
Brand, goodwill,
fixed asset and
right of use
asset
impairments
Stock
write-down to
net realisable
value
(3.1)
DFS admin team
restructuring
(1.4)
Restructuring
(1.3)
(0.7)
Residual Sofa
Workshop asset
write-off and
disposal costs
Total
(16.6)
Total
(5.2)
TA X
The reported effective tax rate for FY21 is 10.7%.
This is lower than the applicable UK Corporation
Tax rate of 19.0% and is primarily due to change
in tax rate used to calculate the Group’s deferred
tax balances and also the utilisation of some
brought forward tax losses associated with one
of our trading subsidiaries which were previously
not recognised.
E A R N I N G S P E R S H A R E
Basic earnings per share for the Group was 34.5
pence based on a weighted average number of
shares in issue for the year of 257.1m (FY20 a loss
of 31.4 pence per share).
C A P I TA L E X P E N D I T U R E , C A S H
F L O W A N D B A L A N C E S H E E T
A strong trading performance combined with our
negative working capital cycle has resulted in high
levels of operating cash flow being generated in
the year. This has enabled us to continue to invest
to deliver our strategy.
We incurred £49.2m of cash capital expenditure
in the year. This included £12.7m expenditure
on the freehold acquisition of one of our leased
showrooms.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 32
Financial review continued
Although this transaction secures in perpetuity
a strong retail location, this was an opportunistic
financial transaction that provides a favourable
average c.13% annual return on investment
through no longer incurring £16.2m of already
committed future lease payments over the next
c. 9 years. We do not currently expect that similar
opportunities will arise in our lease estate, albeit
we remain willing to increase investment levels
where strong risk-adjusted returns are available
and we have appropriate financial resources to
fund that investment.
Excluding this freehold acquisition the cash capital
expenditure of £36.5m was £13.1m above the
relatively low level incurred in the previous year
when investments were held back to mitigate the
cash flow impact of the temporary pause in our
operations. The increase in spend was driven
by investment in six new showrooms, six part
completed showrooms, a significantly higher
number of refurbishments (utilising the lockdown
periods) as well as an increased level of investment
in technology to drive both operational efficiency
and continual improvements to our web
proposition. In addition, £2.9m of assets
(predominantly delivery vehicles and company
cars) were acquired under lease arrangements
(FY20 £5.3m).
We expect to invest approximately £35m in cash
and approximately £10m of finance leased assets
in FY22 with a potential additional £12-15m on new
manufacturing investment spread across FY22
and FY23.
Net bank debt1 reduced by £138.7m to £19.0m
in the period and our leverage (measured as
net bank debt/last twelve month operating cash
flows before tax and excluding working capital
movements, less lease payments) fell to 0.2x
(FY20 was significantly negative due to the losses
incurred). Our refinanced £225m banking facility
covenants remain consistent with our facility
pre Covid-19 at 3.0x maximum net debt/EBITDA
1. Refer to pages 33 to 35 for APM definitions.
and minimum 1.5x fixed charge cover, both measured
on an IAS 17 basis.
As we have highlighted previously, the DFS business
model benefits from negative working capital, with
payments received from customers upon delivery
or through deposits ahead of delivery overall, while
our suppliers are paid to agreed terms. Working
capital balances are seasonal depending on recent
trading activity, cost seasonality (particularly in
advertising spend) and predictable patterns of
payments on rents, tax payments and other
recurring charges. We carry limited inventory, and
balances at year end have remained relatively stable
overall. The closing net bank debt1 position at June
2021 benefits from higher levels of customer
deposits associated with the elevated order bank.
As the order bank normalises to more seasonal
levels (which will be dependent on when the
elevated demand levels start to reduce), deferred
rent payments from the previous year are made
and having now finalised the deferred consideration
due to the previous Sofology shareholders at
£4.7m there will be a c.£70m working capital
outflow.
The Group’s return on capital employed1 for the
period of 28.3% was significantly higher than the
pre Covid-19 pro-forma FY19 16.6% return
(calculated on a lease adjusted basis from IAS17
prepared financials) and driven by the higher profit.
L O O K I N G F O R W A R D
In our June trading statement we provided three
scenarios illustrating the potential range of profit
for our FY22 year. The low and medium scenarios
illustrated differing levels of order intake relative to
the pro-forma FY19 period. The medium scenario
assumed a step up in manufacturing and delivery
capacity relative to the pro-forma FY19 period
and a third scenario illustrated that additional profit
could be driven by a further increase in capacity
and not additional order intake growth.
Pleasingly, order intake performance to date has
been ahead of the high case scenario and we
continue to focus on increasing manufacturing
output and delivery throughput across our supply
chain. However, Covid-19 related absences have
impacted our operations and some of our suppliers.
Compounded by raw material and shipping related
disruption which are impacting the whole sector,
the lead times on our made to order products
continue to be longer than normal and we currently
believe that the medium case reflects the most
likely profit outcome, and delivering on this does
still require an increase in weekly deliveries from
currently achieved levels.
The sector is experiencing cost inflation across a
number of categories including raw materials and
logistics costs and we are needing to over-invest
in operating resources such as warehouse space
and colleague resourcing in order to mitigate the
unpredictability of the operating environment.
The Group has a track record of maintaining gross
margins in periods of inflation and differing foreign
exchange rates and we are taking actions to offset
the current cost pressures. We have updated the
scenarios provided in the June trading statement to
reflect the higher revenues, largely driven by higher
average order values, with profits unchanged:
Scenario:
Order intake vs FY19
(excl Sofa Workshop)
Revenue (£m)
Revenue growth vs
FY19 (excl Sofa
Workshop)
Low
Medium
11%
15%
1,133
17%
1,180
22%
High
15%+
1,205
24%
PBT (£m)
66
85
96
Subject to no sudden and material decline in order
intake we expect to remain operating with an
elevated order bank at the end of the FY22 period
and consequently the strong order intake
experienced to date will support financial
performance in FY23.
We continue to target achieving revenue growth
above upholstery market rates from LFL market
share gain and showroom rollout and also to grow
revenues in other home related categories,
particularly the sizeable UK beds market. With an
intention to have opened more than 20 new
showrooms since 2019, and having evidence of
sustained market share gain and AOV growth, our
outlook for FY23 and beyond is to sustain base
revenues of at least £1.15bn and achieve 7%+ PBT
margins, with 75-80% of PBT converted to cash.
D I V I D E N D S
In light of our strong financial position, significantly
reduced leverage and considering the strong cash
flows we continue to generate, the Board proposes
to recommence dividends with a final dividend for
FY21 of 7.5 pence per share in line with historical
levels (FY19 7.5 pence per share). As stated in our
published Capital and Distribution policy, subject
always to outlook and the investment needs for the
Group, we would intend to make ordinary dividend
payments at a payout ratio between 40% and 50%
of annual underlying cash generation.
S U M M A R Y
The Group is in a strong position having gained
market share, holding a significant order bank and
having strengthened our balance sheet. We
continue to operate in a market with high levels of
demand, and are trading well and generating strong
cash flows. Whilst the operating environment will
likely remain challenging with inflationary pressure,
supply chain disruption and Covid-19 related
colleague absences to manage we are confident
in our ability to deliver our strategy, achieve our
previously disclosed ambition to sustainably grow
our profits and thereby provide strong returns to
our shareholders.
Mike Schmidt
Chief Financial Officer
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 33
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. Reconciliations
relating to the unaudited pro-forma FY19 period
(52 weeks ended 30 June 2019) were set out in
the FY20 and FY19 annual reports.
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.
A P M
Gross sales
D E F I N I T I O N
R AT I O N A L E
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.
Brand contribution
Gross profit less selling and distribution costs, excluding property and
administration costs.
Measure of brand-controllable profit as it excludes shared Group
costs.
EBITDA 1
Earnings before interest, taxation, depreciation and amortisation
A commonly used profit measure.
Non-underlying items
Underlying EBITDA 1
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.
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 PBT(A)
Profit before tax adjusted for non-underlying items and amortisation
associated with the acquired brands of Sofology and Dwell.
Profit measure widely used by investors and analysts.
Underlying earnings per share
Post-tax earnings per share as adjusted for non-underlying items.
Exclusion of non-underlying items facilitates year on year
comparisons of the key investor measure of earnings per share.
Net bank debt
Cash EBITDA
Balance drawn down on interest-bearing loans, with unamortised
issue costs added back, less cash and cash equivalents (including
bank overdrafts).
Measure of the Group’s cash indebtedness which supports
assessment of available liquidity and cash flow generation in the
reporting period.
Net cash from operating activities before tax less movements on
working capital and provisions balances and payments made under
lease obligations.
Measure of the operating cash generation of the business,
normalised to reflect timing differences in working capital
movements.
Leverage (or gearing)2
The ratio of period end net bank debt to Cash EBITDA for the previous
twelve months.
Key measure which indicates the relative level of borrowing to
operating cash generation, widely used by investors and analysts
Underlying return on capital
employed (underlying ROCE)2
Underlying post tax profit expressed as a percentage of the sum of:
property, plant & equipment, computer software, right of use assets
and working capital.
Represents the post-tax return the Group achieves on the investment
it has made in its business.
Underlying free cash flow
to equity holders
The change in net bank debt for the period after adding back
dividends, acquisition related consideration, share based transactions
and non-underlying cash flows.
Measure of the underlying cash return generated for shareholders in
the period and a key financial target for Executive Director
remuneration.
1. Following the adoption of IFRS 16, EBITDA/Underlying EBITDA are less useful as performance measures and accordingly are no longer presented as Key Performance Indicators or Financial Highlights.
2. Definition updated following the adoption of IFRS 16.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 34
Alternative performance measures continued
R E C O N C I L I AT I O N S T O I F R S M E A S U R E S
EBITDA
Operating profit/(loss)
Depreciation
Amortisation
Impairments
EBITDA
Underlying EBITDA
EBITDA
Non-underlying operating items
Underlying EBITDA
Underlying profit before tax and brand amortisation – PBT(A)
Profit/(loss) before tax
Non-underlying items
Amortisation of brand names
Underlying profit/(loss) before tax and brand amortisation
Net bank debt
Interest bearing loans and borrowings
Unamortised issue costs
Cash and cash equivalents (Including bank overdraft)
Net bank debt
Leverage
Net bank debt (A)
Net cash from operating activities before tax
Less:
Movement in trade and other receivables
Movement in inventories
Movement in trade and other payables
Movement in provisions
Payment of lease liabilities
Payment of interest on leases
Cash EBITDA (B)
Leverage (A/B)
Note
2
3
3
3
Note
3
Note
2
3, 5
10
FY21
£m
135.2
77.4
7.9
–
220.5
FY21
£m
220.5
2.1
222.6
FY21
£m
99.2
5.2
1.4
105.8
FY21
£m
23.1
1.9
(6.0)
19.0
FY21
£m
19.0
307.2
(4.6)
2.2
(81.4)
(3.3)
(26.7)
(77.1)
116.3
0.2x
FY20
£m
(43.7)
81.9
6.8
11.5
56.5
FY20
£m
56.5
5.4
61.9
FY20
£m
(81.2)
16.6
1.5
(63.1)
FY20
£m
218.7
1.3
(62.3)
157.7
FY20
£m
157.7
61.8
1.6
4.1
(4.7)
(6.6)
(29.2)
(36.3)
(9.3)
(17.0)x
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Alternative performance measures continued
35
Underlying return on capital employed
PBT
Non-underlying operating items
Pre-tax return
Effective tax rate
Tax adjusted return (A)
Property, plant and equipment
ROU assets
Computer software
Inventories
Trade receivables
Prepayments
Accrued income
Other receivables
Payments received on account
Trade payables
Working capital
Total capital employed (B)
Underlying ROCE (A/B)
Underlying free cash flow to equity holders
Movement in net bank debt
Dividends
Acquisition related costs
Proceeds on issue of shares
Purchase of own shares
Proceeds from sale of own shares
Non-underlying cash items disclosed in cash flow statement
Underlying free cash flow to equity holders
Note
2
3, 5
8
9
10
14
15
15
15
15
16
16
FY21
£m
99.2
5.2
104.4
10.70%
93.2
91.6
345.1
16.4
453.1
61.1
9.3
7.2
0.4
0.2
(117.7)
(83.9)
(123.4)
329.7
FY20
£m
(81.2)
16.6
(64.6)
17.10%
(53.6)
74.1
384.5
11.8
470.4
58.9
10.4
10.1
0.9
0.8
(86.8)
(41.9)
(47.6)
422.8
28.3%
(12.7%)
FY21
£m
138.7
–
–
(0.3)
0.3
(1.1)
4.1
141.7
FY20
£m
7.5
15.9
–
(63.9)
1.1
(1.3)
–
(40.7)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Risks and uncertainties
The Group faces a number of
risks and uncertainties in both its
day-to-day business operations
and strategic development.
In this section we provide
an overview of the Group’s
approach to risk management
alongside an assessment of
the Group’s principal risks,
highlighting any changes during
the period.
I D E N T I F Y
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
triannual reviews of principal risks by the Directors,
including identification of emerging risks arising and
also horizon risks to be monitored. The graphic
below details how responsibility for risk
management is allocated across the Group.
Each principal risk is owned by a member of the
Group Leadership Team (“GLT”). The Directors
maintain overall responsibility for risk management
throughout the Group and oversee the
implementation of processes to manage these
risks by the GLT and operational management.
The Audit Committee, delegated by the Board,
is responsible for the review of the effectiveness
of the internal control framework.
Internal
audit plan
Review
emerging risks
Horizon
scanning
1
2
3
1 . P R I N C I P A L R I S K S
These risks have been identified by the Group
Leadership Team (“GLT”) as the ones that pose the
greatest threat to the success of the Group.
2 . S T R AT E G I C R I S K S
These risks pose a threat to the Group but are
considered well controlled, and the impact if
materialised would be sustainable.
3 . O P E R AT I O N A L R I S K S
Granular risks that have localised impact on
individual departments, and/or business areas.
Board
Overall responsibility for risk management
Audit Committee
Oversees risk management process
Group Risk Team
Implements process and reports to Audit Committee
Group Leadership Team
Manages specific risks and embeds risk management throughout the Group
36
Group Governance,
Risk & Compliance
Committee
Ensures effective
governance of risk
management process
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 climate
change/Environment, Social and Governance
(ESG), Covid-19, cyber security and significant
change initiatives.
The ongoing process of management and
mitigation of risk by the GLT 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 GLT using this
approach. The Governance, Risk and Compliance
Committee, comprising senior management,
meets monthly to review changes in the regulatory/
legal landscape and the Group’s key risks and
concerns. Further detail on the Group’s system of
internal controls is covered in the Audit Committee
report on pages 83 to 88.
The Group seeks to continuously develop its risk
management processes and in the last year a
particular focus of the Group Risk Team has been
on growing engagement with our Group risk
management platform into the day-to-day practice
of all senior and middle management colleagues
across each Group function. The Group Risk Team
also communicates regularly with colleagues at all
levels of the business, highlighting the benefits of
effective risk management.
In order to support future long-term growth, the
Group is currently assessing a number of external
Risk Management Information Systems with a view
to replacing the current in-house platform.
Additional specific risk-focused initiatives
undertaken during the financial year included a
full externally assessed cyber review, completed
in June 2021, and a report on climate change
delivered to the GLT. The Group Risk Team also
provided regular updates on the Group’s business
continuity and resilience performance through
the various Covid-19 lockdown and reopening
phases, updating Business Continuity procedures
as necessary.
In recognition of the Group’s high standards of
quality and integrity, vital to the success of internal
audit and risk management, the Group’s Audit
& Risk function achieved first place in the
‘Outstanding Team: Private Sector’ category in
the Chartered Institute of Internal Auditors (“CIIA”)
Audit & Risk 2021 awards.
E V A L U AT E
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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Risks and uncertainties continued
M I T I G AT E
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 better manage
particular risks 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.
C O V I D - 1 9 P A N D E M I C U P D AT E
We reported extensively in the FY20 annual report
on the Group’s wide-ranging initiatives to manage
the risks of the Covid-19 pandemic, which included
a strategic and financial review resulting in a number
of actions to increase financial resilience, alongside
operational measures to contain the spread of the
virus. In FY21, with the Group permitted to
manufacture and deliver to customers throughout
the period, our Covid-19 risk focus was on the
health and safety of colleagues and customers
while managing the various national showroom
closure and reopening phases and conducting
regular reviews of the effectiveness of our
Covid-19 management procedures across our
operations, updating Business Continuity plans
as necessary.
M A N A G E M E N T O F C L I M AT E
C H A N G E A N D O T H E R
S I G N I F I C A N T E S G R I S K S
We are committed to building a sustainable
business model, both in terms of our impact on the
environment and preserving our long-term success
as a Group. ESG was identified as a principal risk in
our FY20 Annual report and is now embedded
within the Group’s risk management process. We
launched our ESG strategy in September 2020,
with a strong focus on the Environment based on
our “Sofa Cycle” approach and have made solid
progress against our Phase 1 targets in the last 12
months. In June 2021, the Group undertook a
formal materiality assessment, supported by Ernst
& Young Global Limited, in order to identify and
prioritise all of the Group’s sustainability risks and
opportunities. The outcome of our materiality
assessment and our progress on a wide range
of ESG initiatives are covered in depth in our
Responsibility and sustainability report on pages
51 to 70.
C H A N G E S T O P R I N C I P A L R I S K S
I N T H E Y E A R
As part of our risk management process we have
reviewed the Group’s principal risks and made a
number of changes to the list. We have introduced
a new principal risk entitled ‘Supply Chain and
Manufacturing Resilience’. This new principal risk
aggregates elements of several current strategic
risks and reflects a range of factors including:
strong recent demand for the Group’s products;
inconsistency in the cost and availability of raw
materials and the cost and capacity of Far East
shipping; the elevated level of the order book at
both the beginning and end of the FY21 financial
year; and the challenges in meeting this demand for
both our external product supplier partners and our
own internal manufacturing operations amid the
ongoing pandemic. In contrast, following the
agreement of the new trade relationship with the
EU and an assessment of the consequences for
the Group, we have removed Brexit from the list of
principal risks.
In terms of movement in existing risks, we have
increased the priority of the Consumer Proposition
and Industry Competition principal risk in the
period, to reflect the impact of the Covid-19
pandemic on the furniture retailing market
structure, away from smaller independent specialist
stores and high street department stores towards
larger omnichannel or online furniture specialists
and general merchandise retailers.
37
In recognition of the strong financial performance
in FY21 and positive start to FY22, combined with
an extension to the senior revolving credit facility,
the Financial risk and liquidity principal risk has
decreased in priority in comparison with the
previous financial year end.
R I S K H E AT M A P
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
g
H
i
d
o
o
h
i
l
e
k
L
i
2
1
3
5
4
6
8
7
w
o
L
Low
Principal risks
Impact
High
1 Supply chain and manufacturing resilience (New)
5 Regulatory environment
2 Business continuity and resilience
6 ESG
3 Cyber
7 Financial risk and liquidity
4 Consumer proposition and industry competition
8 Transformation
See pages 38 to 40 for more on how risk is managed.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Supply chain and manufacturing resilience
Supply chain and manufacturing resilience constitutes a new principal risk and incorporates elements
of existing strategic risks covering third party suppliers, delivery agents and the Group’s own
manufacturing operations.
The Group’s elevated order bank at the start of FY22 and ongoing Covid-19 disruption to employees,
combined with further strong growth in customer orders due to favourable consumer trends as well as
market share growth from the successful execution of the Group’s growth strategy, could result in
additional pressure on the Group’s own manufacturing capability and those of our external raw material
and finished product suppliers. The Group is also considering increased investment in order to
modernise our own manufacturing operations, gain greater control over the end-to-end supply chain
and support the future long-term growth of the Group. Infrastructure investment and the requirement
to recruit and train less experienced colleagues could temporarily impact manufacturing efficiency.
The Group maintains partnerships with a number of key finished product supplier partners in the Far
East and Europe which account for around 65% of customer bookings. Supplier service levels could be
affected by transport delays, regional disputes or pricing and availability of labour and raw materials. Our
own manufacturing operations and those of our finished product suppliers could also be affected by a
range of Covid-19 related impacts, unexpected price fluctuations and/or shortages of key raw
materials products.
Failure to meet customer or company expectations in relation to delivery dates or product proposition
could lead to increased customer dissatisfaction and limit the Group’s ability to maximise commercial
opportunities, leading to loss of revenue and profits as well as impacting the reputation of the Group
and its retail brands.
Strategic link
Mitigation
1
2
3
The Group has established a new Sales & Operations Planning function to proactively manage the end
to end supply chain across the Group.
Each brand has conducted a review of its supplier strategies which have been updated as required.
In order to manage uncertainty during a period of disruption to prices and volumes in the container
shipping industry, particularly in relation to deliveries from the Far East, the Group maintains annual
shipping contracts that set out fixed pricing and capacity availability.
The Group is developing its investment plans to expand the capacity and increase the efficiency of its
own domestic manufacturing operations in the medium-term. In the short-term, the Group plans to
mitigate potential raw material supply disruptions by holding larger reserves of key raw materials
products.
FY21 progress
– Identification of new principal risk and responsibility for its management allocated to Group COO
– Establishment of new Sales & Operations Planning function; new supply chain mitigation initiatives
– Development of medium-term investment plans to expand capacity
38
Movement
New
addition
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Strategic link
Mitigation
Movement
39
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 impacting systems or operations at individual sites to major incidents affecting
the whole Group for an extended period.
Events and situations requiring the temporary closure of some or all of the Group’s showrooms,
websites, manufacturing teams and customer delivery operations may result in loss or delay of revenue
and cash. The business may also incur additional costs, either directly or as a consequence of the
disruption impacting operational efficiency. Introduced as a principal risk in the FY20 annual report,
business continuity and resilience remains one of the significant risks facing the Group due to the wide-
ranging and unpredictable nature of external events and their potential impact on the Group.
1
2
3
The Group maintains detailed business continuity plans to manage a range of potential disruptions.
Continuity plans were invoked in FY20 in response to the Covid-19 pandemic and remained in place
during FY21. The experience gained during periods of remote working during the pandemic has been
built on in order to provide further agility and resilience for the future.
Cyber risk is considered a distinct principal risk for the Group in its own right (see page 40). However,
IT systems are also 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 FY20, when
financial resilience was increased by a share placing, a temporary extension to the Group’s banking
facility and a temporary rescheduling of rent and supplier payments. The Group regularly reviews its
capital requirements in order to provide sufficient flexibility and resilience to manage disruption to its
operations.
FY21 progress
– Formal business continuity plans updated during the year
– Development of a hybrid working model and supporting infrastructure to facilitate a combination of
remote and on-site working
– Continued monitoring of Group’s Covid-19 safety procedures
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
40
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Strategic link
Mitigation
Movement
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
omnichannel proposition and its strategic objective to lead sofa retailing in the digital age. A failure to
review and innovate in this competitive area could impact achievement of the Group’s 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. Reflecting the Group’s increased reliance on IT
infrastructure during the pandemic, including the continued success of the Group’s online retail
proposition, Cyber risk remains one of the Group’s more significant principal risks.
1
2
3
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 external review of the
Group’s cyber security was conducted in June 2021, including critical risk assessments in each
business area, and identified improvement opportunities were incorporated into the FY22 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 is 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 by the Board.
FY21 progress
– Full external review of the Group’s cyber security conducted in June 2021
– Implementation of Alert Logic Security Operations Centre to proactively identify and neutralise
cyber attacks
– Mandatory Cyber Security Awareness training for relevant colleagues
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Strategic link
Mitigation
Movement
41
Consumer 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 and profits.
The Covid-19 pandemic and resultant forced closures of physical retail space has led to a further
increase in the propensity for customers to interact online, favouring larger omnichannel or online
furniture specialists and general merchandise retailers. While management believes the combination
of digital and physical is the right long-term approach to service customers in the sofa retail market, a
failure to predict changes in customer tastes or to respond to the impact of changes in the competitive
environment could reduce the Group’s revenues, and profitability.
1
2
3
Products and services are continually reviewed to ensure they suit customers’ needs, are competitively
priced, offer good value, meet the right quality and sustainability 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 Net
Promoter Score framework that allows product level analysis of potential issues. Our made-to-order
model allows identified improvements to be rapidly effected.
As noted in the ESG principal risk section and elsewhere in our Sustainability Report, the Group has
developed a detailed ESG strategy, and aims to lead on the environmental risks and opportunities that
exist in our industry and convert these into a source of competitive advantage.
The Group has performed well online and in its showrooms during the financial year, benefiting from
management expertise and a long-term track record of investment in its integrated retail business
model across the entire platform. We track our total and online market share performance using a
variety of internal and external benchmarks.
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.
The Group has raised the importance of this principal risk in the financial year to reflect the structural
changes in the furniture retailing market during the pandemic which have favoured larger integrated
and online business models over more traditional furniture specialists.
FY21 progress
– Continued introduction of new ranges & partnerships to widen appeal (e.g. Boxit and Paloma Faith
Home)
– New ESG-led products have been launched with positive initial feedback across the Group (e.g.
Grand Designs and Loop)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Strategic link
Mitigation
Movement
42
Regulatory
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-teens percentage share of Group gross profits. Changes in other
legislation which may have significant retrospective or future economic effects could also impact
operating results.
Since the onset of the pandemic in the United Kingdom, the Group has been required to adhere to
detailed Government operational guidelines and restrictions to contain the spread of Covid-19. Failure
to meet our regulatory obligations, or provide a safe environment for our colleagues and customers,
could result in significant financial impacts and/or reputational damage.
1
2
3
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.
FY21 progress
– Compliance activities separated from audit/risk and integrated with legal to give ‘three lines of
defence’ model
– Enhanced coverage and simplified pricing of aftermarket product warranties
– ICFR control assessments conducted with support from external advisors
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
P R I N C I P A L R I S K S
Risk
Strategic link
Mitigation
Movement
43
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. As a UK
premium listed company, the Group is required to make Task Force on Climate-related Financial
Disclosures (“TCFD”) disclosures in its FY22 annual report.
1
3
We have made significant progress on our ESG approach and reporting process since the Group launched
its new ESG Strategy in September 2020. Our key focus last year was predominantly on sustainability and
gender equality. We introduced a range of initiatives linked to ‘The Sofa Cycle’ Foundation framework and
the Group’s carbon footprint. The Group’s Phase 1 targets included specific targets in relation to wood and
leather sourcing, packaging, carbon reduction and increased female representation.
During the year we have further developed our sustainability strategy introducing Phase 2 targets,
extending and advancing our wood and leather targets and introducing targets for textiles. Additionally
the Group has signed up to the BRC Climate Action Roadmap and its commitment to achieving net
zero by 2040. In order to achieve this we will be working with a third party specialist to understand our
Scope 3 emissions and set a carbon reduction strategy aligned to science-based targets. It is our aim
to have these targets in place for our FY22 reporting cycle.
We held our inaugural ESG Supplier Conference in Spring 2021 to set out our vision, mission and initial
ESG requirements with our supplier base. We maintain long-standing, trusted relationships with our
suppliers and we intend to bring our suppliers with us on our Sustainability journey. Track Record Global
(“TRG”) has been retained as our audit partner to help ensure we have transparency and traceability
within our manufacturing supply chain. The scope of their work includes timber and leather due
diligence and new audit protocols for Modern Slavery, in partnership with Ardea International.
The Group has dedicated significant time and resources to developing its social strategy during the
year. We launched our diversity and inclusion strategy in the second half of the year and have a number
of initiatives to both educate our colleagues and drive change which has been led by our Inclusion
Council. Our appointment to the Board of Loraine Martins OBE, an expert on inclusion, diversity and
equality, will also help drive and challenge our thinking in these areas.
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.
With a significant and growing amount of Board time dedicated to ESG matters and recognising it is
essential we have the appropriate structures in place to provide dedicated focus and governance, the
Group has taken the decision to establish a Responsible and Sustainable Business Committee in FY22.
We have also embedded both environmental and social elements into remuneration targets for
management across the Group.
To validate the focus of our ESG strategy in a developing landscape, we conducted a materiality
assessment supported by a third party specialist. The topics considered have been ranked based on
the relevance to the business and importance to stakeholders. We have aligned our disclosures with
the United Nations Sustainable Development Goals (“UN SDGs”) and have started to adopt the TCFD
framework during the current year.
FY21 progress
– Responsible and Sustainable Business Committee established, ESG targets set for all Group
Leadership Team members
– ESG Supplier Conference in March 2021 set out expectations of manufacturing partners
– Materiality assessment conducted
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Risks and uncertainties continued
Link to strategic pillar
Movement
1
Drive DFS core
2
Build the platforms
3
Unlock new growth
Increase
Unchanged
Decrease
44
P R I N C I P A L R I S K S
Risk
Financial risk and liquidity
A downturn in the macroeconomic environment, disruption to our international supply chain, or
additional uncertainty arising from the Covid-19 pandemic, may impact the Group’s ability to obtain
debt or equity financing.
Any 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.
Transformation
The Group undertakes a number of significant investment or transformation projects as part of its strategy.
Failure to execute transformation projects successfully could reduce the Group’s operational efficiency,
erode the Group’s market leadership position and have a negative impact on financial performance. The
Group is executing a strategy to build its platforms to support the development of the Group’s retail brands,
which includes transformation projects at varying stages of maturity in logistics, information technology and
manufacturing. A lack of sufficient management resources or excessive complexity in the various work
streams could limit the Group’s ability to maximise investment opportunities.
The Group makes a number of investments and acquisitions in order to unlock new growth beyond the
core DFS brand. In 2017, the Group acquired Sofology in order to grow the brand’s UK market share,
profitability and deliver synergies for the rest of the Group. While performance since acquisition has been
very positive, work relating to the brand’s expansion and integration into the Group structure continues
and carries some risk. Early in FY21 the Group integrated Dwell’s operations into DFS to reduce operating
costs. The integration of Dwell into DFS may negatively impact overall sales of Dwell products. The Group
continues to develop product range opportunities beyond its core sofa retailing operations. Failure to
maximise these opportunities could lead to lower than expected overall revenue and profit performance.
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.
Strategic link
Mitigation
Movement
1
2
3
1
2
3
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.
In December 2020, the Group entered into a new three-year agreement, with two one year extension
options for a £225m senior revolving credit facility with its existing syndicate of banks all continuing
their involvement, but at different proportional levels of participation.
Foreign exchange and interest rate risks are managed through the use of appropriate hedging
arrangements in accordance with the Board approved treasury policy, with details reviewed by the Board
on a regular basis. Further details on foreign exchange hedging are provided in the financial review and
in the financial statements. No financial instruments are entered into for speculative purposes.
The strong financial performance in FY21 and positive start to FY22 have also contributed to a
reduction in financial risk. Underlying net debt and leverage is substantially reduced compared to the
previous financial year end and underlying FY21 year end leverage is now within our targeted range of
0.5x to 1.0x cash EBITDA.
FY21 progress
– Refinancing of £225m revolving credit facility in December 2020
– Ongoing work on ESG standards and reporting will support access to the broadest range of funding
sources
– FY21 year end underlying leverage is now within our targeted range of 0.5x to 1.0x cash EBITDA
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, central support functions, and
manufacturing facilities.
FY21 progress
– Successful delivery and roll out of key in-flight transformational projects
– Governance over transformation continues to remain strong, with monthly GLT reviews and regular
Group Board updates
– New programmes in the resource and build phase
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
45
R E S U LT S
The range of severe but plausible scenarios
included a market decline of 5% and a further two
month Covid-19 related lockdown during the winter
of 2021/22. The Group maintained both covenant
compliance and sufficient liquidity in all these
scenarios. 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 June 2024.
Risks and uncertainties continued
V I A B I L I T Y R E P O R T I N G
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 27 June 2021 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.
A P P R O A C H
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 36 to 44 of this Annual Report.
Particular regard was paid to the potential ongoing
impact of Covid-19 and the possibility of future
lockdowns resulting in the temporary closure of
retail showrooms.
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
and margin, a significant reduction in customer
spending, and impacts on gross margin from
inflationary cost pressures.
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.
K E Y A S S U M P T I O N S
The base case forecast, which is prepared on a
prudent basis, assumes a modest year on year
increase in customer orders for the remainder of
FY22, resulting from a market share benefit arising
from the recent withdrawal of competitors and the
impact of the recent opening of a number of new
showrooms. Thereafter low single digit growth is
assumed from a combination of market volume
and strategic initiatives. Revenue is expected to
exceed order intake performance over the first two
years of the forecast period as the current high
order bank normalises.
Gross margin is based on that achieved in FY19
(used for comparison purposes due to the
disruption due to Covid-19 on both FY20 and
FY21), adjusted for known and expected changes
to the Group’s direct costs. Other costs and capital
expenditure are based on FY21, adjusted for trading
volumes and planned investments and benefits of
strategic initiatives.
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-19 necessitates
the temporary closure of retail showrooms, it has
been assumed that these orders are still achieved
through a combination of online orders and a peak of
orders following reopening, and that as experienced
in the most recent two national lockdowns customer
deliveries can continue while showrooms are closed.
In developing the viability assessment it has been
assumed that the Group’s revolving credit facility
will be replaced on or before its maturity in
December 2023 (at which time the facility size will
be £215.0m) with a comparable facility with the
same covenants.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 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.
O U R S TA K E H O L D E R S
We have set out some examples below of how the
Directors have had regard to the matters in section
172(1)(a)–(f) when discharging their Section 172
duty and the effect on certain decisions taken by
them during the year.
We have grouped our stakeholders into seven key
categories. As a Board we look to balance the
needs and views of all of our stakeholders, in the
light of our purpose, values, culture, and strategy, to
ensure all our decisions have a clear and consistent
rationale. We do this through various engagement
processes which help us to understand the views
and needs of our stakeholder groups, and the
long-term consequences of any decision made.
Our stakeholders’ interests are considered through
direct engagement by Board members and reports
and updates from members of the management
team detailing the impact on stakeholders of key
decisions.
The following provides an overview of the way in
which the Board acted with regard to these groups
when making key strategic decisions.
46
Our colleagues
See page 48
Our communities
See page 49
The strength of our business is built on the hard
work, loyalty, and dedication of all of our colleagues.
We are committed to providing everyone a positive
and fulfilling working environment where
“Everyone is welcome” and they can each
reach their full potential.
The communities and the wider public expect us to
act in a responsible and sustainable manner, to be a
good neighbour, and have a positive impact on the
local areas in which we operate.
Our customers
See page 49
Our purpose is to bring great design and comfort
to our customers, in an affordable, responsible, and
sustainable manner. We are dedicated to providing
innovative, attractive, design-led, high-quality
products to new and existing customers at
great value.
Our suppliers
See page 49
Our trusted suppliers work with us to design and
make our products to the highest standard, provide
the showrooms through which we store, sell,
and display our products and provide the other
essential services we need to operate our business.
Our suppliers rely on us to generate revenue and
employment for them.
Our environment
See page 49
Through our Sustainability 2020-ESG strategy we
work to minimise any adverse impact we might
have on the environment.
Our investors
See page 50
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 responsibly to
generate value for them over the long term.
Our regulators
See page 50
We seek to enjoy a constructive and cooperative
relationship with the bodies that authorise and
regulate our business activities. We require all our
colleagues to apply the high standards of business
ethics in their business dealings.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 47
Section 172 statement continued
C O N S I D E R I N G T H E L O N G - T E R M
I M P A C T O F O U R D E C I S I O N S
When considering an investment proposition,
the Board considers the likely consequences of
any decision making in the long-term. An example
of this was the restructuring of our supply chain
and the creation of The Sofa Delivery Company.
C A S E S T U D Y
During FY21, the Board
approved further long-term
investment in The Sofa Delivery
Company to improve the final
mile logistics operation.
This brought together over 1,000 people
and the supply chain infrastructure from
our retail brands into a new business, with
the aim of being a best-in-class final mile
logistics business.
The Board’s rationale behind the investment
was to build on the existing Group model
and benefit from the resulting synergies.
Specifically, the Board was aware that the
decision would:
– Create shareholder value through cost
savings and improved stock
management;
– Provide greater control and resilience
within the supply chain;
– Improve customer experience with
7 day a week delivery;
– Represent a change in working patterns
for colleagues; and
– Provide the associated environmental
benefits, with lower CO2 emissions
due to better utilisation of the Group’s
delivery vehicles.
Taking all stakeholder interests into account,
the Board approved the proposal as it would
most likely promote the success of the
Company for the benefit of its members
as a whole.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Section 172 statement continued
C O N S I D E R I N G O U R E M P L O Y E E S
Colleague engagement
Our colleagues and the members of our wider
workforce are our most valuable asset. The Board
takes active steps to ensure that their suggestions,
views, and interests are captured and considered in
our decision-making.
Both the CEO and CFO worked for the Group as
employees for several years, before joining the
Board. They each remain actively involved in the
Group’s day to day operations. Their knowledge
of the business and active style of engagement
means our Executive Directors have an acute
insight into the mood, culture, and views of our
colleagues, which they then report on to the Board.
There are a number of formal and informal
workforce engagement mechanisms in place
across the Group:
– Workplace, our online web-based platform for
employees facilitates ongoing, meaningful
conversations between managers and teams
and has helped us support our employees
through the pandemic through the Health and
Wellbeing programme.
– Employees are kept informed of performance
and strategy through regular online and where
possible, in person presentations, from
members of the Group Leadership Team.
– Employee engagement surveys are undertaken
regularly through our on-line tool Peakon to help
us to understand how our colleagues are feeling.
Recent surveys have focused on employee
engagement and inclusivity.
– The Designated Non-Executive Director, the
Chairman, and other members of the Board
attend meetings with our employees, including
our Workplace Voice Forum, as well as visiting
our showrooms, factories, offices, and
warehouses.
– Our use of technology, using a cloud-based
system G suite allows us to accommodate most
meetings and communications remotely, this
helps support flexible working and enabled our
colleagues to stay in touch throughout the
pandemic.
– The Group People Director provides regular
briefings to the Board and Remuneration
Committee on employee-related matters,
including engagement activities, the results of
employee opinion surveys, staff retention rates,
diversity, numbers and nature of whistleblowing,
disciplinary and grievance procedures, learning
and development activity, pay and reward
including gender pay gap and HR initiatives.
The Board considers that, taken together, these
arrangements deliver an effective means of
ensuring the Board stays alert to the views of our
colleagues and wider workforce.
C A S E S T U D Y
During the year, we refocused
our attention on reinvigorating
our approach to Inclusion and
Diversity.
Led by our CEO and Group People Director
with support from the Board we created our
Group wide Inclusivity and Diversity strategy
“Everyone Welcome”. As part of this we
created our Inclusion Council with colleagues
from across the Group, who working
together developed our strategy and
launched a number of initiatives to both
educate our colleagues and drive change.
Diversity and inclusion are a central
consideration across our business and is
regularly considered by the Board. Our aim is
to recruit and retain a diverse and inclusive
workforce representative of our customer
demographic attracting the best talent to
meet agreed targets over the next four years
and beyond. Working with experts in the field
the Group has developed a strategy to
ensure that the specific areas of the
business each have the right actions in place
to ensure we can achieve our aims.
48
C A S E S T U D Y
Restructuring of DFS
retail administration.
The significant increase in customer
contacts as a consequence of both the
pandemic and increased business volumes
highlighted the need to develop a centralised
and flexible approach to DFS retail
administration, which had historically been
handled by colleagues based locally
throughout our showroom network.
For customers this change meant a more
consistent experience with fewer contacts
and a better, simpler service with the ability to
scale resource during busier times using the
support of our experienced third party
customer contact partner.
The ability to flex resource, and share best
practice, results in operating efficiencies and
associated cost savings, increasing value for
shareholders.
The changes created opportunities for more
than half of impacted colleagues to move to
new roles either in the new customer service
team or other parts of the business,
including other store roles or with The Sofa
Delivery Company. However, around 100
colleagues were supported in leaving the
Group through a programme of voluntary
and compulsory redundancy.
While a difficult decision to make, the Board
was satisfied that the benefits to customer
experience made it worthwhile and affected
colleagues received strong levels of support
and compensation.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 49
C O N S I D E R I N G O U R S U P P L I E R S
Throughout the year the Board was briefed on
major contract renegotiations and the strategy
regarding key suppliers and 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.
Throughout the pandemic and the uncertainty this
brought, we and our suppliers have continued to
mutually benefit from the strong relationships we
have fostered.
C O N S I D E R I N G T H E C O M M U N I T Y
We operate showrooms, manufacturing
operations, distribution centres and head offices
across c.200 locations in the UK and Ireland as well
as 6 in the Netherlands and 2 in Spain providing
local employment to many communities.
The Board supported policies to encourage
colleagues to volunteer their time and to give back
to their local communities. Whilst the pandemic has
restricted some of the volunteering activities of our
colleagues, many of them have still participated in
volunteering days either planting trees, working
with the homeless, raising money for charity and
making a difference to the communities where we
live and work.
C O N S I D E R I N G T H E E N V I R O N M E N T
The Board supports the Group’s ESG strategy with
a view to reducing any adverse impacts on the
environment and supporting the communities that
it touches. The Board’s commitment to tackling
environmental issues can be seen through the
establishment of the Responsible and Sustainable
Business Committee, chaired by Alison Hutchinson,
the Senior Non-Executive Director.
Section 172 statement continued
C O N S I D E R I N G O U R C U S T O M E R S
As a large retail business, we are focused on the
needs of our customers, whether that relates to
the products we design or the services we offer.
The sentiment of customers can be seen in the
Company’s underlying sales performance figures
and Customer NPS scores.
The Board seek to understand our customers’
requirements through a number of different
mechanisms. The Executive Directors and
management teams for each of the brands provide
regular updates to the Board on their perceptions
of consumer sentiment and the market view.
The interests of customers are considered in Board
decisions relating to showroom portfolio changes;
selection of product lines including our third-party
brands; the availability of customer credit products;
the development of our online platform; the
selection and monitoring of suppliers to ensure quality
and safety standards are met; and as discussed in the
case study above our final mile operations.
C A S E S T U D Y
Ethical trading and responsible
sourcing
During the year, the Board approved the 2020
Modern Slavery Statement.
www.dfscorporate.co.uk/governance/policies.
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. To help our suppliers gain a greater
understanding of our requirements and
the wider environmental and social issues
around ethical trading and responsible
sourcing, in March 2021 we hosted our first
ESG Supplier Conference.
C A S E S T U D Y
During lockdown our teams
refurbished 16 of our showrooms
to provide customers with a
better experience, enabling them
to touch and feel a wider range
of products in a more natural
home environment to help them
envisage how the products could
work for them in their homes.
We also completed the review of our
insurance product offered by our brands
Sofacare & Sofashield. The changes to these
products provide new benefits for all our
customers, removing exclusions relating
to accidental damage caused by pets and
extending the warranty cover for interiors,
exteriors and mechanisms. Additionally,
we simplified the pricing of the insurance
product, linking it directly to the value of
the customer’s furniture.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 50
Section 172 statement continued
C O N S I D E R I N G O U R I N V E S T O R S
The CEO and the CFO lead on engagement with
shareholders in relation to business performance
via virtual roadshows following major
announcements. The Chair, Senior Independent
Director and Remuneration Committee chair also
have regular contact with shareholders in order to
ensure that the Board is aware of their expectations
in respect of governance. During the year we have
engaged with investors on a range of topics,
including:
– The structure and design of the new
Remuneration Policy being proposed to
shareholders at the AGM;
– The Group’s ESG strategy;
– Company performance against its strategy; and
– Extension of our banking facilities.
The Board recognises the importance of
shareholder returns and carefully considers the
needs of its investors in recommending a final
dividend to shareholders in line with the Company’s
dividend policy; see page 10 for more details.
C O N S I D E R I N G O U R R E G U L AT O R S
Our subsidiary companies are regulated by the
Financial Conduct Authority in respect of the
provision of credit broking. As a responsible
authorised group of companies, 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.
DFS manages its tax affairs responsibly and
proactively to comply with tax legislation.
The Company’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
2021 Tax Strategy to comply with Schedule 19,
paragraph 16(2) of the UK Finance Act 2016
published at 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 CFO
provides regular updates to the Board on
tax matters.
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.
The Group Financial Operations Director is
responsible for managing the relationships with our
banking syndicate, and for the Group’s cash/debt
management and financing activities. The CFO
provides regular reports to the Board on these
activities.
S172 Statement of non-financial information
The table below sets out where the information required to be disclosed under sections 414CA and 414CB
Companies Act 2006 can be found in this Annual Report.
Reporting requirement
Relevant information
The Company’s
employees
Section 172 Statement – Having regard to the interests
of the Company’s employees – page 48
Responsibility and sustainability report – page 63 to 68
Anti-corruption and
anti-bribery matters
Responsibility and sustainability report – page 70
Respect for human rights Section 172 Statement – Modern Slavery – page 49
Responsibility and sustainability report – page 57
Social matters
Section 172 Statement – page 49
Responsibility and sustainability report – page 57
Policies and Standards
– Diversity & Inclusivity
Policy*
– Equal Opportunities Policy
– Whistleblowing Policy*
– Group Health and Safety
Policy
– Group Code of Conduct*
– Anti- Bribery Policy*
– Supplier Code of Practice
Standards*
– Whistleblowing Policy*
– Modern Slavery Policy*
– Data Protection Policy
– Privacy Policy*
– Tax Strategy*
Environmental matters
Responsibility and sustainability report – page 53 and 62
Section 172 Statement – Having regard to the impact
of the Company’s operations on the community and the
environment – page 49
– Environmental Policy*
– Timber Sourcing Policy*
– Leather policy*
* These policies can be found at www.dfscorporate.co.uk/governance/policies
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 51
Responsibility
& sustainability
report
This section of the report focuses on our strategy
to sustain our market leading position for the
long-term in a responsible manner considering
the environment we operate in and the interactions
we have with our stakeholders.
C O N T E N T S
52 Overview from the chair of the Responsible and
Sustainable Business Committee
53 How we embed ESG in our business
54 Our Focus
55 Overview of our targets
56 Supply chain, sustainable sourcing and our products
60 Energy and waste
63 Our colleagues
68 Our customers
69 Our communities
70 Ethical business, data and cyber
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Our appointment to the Board of Loraine Martins
OBE, an expert on inclusion, diversity and equality,
will also help drive and challenge our thinking in
these areas.
As it became evident through the autumn that the
pandemic would continue to disrupt society, we
reflected on the likely impacts on our stakeholder
groups. We recognised that it was likely that many
of our colleagues would be affected so we ensured
that we conducted regular pulse surveys to listen to
our colleagues, extended the coverage of our
sickness policies to protect those who were ill or
isolating and stepped up our investment in positive
mental wellbeing.
Given ESG is a rapidly advancing topic and requiring
a significant and growing amount of Board time, at
the end of the year we took the decision to
establish a Responsible and Sustainable Business
Committee that will first meet in early FY22 to
provide dedicated focus and governance. We have
also embedded both environmental and social
elements into management remuneration targets
across the Group.
Responsibility & sustainability report
Bio on page 73
A L I S O N H U T C H I N S O N C . B . E .
Senior Independent Director
Twelve months ago we launched
our ESG strategy which is aligned
to our Group purpose, values and
our Group strategy.
At the outset we emphasised that as a market
leader we have the ambition to lead the sector in
driving positive change within the upholstery
market and we also recognised that we were unable
to address our entire ESG agenda at once. Last
year we made a conscious effort to prioritise
sustainability in our ESG strategy and this year we
have both expanded our sustainability approach
whilst placing a greater emphasis on social factors.
Our approach has been to ensure we address all
the wide range of matters covered by our targets,
while also focusing efforts to drive rapid, tangible
progress in key areas. I am pleased with the
progress the Group has made in FY21 which I
highlight below, along with our plans for FY22.
P R O G R E S S D U R I N G T H E Y E A R
Our initial focus in the year was on our finished
products and the resources used in manufacturing
them. We have driven positive change, particularly
in relation to the sustainable sourcing of wood and
leather, some of the key materials in our sofas. We
have also set some new challenging ‘Phase 2’
targets, expanding our focus to cover additional
materials, as well as setting a plan to limit the risk of
modern slavery occurring across our supply chain.
We are committed to working with leading industry
experts in each field to ensure we have the best in
class knowledge and expertise to drive change,
demonstrated by individual partners for each
material certification, FSC (wood), LWG (leather),
OEKO-TEX (fabrics), and the Peppy, Henpicked and
Fika collaborations across our social space.
To help us achieve a number of our targets we
recognise it is essential that we bring our suppliers
with us on our journey. We held our inaugural ESG
Supplier Conference in Spring 2021 during which
we outlined the stages in our sustainability
roadmap, allowing our supplier base to understand
what we need from them as well as the long-term
benefits to our partnerships.
In addition to the continued development of our
sustainability strategy, in the second half of the year
we launched our diversity and inclusion strategy.
Building a workforce that is both diverse and
operating within a culture of inclusiveness is critical
to the future success of this business. We launched
a number of initiatives to both educate our
colleagues and drive change which has been led by
our Inclusion Council.
52
To validate the focus of our ESG strategy in a
developing landscape, we have also conducted a
materiality assessment supported by a third party
specialist. The topics considered have been ranked
based on the relevance to the business and
importance to stakeholders and are discussed
in more detail, see page 54. Greenhouse gas
emissions and the sustainable and ethical sourcing
of the materials used in our products ranked
highest and we have set ourselves targets that
we will report our progress against. We have also
taken steps to start to align our reporting with
the Task Force on Climate-related Financial
Disclosures (“TCFD”).
P L A N S F O R F Y 2 2 A N D B E Y O N D
Our focus for FY22 is to build a better
understanding of our Scope 3 carbon emissions
and then set targets approved by the Science
Based Targets initiative (“SBTi”) to support our BRC
climate action commitment to reach net zero by
2040. We will then conduct scenario analysis to
build our knowledge and understanding of how our
strategy may be impacted by climate change,
allowing us to be better positioned to respond.
Achieving our net zero ambition will likely require
more forward thinking regarding circularity in the
Sofa Cycle. This will require additional research and
development to deliver closed-loop and carbon
positive solutions which we will both seek to lead
where we can and participate in other stakeholders’
research where appropriate.
We will also continue our focus on achieving our
current ESG-related targets, set challenging new
ones and build a better understanding of our
workforce and initiatives to create an environment
where everyone is welcome.
Alison Hutchinson
Chair of the Responsible and Sustainable
Business Committee
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
53
H O W W E E M B E D E S G
I N O U R B U S I N E S S
We believe that driving sustainable business
behaviours is best achieved when it is embedded
throughout the business. To help achieve this all
colleagues are encouraged to share ideas and
consider the environmental and social implications
relevant to their decision-making; from capital
investments to procurement decisions and product
development to recruitment. We encourage
our colleagues to consider both the potential risks
(and options to minimise) and opportunities (and
options to maximise) when considering matters
with potential ESG implications. For FY22 we are
now also including relevant and stretching ESG
targets in our management grade roles and above.
We have a number of committees and councils
set up to help drive our ESG agenda forward.
The illustration below describes how we intend
to govern through our FY22 financial year.
Board oversight and Responsible and Sustainable Business Committee (“RSC”)
The Board has oversight of the various ESG-related risks and opportunities that may have an impact on the company and how these are being managed, ensuring our
strategy remains fit for purpose, for approving any associated policies as well as ensuring compliance with relevant laws. In conjunction with the Leadership Team, the
Board provides direction on which ESG areas present the most significant risk or opportunity and should be prioritised. Given the frequency and time dedicated in Board
meetings to ESG topics, we are establishing a new sub-committee – the Responsible and Sustainable Business Committee (“RSC”) – that will include the Group CEO and
three other Board members and will meet at least three times a year.
Sustainability Steering meetings
The Group CEO, Group Chief Operating Officer, Transformation Director and ESG lead along with invited department heads and experts meet quarterly to review
progress on strategic objectives and discuss future plans. This meeting is intended to ensure business resilience and agility within the sustainability roadmap and that
the right level of investment is provided where needed.
Inclusion Steering meetings
The Group CEO, Group People Director, Loraine Martins (Non-Executive Director) and two Inclusion Council members meet monthly to review progress on initiatives
to deliver our inclusion strategy and discuss future plans and investment requirements.
Group Leadership Team – ESG Transformation
Group Leadership Team members have all been assigned an ESG-related topic for which they are responsible and have been allocated specific targets for FY22 which
form part of their bonus structure. The team meets on a monthly basis, assesses the progress made in achieving our ESG targets and looks to ensure that relevant
sustainability and responsibility matters are being considered in the day-to-day operations of the business. Additionally, the team provides the link between the Board
and the brand and operating segment committees, ensuring that the Board has sufficient oversight of the progress being made by these committees while also ensuring
the brand and operating segments have the guidance, support and resources available to achieve their goals.
Brand and operating segment ESG meetings
These meetings comprise brand and operating segment leads who review their progress against targets and provide status updates to the Group Leadership Team.
The knowledge and understanding these individuals possess, combined with the external input from experts in a variety of different fields, contribute innovative solutions
to the challenges and potential opportunities across the Group.
Sustainability & Responsibility Champions and our Inclusion Council
We want to empower our colleagues to drive change and improvements in both environmental and social areas. The goal of our Responsibility Champions and our
Inclusion Council which both include individuals from across the business is to promote engagement and communication across the business and to generate ideas.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
O U R F O C U S
To help ensure our ESG strategy remains fit for
purpose, we recently conducted a materiality
assessment across the Group which was facilitated
by a third party specialist. The process involved
in-depth meetings with stakeholders from across
the various Group operating functions, brands and
with senior management as well as incorporating
the views of external stakeholders. The draft results
identified a number of high priority issues including
greenhouse gas (“GHG”) emissions, deforestation
and biodiversity, customer satisfaction and product
quality, sustainable sourcing, and material usage.
The exercise provided us with confidence
our efforts remain focused on the risks and
opportunities that are most significant to
our business and our stakeholders.
In the remainder of this report we pay particular
attention to those items deemed more material to
the Group and its stakeholders, highlighting the
risks and opportunities associated with each, the
initiatives underway or delivered and, where
applicable, the targets we have set.
l
s
r
e
d
o
h
e
k
a
t
s
l
a
n
r
e
t
x
e
o
t
e
c
n
a
t
r
o
p
m
I
M
Impact to DFS
54
A
B
C
E
D
F
G
I
H
J
L
N
K
Area
Definition
Area
Definition
A
B
C
D
E
F
G
GHG emissions
(Scope 1, 2, 3)
Deforestation &
Biodiversity
The amount of GHG produced by the activities and operations of DFS and of
the movement of resources in the supply chain.
Protection and restoration of the forests which have been impacted by the
wood use in products and production of leather.
Customer satisfaction
& product quality
The measurement used to determine how satisfied customers are with its
products and service.
Material usage
As resources continue to deplete, companies will be challenged to increase
the efficiency in which they use materials in their products and to ensure
re-use where possible.
As resources continue to deplete, developing alternative approaches to
manage waste and resources will become ever more important. The circular
economy has emerged as a way of thinking to design out waste and pollution,
keep products and materials in use, with the ultimate goal of regenerating
natural systems.
Selecting and working with suppliers to obtain the materials, products, and
services DFS requires that are socially and environmentally responsible, while
still being economically sound.
A circular approach
Sustainable
sourcing
Supply chain
traceability &
transparency
H
I
J
K
L
Inclusion & diversity
Creating an inclusive environment where everyone is welcome, ensuring
employees are treated with the respect and have equal opportunities.
Data protection
and cyber risk
Ensuring current regulations on GDPR and the protection of customer data
are followed, while continuing to review procedures and systems to reduce
the risk and exposure to potential cyber attacks.
Colleague
engagement
Talent &
development
Creating a working environment where all colleagues of DFS care about their
work, the goals, values and performance of the Group and enhancing
colleague wellbeing.
Ensuring procedures are in place to attract talent and facilitate the continuous
development of colleagues’ knowledge to create a more skilled and
accomplished workforce.
Health, safety
& wellbeing
Programmes, guidelines and procedures in place to protect the safety, welfare
and health of any person engaged in work or employment.
M Plastics, packaging
& waste
Limiting the waste created in DFS operations, including plastics and
packaging, and increasing efficiency of recycling and reuse to minimise
environmental impact.
The reporting and disclosure around upstream operations both internally and
externally. There is an increasing expectation from stakeholders for
companies to be transparent in their use of suppliers.
N
Community
engagement
& investment
Investments, charitable donations and volunteering in activities with the aim
of bringing about an improvement in quality of life for the local residents.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
Our Group ESG targets
Below is a snapshot of our targets that we set twelve months ago (Phase 1) and our new (Phase 2) targets. With the integration of the Dwell operation into the DFS brand, the creation of Group operating platforms
such as the Sofa Delivery Company and in order to simplify our reporting we have transitioned our targets from being brand specific to Group targets.
55
Environmental
Phase 1
Wood sourcing
Leather sourcing
Packaging
Sofa packaging
Sofa packaging
CO2 reduction
CO2 offset
Phase 2
Wood sourcing
Leather sourcing
Textile sourcing
All our sofas will be built of 100% FSC Certified Wood
The leather we use will not lead to deforestation in Amazon regions or elsewhere
Ensure 100% of the plastic packaging we use is recyclable
85% of all our sofa packaging will be recycled
100% of all our sofa packaging will be recycled
We will reduce our Scope 1 CO2 emissions with Sofa Delivery Company by a minimum of 10%
We will offset 100% of our Scope 1 and Scope 2 carbon emissions
FSC Certified Wood used in all products
All leather used on upholstery will be sourced from suppliers with LWG certification
OEKO-TEX STeP certification for upholstery ranges for Cotton, Viscose and Polyester
Carbon reduction
Science-based targets approved by SBTi
Zero polystyrene in product packaging
Packaging
Social: our colleagues and our communities
Inclusion and diversity
All Group apprenticeship programmes will have at least 50% female representation
Inclusion and diversity
All Group Management development programmes will have at least 50% female representation
Inclusion and diversity
A minimum 50% of showroom management will be female
Charity community
Volunteering Days – everyone can have paid time off to give back to their community
Target a minimum of 1,150 Volunteering days
Governance: how we manage what we do
Phase 1
ISO
ISO
ISO45001 – Health & Safety
ISO14001 – Environmental Management
Modern slavery audits
Independent ethical audits of our manufacturing supply chain
Phase 2
Target Date
Dec 2025
Dec 2021
Dec 2020
Dec 2020
Dec 2022
Dec 2023
Dec 2020
Dec 2025
Dec 2024
July 2022, 2023 & 2024
respectively
July 2022
Dec 2024
Dec 2020
Dec 2020
Dec 2024
Dec 2021
Dec 2021
Dec 2021
Dec 2021
Status
Underway
Underway
Not met
Met
Underway
Underway
Met
Reference
See page 58
See page 58
See page 62
See page 62
See page 62
See page 60
See page 60
Newly announced
See page 58
Newly announced
See page 58
Newly announced
See page 58
Newly announced
See page 60
Newly announced
See page 62
Met
Met
Underway
Underway
Met
Met
Underway
See page 63
See page 63
See page 63
See page 68
See page 66
See page 60
See page 56
Modern slavery audits
Top 250 of non-manufacturing suppliers by £ spend risk assessed
Dec 2022
Newly announced
See page 56
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
56
We see the opportunity to address these risks
more comprehensively and/or sooner than our
competitors as consistent with our purpose
and values, as a means to create a competitive
advantage through a relative cost benefit and
by winning market share as well as decreasing
the risk of potential reputational damage.
E N G A G E M E N T W I T H S U P P L I E R S
We maintain long-standing, trusted relationships
with our suppliers and we intend to bring our
suppliers with us on our sustainability journey. In
March 2021 we hosted our inaugural ESG Supplier
Conference, which was attended by 96% of our
finished goods supplier base, to set out our vision,
mission and initial requirements with our suppliers.
This was a great opportunity to engage our
suppliers in why sustainability is so important to our
business and our stakeholders, and to share with
them our commitments and strategy going
forward. We covered a broad range of topics from
sustainable sourcing of materials to modern slavery
with many of our suppliers indicating that we are
their first customer to bring certification and other
sustainable standards to the fore. We look forward
to working collaboratively with them to help us
achieve our ambitions.
Quotes from attendees of our supplier
conference:
‘ I am sure it will inspire the supply chain to build on
success and continue to innovate as we tackle the
future issues together.’
‘ An excellent example of stakeholder engagement.
I particularly liked the message of collaboration
and partnership working while the objectives and
rationale from DFS were clearly articulated’
‘ Really great to see such a great brand driving
forward with ESG and setting a clear direction
for the industry. Really enjoyed the conference
and have come away invigorated and motivated
to try and contribute.’
Supply chain, sustainable
sourcing and our products
Alignment to UN SDGs
FY21 highlights:
– Hosted our inaugural ESG Supplier Conference
– Audits underway to assess our manufacturing suppliers’
compliance with our supplier code of conduct and
alignment with our ESG strategy
Focus for FY22:
– Continue to work with our suppliers and bring them on
our sustainability journey
– Identify and respond to any non-compliance identified
from audits
Our targets:
– Independent ethical audits of our manufacturing
supply chain by December 2021
– Top 250 of our non-manufacturing suppliers by
£ spend risk assessed by December 2022
Supply chain & sourcing
B A C K G R O U N D
Some 95% of Group sales currently relate to
upholstery products. We currently work with a total
of 29 upholstery finished goods suppliers across
the UK, Europe and China. Our top five suppliers,
with whom we have deep and long-standing
relationships, supply 82% of our upholstered
finished goods.
Upholstery supply chain transparency and
traceability is centred upon the key natural
materials: timber and leather.
Potential risks associated with our supply chain
and sourcing:
– Depletion of natural materials (due to
unsustainable practices or from the impact of
climate change) may increase input costs.
– A growing appetite for sustainable products
may shift demand to those best able to meet
customer requirements.
– Sourcing from suppliers with poor human rights
practices could result in reputational damage.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
57
H U M A N R I G H T S A N D
M O D E R N S L A V E R Y
The culture and ethos across the DFS Group is
about doing the right thing. We set clear standards
for conduct, which we expect colleagues and
suppliers to adhere to. We respect human rights in
our business and our supply chain and do not
tolerate modern slavery in any form as documented
in our Modern Slavery and Human Trafficking
Statement on our corporate website: www.
dfscorporate.co.uk/esg/modern-slavery-and-
human-trafficking-statement
To assist our colleagues in doing the right thing
and to raise any concerns or suspicions we have
a clear whistleblowing policy and confidential
reporting hotline.
Last year we commissioned Ardea International,
a specialist sustainability, business and human
rights consultancy with expertise in modern slavery,
to evaluate our response to the requirement
to address modern slavery risk, to identify any
potential gaps in policies and procedures, and to
ensure that the company is fulfilling the reporting
requirements of the UK Modern Slavery Act.
As part of managing the risk of modern slavery,
we have a supply chain compliance programme
in place. Our training initiatives include:
– An e-learning module on modern slavery which
has been deployed to senior and middle
managers across the DFS Group. The training
provides guidance on spotting the signs of
different types of modern slavery and how to
report concerns.
– Additionally, several key employees undertook
an in-depth accredited six week ‘End Slavery’
course that was provided by Ardea International.
This equipped participants to identify modern
slavery and to manage the risk within the
supply chain.
Our Commitment:
We are committed to acting ethically and will
continue to take steps to assess the risk of modern
slavery taking place in our supply chain.
S U P P LY C H A I N A S S U R A N C E
Track Record Global (“TRG”) has been retained as
our audit partner to assist with transparency and
traceability within our manufacturing supply chain.
To help achieve this we will:
– Continue working with our tier 1 suppliers and
manufacturers to ensure compliance with our
policies in relation to human rights.
– Organise a supplier ESG summit, that will
include discussions around modern slavery
and raise the focus and awareness of this risk,
facilitated by Ardea International.
– Continue to assess our training requirements to
ensure that they are fit for purpose and deliver
training based on this assessment.
– Address any gaps highlighted in the Ardea
gap analysis report to strengthen our policies
and procedures.
– Strengthen our due diligence processes by
undertaking risk mapping and identifying
modern slavery risk through procurement.
– Ensure that any new supplier commits to the
Group Code of Practice/SLA including SMETA
(SEDEX Members Ethical Audits) certification.
The scope of their work includes timber and leather
due diligence and new audit protocols for modern
slavery, in partnership with Ardea International.
The TRG audit approach is based on assessing
and mitigating risk through the use of evidentiary
material such as invoices and shipping notes for
materials and employee records and business
policies for modern slavery. This process enables
us to not only trace materials from source, but
engenders conversations to drive sustainable
sourcing at every level of the supply chain. We are
able to communicate and educate our suppliers for
instance through our ESG Supplier Conference and
we see it as our responsibility as a market leader to
support our suppliers by providing training and
advice where required.
So far we have completed timber audits across
90% of our upholstery partners and 70% of our
home category partners. The modern slavery
audits will be completed for all manufacturing
partners by December 2021. These audits enable
us to address areas of risk and request changes
within the manufacturing supply chains.
Where evidentiary material has been impossible to
source for leather supply chains, a secondary audit
has been conducted through Eurofins BLC using
geo-location mapping.
For more information please see our Group
Code of Conduct and DFS Code of Practice
www.dfscorporate.co.uk/media/53792/Group-
Code-of-Conduct-November-2020.pdf
www.dfscorporate.co.uk/media/46645/21-DFS-
Code-of-Practice-Version-1-October-2019.pdf
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
M AT E R I A L C E R T I F I C AT I O N
We recognise that audit fatigue is an ongoing issue
where suppliers work with a variety of customers.
While necessary, many audits fail to add any value
for the supplier but can drain resources and thus
increase operating costs. By establishing third-
party certification requirements for our core
materials, we seek to add value into our suppliers’
value chain and provide clear, universal standards
as well as potentially providing our suppliers with
a commercial advantage as more customers set
out their sustainability agenda.
We have chosen material specific certifications that
are the most widely recognised not only within their
industry but also to customers, in order to provide
assurance of our sustainable sourcing practices.
Timber
Leather
Our targets:
– 100% FSC Certified Wood used in
all products by Dec 2025
Our Commitment
To source all our timber from supply chains
which meet our Timber Minimum Performance
Requirements (see Group Timber Policy on our
website for more details) and to continuously
improve and report our sourcing performance
year-on-year. We have extended our commitment
to sourcing FSC certified wood to all our products in
our Phase 2 targets, our Phase 1 target announced
last year only applied to sofa products.
We have made significant progress during the
year and are on track to meet this target, 23%
(FY20: 16%) of all suppliers and 48% (FY20: 18%)
of upholstery suppliers currently hold the
FSC certification.
Our targets:
– Leather sourcing does not cause
deforestation in Amazon regions
or elsewhere by December 2021
– All leather will be sourced from
suppliers with LWG certification
by December 2024
Our Commitment
Ensure that our products only contain leather hides
where we understand and can evidence the “chain
of custody” (i.e. from the farm or slaughterhouse to
the manufacturer to us, the retailer). We, and our
customers, can then be confident that the leather
used is obtained from sources that do not
contribute to deforestation.
All our leather suppliers have been audited by TRG
or mapped against deforestation locations by
Eurofins BLC (leading experts in the leather
industry). We have made changes in high risk supply
chains during the year to ensure we can deliver on
our commitment.
LWG certification is awarded to tanneries that
demonstrate environmental best practices and
performance in all areas of leather production, from
chemical and water management to energy use,
waste management and hide traceability.
58
Textiles
Our targets:
– OEKO-TEX STeP certification for
Cotton, Viscose and Polyester by
July 2022, 2023 and 2024
respectively
Our Commitment
Ensure all textiles used in upholstery are sourced
from textile mills with strong environmental and
social standards.
Textiles are widely used in our products and are
chosen for their quality and durability. We recognise
that progress needs to be made around the
production of both natural and synthetic fabrics
and we are continually working to improve and
mitigate the environmental impact of both our
textiles and fillings. For this reason, our suppliers are
required to disclose the origin and composition of
all fabrics used in our products.
OEKO-TEX STeP certification is a global holistic
audit protocol that can be applied to all textile types
and ensures environmentally friendly production
processes, social working conditions and optimum
health and safety. There are many different textile
certifications in the market that focus on specific
challenges within an area of textile production.
OEKO-TEX Standard 100 is already a well-
established chemical assurance audit while the
STeP certification also incorporates quality, social
and environmental standards, creating a robust
but common framework which can be applied to
all textile compositions. We are targeting all our
suppliers to obtain the OEKO-TEX STeP certification.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
L O O P
Sofology is in the process of trialling ‘Loop’ a
flexible, sustainable upholstery rental service.
Offering the choice of well designed pieces, at an
affordable price, for as long as customers need
them, Sofology’s Loop initiative is an innovative new
approach to truly sustainable furniture rental.
Launching with the new Virtue upholstery
collection, each rentable sofa, armchair or footstool
is manufactured in the UK from sustainably sourced
materials. The fabric is made from an ocean plastic
alternative, fibres are from recycled content
and the wood is FSC certified. Once pieces are
returned, to ensure nothing goes to landfill, each
element, from springs to feet, will be removed and
recycled. The metal frame, which has a 25-year life
span, will then be rebuilt and reupholstered to
create brand new pieces available to rent.
Product
Our Commitment
We want to bring great design and comfort into
every living room and we want to do it in an
affordable, responsible and sustainable manner.
We are committed to finding solutions and
developing our product range in order to use our
resources in more efficient ways, use more
sustainable materials and reduce waste both during
production and at the end of the product life cycle.
Our long-standing relationships with our suppliers
allow us to ensure the high quality and rigorous
safety standards of all the materials and
components that we use.
G R A N D D E S I G N S R A N G E
DFS is proud to have partnered with Grand Designs
to launch an exclusive new collection with a grand
ambition; sofas that are stylish, comfortable and
beautifully made using innovative and sustainable
materials.
Each aspect of the range has been considered for
its ability to reduce the impact on our environment
and is either made of recycled materials, comes
from sustainable sources, or is more easily
recycled at the end of its life.
59
Q U A L I T Y O F P R O D U C T
The Group has set up measures to help ensure
we sell safe and reliable products. These include:
– DFS products carry the British Standards
Kitemark for furniture, which is an external
quality standard and all product ranges are
reviewed on a quarterly basis through our
Quality Control procedures.
– A minimum 15-year frame guarantee.
– All electrical components carry CE
compliance certification.
– Extensive fire tests: All products are tested
by independent organisations such as FIRA
(Furniture Industry Research Association)
and TRG in many areas including fire safety.
– All certifications for nanomaterials are collected
and collated bi-annually by Track Record Global
to ensure all suppliers have the appropriate
risk assessments and versions are maintained
and recorded.
– REACH declarations obtained for applicable
products (protection of human health and the
environment from the risks that can be posed
by chemicals).
– Physical testing is carried out including rub tests,
stretch tests, frame stability.
– Confirmation from suppliers that there are no
VOC’s (Volatile organic compounds) emitted
from the products.
– Over 200 technicians on the road dedicated
to services and repairs.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
Energy and waste
Alignment to UN SDGs
FY21 highlights:
– 100% carbon offset of our Scope 1 and 2
greenhouse gas emissions
– Signed up to the BRC climate action roadmap
to be net zero by 2040
Focus for FY22:
– Engage a Carbon specialist to understand our
Scope 3 emissions
– Set robust science-based targets
Our targets:
– ISO14001 – Environmental Management from
December 2021
– We will achieve 100% carbon offset by December 2020
– Science-based targets approved by SBTi by July 2022
– We will reduce our CO2 emissions with Sofa Delivery
Company by a minimum of 10% by 2023
B A C K G R O U N D
We deliver over 800,000 upholstery orders per
year and our objective is to minimise the energy
consumed across the product life cycle and
reduce waste. We produce 19,620 TCO2e of Scope
1 and 2 greenhouse gas emissions across our
internal manufacturing operations, sales channels,
warehouse and delivery operations
and head offices.
60
All of our showrooms, central distribution centres
and manufacturing sites are now using 100% green
energy and we are committed to removing gas
boilers from our showrooms. We have also launched
an energy reduction initiative on a trial set of
showrooms to improve heating efficiency and are
anticipating an estimated 25% average reduction
in energy consumption. If the trials are successful
we will roll out across the Group.
P L A N T R E E A N D O U R
P L A N T I N G P R O M I S E
While we aim to ensure FSC
certified wood is used in all our
products, we want to go further,
and contribute significantly
to reforestation.
The Sofology PlanTree campaign was set up in the
previous financial year and DFS has introduced its
Planting Promise in March 2020. We plant a tree in
the UK for every sofa order delivered, as part of
accredited reforestation schemes run by the
Woodland Trust.
To mitigate our carbon emissions during 2021, the
Group also planted over 94,000 trees in the UK
through the Woodland Trust’s Carbon scheme.
Risks associated with our energy and waste
consumption:
– Increased pricing of greenhouse gas emissions
or end of product life charges (levied on the
vendor or disposer) leading to an increase in
operating costs or an extension to the sofa
replacement cycle
– Costs to transition to lower emission
technologies
We see the opportunity to address these risks
through use of lower-emission energy sources and
new technologies that could lead to a competitive
cost advantage.
E N E R G Y U S A G E
We are committed to reducing our energy
consumption. Our Environmental Management
System has achieved ISO14001 certification across
the Group, an internationally agreed standard with
a set of requirements that helps organisations
improve their environmental performance through
more efficient use of resources and reduction
of waste.
Alongside over sixty leading
retailers we have signed
up to the BRC climate
action roadmap which is a
commitment to net zero by 2040. To help us
achieve this goal we are working with a Carbon
specialist to create a dynamic Scope 3 emissions
model with supplier participation and we will use the
information from it to set robust science-based
targets to be approved by the SBTi by July 2022.
We have signed up to BRC climate action
roadmap to reach net zero:
– Scope 1 by 2035
– Scope 2 by 2030
– Scope 3 by 2040
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
61
Total emissions per £m of gross sales have
decreased by 51.4% year-on-year mainly due to the
reduction in Scope 2 emissions during the period
after successfully transitioning all our UK mainland
sites’ electricity supply to 100% renewable sources
from October 2020.
E N E R G Y A N D T R A N S P O R T
F U E L C O N S U M E D
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.
We have changed our emissions intensity ratio
from Tonnes CO2 per employee as disclosed in
previous years to Tonnes CO2 per £m of gross sales
as we believe it will provide a more appropriate
measure in light of our strategic growth plans.
Group
Direct emissions Scope 1
Indirect emissions Scope 2
Group Total
FY21
MWh
FY20
MWh
114,830
100,556
TCO2e
2020
20,434
7,054
27,488
% increase/
(decrease)
(10.6)
(80.7)
(28.6)
2021
18,261
1,359
19,620
TCO2e per £m of gross sales
2021
13.3
1.0
14.3
% increase/
(decrease)
(39.9)
(86.0)
(51.4)
2020
21.9
7.5
29.4
Responsibility & sustainability report continued
F L E E T
In April we brought together the DFS and
Sofology final mile logistics operations and
launched The Sofa Delivery Company, a
standalone company within the Group. Our aim
is to offer improved customer service and a
more flexible working environment for
colleagues whilst also improving efficiency and
reducing the Group’s environmental impact.
Following successful trials, we launched The
Sofa Delivery Company’s 7-day, extended hours’
delivery model across the Group towards the
end of the current financial year. Combined with
other DFS initiatives such as ‘Track My Order’
and eco-friendly delivery slots, The Sofa Delivery
Company has a compelling proposition to meet
our customers’ busy lifestyles.
The benefits of our consolidated final mile
delivery network will be a reduction in miles
driven due to tighter delivery radials (aided by our
Apollo smart routing technology) and an overall
reduction in the number of DFS Group delivery
fleet vehicles following the introduction of new
shift patterns.
The Group will continue to look at ways to further
reduce our fleet emissions, and we intend to
introduce electric 3.5t vehicles from 2023 in
London distribution centres to test and learn
how it affects our operating model.
We also changed our policy on our company car
fleet to only include hybrid or electric vehicles.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
62
P A C K A G I N G A N D
W A S T E M A N A G E M E N T
Our targets:
– Ensure 100% of the plastic
packaging we use is recyclable
by December 2020.
– 85% of all our sofa packaging will
be recycled by December 2020.
– 100% of all our sofa packaging
will be recycled by December
2022.
– Zero polystyrene in product
packaging by December 2024.
Packaging is one of the most visible sustainability
reference points for a customer due to the volume,
presence within their home and apparent single
use application.
As we deliver our own products, we are in a position
to increase the level of recycling. At the end of the
first half of the financial year we met our target
to ensure 85% of our sofa packaging is recycled.
However due to unforeseen complications with
our suppliers we have experienced difficulties
in ensuring 100% of our plastic packaging is
recyclable. Currently over 90% of our suppliers are
using 100% recyclable plastic and we continue to
work with our remaining suppliers to ensure all
plastic packaging is recycled.
The home category, with fragile materials such as
marble and glass, will continue to be a challenge and
require bespoke solutions. As such, the Group has
employed an expert to work across the supplier
base to find suitable alternatives.
S O F A R E S C U E
The ‘Sofa Rescue’ initiative,
developed in partnership with
Clearabee, ensures sofas can
be disposed of in an eco-friendly, responsible way
through collecting products from customers’
houses when they are no longer needed and
recycling as many components as possible. This
has saved over 100,000 pieces of furniture from
landfill to date.
Using an integrated service model, our teams can
arrange collections of old sofas the day before
delivering a new order to a customer’s home.
Clearabee’s fleet utilises an extensive network of
waste transfer stations to ensure at least 90% of
upholstery items collected are diverted from landfill.
In addition, Clearabee also carbon offset all
emissions from their fleet through reforesting.
The Sofa Rescue initiative is still in its early stages.
We are committed to researching additional
partnerships within the waste industry in order
to help drive the goal of circularity and reduction
of carbon emissions at the end of the product
life cycle.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
Our colleagues
Alignment to UN SDGs
FY21 highlights:
– Rolled out market leading wellness solutions to support
colleagues
– Launched our Inclusivity and Diversity strategy to our
management teams and educated and trained our
managers
– Financially supported our employees through our
Coronavirus Absence Pay Scheme (“CAPS”)
Focus for FY22:
– Build our understanding of colleague demographics,
analyse and develop actions to improve inclusivity and
diversity
– Education program for our wider workforce on the
importance of inclusion and diversity to our business
– Continue to build our ‘Giving Back’, charity strategy
Our targets:
– 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
B A C K G R O U N D
We employ over 5,000 people across our head
office, manufacturing, warehousing, logistics, sales
and service teams. Attracting, developing and
retaining colleagues with the appropriate skill sets,
behaviours, attitudes, motivation and from a variety
of backgrounds is crucial to the success of the
business.
We pride ourselves on cultivating an open
environment for our colleagues in which everyone
feels welcome and is encouraged to share their
thoughts and ideas. We feel this, along with our
values of Think Customer, Be Real and Aim High,
strongly contributes to the businesses history
of innovation in the sector and our market
leading position.
Risks associated with our colleagues include:
– Loss of skilled specialist workforce (e.g. in
our manufacturing operations) resulting in
incremental training costs and/or reduction
in quality of products
– Reduced engagement levels impacting
innovation and our market leading position
– Under-representation across various
demographics, impacting our ability to think
more broadly and reflect our customer base
– Health and safety incidents that impact our
reputation and result in financial penalties
Our Commitment
– To attract, retain and develop our colleagues to
their full potential and with fair remuneration
– Listen hard to our colleagues and value their
opinions and involvement in how we improve
as a business
– Promote an inclusive and diverse workforce
across all areas of the business
– Provide equal opportunities and treat all
colleagues fairly and with respect
– Provide opportunities for personal development
and promote solely on merit
– To not tolerate any forms of bullying,
harassment or discrimination
– Provide safe working environments that our
colleagues can thrive in
63
I N C L U S I V I T Y A N D D I V E R S I T Y
It is our firm view that inclusive and diverse teams
working within inclusive environments are more
engaged, innovative and deliver better outcomes
for our customers. We also believe that all our
colleagues should feel valued and treated equally
and fairly day-to-day and in the opportunities they
are given and we expect all colleagues to treat each
other and our customers with equal respect. We
believe in this not just because it is morally right, but
as an organisation that more appropriately reflects
the communities where we work and the
customers we serve, we will be able to better serve
our customers.
Our focus in recent years has been on gender
equality. This year we have kick started the
conversation around other forms of inclusion and
diversity with internal education and engagement
activity, alongside the creation of longer-term plans
across our brands, operating teams and central
offices to make a measurable difference to the
makeup of our workforce.
We have worked with expert advisors (such as
Stonewall, an LGBTQ+ charity) to obtain expert
guidance and emphasised through our
appointment to the Board of Loraine Martins OBE
an expert on inclusion, diversity and equality.
Loraine will provide broad support and guide our
plans going forward.
Working with our partners we have launched an
LGBTQ+ Allyship network. This provides networks
open to all of our colleagues to join, allowing
individuals to educate themselves, support and
provide solidarity to the LGBTQ+ community as well
as driving and promoting behaviours that support
inclusion and challenging those that do not.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
O U R A P P R O A C H T O B U I L D I N G A M O R E I N C L U S I V E A N D D I V E R S I F I E D W O R K F O R C E :
1
Educate
2
Engage
Supporting our colleagues, partners,
suppliers and customers to learn why
inclusion and diversity matters and
allowing them to learn from each other.
We have held Inclusive Leaders training across
our management population which incorporates
real-life scenarios from our business to drive
engagement.
We are in the process of developing our
onboarding module to highlight the importance
of diversity and inclusion to the business.
Recognising and celebrating our
differences and getting to know each
other better as individuals.
Our calendar is full of activities celebrating events
throughout the year and providing a means for
individuals to personally connect and learn about
each other – examples include:
We set up our Inclusion Council in the year which
focuses on a shared goal: to create a workplace
where everyone is equal, listened to and respected.
A collection of colleagues from across the business
are dedicated to creating change and are personally
invested in building a more inclusive future for
everyone in the Group. The council, chaired by the
Group CEO, published an inclusion special version of
our internal magazine ‘Crafted’ to help educate and
engage our colleagues on the importance of diversity
and inclusion to our business. Outputs from this
Group are reviewed at our Group Leadership Team
meetings and our Group Board.
International Women’s Day: A selection of Sofology
female leaders held virtual sessions for college
students, explaining their journeys into the world
of work and the challenges they faced as aspiring
leaders in their early years. This gave the college
students a real understanding of career pathways and
how they may map their own using the advice and
examples given in these sessions.
Black History Month: In October we shared stories,
ideas and content to promote and celebrate Black
contributions to British society, and create a better
understanding of Black history.
64
3
Action
Empowering and supporting our brands
and operating functions to develop
inclusion targets and plans, holding
them accountable for change by
monitoring their progress.
Across the business, our teams are working
on initiatives and collaborating with others to
drive change. For example, to remove the risk
of unconscious bias we have tasked recruiters
to remove names from job applications and the
Sofology brand ran inclusive recruiting workshops.
We have developed a number of family
friendly policies internally that go well beyond
the statutory requirements and give flexible
alternatives to our colleagues on maternity,
paternity, parental and adoption leave.
Sofology’s Next Generation programme which
is designed to give colleagues the opportunity
to apply for in-house development and support
to reach the next steps in their career path has
a minimum 50% female representation on each
intake.
Pride: We encouraged all our teams across the
business to show their support for Pride to ensure
all team members irrespective of their sexual
orientation feel welcome in the Group and the
comments and photos showing support across our
workplace social media platform was phenomenal.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
It is clear that in order to focus our efforts, we need
to gather better data and insights on our workforce.
DFS has launched ‘Everyone Counts’ and Sofology
the ‘SoForAll’ campaign, encouraging colleagues
to share more demographic information about
themselves and these campaigns are beginning to
make a difference.
We are conscious that given historical sector
specific dynamics such as a predominantly
male-dominated warehousing and delivery
workforce and our colleague turnover levels, it may
take time to achieve a better balance; however we
intend to set more targets in the future to track our
progress. We will also start to include questions
covering diversity and inclusiveness in our colleague
surveys so we can understand how colleagues
perceive our efforts to drive positive change and
set a benchmark to measure progress against.
The Group also recognises the right of every
colleague to work in an environment free of
discrimination and harassment. We have a formal
policy for what constitutes harassment and bullying
inside and outside the workplace and we have a
grievance procedure which outlines how these
instances are resolved.
40%
O F E M P L O Y E E S > 5 Y E A R S S E R V I C E
(FY20: 39%)
Gender diversity of the Group 27 June 2021
P R O G R E S S A G A I N S T TA R G E T S
All Group apprenticeship programmes will have
at least 50% female representation from 2020:
FY21
FY20
Male
38%
45%
Female
62%
55%
Directors
FY21
FY20
All Group Management development
programmes will have at least 50% female
representation from 2020:
Group Leadership Team
FY21
FY20
Male
40%
57%
Female
60%
43%
FY21
FY20
A minimum 50% of showroom managers will be
female by December 2024:
FY21
FY20
Male
74%
78%
Female
26%
22%
Senior managers
FY21
FY20
All colleagues
FY21
FY20
Male
Female
4 (50%)
4 (50%)
4 (57%)
3 (43%)
Male
Female
4 (67%)
2 (33%)
6 (67%)
3 (33%)
Male
Female
17 (68%)
8 (32%)
17 (68%)
8 (32%)
Male
Female
3,361 (64%) 1,856 (36%)
3,437 (64%) 1,935 (36%)
Details of our most recent gender pay gap report
can be found on page 111 in the Directors’
Remuneration Report.
65
TA L E N T & D E V E L O P M E N T
& E A R LY C A R E E R S
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, supporting 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 100,000
training hours to our colleagues ranging from
leadership development to ongoing induction
and role specific training.
During the pandemic we utilised our digital
technology to deliver a range of virtual learning
solutions, ensuring we continued to support all our
colleagues offering bite-sized development with
particular emphasis on wellbeing, virtual leadership,
and ‘thriving through change’. The success of these
virtual learning sessions will enable us to continue to
offer support and development to all our colleagues
well into the future.
We seek to promote internally and are committed
to promoting employees solely on merit and ensure
individual achievements are a key consideration
when determining remuneration levels.
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 offers support not
only to young participants to achieve formal
qualifications in their chosen field, but also
underpins our career pathways offering Advanced
and Higher Apprenticeships to existing colleagues
wanting to further their professional development.
Work experience opportunities this year were
severely impacted by Covid-19 during the year
but are anticipated to return to normality in the
coming year.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
66
I began the apprenticeship in
January 2020 and I’m now a year
into my dream job. I’m still excited
to come into work every day, learn
something new, put it to the test,
and develop skills which provide
me a career for life.”
D Y L A N AT K I N S O N
J U N I O R D E V E L O P E R A P P R E N T I C E –
D U E T O C O M P L E T E L E V E L 4 I N
S O F T W A R E D E V E L O P M E N T
Responsibility & sustainability report continued
– Workplace by Facebook is a leading digital
H E A LT H , S A F E T Y A N D W E L L B E I N G
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 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
– As noted last year, Jane Bednall has been
appointed as the Group’s designated Non-
Executive Director for workforce engagement.
Jane, together with the Chairman and other
members of the Board, has continued
communication with colleagues through regular
employee channels in addition to engagement
through our dedicated employee Voice Forum.
The Forum takes place twice a year, with a broad
and diverse range of employees represented.
Topics are selected by both employees and the
Board, and have resulted in lively and engaging
sessions with genuine two-way engagement
between the Board and the wider workforce.
– We have a network of ‘Sustainability Champions’
led by our Group Leadership Team and who help
to drive sustainability across all areas of the
Group, providing insight to the ESG Committees
on potential energy/resource saving initiatives
and social matters across the business
Our targets:
– ISO45001 – Health & Safety from
December 2021.
Our commitment
Our people are critical to our business and we
recognise the importance of promoting safe
working and preventing work-related injuries or ill
health in all forms. We seek to minimise the risk of a
negative impact resulting from our operations on
the health, safety and wellbeing of our colleagues
and to provide a working environment that our
colleagues can thrive in.
Our policy is fully supported by the Group
Leadership Team, who take responsibility for
making sure it’s communicated, understood and
always acted upon across the Group.
We have a number of mandatory training modules
including an introduction to Health and Safety
which is completed by new starters to manual
handling modules specific to each area of the
business. We also run IOSH Managing Safety
courses for managers and supervisors.
Risk assessments are reviewed annually for each
business area and if required following an accident.
Our ISO45001 occupational health management
system has been recertified following the latest
round of audits in May and both DFS and Sofology
achieved the RoSPA (Royal Society for the
Prevention of Accidents) Gold Award for excellence
in H&S.
C O L L E A G U E E N G A G E M E N T
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 in DFS and Happiness Index
in Sofology. We believe a key part of colleague
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
senior leaders from across the Group. The
Forum meets regularly to keep informed with
what is happening across the Group, to
collaborate and share best practices. This
included a special Inclusion focused Forum
during the year
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Responsibility & sustainability report continued
Covid-19 response
Across the Group we have continued to follow
Covid-19 guidelines and the Covid-19 response
plan set out in last year’s annual report and prioritise
the health and safety of our colleagues and
customers. We have introduced ‘Golden Rules’
safety protocols, have testing procedures in place
for our delivery and manufacturing teams and
continued to operate a work from home policy for
the vast majority of our head office colleagues. We
have an internal process which ensures a member
of our Health and Safety team calls all colleagues
who have tested positive for Covid-19 to help
identify any close contacts in order to isolate them
and reduce the risk of an outbreak at our sites.
Given our strong trading performance we decided
not to draw upon the Coronavirus Job Retention
Scheme. Instead we amended our sick pay policy
to take account of Covid-19 risks through the
introduction of the Group’s Coronavirus Absence
Pay Scheme (“CAPS”) to ensure that all colleagues
in the business had peace of mind that they would
be supported if they were absent from work
because they were ill with the virus or could not
work for Covid-related reasons. Colleagues were
paid 80% base pay for the duration of that absence.
During the year we launched a ‘Supporting You:
Working Remotely’ module to provide practical
advice and wellbeing support to our colleagues who
were working from home and we developed an
online course ‘thrive during change’ which enabled
colleagues working remotely to build their own
personal strategies to develop and progress during
this period.
In an effort to maintain employee interaction and
keep morale high during the periods of lockdown
we ran a range of virtual events hosted by the
Group Leadership Team ranging from cocktail
making masterclasses to online yoga.
Mental wellbeing
The Group is a passionate advocate for removing
the stigma attached to poor mental health, actively
creating a culture of openness and support. We
have mental health first aiders working across the
Group and have increased our network by around
20% during the year in response to the pandemic.
We launched an ‘Understanding Mental Health
in the Workplace’ training course in October
2020 which is mandatory for all new and
existing managers.
Peppy
Across the DFS Group, we want to create a culture
where everyone feels welcome. We believe a big
part of making this happen is supporting our
colleagues to lead happy, healthy lives at every
stage. During the year we have provided a new
healthcare benefit that is now available to all
our colleagues through a market-leading
solution, Peppy.
Peppy offers support through some of life’s more
challenging transitions – like parenthood, the
menopause and male specific health issues. We will
be developing our partnership over the next few
months and years, but to begin with we’re focusing
on support for the menopause.
Alongside Peppy, we’re also partnering with an
organisation called Henpicked who support
businesses like ours to become more aware of the
symptoms and impacts that the menopause can
have. Our aim over the next 12 months is to achieve
recognition as one of the first accredited
Menopause Friendly Employers in the UK.
Peakon Survey
We are currently trialling
The Peakon survey across
head office colleagues.
The survey enables us to capture how colleagues
are feeling, any concerns they have and how they
are being supported by the company. Colleagues
are surveyed at regular intervals (every 8 weeks) as
a ‘pulse check’ and to help us capture engagement
and responses to projects as they are landing. This
market-leading tool will enable better insight and
intelligence from our employees and the use of
Peakon surveys will be particularly useful to support
our transition to hybrid working.
Fika
To support our colleagues’ mental wellbeing we
have not only attempted to encourage colleagues
to discuss the issues they are facing with us and
our mental health first aiders but we are trialling a
specialist tool that attempts to help our colleagues
build their mental fitness. Fika is a Mental Fitness
app for colleagues to access short courses and
training materials which help people improve their
mental fitness by working on seven key skills;
confidence, connection, motivation, stress, focus,
positivity and meaning. The purpose is to
emphasise that we all need to do exercises to
maintain our mental fitness in the same way we
do physical fitness to prevent future mental health
decline. These tools, techniques and coping
mechanisms aim to help individuals become more
mentally fit and as a result more resilient to
everyday life work stresses.
67
Flexible/hybrid working
We believe that flexible working can increase staff
motivation, promote work-life balance, enrich
colleagues’ wellbeing and improve performance
and productivity. Our policy gives eligible colleagues
an opportunity to request a change to their working
pattern and sets out our approach to flexible
working requests. We will:
– Support flexible working to improve business
performance, retention and help our colleagues
achieve an appropriate work-life balance
– Always consider flexible working options as part
of our duty to make reasonable adjustments for
disabled colleagues and job applicants under the
Equality Act as required
– Provide flexible options for colleagues returning
from leave e.g. maternity or shared parental
leave including a focus on providing part-time
opportunities to appeal to a wider audience
– Give all requests for flexible working equal
consideration
– Empower colleagues and managers to reach
agreements locally within their team
– Respect the rights of employees to holiday and
leisure time
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
Our Customers and
our Communities
FY21 highlights:
– All DFS sites are now supporting a local charity
within 10 miles
– Over £700,000 raised for charities in the year
Focus for FY22:
– Improve customer NPS scores to pre-Covid-19
disruption levels and beyond
– Empower our colleagues to utilise our volunteering days
Our targets:
– Target a minimum of 1,150 Volunteering days for the
12 month period to December 2021
68
Our customers
B A C K G R O U N D
We sell sofas to approximately 800,000 customers
per year across the UK, Ireland, Spain and the
Netherlands.
We deem the key risk associated with our
customers as the loss of reputation driven by poor
quality products or service levels which has the
potential to negatively impact our market share
and future sales.
C U S T O M E R S E R V I C E A N D N P S
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 a great indicator of 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.
DFS post-purchase NPS score has increased to
86.4% (FY20 85.7%). DFS established customer
NPS score in the current year has been heavily
impacted by the pandemic and uncontrollable
issues within the supply chain resulting in longer
than envisaged lead times and has decreased to
30.7% (FY20 42.9%).
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
Our Communities
B A C K G R O U N D
We operate showrooms, manufacturing
operations, distribution centres and head offices
across c.200 locations in the UK and Ireland as well
as six in the Netherlands and two in Spain providing
local employment to many communities.
Our Commitment
We are proud to be part of hundreds of
communities across the UK and we are committed
to helping each community thrive.
G I V I N G B A C K
It has been over a year since 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
(by volume) each year to charitable causes. 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.
We have seen significant interest from our
colleagues around volunteering initiatives however
the pandemic has severely limited the opportunities
available during the year meaning we are likely to
fall short of our target. However, appetite remains
strong and volunteering levels have increased since
lockdown restrictions were eased.
DFS and BBC Children in Need;
We renewed our partnership with BBC Children in
Need last year after engaging with our colleagues,
and over the next two years the money we raise will
go towards providing one-to-one counselling and
specialist support for 7,500 children and young
people with mental health issues.
C A S E S T U D Y
The ‘Big Night In’ in support of
BBC Children in Need.
In November we hosted The ‘Big Night In’,
a night full of laughter and bad jokes all put
together to help raise money for our charity
partner: BBC Children in Need.
Streamed to all colleagues across our
Workplace platform it was hosted by Justin
Moorhouse and included stand-up routines
from a range of comedians.
Employees from all areas did their bit to raise
funds such as jumping in ice baths, getting
dunked in baked beans and culminating in a
dip in the North Sea.
In FY21 the Group raised over £637,000 for BBC
Children in Need. Together with our customers
we have now raised over £5,500,000 since 2013.
We would like to thank all of our employees and
customers for their efforts this year as we managed
to exceed our pledge target despite showrooms
being closed for 21 weeks of the year through Give
me Five, Appeal week and our first ‘Big Night In’ in
support of BBC Children in Need.
All our manufacturing and warehouse locations,
offices and showrooms have partnered with a BBC
Children in Need funded project within 10 miles of
their location to ensure a connection is established
and to help drive local involvement.
The Pennies Foundation
Sofology is now in the second year of its partnership
with the registered charity “The Pennies
Foundation”. Pennies works with Sofology to allow
customers to support local charities nominated by
Sofology colleagues for each retail region. The
charities selected predominantly work with children
and young adults 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 four members of the
leadership team taking part in a skydive for
PAPYRUS, the UK Charity for the prevention of
young suicide. We held a talent competition for
Children’s Hospices Across Scotland (“CHAS”),
and colleagues took part in a 28 day challenge in
February to raise money for Grace House, a UK
Charity supporting the lives of disabled children,
young people and their families. During lockdown,
Cancer Awareness for Teens & Twenties (“CATT’s”)
ran workshops for colleagues that they could use
their volunteering days for. We have also had
colleagues help to paint the new offices for Teens
Unite as well as undertaking a garden project.
69
Duke of Edinburgh’s Award
The Group continues to benefit from our long-
standing partnership with The Duke of Edinburgh’s
Award Scheme. DFS remains a Silver Partner of
The Duke of Edinburgh’s Award, with the focus of
our partnership being to support young colleagues
to develop new skills and gain valuable experience
through our apprenticeship programme.
C A S E S T U D Y
Sofology Enterprise Advisors.
At Sofology we have three colleagues who
are supporting the Greater Manchester
Combined Authority in one of the Mayor for
Greater Manchester’s key pledges to invest
in young people by bridging the gap between
education and employment. These
colleagues work with selected SMEs in
schools and colleges to strategically guide
and influence the development and
implementation of an effective and
innovative careers and employer
engagement plan to ensure schools and
young people are well networked and
informed to achieve their full potential.
We have supported schools by running
Science Technology English Maths (“STEM”)
sessions in which we have provided
interactive workshops that link our business
to the school curriculum. For example,
we tasked pupils to design and create their
own sofas using crib sheets with sizes,
dimensions and prices on leathers, fabrics
and interiors within a certain budget.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Responsibility & sustainability report continued
Ethical business:
Anti-corruption, bribery
and tax strategy
Our commitment
We are committed to conducting all of our business
in an honest and ethical manner, acting
professionally, fairly and with integrity in all our
business dealings and relationships. We implement
effective systems to counter the risk of bribery
and corruption.
We apply our policies across all of our operations,
and also require all of our suppliers to commit to
apply the same or equivalent policies.
The Group does not operate in any tax havens or
use any tax avoidance schemes.
Our anti-corruption and anti-bribery policy and our
Tax Strategy are available on our website https://
www.dfscorporate.co.uk/governance/policies and
our key principles are stated below:
Bribery and Corruption
The principle: We will not accept bribery or
corruption; in any form, or in any place and we do
not offer, give, or take a bribe or inappropriate
payment, either directly or indirectly.
What this means in practice:
– Offering, giving, taking or promising things that
may influence, or affect an organisation or
individual in order to gain business, or an
advantage, is not allowed in any form
– Accepting or offering a bribe/kickback payment
of any kind is prohibited; a bribe doesn’t have to
be successful to be corrupt
– We will never use our charity or sponsorship
activities to gain an unfair advantage
– We expect all colleagues, partners and suppliers
to report any breaches, or suspected bribes or
corrupt behaviour
Gifts and Hospitality
The principle: Giving or accepting a gift or
hospitality should only be done if it can be proved to
be of small and modest value. They should never
influence the decisions we take.
What this means in practice:
– We don’t offer or accept gifts or hospitality as
part of contract negotiations or sales
transactions
– Any gifts given or received are modest in value
and recorded appropriately
Conflicts of interest
The principle: All potential or actual conflicts of
interest should be declared and managed. This will
ensure they never stop us from making objective
decisions.
What this mean in practice:
– We don’t put ourselves in a position where our
knowledge or relationships compromise our
decision
– All personal conflicts of interest are declared –
even if they are potential in nature
– Insider trading, either direct or indirect, is strictly
prohibited by law
Business transactions and information
The principle: All business records, information and
transactions must be recorded accurately and
honestly. We’re steadfast in our approach to
preventing any kind of fraud, embezzlement,
money laundering or other financial crime.
What this means in practice:
– We have robust controls in place to prevent and
detect any form of fraud or money laundering
– The records of our business dealings and
finances are accurate and well maintained
– If we suspect any kind of irregularity in our
finances, they are reported straight away to the
management team
70
– Timesheets and expenses that are submitted
for payment are accurate and timely
Data Protection Policy and 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. Cyber has been identified as a principal
risk, see page 40 for further details on the
procedures and system in place to mitigate
the risks.
The Group will take all steps necessary to comply
with the principles as set out in the GDPR and DPA
2018 and have a formal Data Protection policy.
This Strategic report was approved by the Board
on 23 September 2021.
On behalf of the Board
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 71
Governance
report
This section introduces our
Directors, and details the activities
of our Board and Board Committees.
C O N T E N T S
72 Board of Directors
75 Corporate Governance report
83 Audit Committee report
89 Nomination Committee report
91 Directors’ Remuneration report
114 Directors’ report
117 Statement of Directors’ responsibilities
in respect of the annual report and
the financial statements
Independent auditor’s report
118
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Board of Directors
Bio on page 73
Bio on page 73
Bio on page 73
Bio on page 73
72
I A N D U R A N T
Non-Executive Chair
T I M S TA C E Y
Chief Executive Officer
M I K E S C H M I D T
Chief Financial Officer
A L I S O N H U T C H I N S O N C B E
Senior Independent Director
Bio on page 74
Bio on page 74
Bio on page 74
Bio on page 74
J A N E B E D N A L L
Independent Non-Executive Director
J O B O Y D E L L
Independent Non-Executive Director
S T E V E J O H N S O N
Independent Non-Executive Director
L O R A I N E M A R T I N S O B E
Independent Non-Executive Director
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Board of Directors continued
I A N D U R A N T
Non-Executive Chair
N
T I M S TA C E Y
Chief Executive Officer
S
M I K E S C H M I D T
Chief Financial Officer
–
A L I S O N H U TC H I N S O N C B E
Senior Independent
Non-Executive Director
A N R
S
Date of joining DFS: May 2017
Date of joining DFS: July 2011
Date of joining DFS: March 2014
Date of joining DFS: May 2018
73
Experience: Ian has held senior executive and
non-executive positions in the retail, property, hotels
and transport sectors in the UK and internationally.
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, Sea
Containers and Thistle Hotels, Dairy Farm International,
Hongkong 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) Development Studies (Kent University)
– Fellow of the ICAEW
External appointments:
– Chair of Greggs Plc
– Non-Executive Director Warren Partners & Chair
of Employee Ownership Trust
Experience: Tim has been with the DFS Group for over
10 years and has an in-depth knowledge of all aspects
of the business. Prior to being appointed Group CEO
in November 2018, Tim served as the Chief Operating
Officer, where he was responsible for retail, supply
chain, technology and customer service in addition
to online operations and international development.
Tim has significant experience in digital retail having
joined DFS as Director of Online and Business
Development and having led the multi-channel
transformation of DFS. He was previously Multi-
Channel Director for Boots.com and Director for
Online and Business Development for Alliance Boots.
Tim also has significant experience in M&A, operations
and marketing.
Qualifications:
– BA (Hons) Accounting and Finance
(Nottingham Trent University)
– Member of the ICAEW
External appointments:
– No external appointments
Experience: Prior to his appointment as CFO in July
2019, Mike served as DFS’s Chief Development Officer
with responsibility for property, strategic development,
M&A and investor relations activities. Mike leads the
Group finance, risk and compliance functions.
In addition to his other responsibilities Mike previously
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.
Experience: Alison has a background in both digital and
retail financial services and was previously Group CEO
of Kensington Group PLC.
Alison is the CEO of The Pennies Foundation charity,
working with retail leaders for the last 12 years to
support the industry in delivering on its social purpose
in communities.
She also held senior management positions, including
Marketing Director at Barclaycard having started her
career at IBM. In 2016, Alison received a CBE for her
services to the Economy and Charity.
Qualifications:
– MA (Hons) Economics and Management
(Cambridge University)
Qualifications:
– BA (Hons) Technology & Business Studies
(Strathclyde University)
External appointments:
– No external appointments
External appointments:
– Chief Executive of The Pennies Foundation charity
– Independent Non-Executive Director of Liverpool
Victoria Friendly Society Ltd.
– Vice Chair and Senior Independent Non-Executive
Director of Yorkshire Building Society
– Senior Independent Non-Executive Director
of Foresight Group Holdings Limited
Independent:
– On appointment
Independent:
– Not applicable
Independent:
– Not applicable
Independent:
– Yes
Committee membership key
A Audit Committee Member
N Nomination Committee Member
R Remuneration Committee Member
S Responsibility and Sustainability Committee Member
Denotes Chair
– None
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 74
Board of Directors continued
J O B O Y D E L L
Non-Executive Director
A N R
S T E V E J O H N S O N
Non-Executive Director
A N R
J A N E B E D N A L L
Non-Executive Director
Designated Director for Workforce Engagement
A N R
S
L O R A I N E M A R T I N S O B E
Non-Executive Director
A N R
S
Date of joining DFS: December 2018
Date of joining DFS: December 2018
Date of joining DFS: January 2020
Date of joining DFS: June 2021
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.
Experience: Steve has over 25 years’ experience
in the retail sector, in both public and private equity
businesses. He is currently the Executive Chairman
at the Matalan Group.
Jo has held senior finance roles across a number
of consumer-facing companies including Mothercare,
Jessops, Ladbrokes plc, Hilton Group plc and
EMI Group.
Previously served as CEO of Focus Wickes DIY Group
and Woolworths, as well as working with several other
retailers. Prior to this Steve spent eight years at Asda
having started his career with Bain & Co.
Jo has experience in M&A and corporate restructuring
as well as risk management and corporate governance.
Steve is an experienced Independent Non-Executive
Director and was on the Board of Big Yellow PLC until
2020. Steve has significant retail and M&A experience.
Experience: Jane has over 30 years’ experience in
marketing including digital marketing, commercial and
people leadership in customer led 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.
Jane previously held Non-Executive Directorship’s
with EI Group and Smart Energy GB.
Qualifications:
– BA (Hons) Physics (University of Oxford)
– Associate of ICAEW
– ICAEW Business & Finance Professional
Qualifications:
– BA (Engineering) MEng (University of Cambridge)
Qualifications:
– BA (Hons) Modern Languages (French, German,
Spanish) (University of Sheffield)
Experience: Loraine has been the Director of Diversity
and Inclusion at Network Rail since 2012 and is an
expert in this field. Prior to that Loraine was responsible
for Jobs & Skills and Equality and Inclusion in the
construction of the Queen Elizabeth Olympic Park
for the London 2012 Olympic games.
In 2021 Loraine was awarded the OBE for her services
in this area, having previously been awarded the
MBE in 2016, for her work on the Olympics.
Loraine brings experience of organisational
transformation, culture change and a strong
commitment to responsible business.
Qualifications:
– BA Comparative American Studies
(University of Warwick)
– FRSA (Fellow of Royal Society of Arts)
External appointments:
– Director and Chief Financial Officer of Thame
and London Limited, the parent company of the
Travelodge Group and for Travelodge Hotels Limited
and Director of other subsidiary companies within
the group
External appointments:
– Chairman of Missouri Topco Limited, the holding
company of Matalan Group Limited and Director
of other subsidiary companies within the group
– Senior Independent Director of Lenta Limited
External appointments:
– None
External appointments:
– None
Independent:
– Yes
Independent:
– Yes
Independent:
– Yes
Independent:
– Yes
Committee membership key
A Audit Committee Member
N Nomination Committee Member
R Remuneration Committee Member
S Responsibility and Sustainability Committee Member
Denotes Chair
– None
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Corporate
governance
report
I A N D U R A N T
Chair of the Board
Bio on page 73
2021 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 light of the impact of the pandemic
on the trading environment and market expectations.
– Overseeing the sale of Sofa Workshop Limited and the
merging of Dwell into DFS.
– Monitoring progress against ESG Phase 1 targets and the
development of the Inclusion and Diversity strategy.
– Overseeing the transfer of people and assets into The Sofa
Delivery Company Limited.
– Development of the new Remuneration Policy.
– Overseeing the extension to the Group’s syndicated
financing arrangements.
– The external Board evaluation by Gould Consulting.
– Responding to the UK Government White Paper on Restoring
trust in audit and corporate governance and initiating a review
of the Group’s internal controls.
– The appointment of a new Non-Executive Director,
Loraine Martins.
75
Dear Shareholder
I am pleased to present our Corporate Governance
report for the year ended 27 June 2021, on behalf
of the Board. This report sets out the Group’s
corporate governance framework and explains how
it underpins and supports the Group Leadership
Team in delivering the Group’s strategy.
The Board recognises that good governance is
essential to support resilience and innovation and
enable the Board to take decisions that create
long-term sustainable value for the benefit of
our shareholders and wider stakeholder groups.
Board composition and roles
All our Directors’ served throughout the year. As
you will have seen from my introductory statement
on pages 9 and 10 at the start of this year’s report
and accounts immediately after the end of the year,
we were pleased to welcome Loraine Martins to our
Board as a Non-Executive Director.
People
It has been a priority for the Board this year to look
after the health and welfare of our people, and listen
to their views, while at the same time continuing to
serve the needs of our customers amid disrupted
operating conditions
Board Evaluation
During the year, working with Gould Consulting
we undertook an externally led evaluation of the
Board and its Committees. The evaluation, which
incorporated a detailed assessment of the view of
the Directors and the Group Leadership Team has
provided the basis for the Board Action plan. More
detail on this can be found on page 80 in this report.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Corporate governance report continued
ESG
Environmental, social and governance (“ESG”) considerations continue to be an
increasingly important area of focus for our shareholders. The Board recognise
the importance of this area and DFS is committed to continually improving
our performance towards our targets and a more sustainable future for our
communities. Given the importance of our ESG Strategy after the year-end
we established the Responsible and Sustainable Business committee, chaired
by Alison Hutchinson, the Senior Non-Executive Director. The Committee will
lead and oversee the delivery of how the Group operates as a Responsible and
Sustainable business. Further information on our ESG initiatives can be found
in our Responsibility and sustainability report on pages 51 to 70.
Revised Articles of Association and 2021 AGM
We will be asking shareholders to adopt revised articles of association at the
2021 AGM. This is principally to allow hybrid shareholder meetings in the future,
but we have also taken the opportunity to update the articles. A summary of
the proposed changes is set out in the appendix to the Notice of AGM, which
in turn is available on the website. I would appreciate your support on resolution
20 to give us the ability in the future to be flexible in how we hold meetings.
This year our AGM will be held on 12 November 2021 at 3:30pm at our Group
Support Centre in Doncaster. After last year when due to the Covid-19
restrictions our AGM had to be held behind closed doors, the Directors and
I are looking forward to once again welcoming shareholders to the meeting.
I invite you to review the following pages, which set out how we have complied
with the UK Corporate Governance Code (2018) (“the Code”) and describes
how the Directors have fulfilled their duties to our key stakeholders under
Section 172 of the Companies Acts 2006 details of which can be found on
pages 46 to 50.
Ian Durant
Chairman
23 September 2021
76
G O V E R N A N C E F R A M E W O R K
DFS Furniture plc Board
Members:
Independent Non-Executive Chair
5 Independent Non-Executive Directors
2 Executive Directors
The Board has responsibility for the overall leadership of the Group, setting the Group’s purpose, values and strategy
and satisfying itself that these align with its culture, taking into consideration the views of shareholders and other
key stakeholders, to promote the long-term sustainable success of the Group and its contribution to wider society.
It also has responsibility for the Group’s performance and governance oversight.
Governance Documents are available at www.dfscorporate.co.uk
Audit Committee
Remuneration
Committee
Nomination
Committee
Responsible &
Sustainable
Business Committee
Oversees financial reporting,
internal controls, risk
management, compliance,
and audit.
Oversees linking
remuneration with strategy
and determines the levels
of remuneration.
Oversees the composition
of the Board and
succession planning.
Oversees the delivery
of our ESG strategy
See committee report on
pages 83-89
See committee report on
pages 91-113
See committee report on
pages 89-90
See report on pages 51-70
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Corporate governance report continued
O U R B O A R D
The Board currently consists of five independent
Non-Executive Directors, an independent
Non-Executive Chair and two Executive Directors.
Biographies of all members of the Board appear
on pages 73 to 74.
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 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. During the year the Chair and
the Non-Executive Directors met twice without
the Executive Directors present, and the Non-
Executive Directors met privately with the CEO
on four occasions.
The Board has implemented a Group Policy
framework which is considered by the Board on
an annual basis. Individual policies and associated
practices are considered by the Board throughout
the year.
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 plan, major acquisitions
and disposals, corporate restructuring, the
determination of any 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 Directors
may take independent professional advice at
the Company’s expense in the performance of
their duties.
B O A R D C O M M I T T E E S
Subject to those matters reserved for its decision,
the Board has delegated certain authorities to its
Committees. The terms of reference for each of
the Committees are available on the corporate
website. Separate reports for each Committee are
included in this Annual Report from pages 83 to 90.
In September 2021 after a recommendation by the
Nomination Committee, the Board established a
new committee: the Responsible and Sustainable
Business Committee, chaired by Alison Hutchinson
the Senior Independent Non-Executive Director.
The focus of the Committee is to lead and oversees
delivery of our strategy as a Responsible &
Sustainable business focused on:
1. Our people
2. Our planet
3. Our customers
4. Our communities
The Committee will be comprised of Alison
Hutchinson (Chair), the CEO Tim Stacey,
Jane Bednall and Loraine Martins.
R O L E O F T H E C H A I R A N D C H I E F
E X E C U T I V E O F F I C E R
There is a clear division of responsibilities between
the Chair and the CEO. As the Chair, Ian leads the
Board ensuring its effectiveness in all aspects of its
role. Tim, the CEO, is responsible for managing the
operation of the Group to create value over the
long-term. The role is distinct and separate to that
of the Chair 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.
77
Role of the Chief Executive Officer
– Leading the management and performance
of the Group;
– 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 Leadership 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 all of its
stakeholders, the public and the media.
Role of the Senior Independent Director (“SID”)
Alison Hutchinson, the Senior Independent
Director is responsible for:
– Acting as a sounding board for the Chair;
– Meeting with the Non-Executive Directors
annually, without the Chair being present and
collating feedback on the Chair’s performance as
part of the annual Board evaluation process; 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
Elizabeth McDonald, the Company Secretary
& General Counsel is responsible for:
– Advising the Board and its Committees on
corporate governance policies and procedures
and for the management of Board and
Committee meetings;
– Managing the provision of timely, accurate
and considered information; and
– Advising the Board and representing
the Company in legal matters.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Corporate governance report continued
Customer
Services/
Marketing
Retail
People
Operations
International
Governance
& Regulatory
Finance
Digital
M&A
Skills and
experience
Ian Durant
Tim Stacey
Mike Schmidt
Jo Boydell
Steve Johnson
Alison Hutchinson
Jane Bednall
Loraine Martins
B O A R D B A L A N C E A N D
I N D E P E N D E N C E
The Board considers that the Chair was
independent on appointment and that all of
the Non-Executive Directors are independent.
Full details are set out below, and remuneration
is addressed in the Remuneration Report.
The Board has determined that each of the
Non-Executive Directors have sufficient time
to devote to their role and that they have a
complementary set of skills and experience
as shown in the table below.
This year the Board reviewed the skills and
experience in the light of the changes to the
business brought about by the pandemic and
the market in which the business now operates.
Three additional skills were identified as key skills
required by the Board. Governance & Regulatory,
Digital, and Mergers and Acquisitions.
L E N G T H O F A P P O I N T M E N T S
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. Neither the Chair nor any
Non-Executive Director have been in their position
for more than nine years, in accordance with the
recommendations made in the Code.
B O A R D M E E T I N G S
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 its discussions. Meeting agendas are
agreed in advance 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
two or three 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.
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. Three additional meetings were
held during the year bringing the total number of
Board meetings to eleven. Board decisions made
outside of a meeting are made by written
resolutions. Details of attendance at Board
meetings is set out on page 79.
78
Until April 2021, lockdown restrictions meant that
the Board was unable to meet in person for Board
and Committee meetings. These meetings were
held online. Following the easing of restrictions
from this date, the Board recommenced in person
meetings. The Board usually splits its meetings
between Doncaster and London as well as at a
number of operational locations to provide an
opportunity to promote colleague engagement
and provide the Board with greater insight and
direct feedback.
Additionally, all of the Non-Executive Directors
spend time visiting the Group’s showrooms,
warehousing, and manufacturing sites throughout
the UK. Due to the pandemic fewer visits than
normal have been possible over the last year
but they have re-commenced over the last few
months. These visits provide the Non-Executive
Directors with the opportunity to meet and talk
with a wider group of colleagues and provide 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 being held to review important trading
periods or strategic matters, as required.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 79
Corporate governance report continued
Name
CHAIRMAN
Ian Durant
Chairman
Meetings
attended
Maximum
meetings
Independent
Responsibility and role during 20/21
Date of
appointment
11
11
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.
Tim Stacey
CEO
Mike Schmidt
CFO
11
11
NON-EXECUTIVE DIRECTORS
Alison Hutchinson
(SID)
Steve Johnson
Jo Boydell
Jane Bednall
Loraine Martins*
11
11
11
11
–
11
11
11
11
11
11
–
–
–
Leading and managing Group performance and strategy to ensure the long-term
profitable operation of the Group.
1 November 2018
Leading, managing, and maximising Group financial performance, investor relations,
legal and property functions.
11 July 2019
Overseeing the implementation of the strategy and development of the Group
whilst maintaining a system of internal control and risk management.
1 May 2018
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.
6 December 2018
6 December 2018
1 January 2020
28 June 2021
* Loraine Martins was appointed 28 June 2021 so was not eligible to attend any Board meetings during the year.
STANDING ATTENDEES
Elizabeth McDonald, Company Secretary
Advising the Board on all corporate governance and legal issues.
30 September 2018
ATTENDED BY INVITATION – members of the Group Leadership Team are invited to attend Board meetings to present papers and discuss key matters
C O M M I T T E E M E E T I N G S
All Directors are invited to Audit Committee
meetings, and the Chair of the Board is invited
to 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.
Neither the CEO or CFO are present for any of
the discussions regarding their remuneration.
Audit
Committee
Remuneration
Committee
Nomination
Committee
–
3/3
3/3
3/3
3/3
–
–
4/4
4/4
4/4
4/4
–
2/2
2/2
2/2
2/2
2/2
–
Name
Ian Durant
Alison
Hutchinson
Steve
Johnson
Jo Boydell
Jane Bednall
Loraine
Martins*
*
Loraine Martins was appointed on 28 June 2021, so was not eligible
to attend any Committee Meetings during the year.
Nick Smith
Scott Fishburn
Sally Hopson
Alex Salden
Russ Harte
Jo Shawcroft
7
5
4
4
3
4
The Group Leadership Team reports to the CEO and implements the strategy and manages 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 Group’s activities and assessing the ability of the management team.
This process also affords the team the opportunity to bring matters to the attention of the Board.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Corporate governance report continued
80
Conflict 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 Company Secretary on an ongoing basis of
any change in their respective positions.
In line with the Companies Act 2006, the Company’s
Articles of Association (“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 FRC’s 2018 Code on Corporate
Governance, the Board undertakes an annual
evaluation of itself and its committees. Having
conducted an internal review last year, the Board
appointed an independent external consultant,
Gould Consulting, to perform this year’s
effectiveness evaluation. The Company has no
other business relationship with Gould Consulting.
Between March and May 2021, a four-stage process was followed, as depicted below:
Stages of our external Board evaluation
Stage 1
Stage 2
Stage 3
Stage 4
Gould consulting
gathered data from
Board members/
Company
Secretary/members
of the Group
Leadership Team
using a confidential
online questionnaire
One-to-one
sessions between
each Board
member and
Gould Consulting
were held
Gould consulting
attended one full
Board meeting
(and one
committee) as a
silent observer
An independent
report was
presented to
and discussed by,
The Board then
developed and
agreed an
improved plan
Results overview
In considering the feedback from the above
process, Gould Consulting concluded that the
Board and its Committees were performing well
and had increased its effectiveness over the last
year. The continuity provided by longer-standing
Board members and the fresh thinking from newer
members had been particularly helpful.
Highlighted strengths
– The Board was felt to be balanced, collaborative
and has developed an effective way of working
together
– Boardroom conversations were observed
as open and transparent, able to be both
supportive yet challenging
– Strong relationships existed between the Board
and senior management and appeared to be
based on mutual respect
– Each of the directors were willing to engage fully
in Board conversations. Any risk from ‘group
think’ was thought to be low.
Board Action plan for 2021/22:
The review has helped identify areas where the
Board now plans to spend more time or would
wish to revisit familiar topics in a different way.
The Board action plan for 2021/22 includes:
– Investing further Board time debating long-term
strategy for the business
– Heightening focus on talent planning and
diversity
– Exploring the role of culture as a key enabler of
our future strategy
– Increasing the focus on risk (including emerging
risks), audit and internal controls
– Reducing operational updates at meetings
to improve further the quality of boardroom
debate.
C O M P L I A N C E W I T H T H E U K
C O R P O R AT E G O V E R N A N C E C O D E
2 0 1 8
Introduction
The report has been prepared in line with the
requirements of the 2018 UK Corporate
Governance Code (“the Code”) and The
Companies (Miscellaneous Reporting) Regulations
2018 (the Regulations). The Board remains
supportive of the Code’s enhanced emphasis
on engagement with stakeholders, diversity,
remuneration structures and strengthening of
corporate culture. A copy of the Code can be found
at www.frc.org.uk.
Compliance statement
This Corporate Governance Report, which
incorporates reports from the Audit and
Nomination Committees on pages 83 to 88 and 89
to 90 together with the Strategic Report on pages
1 to 70, the Directors’ Remuneration Report
on pages 91 to 113 and the Directors’ Report on
pages 114 to 116, 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.
We are pleased to report that during the year the
Company was compliant with all Provisions of the
Code 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 the policy for existing Executive
Directors, do not yet match the wider workforce.
Changes proposed in the Directors’ Remuneration
policy, will see the existing CEO and CFO pension
allowances being reduced from 11% and 9%
respectively to the wider workforce level by the end
of 2022. Further details regarding the Executive
Directors pension contributions are set out at page
98 of the Directors’ Remuneration Report.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 81
Corporate governance report continued
The Board will continue to review its procedures,
effectiveness, development, and composition
during FY22. The Chair will use the output of
the Board evaluation to further develop the
performance of the Board during the year ahead.
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 AGM and
shall then be eligible for election by shareholders. In
accordance with the Articles, Loraine Martins 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.
As noted above, following the formal external
evaluation process of the effectiveness of the
Board, the Board is satisfied that each Director
remains competent to discharge his/her
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 pages 73 and 74.
Independence
During the year all of the Non-Executive Directors
(excluding the Chairman) were independent during
the reporting period and the Chairman was
independent on appointment. The Remuneration
Committee membership is made up of only
independent Non-Executive Directors.
1
2
New Directors
Following appointment, a new Director will undergo a detailed, tailored month long induction programme.
As such new Directors spend a considerable amount of time understanding our company purpose, values,
strategy, and culture to provide a solid groundwork to make a greater impact in relation to Board Discussions.
Should any individual development needs be identified, the Company will address those needs with the
individual Director.
4
■ Chairman
■ Executive Directors
■ Independent Non-Executive Directors
Culture and Company purpose
The Board recognises the importance of its role
in setting the tone of the Company’s culture.
The Group’s culture is underpinned by our Code
of Conduct and associated policies and practices.
In compliance with the Code, DFS has established
its Corporate Purpose, which is set out on page 2,
along with details of the Company’s values and
strategy. The Board regularly discusses the
importance of the Company culture and is mindful
that it remains aligned with its purpose, values,
and strategy.
Diversity & experience
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.
– One-to-one meeting with the Company Secretary to understand the
Governance issues which applies to the business (e.g. Directors Duties
(Companies Act 2006), Listing Rules and the UK Corporate Governance
Code).
Understand
the business
– One-to-one meetings with the rest of the Board, including the Chairman,
Executive Directors and other Non-Executives.
– Review previous Board & Committee papers, Committee terms of reference
and Investor presentations etc.
– Meeting with External Advisors (External Lawyers, Registrars etc.)
Meet our
colleagues
Visit the
business
– One-to-one meetings with the members of Group Leadership Team and
Senior Leadership teams of the operating subsidiaries.
– Presentations from key functions within the Group (People, Finance etc.)
– Visiting operational locations including showrooms, factories, support offices
and customer distribution centres and meeting with our colleagues from
these areas.
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 ongoing impact of the pandemic on
the Group all the Directors spent considerably
more time during the year than the minimum
commitment required.
During the year Alison Hutchinson, the Senior
Independent Non-Executive Director, was
appointed to the Board of Foresight Group
Holdings Limited, a company listed on the London
Stock Exchange. Foresight is a specialist asset
manager focused on sustainability.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 82
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 115
to 116.
Signed on behalf of the Board of Directors.
Elizabeth McDonald
Company Secretary & General Counsel
23 September 2021
Corporate governance report continued
Alison accepted the position after discussions with
both the Chairman and CEO in accordance with
provision 15 of the Code. Given the part-time
nature of her executive role with the charity
Pennies, the fact that she is not an Executive
Director of Pennies, as well as her high level of
engagement and record of attendance at Board
and Committee meetings, the Board were satisfied
that Alison could undertake this new opportunity
whilst continuing to devote the time necessary to
fulfil her role as the Company’s Senior Independent
Non-Executive Director. Additionally, it was felt that
the specialist knowledge on sustainability Alison
would gain from her role with the Foresight Group
would be of benefit to the Company in further
developing its sustainability and responsibility
strategy.
The Executive Directors may accept outside
appointments provided that such appointments
do not impact their ability to perform their duties
as Executive Directors of the Company.
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 Chair
of the Remuneration Committee 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 can be communicated to the Board. 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 yet
for the Senior Independent Non-Executive Director
to meet with shareholders. The Chairman and
Non-Executive Directors are also available to
attend investor relations meetings or to meet
with investors or analysts independently of the
Executive Directors, if required.
The Company communicates with both
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 and 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 are regularly updated.
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.
Relationships with other stakeholders
For details of our relationship with our wider
stakeholders please see our section 172 statement
on pages 46 to 50 and our Responsibility and
sustainability report on pages 51 to 70 sets out
more detail on how we manage our relationships
with all our stakeholders.
External auditor
Our external auditor is Frances Simpson at
KPMG LLP. Our auditors were appointed following
a comprehensive tender process. The Audit
Committee oversees the Group’s relationship
with its external auditor, including assessing the
independence and effectiveness of the audit firm.
Internal audit
Further details relating to the internal audit function
are contained within the Audit Committee report
on pages 83 to 88.
Non–audit service policy
Our non-audit services policy can be found on our
website and further details on pages 86.
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 Directors’ remuneration report on pages
91 to 113.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Audit
Committee
report
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.”
83
The Committee has also been able to conclude the
external audit tender process that was initiated and
then paused during the previous financial year. After
a rigorous and informative series of meetings and
presentations, the Committee recommended to
the Board that KPMG LLP be re-appointed for the
FY22 audit, subject to shareholder approval at the
forthcoming AGM.
Following two years of significant changes to the
Group’s financial statements (due to a change of
financial reporting period and the implementation
of IFRS 16) the current financial year allows for a
more straightforward presentation of results. The
Committee has retained its focus on the key areas
of financial reporting, particularly with regard to
viability assessment given the volatility of trading
experienced through the course of the pandemic.
The Committee also continues to consider the
Group’s response to the changing landscape of
corporate financial reporting and governance and
is taking proactive steps to ensure the Group is well
placed to address future requirements such as
those that may arise from the recently published
BEIS consultation on audit and corporate
governance reform.
I thank my fellow Committee members for their
valuable contribution and support during the year,
and I welcome any comments or questions from
shareholders.
J O B O Y D E L L
Chair of the Audit Committee
Bio on page 74
Key activities during FY21
– Completion of the external audit tender process.
– Further development of the internal audit function.
– Continued consideration of the impact of Covid-19 on
financial reporting.
– Focus on future governance and reporting developments.
On behalf of the Board I am pleased to
present this year’s Audit Committee
report.
The continued disruption from the Covid-19
pandemic has demanded an agile and dynamic
approach to risk management and I am proud of
the way that our operational, risk and internal audit
teams have responded to this challenge.
The further enhancements to our internal audit
approach together with our increasing experience
and confidence in working remotely have enabled
our internal audit programme to remain wide-
ranging and effective during this time. The
Committee was delighted to see the quality of
the Group’s Internal Audit and Risk Team receive
external recognition from the Chartered Institute
of Internal Auditors during the year with the award
of ‘Outstanding Team – Private Sector’ at the 2021
Audit and Risk Awards.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 84
Audit Committee report continued
C O M P O S I T I O N
The Audit Committee continues to be chaired by Jo
Boydell, who was appointed to the role in April 2019.
Other current Committee members who served
during the year are Alison Hutchinson, Steve
Johnson and Jane Bednall. In addition, Loraine
Martins became a member of the Committee on
her appointment to the Board on 28 June 2021.
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 74,
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 pages 73 and 74 and a
summary of their principal skills and experience is
shown on page 78.
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.
P E R F O R M A N C E E V A L U AT I O N
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 80. There were no significant
concerns raised from this review and the
Committee was deemed to be operating
effectively.
R O L E S A N D R E S P O N S I B I L I T I E S
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 and external audit:
– Overseeing the Group’s relationship with its
external auditor, including their appointment,
remuneration, independence and the
effectiveness of the audit process;
– Developing and implementing a policy on the
supply of non-audit services by the external
auditor; and
– Monitoring and reviewing the effectiveness of
the Group’s internal audit function in the context
of the Group’s overall risk management system.
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.
A C T I V I T I E S O F T H E A U D I T
C O M M I T T E E
The Audit Committee met three times during the
year and attendance at those meetings is shown on
page 79. At each meeting, standing agenda items
relating to risk, internal audit results, whistleblowing
and litigation issues were reviewed in addition to
specific financial reporting or other topics.
F I N A N C I A L R E P O R T I N G
Financial Statements
The ultimate responsibility for reviewing and
approving the Annual report and accounts and
the half-yearly reports remains with the Board.
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. This review includes
an assessment of the adequacy of the disclosure
with respect to going concern and viability reporting
and due consideration to laws and regulations, the
provisions of the UK Corporate Governance Code
and the requirements of the Listing Rules.
Viability
The Committee reviewed 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 Group’s financial
position was such that it continued to be
appropriate for accounts to be prepared on a going
concern basis. As explained in further detail below,
the Committee also reviewed the Group’s longer
term viability statement.
Fair, balanced and understandable
In reviewing the Annual report for the 52 weeks
ended 27 June 2021, the Committee considered
the balance of the strategic report with respect to
proportional focus on positive and negative results
and events, adequate disclosure of risks and the
consistency of reporting of financial and other
measures. The Committee also considered the
extent and prominence of Alternative Performance
Measures presented. 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.
Significant issues considered in relation to the
financial statements
The Committee considered the following
significant matters in relation to the financial
statements and how these were addressed.
This included reviewing papers prepared by
management detailing the basis of and rationale
for the treatments adopted. The Committee also
received reports from and held discussions with
the external auditor to ensure that a robust level
of challenge had been made to management’s
assessments and to confirm that there were
no significant differences of opinion between
management and auditors.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Audit Committee report continued
Impairment of goodwill
As a result of business acquisitions, the Group has
recognised significant balances for goodwill. 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 made 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, and also reviewed KPMG LLP’s report and
discussed their observations and findings in this area.
The Committee will continue to review the carrying value
of intangible assets at least annually, or in the event of any
significant changes to the structure or circumstances of
the Group.
Parent company investments
Note 2 to the Company financial statements
The ultimate parent company of the Group, DFS Furniture
plc, holds a significant value of investments in subsidiary
companies in the Group. The carrying value of these
investments and related intragroup borrowings is
supported by the enterprise values of the underlying
trading entities. Assessment of these enterprise values
requires a number of judgements and estimates to
be applied.
Going concern and viability reporting
In addition to the statement on going concern, the Group
is required to make an assessment of its longer term
viability. This requires the application of a number of
judgements and estimates, particularly given the potential
for further disruption to the Group’s activities as a result of
the Covid-19 pandemic.
The Committee reviewed management’s assessment of
the recoverability of the parent company investments,
including the underlying judgements and estimates, and
considered the consistency of these with the assessment
of the impairment of intangible assets as noted above.
The Committee considered the appropriateness of the
conclusions reached, and also reviewed KPMG LLP’s
report and discussed their observations and findings in
this area.
The Committee will continue to review the carrying value
of the parent company investments at least annually, or
in the event of any significant changes to the structure
or circumstances of the Group.
Page 45
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 27 June
2021, being a reasonable period for the assessment of
key risks for a retail business given continuing political and
economic uncertainties. This review included challenging
underlying assumptions and stress-testing the scenario
modelling, including the potential future impacts of
Covid-19, and concluded that the going concern
assumption remains appropriate and the Board is
able to make the viability statement on page 45 of the
Strategic Report.
E X T E R N A L A U D I T
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 Group’s auditor, before
making a recommendation to the Board to be
put to shareholders.
As part of this responsibility to assess the
effectiveness of the external auditors, the
Committee approved the audit plan for the 52
weeks ended 27 June 2021 and reviewed the
auditor’s findings and management representation
letters.
In addition to consideration of the audit process,
responses to questions from the Committee and
the audit findings reported to the Committee, a
structured feedback exercise was also undertaken
during the year. This exercise collated feedback
on a wide range of factors from Non-Executive
Directors, senior managers and relevant colleagues
from the Finance, Audit and Risk, Legal and
Compliance teams. The results of this feedback
were positive from all stakeholder groups across
all areas surveyed, particularly with regard to
objectivity and robustness of challenge, strong
formal reporting and open communication.
These results further supported the Committee in
its conclusion that the external audit process had
been run efficiently and that KPMG LLP has been
effective in its role as external auditor.
The appointment of the Group’s external auditors
for FY22 was subject to a tender process as
discussed below.
85
Approach to appointing the external auditor
As noted in last year’s Annual report, the
Committee took the decision, in line with FRC
guidance, to pause the external audit tender
process that had been initiated in FY20 as a
consequence of the pandemic. This process was
completed in FY21, with greater familiarity and
capability with remote working on the part of
both the Group and the tendering firms supporting
a thorough and robust process even where
restrictions on in person meetings remained
in place.
After an initial review of potential audit firms four
were selected to participate, comprising a mixture
of ‘Big Four’ and other firms. The firms were issued
with a detailed invitation to tender, which set out
the information to be included in the proposal
together with the criteria on which the proposals
would be evaluated:
– Approach to ensuring overall audit quality with
a specific focus on:
•
•
independence, scepticism and ability to
challenge
the audit quality record of the lead partner
and the firm
– The quality and experience (including industry
expertise) of the lead partner, team and the firm
– The approach to managing the audit including:
• Approach to managing the day to day
process
• Reliance placed on the Group’s systems
of accounting and internal control
• Coordination and communication
• Working with other assurance providers
• The value provided from the audit
including planned use of technology
in the audit process
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 86
Audit Committee report continued
– Approach to transition including experience in
transitioning similar audits
– Capability of the firm to look forward and adapt
to future changes in audit requirements and
focus areas.
Each firm was given access to a data room
containing a broad range of information about the
Group and had the opportunity to meet with
relevant stakeholders including key finance and IT
management, the Chairman, Chief Financial Officer,
Chief Executive Officer, Company Secretary, Group
Audit and Risk Director in addition to the Chair and
members of the Audit Committee.
The firms submitted written proposals, which
were considered in conjunction with detailed
feedback obtained from the management
meetings. In addition, all firms responded to a
separate accounting technical challenge. Two of
the four firms were then invited to present to a
panel comprising the Chairman, Audit Committee,
Chief Financial Officer, Group Financial Operations
Director, Group Financial Controller and the
Company Secretary.
Additional information brought out by the
presentation sessions was then considered
alongside the submitted documents and feedback
gained throughout the process, including
references from other audit clients.
Following detailed discussion by all those that
attended the presentations, the Committee put
forward a recommendation to the Board that
KPMG LLP be appointed as external auditor for
FY22, subject to approval by shareholders at the
November 2021 AGM.
In making this recommendation, the Committee
noted the strong external audit quality performance
of KPMG LLP and the proposed audit team
members and the positive results of the Group’s
own assessment of the performance of its external
auditors. The Committee further considered the
potential perceived and actual risks to the
independence of the external audit that may
arise from the length of KPMG LLP’s current
appointment and made specific enquiries on this
point. The responses to these enquiries, together
with the recent change in audit partner and level
of challenge and rigour in evidence through recent
audits satisfied the Committee that the length of
appointment did not prevent delivery of a robust
and independent audit. The Committee was
also satisfied that re-appointment of KPMG LLP
would not be a significant concern for shareholders
based on feedback from investor roadshows and
other interactions.
Safeguarding objectivity and independence
relative to non-audit services
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. The 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 took effect
from the beginning of FY21.
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 a 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 27 June 2021, during which the only
non-audit service provided by the Group’s external
auditor was an interim review, which is closely
related to the audit.
Independence assessment by the
Audit Committee
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.
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.
I N T E R N A L A U D I T
The Group’s internal audit function has continued
to innovate with the aim of providing wider coverage
with a more efficient and agile approach to increase
the speed of results and support ‘real time’
assurance. The Committee reviewed and approved
the proposed audit plan for FY21 which was built
around the following core areas:
– Group Risks
– Regulatory & Legal
– Head Office functions
– Group Retail
– Supply Chain
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. Priority factors also
included regulatory requirements and audits that
had not featured in recent previous years or that
were not completed due to the impact of the
pandemic. The Committee also considered the
areas not included in the FY21 audit plan in order
to confirm the rationale for their exclusion.
Internal audit work is conducted through a blend
of traditional full audits and lighter touch assurance
reviews, introduced for the first time in FY21. These
assurance reviews apply the same methodology as
full audits but provide more of a snapshot of the
auditable area giving timely assurance for specific
areas or projects. As anticipated in last year’s annual
report, FY21 also saw an increased focus on sharing
audit results across the Group to enable proactive
remediation of identified issues and
implementation of best practice.
Other improvements to the internal audit approach
included increased accountability of auditors for
monitoring completion of agreed remediation
actions, to ensure deadlines are met and risks
are adequately mitigated, as well as further
development of the use of data and analytics to
support the identification and tracking of risk areas.
Although the planned timetable of FY21 internal
audit reviews had to be modified as a consequence
of further Covid-19-related showroom closures,
the Committee received updates on progress
throughout the year and the overall schedule of
work progressed satisfactorily given the restrictions
imposed by the pandemic. Areas covered by the
programme included:
– Consumer credit, including regulatory
compliance with FCA Limited Permission
requirements;
– Retail audits in all brands including a review of
management and administration controls, stock
management and regulatory compliance;
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Audit Committee report continued
– Policy management;
– IT asset management;
– Retail banking and cash controls;
– Group code of conduct, anti-bribery and
diversity & inclusion policies; and
– Group vehicle compliance
Following the external cyber audit carried out
in FY20, the Group has continued to progress
identified actions to strengthen its approach,
including establishing a data strategy to ensure
appropriate governance and consistency, and
enhanced training for all colleagues to increase
awareness and responsibility for cyber risks such as
phishing, malware and password security. A follow
up external cyber audit was initiated in June 2021,
the outcome of which will inform developments in
this area for FY22.
In addition, the internal audit team has provided
a range of consulting and advisory support to
the business such as collation of regulatory
and compliance data, process improvements
and additional resource for Covid-19 health and
safety procedures.
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 the overall risk profile across the business.
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.
The Committee was delighted to see the quality
of the Group’s Internal Audit and Risk Team receive
external recognition from the Chartered Institute
of Internal Auditors during the year, winning the
‘Outstanding Team – Private Sector’ category at
the 2021 Audit and Risk Awards.
I N T E R N A L C O N T R O L A N D R I S K
M A N A G E M E N T
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 Group utilises a bespoke risk management
system which allows for continuous updates and
monitoring of risk by each business area and provides
clear visibility of business engagement with risk
management. The Committee receives an update
at each meeting, highlighting new risks identified
and progress and changes in rating of principal risks.
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, the Group Leadership Team conducts
a quarterly risk review and 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.
87
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.
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.
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 and
the Board.
The impact of the Covid-19 pandemic and
associated changes to business operations on
internal controls has been considered and
appropriate modifications made where necessary,
for example to accommodate remote working.
There have been no changes in the Group’s internal
controls during the financial year under review
that have materially affected, or are reasonably
likely to materially affect, the Group’s control over
financial reporting.
As part of its horizon scanning activities the
Committee has considered the potential impact of
the recently published BEIS White Paper. An outline
timeline of activity to review the Group’s internal
controls framework to ensure a thorough and
orderly approach to compliance and an externally
facilitated initial maturity assessment of the
Group’s controls against the anticipated new
requirements has been undertaken in the year.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 88
Accountability
The Board is required to present a fair, balanced
and understandable assessment of the Group
and the Company’s financial position and
prospects. The responsibilities of the Directors
and external auditor are set out on pages 117
and 124. As set out in the Directors’ report, the
Directors consider the Group’s business to be
a going concern. The Group’s viability statement
can be found on page 45.
Jo Boydell
Chair of the Audit Committee
23 September 2021
Audit Committee report continued
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 Group 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 36
to 45.
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 FY21 the Group has
made further improvements to the reporting and
analysis of whistleblowing incidents, including
trends and highlights reviewed at the monthly
Group Governance, Risk and Compliance
Committee and shared with the Audit Committee.
During the year, there were 40 (FY20:26) reports
received through the whistleblowing process, all
of which were fully investigated and addressed in
accordance with the policy.
Business ethics
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 Group 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 Group’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 Group’s website (www.dfscorporate.co.uk).
The Group has also updated its Tax Strategy
Statement, again published on the Group’s website,
in compliance with its duty under the Finance Act
2016, which sets out details of the Group’s attitude
to tax planning and tax risk.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Nomination
Committee
report
This year, the Nomination Committee has focused
on ensuring that the Board has the necessary skills,
diversity of thinking and experience to support the
strategy of the Group.”
89
Following a review by the Committee and to
reflect the Group’s development as an integrated
retailer the Board accepted the Committee’s
recommendation and updated the core skills
required to include digital, and M&A and
Corporate Governance.
Following an introduction via our CEO and Group
People Director, who had met Loraine whilst
developing the Group’s inclusion strategy, we
decided to strengthen our Board further with the
appointment of an additional Non-Executive
Director, and so just after our year end Loraine
Martins, MBE, was appointed to the Board as a
Non-Executive Director 28 June 2021. Loraine, a
senior executive with Network Rail, brings a wealth
of experience in inclusion and diversity working in
health and safety critical businesses.
Loraine joined us for her first Board and
Committee meetings in July and is undergoing
a comprehensive induction programme.
We are committed to having a diverse Board,
in all respects, to reflect the customers we serve.
I can report we currently have four female directors
on our Board of eight directors, a 50% female
representation.
Following the internally facilitated Board review in
2020, an external review process was undertaken
this year. More information on the Board Evaluation
process and outcomes are set out on page 80 of
the Corporate Governance report. The
performance of the Nomination Committee was
reviewed, and I am pleased to report that the
evaluation concluded that the Committee
continues to operate effectively.
I A N D U R A N T
Chair of the Nomination Committee
Bio on page 73
Key activities during FY21
Whilst the impact of Covid-19 on the Nomination Committee
was less immediately felt, the Committee has nonetheless
had a busy year:
– Overseeing the external Board Evaluation in accordance with
the principles of the UK Corporate Governance Code.
– Conducting a review of the composition of the Board, based
on the skills, knowledge, experience and diversity of the Board,
the needs of our strategy and the requirements of our
stakeholders.
– Recommending the appointment of an additional Non-
Executive Director to the Board.
– Reviewing the pipeline of talent within the Group
Leadership Team.
The Nomination Committee keeps the
composition and performance of the Board under
review to ensure that it has the right blend of skills,
knowledge, inclusivity and diversity, and experience
to remain effective in supporting the Company in
its purpose and strategy.
During the year the Committee continued to review
the composition of Board and the Group leadership
team to ensure it has the right balance of skills,
knowledge, experience and diversity of thinking
to support the strategic needs of the business,
including the need for the Board to be more
reflective of society as a whole. The Nomination
Committee regularly updates a matrix of the skills
brought to the Board by all Directors, both
Executive and Non-Executive. The current matrix
is shown on page 78.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Nomination Committee report continued
Since the year end and following the
recommendation by the Nomination Committee
the Board has a established a new Committee, the
Responsible and Sustainable Business Committee,
which will be focused on the delivery of the Group’s
Environmental, Social and Governance strategy.
The Committee will be chaired by Alison
Hutchinson. More details of the remit and
membership of the Committee is set out at page
53 of the Responsibility and sustainability report.
C O M M I T T E E M E M B E R S H I P
The Nomination Committee is chaired by Ian
Durant and comprised of all the Non-Executive
Directors. Alison Hutchinson, Steve Johnson,
Jo Boydell and Jane Bednall were members
throughout the year. Loraine Martins joined the
committee on her appointment to the Board post
the year end. Only members of the Committee
have the right to attend Committee meetings, but
the Committee may invite others, including the
Chief Executive Officer and the Chief Financial
Officer to attend all or part of any meeting
where appropriate.
The UK Corporate Governance Code recommends
that the 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 each of the Non-Executive Directors
are independent and the Chair was independent
upon appointment and as such the Company
complies with the Code.
The Nomination Committee will meet as often as it
deems necessary but, in accordance with its terms
of reference, at least once a year.
R O L E S A N D R E S P O N S I B I L I T I E S
The Committee makes recommendations to the
Board, within agreed terms of reference, on the
appointment of Executive and Non-Executive
Directors ensuring the Board has an appropriate
blend of skills, knowledge and experience.
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.
K E Y A C T I V I T I E S O F T H E
N O M I N AT I O N C O M M I T T E E
The main activities of the Committee included:
– Conducting the selection process, for the
appointment of Loraine Martins, as an
Independent Non-Executive Director effective
from 28 June 2021;
– The ongoing review of the talent of the Group
Leadership Team including an assessment of
their training and development needs;
– A review of the succession plan for the Board;
– A review of Directors’ time commitments
and independence;
– The external evaluation review of the Board
and Committee’s effectiveness; and
– The consideration of the re-election of
Directors at the Annual General Meeting.
90
B O A R D A P P O I N T M E N T
The Nomination Committee had previously
identified the desire to change the makeup of the
Board to better reflect our employee base and the
customers we serve. The Board began to consider
the additional skills and experience it required
however, before commencing a formal process
the Chairman was introduced to Loraine Martins,
through the CEO and Group People Director.
Loraine had been introduced to the Group
Leadership Team, as an expert in the field of
Inclusivity and Diversity a key element of the
Group’s Environmental, Social and Governance
strategy. Loraine has significant experience in
Inclusivity and Diversity and in health and safety, she
is currently the Director of Diversity and Inclusion at
Network Rail, and in 2021 was awarded an OBE for
her work with them on diversity and inclusion. Prior
to that, Loraine was responsible for Jobs & Skills
and Equality & Inclusion in the construction of
the Queen Elizabeth Olympic Park for the London
2012 Olympic Games, for which she was awarded
an MBE.
The Committee felt that given Loraine’s strong
background in inclusion and diversity and her
experience working for large public sector
organisations focused on delivering services in a
safety-first environment she would be a welcome
addition to the Board. Loraine subsequently met
with the Chairman, Senior Independent Director,
Chair of Audit as well as the Executive Directors and
several members of the Group Leadership Team.
Following those meetings and the completion of
a formal due diligence process the Committee
recommended the appointment of Loraine as an
Independent Non-Executive Director to the Board.
All new Directors are subject to an in-depth and
tailored induction process. Loraine had already
spent some time with the Group’s People Director
as a critical friend advising on the development
of the Group’s inclusivity and diversity strategy.
However, since her appointment she has
commenced a formal induction process and has
met the Company’s financial advisors, legal advisors
and brokers, and has visited several showrooms and
factories across the Group.
The Board and Group Leadership Team believe a
diverse and inclusive workforce and a culture where
everyone is welcome, which reflects the customer
base we serve is crucial to the long-term success
of the Group. The appointment of Loraine will
provide additional focus and understanding around
these complex issues, as well as strengthening
the Board’s overall understanding of its
responsibilities in relation to Health and Safety
and employee wellbeing.
As a Committee, we will continue to give due
consideration to the skills and experience new
directors can bring in key areas such as integrated
retail as well as cognitive, gender and diversity
when making new appointments to the Board.
During the year the Board appointed Gould
Consulting to carry out an in-depth evaluation
of the Board and its Committees details of
which are set out on page 80 of the Corporate
Governance report.
Ian Durant
Chair of the Nomination Committee
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS S T R AT E G I C
R E P O R T
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
F I N A N C I A L
S TAT E M E N T S
91
Directors’
remuneration
report
During the year the Committee’s focus
During the year the Committee’s focus
has been on ensuring our Executive
has been on ensuring our Executive
Directors were fairly rewarded in the
Directors were fairly rewarded in the
context of business performance,
context of business performance,
colleague experience and shareholder
colleague experience and shareholder
outcomes, as well as developing our
outcomes, as well as developing our
new Remuneration policy.”
new Remuneration policy.”
S T E V E J O H N S O N
Chair of the Remuneration Committee
Bio on page 74
Key activities during FY21
– Appointment by competitive tender process
of Willis Towers Watson as the independent
Advisors to the Remuneration Committee.
– Development of the new Remuneration Policy.
– Consultation with our largest shareholders and
proxy agencies
on our new Remuneration Policy and
implementation of pay.
– Setting performance targets for incentives in
FY22 and determining outturns for incentives in
respect of FY21, taking into consideration the
experience of key stakeholders over the period.
– Consideration of market trends and governance
updates.
– Consideration of pay and conditions across
the wider workforce.
C O N T E N T S
91 Part A: Annual statement by the Remuneration
Committee Chair
94 Part B: Remuneration at a glance
95 Part C: Our remuneration philosophy and
workforce reward
97 Part D: Remuneration Policy
104 Part E: Annual Report on Remuneration
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.
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 FY22. This
year’s Remuneration Report also includes the
new Remuneration Policy for which we will be
seeking shareholder approval for at the AGM in
November 2021.
I would also like to take the opportunity to
welcome Loraine Martins to the Board and
to the Remuneration Committee.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021
92
Directors’ remuneration report continued
R E M U N E R AT I O N I N C O N T E X T
This year has been amongst the most challenging
the Group has ever faced. The majority of our
showrooms were closed for 21 weeks out of 52
and most of our head office colleagues have been
obliged to work from home for the whole year.
Thousands of colleagues have had to be sent home
and brought back to work several times, often at
short notice. Performance throughout the year was
impacted by shipping disruption from the Far East
and raw materials supply issues relating primarily
to foam availability in Europe. The Group has also
faced internal and external manufacturing capacity
constraints due to high levels of demand for
our products.
Against this backdrop, the Remuneration
Committee carefully considered the experiences of
our key stakeholders over the year, as well as overall
Group performance, when making executive
remuneration decisions.
We have outlined below the key drivers behind our
decisions:
Group performance
– Group revenue for FY21 was £1,067.7m (FY20:
£724.5m), demonstrating the resilience of our
business model and progression of our strategic
agenda.
– Underlying profit before tax, excluding brand
amortisation1, was £105.8m (FY20: loss of
£63.1m), demonstrating our focus on long-
term operational profitability.
– The Group’s share of the sofa market has grown
by an estimated 2%pts in the year, and we saw
exceptional growth in gross sales1 through
our online channels of +184%, driven by
outperforming competitors in lockdown due
to our long-standing commitment to online
channel development.
– Strong underlying cash generation and
significantly reduced net debt at year end. Net
bank debt1 at June 2021 was £19.0m compared
to £157.7m at the previous financial year end.
1. Refer to pages 33 to 35 for APM definitions.
Shareholder experience
– Dividends were suspended in FY20 to conserve
cash during the early phases of the pandemic.
Having now renewed the Group’s banking
facility, the restrictions on dividend payments
have been removed and a full year dividend
of 7.5p will be recommended to shareholders
for FY21.
– The DFS Group’s Total Shareholder Return
(“TSR”) in the last 12 months has significantly
outperformed both the FTSE 250 index and
FTSE 350 General Retailers Index and reflects a
longer-term trend of outperformance of both
indices over the preceding three years.
Colleague experience
– The Group did not participate in the UK
government Coronavirus Job Retention
Scheme (“Furlough”) during FY21. Instead, the
Group introduced a new scheme, funded
entirely by the business, which paid colleagues
who were sick or absent for Covid-related
reasons 80% of base pay for the duration
of any absence.
– Employees eligible for a bonus below board
level were paid in two half yearly instalments.
The bonus was funded 100% for the financial
element, with personal performance also
contributing to overall payout levels.
– Support for colleagues continued through our
enhanced Health and Wellbeing programme.
P AY F O R P E R F O R M A N C E I N F Y 2 1
The Remuneration Committee is committed to a
responsible approach to executive pay and believes
that variable pay should only be earned for
achievement against stretching targets. The
Committee is confident that it sets stretching
targets and the fact that they have been achieved
is due to the hard work and leadership of the
management team.
A N N U A L B O N U S F O R F Y 2 1
As explained in last year’s report, to simplify
priorities in response to Covid-19 for FY21 only,
70% of the Annual Bonus for FY21 was based on
EBITDA performance and 30% was based on
personal performance. EBITDA for FY21 was
£220.5m against a target of £145.4m. The bonus
targets were increased to ensure there was no
benefit of the extension of business rates relief.
The corresponding pay-out in respect of EBITDA
performance was therefore 100% of the maximum
award. Stretching personal objectives were also
achieved in full and as such 100% of the maximum
outcome was awarded for this element. As a result
the bonus awarded to Tim Stacey is £491,968
(100% of maximum opportunity) and the bonus
awarded to Mike Schmidt is £338,227 (100% of
maximum opportunity). Full detail on the targets
set and performance against them can be found on
page 104. For the avoidance of doubt, in assessing
whether the formulaic bonus outcome was a fair
reflection of performance, the Committee
considered the underlying financial performance of
the business and aforementioned experience of all
stakeholders as well as the exclusion of business
rates relief from the bonus determination to ensure
management did not unduly benefit.
LT I P V E S T I N G I N R E S P E C T O F F Y 2 1
The FY19 award was granted on 30 November
2018 and was assessed against the performance
targets at the end of FY21 (i.e., to 27 June 2021).
Performance was based 50% on EPS growth
and 50% on relative TSR growth against two peer
groups. For maximum vesting EPS growth had to
exceed a stretching target of 28.5p. Although
reported underlying1 basic EPS was 36.0p, the
Committee decided to exclude the benefit of
business rates relief from the calculation of
adjusted EPS as well as the additional operating
costs associated with protecting colleagues
and customers during COVID. The adjusted EPS
figure the Committee used for the purpose of
determining the vesting outcome was lower than
that reported, however it remained above the
maximum target and therefore resulted in 100%
of this element of the award vesting.
Relative TSR performance against the FTSE 250
excluding Investment Trusts was 12.83% p.a.
against a stretch target of 10% p.a. above the
Index therefore 100% of this element of the award
vested. Relative TSR performance against the
FTSE 350 General Retailers was similarly positive at
12.34% against a stretch target of 10% p.a. above
the Index therefore 100% of this element of the
award vested. The overall vesting level was 100%.
Full detail on the targets set and performance
against them can be found on page 106.
C O M M I T T E E C O N S I D E R AT I O N O F
I N C E N T I V E O U T T U R N S I N T H E
C O N T E X T O F C O V I D - 1 9
When assessing performance against the targets
for both the Annual Bonus and LTIP, the Committee
considered whether the outturns were appropriate
based on overall Group performance, the
experience of our stakeholders and in light of the
risk of paying ‘windfall’ gains in relation to the
pandemic. The Committee are comfortable that
incentive plan achievements during the year were
a result of the strong leadership of our executive
team, the successful implementation and
operation of our business strategy and
outperformance of our peers and growth in market
share, in addition to the hard work and dedication
of Group employees. The Committee therefore
decided it appropriate not to apply any discretion
to override formulaic outcomes.
O T H E R P AY D E C I S I O N S I N R E S P E C T
O F F Y 2 1
LTIP awards
As disclosed in last year’s report, in the context of
Covid-19 and economic uncertainty making target
setting challenging, the Committee decided that
it would be appropriate to temporarily delay
announcing the performance conditions in respect
of the FY21 LTIP awards.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 93
of DFS’ size. A 250% holding is in line with the
upper quartile of the FTSE 250 for the CEO,
and above the upper quartile for the CFO. As
such a small reduction is being proposed to
bring the policy into line with the market to
ensure its competitiveness. Given the addition
of a post-cessation shareholding policy, the
proposed change to bonus deferral and an
increase to LTIP opportunity, the Committee
considers there are enough mechanisms in
place to enable executives to build long-term
and meaningful shareholdings.
– Minor amends to policy wording to keep pace
with best practices and flexibility to introduce
an ESG metric during the policy period.
Details of how the Remuneration Policy will
be Implemented in FY22 is set out in Part B
of this report.
We look forward to the continued support of our
shareholders and welcome any comments you
may have in relation to this report.
Steve Johnson
Chair of the Remuneration Committee
23 September 2021
Directors’ remuneration report continued
The targets were subsequently determined on
9 March 2021 and are set out on page 106. These
awards were granted on 6 October 2020 at a face
value of 150% and 120% of salary for the CEO and
CFO (respectively).
The awards are subject to targets based 50%
on EPS growth and 50% on Relative Total TSR
performance against two peer groups.
F Y 2 2 R E M U N E R AT I O N P O L I C Y
The Committee reviewed Remuneration Policy
ahead of its triennial approval by shareholders at
the 2021 AGM. The policy review process started in
Autumn 2020 and included reviewing the existing
policy against the business strategy, pay and
conditions in the wider group and market practices.
We also carefully considered governance
developments and shareholder views. Having
drafted the policy in consultation with our largest
shareholders and taken into account their feedback
in finalising the Remuneration policy we believe
the policy takes a balanced approach and ensures
the Group recognises the role of the Executive
Directors in delivering the Group’s strategic aims
and strong shareholder returns.
The Committee has concluded that the structure
of the current policy remains fit for purpose and
aligned with the strategy, therefore no substantial
changes are being proposed. However, the
Committee does believe that aspects of the policy
should be adapted to reflect governance
developments. In addition, the Committee found
that, in terms of both quantum and elements of
structure, the overall market competitiveness of
the policy had fallen somewhat behind those of
companies of a similar size and sector.
The Remuneration Policy is set out in full in Part D
of this report but in summary the following changes
are being proposed:
– Pension allowances for new Executive Director
appointments will be in line with the average
for the wider workforce (As stated last year,
pensions for the CEO and CFO will be reduced
from 11% and 9% respectively to the wider
workforce level by the end of 2022).
– Extension of the shareholding guideline such
that it will apply for two years post-employment.
– A modest increase to the LTIP opportunity from
150% to 175% of salary for the CEO and from
120% to 140% of salary for the CFO. In the
context of the growth in size of the Group over
the last three years, the market data reviewed
by the Committee indicated that the total
remuneration package of the executives had
fallen behind companies of a similar size and
sector, which posed concerns with regard to
potential retention and incentivisation of our
executive team. Given the long-term strategic
aims of the Group, the Committee considered
that the LTIP was the most appropriate element
to increase as it provides the best alignment
with stakeholders being performance based and
delivered in shares over the long-term. The
Committee also purposefully set the FY22 LTIP
targets at a level that would require additional
stretch for maximum vesting to occur.
– Strengthening the bonus deferral mechanism,
from deferral only of bonus amounts above 75%
of salary to a straightforward deferral of 25% of
any bonus paid. The bonus deferral period will
also be changed from three years to two years.
The change to the operation of the deferral
mechanism seeks to align the policy with the
most recently published Investment Association
guidelines and with majority market practice,
and results in an increase to deferred amounts
for performance below c.80% of maximum.
– A revision of the shareholding guideline from
250% of salary to 200% of salary. The
Committee considered the overall opportunity
of the remuneration package alongside market
practice and considered that a shareholding
requirement of 250% was uncompetitive and
more onerous than necessary for a company
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 94
Directors’ remuneration report continued
Part B: Remuneration at a glance
O V E R V I E W O F R E M U N E R AT I O N P O L I C Y C H A N G E S
Element
Pension
Former policy
CEO: 11% of salary
CFO: 9% of salary
Post-cessation shareholding
2 year post-cessation
New policy
All executives: 4% of salary by the end
of 2022
2 year post-cessation of 200% of salary
formalised through nominee account
K E Y I M P L E M E N TAT I O N D E C I S I O N S F O R F Y 2 1
Salaries were increased to CEO: £440,000 and CFO: £330,000 in April 2021, as set out in last year’s report.
Annual bonus
Performance measure
Weighting
Achievement
Group EBITDA
Personal
70%
30%
100%
100%
FY21 Bonus opportunity: CEO: 120%, CFO: 110%
LTIP opportunity
CEO: 150% of salary
CFO: 120% of salary
CEO: 175% of salary
CFO: 140% of salary
LTIP
Annual Bonus Deferral
Amounts above 75% of salary for 3 years
25% of bonus for 2 years
Performance measure
Weighting
Achievement
Shareholding guidelines
250% of salary
200% of salary
TSR vs FTSE 250
TSR vs FTSE 350 Retailers
Other changes made to the policy include increased flexibility to choose performance metrics and revised
wording in order to clarify our policy in relation to remuneration on loss of office and recruitment.
EPS growth
15%
35%
50%
100%
100%
100%
O U R C O M P L I A N C E W I T H T H E 2 0 1 8 U K C O R P O R AT E G O V E R N A N C E C O D E
( “ T H E C O D E ” )
Key Element of the Code
How is this considered within DFS’s remuneration framework?
FY19 LTIP award opportunity: CEO: 150%; the CFO was awarded 32,042 shares under this scheme prior to his
appointment to the Board.
No discretion was used in determining the incentive plan outturns.
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.
I M P L E M E N TAT I O N O F P O L I C Y F O R F Y 2 2
Phased release of equity
awards
The LTIP ensures the phased release of equity awards through annual rolling
annual grants.
Discretion to override
formulaic outcomes for bonus
and LTIP awards
Post-cessation shareholding
requirement
Pension alignment
The Policy contains the ability to override formulaic outcomes and apply discretion
where deemed necessary.
Post-cessation shareholding requirement of 2 years.
Pension contributions for new Executive Directors are aligned to the wider workforce.
Pensions for incumbent Executive Directors will be aligned to the 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 attends
the Employee Voice Forums and engages with the workforce.
Element
Base salary
Pension
Implementation for FY22
Salaries to be reviewed in April 2022 intended to be in line with the wider workforce.
CEO: 11% of salary, CFO: 9% of salary
Annual bonus maximum
CEO: 120% of salary. CFO: 110% of salary
Annual Bonus metrics
• 70% Financial (Revenue: 20%, Profit before tax: 30%, Free Cash Flow: 20%)
• 15% Non-Financial Strategic ‘ESC’ objectives (Environmental: 5%, Social – Inclusion:
LTIP maximum
LTIP metrics
5%, Customer – Average NPS: 5%)
• 15% Personal objectives
CEO: 175% of salary, CFO: 140% of salary
• Adjusted EPS growth (50%)
• TSR relative to FTSE 250 excl investment trusts (15%)
• TSR relative to FTSE 350 General Retailers Index (35%)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
Part C: Our remuneration philosophy
and workforce reward
O U R R E M U N E R AT I O N P H I L O S O P H Y & P R I N C I P L E S
Our values underpin our pay and recognition policies across the organisation and the remuneration
principles which are supported in our Directors’ Remuneration Policy.
O U R C O M P L I A N C E W I T H T H E 2 0 1 8 U K C O R P O R AT E G O V E R N A N C E C O D E
( “ T H E C O D E ” )
Our goal is to attract, retain and develop the best people, who do what they love and are rewarded fairly
in return.
Fair, market competitive pay
and benefits
Aligned to our business strategy
and culture
Supports a high-performance sales and
service culture
To pay a market competitive rate
to reflect the role and skills of
each employee.
To operate a pay and reward system
that is free from discrimination.
To enable all employees to share in
success by encouraging widespread
equity ownership amongst the Group.
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.
Our incentive plans are designed to
reward and incentivise delivery of
the Group’s business plan and key
strategic goals, within the risk appetite
of the Group.
Our pay and reward programs are
designed to encourage and support a
high-level of performance and positive
customer experiences.
We provide access to development
opportunities enabling growth and
success within function and cross-
functionally.
95
R E M U N E R AT I O N I N T H E W I D E R C O N T E X T
The Group employs approximately 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 are set out below.
Fair, market competitive pay
Aligned to our business strategy and
culture
Supports a high-performance sales
and service culture
• 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
• We regularly review our pay and benefits arrangements for fairness and market
competitiveness
• Employees can share in our success via bonus schemes and the Sharesave
scheme which is available in the UK
• Company-wide groups generate positive engagement more broadly with
activities in the ‘Living Well’ Workplace group
• We have partnered with Peppy to provide all of our colleagues with a new
healthcare benefit that offers support through life’s more challenging
transitions
• We have an award-winning apprenticeship program. To date, 73 young people
have successfully completed the program and now hold permanent positions
in the Group A further 18 existing colleagues have completed either an
advanced or higher apprenticeship with a further 63 internal colleagues
currently completing an apprenticeship.
• We actively participate in the national development of apprenticeship
standards in manufacturing and retail for our industry.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 96
Directors’ remuneration report continued
C A S C A D E O F R E M U N E R AT I O N A C R O S S T H E G R O U P
The table below illustrates the remuneration framework across the Group:
Level
Group Leadership Team
Heads of divisions
and functions
Managers
All employees
Employee
numbers
Fixed
remuneration
Annual bonus
and other
variable pay
awards
Restricted
share plan
Long-term
incentive
plan
All
employee
HMRC plans
6
81
377
4,792
The table below explains how the remuneration framework operates across the Group:
Level
Base salary
Pension, benefits
Senior management
Base salary is set
by reference to the
wider workforce and
market practice.
Heads of divisions and
functions
Managers
All employees
Taxable benefits
include car, private
medical insurance
and reimbursement
of business-related
expenses.
Pension policy to
align to workforce
by end of 2022
Average pension
provision is 4%
of salary.
Annual bonus and
recognition awards
LTIP
The annual bonus for
our Support Centre
population is based
on a combination of
financial and
non-financial
objectives.
Where possible
we seek to ensure
that Group based
measures and targets
are consistent.
Our most senior
management are
eligible to participate in
the LTIP which rewards
achievement of
stretching strategic
goals which align their
interests with investors
over the long-term.
All employees in the UK
may participate in the
Group’s Sharesave plan.
The CEO and CFO
are required to defer
25% of the bonus
for 2 years.
Colleagues in
operational areas
across the Group
(in retail showrooms,
manufacturing sites
and in the Sofa Delivery
Company) have access
to variable pay and
bonuses based on
a combination of
individual and team
performance.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
Part D: Remuneration Policy
The following section sets out the Directors’ Remuneration Policy which is to be subject to a binding
shareholder vote at the AGM in November 2021. The policy will take effect from the date of approval.
The Policy is intended to apply for three years from the date of approval.
The Remuneration Policy 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 current Code and the Listing Rules.
R E M U N E R AT I O N P R I N C I P L E S
The Committee concluded that the Group’s remuneration principles remain appropriate and that the
proposed Remuneration Policy is in line with the relevant principles. The remuneration principles are set
out below:
– Attract, motivate and retain Executives and senior management in order to deliver the Group’s
strategic goals 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 external stakeholders and encourage
widespread equity ownership amongst the Group.
97
Overview of key changes
Changes to the operation, structure and quantum of Remuneration Policy elements have been
summarised in the Executive Remuneration Policy table below. The context in which the changes have
been made and associated rationale are set out in the Remuneration Committee Chair’s letter on pages
92 to 93.
E X E C U T I V E R E M U N E R AT I O N P O L I C Y TA B L E
Base salary
To provide competitive fixed remuneration that will attract and retain key employees and reflect their experience and
position in the Group
Operation
Salaries are reviewed annually, and any change will generally take effect from 1 April.
When determining the salary of the Executives the Committee takes into consideration:
• the performance of the individual Executive Director;
• the individual Executive Director’s experience and responsibilities;
• pay and conditions throughout the Group, including the level of salary increases awarded to other employees; and
• the levels of base salary for similar positions with comparable status, responsibility and skills, in organisations of broadly
similar size and complexity.
Maximum opportunity
• Annual percentage increases are generally consistent with the range awarded across the Group.
• Percentage increases in salary above this level may be made in certain circumstances, such as a change in responsibility
or a significant increase in the role’s scale or the Group’s size and complexity.
• Individuals who are recruited or promoted to the Board may have their salaries set below the targeted Policy level until
they become established in their role. In such cases subsequent increases in salary may be higher than the general
increase for employees until the target positioning is achieved.
Performance measures/assessment and recovery provisions
• A broad assessment of individual and business performance is used as part of the salary review.
• No recovery provisions apply.
New for FY22 policy
• No changes to policy.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 98
Annual bonus
Incentivises the achievement of annual objectives which support the Group’s short-term performance goals.
Operation
• Bonus awards are granted annually following the signing of the Report and Accounts, usually in October.
• 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.
• 25% of any bonus earned is granted as a deferred award under the Deferred Bonus Plan.
• The deferred award shall ordinarily have a vesting period of 2 years and its vesting is conditional on the participant’s
continued employment with the Group at the end of the deferral period unless they are a “good leaver”.
• The Committee may award dividend equivalents on shares subject to a deferred award
Maximum opportunity
• The maximum Annual Bonus opportunity is 120% of salary.
• There will be no payment made for threshold performance. 65% of maximum will be paid for achievement of on-target
performance which requires a stretching level of performance. 100% of maximum will only be paid for outstanding
levels of performance.
Performance measures/assessment and recovery provisions
• Performance measures will be selected by the Committee annually and may include financial, strategic and personal
objectives. Financial targets will account for no less than 50% of the weighting.
• The Committee will determine the performance targets and measurement weightings annually to ensure that they
support the business strategy and objectives for the relevant year.
• Malus and clawback provisions apply to Annual Bonus awards at the discretion of the Committee where the Committee
considers such action is reasonable and appropriate. See notes below table for further details.
New for FY22 policy
• Change to deferral mechanism from deferral of bonus amounts above 75% of base salary to deferral of 25% of the
entire bonus.
• Change to deferral timeframe from 3 years to 2 years.
• Performance conditions for FY22:
Financial (70%): Revenue (20%), Profit before tax (30%), Free Cash Flow1 (20%); Non-financial (30%): Strategic ‘ESC’
objectives (15%): Environmental (5%), Social – Inclusion (5%), Customer – Average NPS (5%) and Personal objectives
(15%).
• Targets are deemed commercially sensitive and will be disclosed retrospectively following the end of the performance
period.
Directors’ remuneration report continued
Benefits
To provide competitive benefits and to attract and retain high calibre employees.
Operation
Reviewed periodically to ensure benefits remain market competitive.
Benefits currently include but are not limited to:
• Car and fuel allowance;
• Life insurance;
• Directors’ & Officers’ liability insurance;
• Private medical insurance (including cover for spouses
and dependents);
• Professional subscriptions;
• Critical illness cover;
• Staff discounts; and
• Other minor benefits as provided from time to time, including seasonal gifts.
Maximum opportunity
• Benefit values vary year-on-year depending on premiums and the maximum potential value is the cost of the provision
of these benefits.
Performance measures/assessment and recovery provisions
• No performance or recovery provisions apply.
New for FY22 policy
• No changes to policy.
Pension
To provide a competitive Company contribution that enables effective retirement planning.
Operation
• Pension is provided by way of a contribution to a personal pension scheme or cash allowance in lieu of pension benefits.
• The Committee may review pension contributions for new joiners to the Board to ensure the approach is aligned with
corporate governance best practice/market practice.
Maximum opportunity
• Pension contributions for new Executive Directors will be aligned to the pension provision for the wider workforce which
is currently 4% of base salary.
• Incumbent directors have agreed to a voluntary reduction to pension contributions in line with wider workforce levels to
be implemented by the end of 2022.
• 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.
Performance measures/assessment and recovery provisions
• No performance or recovery provisions apply.
New for FY22 policy
• Pension contributions for new Executive Directors will be aligned to wider workforce levels (currently 4% of base salary).
• Pension contributions for incumbent Executive Directors will be aligned to wider workforce levels from the end of 2022.
• For the CEO pension will be reduced from a fixed £50,000 (11.4% of salary) less NIC where taken in cash. For the CFO
pension will be reduced from a fixed £29,250 (8.9% of salary) less NIC where taken in cash.
1. Refer to pages 33 to 35 for APM definitions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
99
Directors’ remuneration report continued
Long-term incentive plan
The DFS Furniture plc 2015 Long-Term Incentive Plan (“LTIP”) incentivises Executive Directors and the Group Leadership
Team to achieve superior returns to shareholders over a three-year period, to retain key individuals and align their
interests with shareholders.
Operation
• Under the LTIP, the Committee may award annual grants of performance share awards in the form of nil-cost options
or conditional shares (LTIP Awards) on an annual basis.
• LTIP awards under the plan will vest after a three-year performance period subject to the achievement of the
performance measures. The Committee reserves the right to change performance metrics attaching to future LTIP
awards should it consider it appropriate e.g. change in strategy or to introduce an ESG related metric
• A two-year holding period will apply following the three-year vesting period for LTIP Awards granted to the Executive
Directors. Upon vesting, sufficient shares can be sold to pay tax.
• Participants may be entitled to dividend equivalents representing the dividends paid during the performance period
on LTIP awards that have vested
Maximum opportunity
• Maximum LTIP awards are equal to 175% of base salary.
• In exceptional circumstances e.g. recruitment the Committee retains discretion to increase this to 230% of 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.
Performance measures/assessment and recovery provisions
• Awards vest based on performance against challenging targets, aligned with the delivery of the Group’s long-term
strategy.
• The Committee will review performance measures, targets and weightings annually to ensure that they continue to
align to the Group’s strategy.
Minimum shareholding requirements
To ensure that Executive Directors’ interests are aligned with those of shareholders over a longer time horizon.
Operation
• Executive Directors are required to build or maintain (as relevant) a minimum shareholding in the Company. Shares
included in this calculation are those held beneficially by the Executive Director and their spouse/life partners. This
includes vested LTIP shares subject to the two-year post-vesting holding period and deferred bonus shares net of tax.
Maximum opportunity
• 200% of salary to be built up over five years from the date of appointment as an Executive Director.
• Executive Directors are not required to purchase shares to satisfy this requirement.
Performance measures/assessment and recovery provisions
• No performance or recovery provisions apply.
New for FY22 policy
• Shareholding guidelines will be reduced from 250% to 200% of base salary from FY22.
• 2-year post-cessation shareholding requirements will be enforced through holding the shares in a global nominee
account.
All-employee incentives
Encourages all employees to become shareholders and thereby align interests with shareholders.
Operation
• Eligible employees may participate in the SAYE and Share Incentive Plan or country equivalent.
• Executive Directors will be entitled to participate on the same terms.
• In accordance with the rules of the LTIP, malus and clawback provisions apply at the discretion of the Committee
where the Committee considers such action is reasonable and appropriate. See notes below table for further details.
Maximum opportunity
• Maximum participation levels for all staff, including Executive Directors, are set by relevant UK legislation or other
New for FY22 policy
• Maximum LTIP award level increased from 150% to 175% of salary for the CEO and from 120% to 140% of salary
for the CFO. Exceptional maximum remains unchanged.
• No change to the performance period or holding period.
• Additional flexibility to determine appropriate performance measures on an annual basis, providing that the majority
of the weighting is on financial measures.
• Malus and clawback trigger events and time scales have been expanded to align with best practice.
• For the FY22 LTIP grant, performance will be assessed as follows:
– Adjusted EPS growth (50%)
– TSR relative to FTSE 250 excl investment trusts (15%)
– TSR relative to FTSE 350 General Retailers Index (35%)
• See page 111 for further details of performance targets and measures for FY22 awards.
relevant legislation.
Performance measures/assessment and recovery provisions
• Not applicable.
New for FY22 policy
• No changes to policy.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
N O T E S T O T H E R E M U N E R AT I O N
P O L I C Y TA B L E
Pre-existing remuneration arrangements and
minor changes
The Committee may make remuneration
payments outside of the terms of this Policy where
the terms of the payment were agreed prior to the
introduction of this or our prior Policy, provided the
terms were in line with the Remuneration Policy in
place at that time, or where the terms were agreed
prior to the relevant director being a member of the
board. Any such payments may be satisfied in line
with the terms agreed.
Performance measures and targets
When selecting performance measures for our
incentive plans our primary reference is the
business strategy and Key Performance Indicators.
We also consider market practice both in our sector
and general industry. We seek to choose measures
that create balanced incentives and that promote
sustained, responsible growth and motivate the
right behaviours.
The performance measures selected for LTIP
awards to be granted in FY22 (and for those granted
in FY21) were chosen because EPS provides a clear
assessment and line of sight of overall profitability
and shareholder value creation. Relative TSR was
chosen because it motivates and rewards
outperformance of sector peers and the market
and provides an external independent view of
performance from a shareholder perspective.
The Committee considers that the combination of
external (relative TSR) and internally focused (EPS
growth) metrics provide a suitable balance and
overall assessment of long-term performance.
Incentive plan targets are set primarily in reference
to the latest business plan and budget. We also take
into consideration market and economic forecasts,
analyst consensus and practice in our sector and
general industry. Our incentive plan targets are set
at a challenging level which reflect the scale and the
challenge implicit in our financial budgets.
We seek to ensure that pay-out levels are
commensurate with overall group and individual
performance.
As set out in the policy table, performance
measures and targets for LTIP awards are generally
disclosed in advance in the annual report. In certain
circumstances (e.g. market uncertainty) the
Committee may instead provide details of the
targets and measures applicable to awards when
announcing award grants. Bonus plan measures will
generally be disclosed in advance. Bonus targets
and outcomes will be disclosed in the annual report
for the following year.
The Committee retains discretion in exceptional
circumstances to change incentive plan
performance measures and targets and the
weightings attached to performance measures
part-way through a performance period if there
is a significant and material event which causes
the Committee to believe the original measures,
weightings and targets are no longer appropriate.
In such circumstances the Committee will seek
to ensure that the revised conditions are not less
difficult to satisfy.
Discretion may also be exercised in cases where
the Committee believes that the formulaic
outcome is not a fair and accurate reflection
of business performance. The exercise of this
discretion may result in a downward or upward
movement in the amount of the bonus pay-out
resulting from the application of the performance
measures. Any adjustments or discretion applied by
the Committee will be fully disclosed in the following
year’s Remuneration Report.
Discretion
The Committee has discretion in several areas of
Policy as set out in this report. The Committee may
also exercise operational and administrative
discretions under relevant plan rules approved by
shareholders as set out in those rules. In addition,
the Committee has the discretion to amend Policy
regarding minor or administrative matters where
it would be, in the opinion of the Committee,
disproportionate to seek or await shareholder
approval.
As noted, the Committee reviews all incentive
outturns to assess whether they align to the overall
performance of the business and the experience
of its key stakeholders over the period e.g.
shareholders and employees. The Committee
retains discretion to adjust the final outturn of
incentives up or down to reflect its judgement,
any such exercise of discretion will be disclosed
in the relevant annual report.
Malus and clawback
Malus and clawback provisions apply to both the
Annual Bonus and LTIP.
Malus may apply before the determination of
the bonus, before the vesting of any deferred
component under the bonus and before the
vesting of any LTIP award. Clawback may apply up
until three years after the date of any cash bonus
payment and up until three years after the date
of vesting of LTIP awards. Malus and clawback
will continue to apply following cessation
of employment.
Circumstances where malus and/or clawback
could apply include: a participant’s material
underperformance, material brand or reputational
damage, material misstatement of the accounts,
gross misconduct by the participant and fraud or
any other reason as determined by the Committee.
100
Illustrations of application of Policy
The charts below seek to demonstrate how pay
varies with performance for the Executive Directors
based on the stated remuneration Policy. The
charts show an estimate of the remuneration that
could be received by Executives Directors under
the Policy set out in this report. Each of the bars
is broken down to show how the total under
each scenario is made up of fixed elements of
remuneration, the annual bonus and the LTIP. The
charts indicate that a significant proportion of both
target and maximum pay is performance related. In
line with changes to the Directors’ Remuneration
Reporting Regulations, scenarios including share
price growth of 50% over the period of the Policy
are shown.
Remuneration scenarios
2.5
£2.5m
2.0
£2.0m
1.5
£1.5m
1.0
£1.0m
0.5
£0.5m
£0
0.0
£2,205,000
52%
£1,820,000
42%
£1,327,200
35%
£522,000
26%
29%
24%
100%
39%
29%
24%
£1,430,000
48%
£1,199,000
39%
30%
25%
31%
26%
£887,150
31%
27%
42%
£374,000
100%
Minimum On-target Maximum Maximum
with share
price
growth
Minimum On-target Maximum Maximum
with share
price
growth
Chief Executive Officer
Chief Financial Officer
Fixed remuneration
Annual Bonus
LTIP
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
Assumptions used in determining the level of pay-out under given scenarios are as follows:
Element
Policy description
101
Element
Fixed elements
Annual bonus
LTIP
Minimum
Nil
Nil
On-target
CEO: £492,000
CFO: £352,000
65% of maximum
60% of maximum
CEO: 120% of salary
CFO: 110% of salary
CEO: 175% of salary
CFO: 140% of salary
Maximum
Base salary and
benefits
A P P R O A C H T O R E C R U I T M E N T A N D P R O M O T I O N S
The Committee aims to pay no more than is necessary to attract appropriately skilled and experienced
individuals. The ongoing remuneration package for any new Executive Director would be in line with that
set out in the remuneration Policy table.
For a new Executive Director who is an internal appointment, the Company may also continue to honour
contractual commitments made prior to appointment to the Board even if those commitments are
otherwise inconsistent with the Policy in force when the commitments are satisfied. Any relevant incentive
plan participation may either continue on its original terms or the performance targets and/or measures
may be amended to reflect the individual’s new role, as the Committee considers appropriate.
• The salary level will be set taking into account a number of factors including market factors, the
individual’s experience and responsibilities, the individual’s previous salary and remuneration
package, the salary Policy for the wider Group, the salary for the previous incumbent and for
existing Executive Directors.
• This may mean that the Executive Director is recruited on a salary below the market rate with a
view that it would be increased (potentially by above workforce level increases) over a number of
years, subject to performance.
• Benefits may be provided in line with DFS’ benefits Policy as set out in the remuneration
Policy table.
Pension
• An Executive Director will be able to receive either a contribution to a personal pension scheme or
cash allowance in lieu of pension benefits in line with DFS’ Policy as set out in the remuneration
Policy table.
Annual bonus
• An Executive Director will be eligible to participate in the Annual Bonus as set out in the
remuneration Policy table.
• Awards may be granted up to the maximum opportunity allowable in the remuneration Policy
table at the Committee’s discretion and will ordinarily be subject to proration from the date
of employment.
LTIP
• An Executive Director will be eligible to participate in the Long-Term Incentive Plan as set out in the
remuneration Policy table.
• Awards may be granted up to the maximum opportunity allowable under scheme rules at the
Committee’s discretion.
Maximum variable
remuneration
• The maximum annual variable remuneration that an Executive Director can receive upon
recruitment is up to 350% of salary (i.e Annual Bonus and exceptional LTIP Award limit)
Share buy-outs/
replacement
awards
• The Company may, where appropriate, compensate a new Executive Director for variable or share
based remuneration that has been forfeited as a result of accepting the appointment with the
Company. Where the Company compensates a new Executive Director in this way, it will seek to
do so under the terms of the Company’s existing variable remuneration arrangements, but may
compensate on terms that are more bespoke than the existing arrangements where the
Committee considers that to be appropriate. The Committee may if necessary, rely on Listing Rule
9.4.2 to facilitate the making of awards.
• In such instances, the Company will disclose a full explanation of the detail and rationale for such
recruitment related compensation. In making such awards the Committee will seek to consider
the nature (including whether awards are cash or share-based), vesting period and performance
measures and/or conditions for any remuneration forfeited by the individual when leaving a
previous employer. Where such awards had outstanding performance or service conditions
(which are not significantly completed) the Company will generally impose equivalent conditions.
The Committee’s preference is to buy-out forfeited awards using deferred share awards or
performance-based share awards, however, cash may be used.
• The value of the buy-out awards will broadly be the equivalent of, or less than, the value of the
award being bought out.
Relocation policies • In instances where the new Executive is relocated from one work location to another, the Company
will provide compensation to reflect the cost of relocation for the Executive in cases where they
are expected to spend significant time away from their home location in accordance with its
normal relocation package for employees.
• The level of the relocation package will be assessed on a case by case basis but will take into
consideration any cost of living differences; housing allowance; and schooling in accordance with
the Company’s normal relocation package for employees.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 102
Consideration of employee views and employment
conditions elsewhere in the Group
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. The Committee is provided with
data on the remuneration structure for
management level tiers below the Executive
Directors and uses this information to ensure
consistency and fairness of approach throughout
the Company.
Formal consultation on the remuneration of
Executive Directors is not undertaken with
employees. However, currently a survey on
employee engagement is undertaken annually
and includes discussion on parts of the Group’s
remuneration approach and the Designated
Non-Executive Director, has discussed Executive
Director Remuneration with the Group wide
Employee Voice Forum. The Committee is looking
at ways that practice in this area can evolve.
The Policy described above applies specifically to
Executive Directors of the Company. The Committee
believes that the structure of management and
employee reward should be linked to the Group’s
strategy and performance.
Directors’ remuneration report continued
E X E C U T I V E D I R E C T O R
S E R V I C E C O N T R A C T S
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.
Date of contract
Notice period
Tim
Stacey
Mike
Schmidt
21 May 2018
12 July 2019
6 months (Executive) or
12 months (Company)
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.
P AY M E N T S F O R L O S S O F O F F I C E
When determining any loss of office payment for a
departing director the Committee will always seek
to minimise cost to the Company whilst complying
with the contractual terms and seeking to reflect
the circumstances in place at the time. The
Committee reserves the right to make additional
payments where such payments are made in good
faith in discharge of an existing legal obligation
(or by way of damages for breach of such an
obligation); or by way of settlement or compromise
of any claim arising in connection with the
termination of an Executive Director’s office
or employment.
Executives will generally receive base salary for the
duration of their contractual notice period, or in lieu
of notice, except for certain circumstances such as
termination for gross misconduct.
Executive Directors may at the Committee’s
discretion be eligible for an annual bonus for the
financial year of cessation. Any annual bonus
awarded would be based on performance during
the year as determined by the Committee and
pro-rated for time.
For good leavers (in accordance with the definition
in the plan rules), outstanding Deferred Award
Bonus Plan awards will generally continue and vest
at the normal date. The Committee may determine
to time pro-rate the number of shares to vest
however it is the Remuneration Committee’s
normal policy is that it will not pro-rate awards for
time. If a participant ceases employment for any
other reason, their awards will lapse in full on the
date of such cessation.
For good leavers (in accordance with the definition
in the plan rules), outstanding LTIP awards will
generally continue and vest at the normal vesting
date, subject to the Committee’s assessment of
performance against targets, with awards pro-rated
for time in office. However, the Committee retains
discretion to allow vesting on cessation and to not
pro-rate awards for time if it considers the
circumstances warrant this action. If a participant
ceases employment for any other reason, awards
will lapse in full on the date of cessation. Unless
otherwise determined by the Committee and
except in the event of the participant’s death, any
applicable post-vesting holding period will continue
to apply post cessation of employment.
Any vested annual bonus and LTIP shares that are
subject to the post-cessation shareholding will be
held for two years after cessation.
In a change of control unless otherwise determined
by the Board, outstanding Deferred Award Bonus
Plan awards and LTIP awards will vest. Unless
otherwise determined by the Board, LTIP award
vesting will be subject to an assessment of
achievement of the performance conditions to
date and subject to time pro-rating. However,
the Committee retains discretion to not pro-rate
awards for time or consider performance
conditions if it considers the circumstances
warrant this action.
C O N S I D E R AT I O N O F E M P L O Y E E
R E M U N E R AT I O N A N D
S H A R E H O L D E R S
Consideration of shareholder views
The Committee takes the views of the
shareholders seriously and these views are
considered in shaping the Policy and practice.
Shareholder views are considered when evaluating
and setting remuneration strategy and the
Committee welcomes an open dialogue with
its shareholders on all aspects of remuneration.
The Committee consulted its major shareholders
(who together hold 87% of the Issued Share
Capital) and the main shareholder representative
bodies (IA, ISS and Glass Lewis) on the proposed
new Remuneration Policy for which we are seeking
shareholder approval at the 2021 AGM.
The Committee is grateful for the time that
shareholders have taken to consider proposals and
provide feedback. At the end of the consultation a
large majority of shareholders consulted indicated
they were supportive of the proposed new
Remuneration Policy.
In exceptional circumstances and if it is considered
in the best interest of the Group, arrangements may
be made to facilitate the cessation of employment
of an individual, any such arrangements would seek
to minimise cost to the group.
The Committee will continue to maintain an
open and constructive dialogue with its major
shareholders and the representative bodies and
where appropriate, will always seek to consult
with them where appropriate.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Directors’ remuneration report continued
N O N - E X E C U T I V E D I R E C T O R R E M U N E R AT I O N P O L I C Y
Remuneration Policy table
The Chairman and the Executive Directors of the Board are responsible for setting the remuneration of the
Non-Executive Directors, other than the Chairman whose remuneration is determined by the Committee
and recommended to the Board.
Non-Executive Director fees will be kept under review and to the extent there are any increases to fees
these will generally be in line with those awarded to the wider workforce. Fees for the non-Executive
Directors are paid via payroll and are subject to PAYE.
Non-executives do not participate in any incentive plans and do not receive any benefits except health
insurance benefits provided to the Chair.
103
Letters of appointment
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 and are terminable by either the
Non-Executive Director or the Company with one 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.
The table below sets out the dates that each Non-Executive Director was first appointed as a
Group Director.
Ian Durant
Alison Hutchinson
Jo Boydell
Steve Johnson
Jane Bednall
Loraine Martins
Date of
appointment
2 May 2017
1 May 2018
6 December 2018
6 December 2018
1 January 2020
28 June 2021
The table below sets out the key elements of the Policy for Non-Executive Directors:
Purpose
• To provide competitive fixed remuneration that will attract and retain key employees and reflect their experience and
position in the Group
Operation
• Fee levels are reviewed periodically considering independent advice and the time commitment required of Non-
Executive Directors.
• The fees paid to the Chairman and the fees of the other Non-Executive Directors aim to be competitive with other fully
listed companies which the Committee (in the case of the Chairman) and the Board (in respect of the Non-Executive
Directors) consider to be of equivalent size and complexity.
• Non-Executive Directors may receive a base fee and additional fees for the role of Senior Independent Director or
membership and/or Chairmanship of certain committees.
• Non-Executive Directors also receive reimbursement of reasonable expenses (and any tax thereon) incurred
undertaking their duties and or Company business.
• Non-Executive Directors do not receive any variable remuneration element.
• Non-Executive Directors are entitled to staff discount on Group merchandise on the same basis as other employees
and may also receive seasonal gifts.
Maximum opportunity
• Any increase in Non-Executive Director fees may be above the level awarded to other employees, given that they may
only be reviewed periodically and may need to reflect any changes to time commitments or responsibilities.
• The Company will pay reasonable expenses incurred by the Chairman and Non-Executive Directors.
Performance measures/assessment and recovery provisions
• Non-Executive Director fees are not performance related.
The Company’s policy when setting fees for the appointment of new Non-Executive Directors is to apply
the Policy which applies to current Non-Executive Directors. The current fee structure and levels are set
out below:
Chairman fee
Senior Independent Director fee
Chair of Audit / Remuneration Committee fee
Basic Non-Executive Director fee
£187,275
£62,425
£59,305
£52,020
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
Part E: Annual Report on Remuneration for
the Financial Year ended 27 June 2021
S I N G L E T O TA L F I G U R E O F R E M U N E R AT I O N F O R E X E C U T I V E D I R E C T O R S
– A U D I T E D
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.
Base
salary
Taxable
Benefits1
Bonus
LTIP2
RSP3 Pension4 Other
Name
Tim
Stacey
Mike
Schmidt5
Year
2021
2020
2021
410
387
308
2020
289
38
40
14
13
492
780
243
–
338
–
–
89
–
98
–
–
44
43
26
27
–
–
4
2
Total
Fixed
Total
Variable
Total
492
1,515
2,007
470
352
331
98
427
568
779
–
331
104
A N N U A L B O N U S O U T T U R N F O R F Y 2 1 – A U D I T E D
As disclosed in last year’s report, 70% of the Annual Bonus for FY21 was based on EBITDA performance
and 30% was based on personal performance. EBITDA for FY21 was £220.5m and therefore 100% of the
maximum outcome was awarded for this measure. Personal objectives were achieved in full and as such
100% of maximum outcome was also awarded for this measure. As a result of the performance results
shown above, the bonus awarded to Tim Stacey is £491,968 (100% of maximum opportunity) and the
bonus awarded to Mike Schmidt is £338,227 (100% of maximum opportunity). In line with the policy in
operation during FY21, bonus amounts in excess of 75% of salary are deferred for 3 years, for Tim Stacey
this is 36.8% of salary (£161,968) and for Mike Schmidt this is 27.5% of salary (£90,727). The percentage
of bonus deferred into shares is 45% for the CEO and 35% for the CFO. No discretion was exercised in
determining the annual bonus outturn.
Performance measure
Group EBITDA
Weighting
Threshold
(0%)
Target
Maximum
(100%)
Outcome
(% max
bonus)
70%
£130.9m
£145.4m
£152.7m
100%
Personal objectives
30%
See notes below
100%
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. The amount presented for LTIP awards represents the number of shares vesting under the FY19 (2018) Plan valued at £2.77 per share, being the
average share price for the three months ended 27 June 2021.
3. 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 first part
of the award vested on 16 November 2019 and was subject to a share price performance condition with an increase attributed to this award is
£10,952. The second part of the award vested on 16 November 2020 and was subject to a share price performance condition with an increase
attributed to this award of £40,464. The CFO also received awards under the same Plan prior to his appointment as an Executive Director which
were not subject to any share price conditions and therefore not included in the single figure remuneration table above. The value of these awards
in the current and prior year were £81,599 and £20,156 respectively.
4. Where pension contribution is taken as a salary supplement the amount is reduced by the associated Employer’s National Insurance contribution
to ensure there is no cost to the company from this alternative.
5. The ‘Other’ column for Mike Schmidt represents a car allowance supplement.
Bonus outcome (% maximum)
Total bonus outcome (£)
Tim Stacey
Mike Schmidt
Tim Stacey
Mike Schmidt
100%
100%
100%
100%
Tim Stacey
Mike Schmidt
£491,968
£338,227
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
Detail of performance against personal objectives
Performance against the personal objectives and
the Committee’s assessment of performance for
the CEO and CFO is set out in the tables opposite.
As part of its assessment, the Committee also took
into account Group health and safety objectives to
ensure that a safe environment was in place for all
employees and customers. The Committee was
satisfied that timely reporting of health and safety
and risk mitigation activities had been undertaken
throughout the year with no major incidents arising.
105
Level of
performance
Achieved
Achieved
Executive Director
Performance area
Measures of achievement
CEO – Tim Stacey
Delivery of the Transformation
Strategy – Execute the agreed
business strategy through the
transformation plan
• The Sofa Delivery Company rolled out successfully by end of FY21.
• Dwell integrated into DFS by H1.
• Manufacturing Transformation Strategy agreed by H1.
• Sofa Workshop Limited disposal by end of H1.
ESG strategy – Launch the
new ESG strategy externally and
integrate into business plan
• Pro-actively lead for and champion the ESG agenda.
• Activities scoped, resourced and embedded within the business to enable ongoing delivery.
• Strategy launched externally in Q1.
• Year 1 ESG targets achieved (as described in ESG target document).
People & Culture – Develop a safe,
engaging & inclusive workplace
• Lead for a strong health & safety culture as measured by HSE reports or investigations and
Achieved
severity of any incidents.
• Establish new diversity and inclusion programme to support BAME colleagues.
• All management new appointments will be a minimum of a 50/50 gender split.
Growth – Execute the growth
agenda focusing on DFS 3.0 and
Sofology store roll out
• New growth strategy developed by H1.
• 5 new Sofology stores in FY21.
• Execution of DFS 3.0 strategy.
Innovation – Develop a pipeline
of new products & services for
the Group
• A minimum of 3 distinct initiatives piloted and rolled out into the business.
• Successful roll out of the extended general insurance product Sofacare.
Executive Director
Performance area
Measures of achievement
Achieved
Achieved
Level of
performance
CFO – Mike Schmidt
Delivery of the Transformation
Strategy – Executing the agreed
business strategic initiatives
• Ensure strong finance support for the rollout of The Sofa Delivery Company, Dwell Integration
Achieved
and disposal of Sofa Workshop, new Sofology showrooms and other ongoing strategic
development.
• Drive the business in adapting an agile approach to the post-Covid-19 environment – with
flexible cost and capital commitments.
Leading the Finance Agenda –
Ensure the Group maintains a
robust financial position and
good relationships with its
financial stakeholders
Finance Transformation –
Make material progress on
developing finance support
and operations in the Group
People & Culture – Reinforce
a safe, engaging & inclusive
workplace that operates with
the right approach and values
Property – Lead the delivery of
the agreed property strategy
• Lead the Group in achieving a successful refinancing, including equity if required, and in
Achieved
establishing a revised post-Covid-19 liquidity strategy.
• Continue to strengthen forward visibility, insight and reporting. Maintain our journey of
Achieved
improvement of the effectiveness of transactional activities through simplifying operational
processes.
• Lead for a strong health & safety culture as measured by HSE reports or investigations and
Achieved
severity of any incidents.
• Drive the agenda for inclusion (in its broadest sense) amongst the finance team and the
broader business.
• Support the launch and establishment of the Group’s ESG strategy externally.
• Deliver planned FY21 showroom openings and secure future sites for FY22 in line with
Achieved
the four-year plan.
• Deliver the expected property cost savings delivered for FY21 and pathway for £1m of FY22.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
LT I P A W A R D S V E S T I N G I N R E L AT I O N T O P E R F O R M A N C E I N
F Y 2 1 – A U D I T E D
The 2018 award was granted on 30 November 2018 and was assessed against the performance targets at
the end of FY21 (i.e., to 27 June 2021).
LTIP award
Performance
conditions
Weighting
(% award)
Detail
Entry level
performance
Max
performance
Actual
performance
Vesting
%
2018 LTIP
EPS growth
50%
TSR
15%
35%
Reporting
underlying
EPS
TSR (FTSE
250 excl ITs)
TSR (FTSE
350 General
Retailers)
23.0p
28.5p
36.0p
100%
Index
Index
Index +
10% p.a.
Index +
10% p.a.
12.83%
100%
12.34%
100%
Total vesting
100%
For threshold performance 20% of awards vest. For Maximum performance 100% of awards vest. Vesting
is on a straight-line basis between these points.
The final level of vesting of these awards was 100%. No discretion was exercised in respect of award
vesting levels.
106
S C H E M E I N T E R E S T S A W A R D E D I N F Y 2 1 ( 2 0 2 0 A W A R D S ) – A U D I T E D
Details of LTIP awards and Deferred Bonus Awards granted during FY21 are set out in the table below.
Director
CEO – Tim Stacey
CFO – Mike Schmidt
Scheme
LTIP
LTIP
Type of
award
Nil cost
option
Nil cost
option
Number of
shares
awarded
Value of
award at
date of
grant (£)
Value of
award as %
of salary
337,711
£600,000
150%
202, 626
£360,000
120%
The number of shares granted was based on a share price of £1.77 (which was the average of the closing
share price on the three days prior to the grant). The performance period for the 2020 award is from
28 June 2020 and will end 25 June 2023. The performance measures and targets are set out below.
Adjusted EPS (50%)
Percentage of this portion of the Award vesting
Nil
Less than 18.7p
Relative TSR (50%)
20%
18.7p
100%
Between 20% and 100%
on a straight-line basis
24.7p or more
Between 18.7p and 24.7p
Percentage of this portion of the Award vesting
Weighting
Nil
20%
100%
Between 20% and 100%
on a straight line basis
15% (FTSE 250
Index) Excluding
Investment Trusts
35% (FTSE 350
General Retailers
Index)
Below FTSE 250 Index Equal to FTSE 250
Index
10% p.a. above
the FTSE 250
Index return
Between FTSE 250
Index return and 10%
p.a.
Below FTSE 350
General Retailers
Index
Equal to FTSE 350
General Retailers
Index
10% p.a. above the
FTSE 350 General
Retailers Index return
Between FTSE 350
General Retailers Index
return and 10% p.a.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Directors’ remuneration report continued
S AY E A W A R D S – A U D I T E D
The CFO was granted 11,111 SAYE options on 27 November 2020.
D E TA I L S O F LT I P A W A R D P E R F O R M A N C E C O N D I T I O N S ( W H E R E N O T
D I S C L O S E D E L S E W H E R E I N R E P O R T )
LTIP award
Performance
conditions
Weighting
(% award)
Detail
Entry level
performance
Max
performance
Threshold
level vesting
Maximum
vesting
2019 LTIP
EPS growth
50%
TSR
15%
35%
Reporting
underlying
EPS
TSR (FTSE
250 excl ITs)
TSR (FTSE
350 General
Retailers)
23.0p
28.5p
20%
100%
Director
Ian Durant
Index
Index
Index +
10% p.a.
Index +
10% p.a.
20%
100%
Alison Hutchinson
20%
100%
Jo Boydell
D I L U T I O N
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.
Steve Johnson
Jane Bednall
Luke Mayhew
107
S I N G L E F I G U R E R E M U N E R AT I O N TA B L E F O R N O N - E X E C U T I V E D I R E C T O R S
– A U D I T E D
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.
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
2021
2020
Fees
185
177
62
61
58
56
58
52
51
24
–
21
Other
1
1
–
–
–
–
–
–
–
–
–
–
Total
186
178
62
61
58
56
58
52
51
24
–
21
P AY M E N T T O P A S T D I R E C T O R S – A U D I T E D
As disclosed in the 2019 Directors’ Remuneration Report, our former CFO Nicola Bancroft was treated as a
good leaver upon her retirement from the Board. As such, Nicola’s 2018 LTIP award continued and vested
at the normal date, subject to achievement of the performance conditions. As set out on page 106, 100%
of the performance conditions were met for the 2018 LTIP awards, Nicola’s awards were pro-rated for time
from the date of grant until 10 July 2019 to reflect Nicola’s period of employment. A total of 34,357 shares
vested which were valued at £95,076.
P AY M E N T F O R L O S S O F O F F I C E – A U D I T E D
None
Notes:
1. The NEDs all took a 20% reduction in their fees in May and June 2020 to support the business through the pandemic.
2. Luke Mayhew stepped down from the Board on 15 November 2019.
3. Alison Hutchinson was appointed Senior Independent Director on 26 September 2019.
4.
5. Steve Johnson was appointed as Chair of the Remuneration Committee on 17 January 2020.
6.
7. Loraine Martins was appointed to the Board after the end of the financial year and therefore received no remuneration for her services as a
Ian Durant other remuneration relates to health insurance benefit in kind.
Jane Bednall was appointed to the Board on 1 January 2020.
Non-Executive Director during FY21.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
S H A R E H O L D I N G A N D O T H E R
I N T E R E S T S AT 2 7 J U N E 2 0 2 1 –
A U D I T E D
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 which for FY21 was equal
to 250% of their base salary in the Company (for
existing Executive Directors only) over a five-year
period from appointment.
Director
Tim Stacey
Mike Schmidt
Ian Durant
Jane Bednall
Jo Boydell
Alison Hutchinson
Steve Johnson
Total
Number of
beneficially
owned shares1
517,804
38,343
44,666
13,333
13,333
13,333
26,666
667,478
% of
salary held2
334%
33%
n/a
n/a
n/a
n/a
n/a
Shareholding
requirement
met
Subject to
conditions
Not subject to
conditions
Vested but
unexercised
Unvested
SAYE awards
Total at 27
June 2021
Yes
No
n/a
n/a
n/a
n/a
n/a
867,676
383,633
–
18,309
–
–
–
–
–
–
–
–
–
–
1,251,309
18,309
–
–
–
–
–
–
–
–
–
1,385,480
11,111
451,396
–
–
–
–
–
44,666
13,333
13,333
13,333
26,666
11,111
1,948,207
108
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 (£2.84 at 27 June 2021).
3. Mike Schmidt’s interests in shares, not subject to conditions, refer to his outstanding 2018 RSP award. The RSP awards was granted prior to him becoming Executive Director and have no performance
conditions attached
At 23 September 2021 there had been no movement in Directors’ shareholdings and share interests from 27 June 2021.
O U T S TA N D I N G S H A R E A W A R D S
The following share awards remain outstanding as at 27 June 2021 for the Executive Directors:
Director
Tim Stacey
Mike Schmidt
Type of award
Date of grant
2018 LTIP
2019 LTIP
2020 LTIP
2018 RSP
2018 LTIP
2019 LTIP
2020 LTIP
30/11/18
25/10/19
06/10/20
30/11/18
30/11/18
25/10/19
06/10/20
Number of
awards
281,690
248,275
337,711
18,309
32,042
148,965
202, 626
Award vested
Awards lapsed
Outstanding
awards
Share price2
Normal
vesting date
–
–
–
–
–
–
–
–
–
–
–
–
–
–
281,690
248,275
337,711
18,309
32,042
148,965
202, 626
£2.13
£2.42
£1.77
£2.13
£2.13
£2.42
£1.77
30/11/21
25/10/22
06/10/23
30/11/21
30/11/21
25/10/22
06/10/23
Notes:
1. Mike Schmidt’s 2018 RSP award was granted prior to him becoming an Executive Director.
2. The share price for calculation is the average of the closing share price on the three days prior to the grant.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 160
150
140
130
120
110
100
90
80
70
109
Mar
2015
Jun
2015
Jun
2016
Jun
2017
Jun
2018
Jun
2019
Jun
2020
Jun
2021
DFS Furniture plc
FTSE 250 Index
FTSE 350 General Retailers Index
Directors’ remuneration report continued
R E M U N E R AT I O N O F C E O R O L E
V E R S U S W I D E R C O M P A N Y
P E R F O R M A N C E S I N C E I P O
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 FY21 (27 June 2021). The peer groups
here represent the Company’s key markets for
investment capital.
160
150
140
130
120
110
100
90
80
70
Mar
2015
Jun
2015
Jun
2016
Jun
2017
Jun
2018
Jun
2019
Jun
2020
Jun
2021
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.
DFS Furniture plc
FTSE 250 Index
FTSE 350 General Retailers Index
CEO
Single Figure
Annual Bonus (% of max)
LTIP vesting (% of max)
FY21
Tim Stacey
FY20
Tim Stacey
FY19
Tim Stacey
2,007
100%
100%
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.
4. Tim Stacey’s single figure for FY21 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 £243k and vested on
16 November 2020
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 110
Directors’ remuneration report continued
P E R C E N TA G E C H A N G E I N T H E
D I R E C T O R S ’ R E M U N E R AT I O N
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. The Executive Directors received a salary
increase of 10% for FY21.
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.
Annual % change
CEO
CFO
Non-Executive Directors
Employee pay
Tim Stacey
Mike Schmidt
Ian Durant
Alison Hutchinson
Jo Boydell
Steve Johnson
Jane Bednall
FY19-FY20
FY20-FY21
Base salary
Benefits
Annual bonus
Base salary
Benefits
Annual bonus
2%
39%
5%
17%
81%
79%
n/a
0%
41%
0%
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
10%
10%
2%
2%
2%
2%
2%
2%
-6%
10%
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
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 which has been calculated by adding together
In line with the regulations, this analysis will be extended up to five years in the future.
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 Schmidt 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 NEDs all took a 20% reduction in their fees in May and June 2020 to support the business through the pandemic (see single figure remuneration table for Non-Executive Directors on page 107 for further details),
the changes in fees above also represent a number of changes to roles:
a. Luke Mayhew stepped down from the Board in FY20 ( on 15 November 2019) and therefore has been excluded from this table from FY21
b. Alison Hutchinson was appointed Senior Independent Director on 26 September 2019.
c.
d.
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.
Jane Bednall was appointed to the Board on 1 January 2020.
Jo Boydell was appointed to the Board on 6 December 2018 and appointed as Chair of the Audit Committee on 1 April 2019.
6. With regards to the annual bonus for the wider employee population, payments for targets achieved (for the NPS and personal performance measures) were withheld until the first half of FY21 and were subject to achievement
of a financial underpin.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
R E L AT I V E I M P O R TA N C E O F S P E N D O N P AY
The table below sets out the overall spend on pay for all employees compared with the returns distributed
to shareholders.
Adjusted EPS (50%)
Percentage of this portion of the Award vesting
Nil
20%
60%
100%
111
Between 20% and 60%
on a straight-line basis
Between 60% and 100%
on a straight-line basis
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.
2021
£197.7m
–
2020
% change
£186.5m
£17.0m
+6.0%
n/a
S TAT E M E N T O F I M P L E M E N TAT I O N O F R E M U N E R AT I O N P O L I C Y I N F Y 2 2
Base salary
The base salaries of the Executive Directors will be reviewed in April 2022 along with the wider workforce.
The expectation is that any increases would be in line with the wider workforce.
Pension and benefits
The pension contribution for Tim Stacey for FY22 will be £50,000 and for Mike Schmidt will be £29,250 for
the same period (less employers NI cost).
Benefits provided will be in line with the Policy.
Annual bonus
The operation of the bonus for FY22 will be in line with the new Policy. The bonus opportunity for the CEO
will be 120% of salary and for the CFO 110% of salary.
For FY22, bonus performance will be based 70% on financial measures: 20% Revenue, 30% Profit before
tax, 20% Free Cash Flow and 30% on non-financial measures: 15% Strategic ESC objectives
(Environmental 5%, Social – Inclusion 5%, Customer – Average NPS 5%) and 15% Personal objectives.
Targets are deemed commercially sensitive and will be disclosed retrospectively following the end of the
performance period.
LTIP
The operation of the LTIP for FY22 will be in line with the new Policy. The maximum LTIP award level
will be 175% of salary for the CEO and 140% of salary for the CFO. In its ordinary course of determining
LTIP targets the Committee took into account the latest available analyst forecasts, business plans and
projections. In doing so the Committee observed variance in long-term analyst forecasts, reflecting the
ongoing uncertainty as retailers emerge from Covid-19. Taking these points of reference into account,
and the increased level of opportunity for FY22, the Committee purposefully set the threshold EPS target
at a level broadly aligned with long-term analyst consensus but the maximum EPS target at a level that
would require significant outperformance of analyst consensus, plan and historic (pre Covid-19) levels
of EPS. In determining the stretch associated with the TSR targets, the Committee took into account
recent TSR performance relative to other retailers and indices more generally as well as long-term analyst
forecasts and the current share price relative to historic levels. The Committee concluded that a maximum
target of 10% p.a. growth in TSR continued to represent a stretching target for the TSR element.
Performance targets and weightings are set out below.
Less than 24.8p
24.8p
26.1p
28.7p or more Between 24.8p and 26.1p
Between 26.1p and 28.7p
Relative TSR (50%)
Percentage of this portion of the Award vesting
Weighting
Nil
20%
100%
Between 20% and 100%
on a straight line basis
15% (FTSE 250
Index) Excluding
Investment Trusts
Below FTSE 250 Index Equal to FTSE 250
Index
10% p.a. above the
FTSE 250 Index return
Between FTSE 250 Index
return and 10% p.a.
35% (FTSE 350
General Retailers
Index)
Below FTSE 350
General Retailers
Index
Equal to FTSE 350
General Retailers
Index
10% p.a. above the
FTSE 350 General
Retailers Index return
Between FTSE 350
General Retailers Index
return and 10% p.a.
Non-Executive Director fees
The intention is to carry out a review of fees in readiness to make any increases from April 2022 at the
same time as the wider workforce.
G E N D E R P AY G A P R E P O R T I N G A N D D I V E R S I T Y A N D
I N C L U S I V E N E S S I N I T I AT I V E S
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 2020
in September 2021 and it is available online: https://dfscorporate.co.uk/
We recognise that there continues to be a gender pay gap in the business, although the mean and median
gaps fell 3.0% and 1.2% 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 11.8% mean and 8.9% 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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Directors’ remuneration report continued
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.
Pay and benefits for the relevant employees have been calculated on a full-time equivalent basis and there
was no reliance on estimates.
112
Further information can be found in the Responsibility and sustainability Report on pages 51 to 70 of this
Annual Report.
I N C L U S I V I T Y A N D D I V E R S I T Y
Across the Group, we are committed to our ambition to reflect the customers we serve and the
communities we live and work in, and to building a workplace where everyone is welcome. We have made
good progress over the last 6-12 months in building a culture-first strategy, kick starting the conversation
around inclusion with internal education and engagement activity, alongside the creation of longer-term
plans by brand and function to make a measurable difference to the diversity of our workforce.
Activity to date in FY21 has included:
– The creation and implementation of an Inclusive Leaders workshop with an external partner, to be rolled
out across out entire leadership community.
– Beginning a partnership with LGBTQ+ charity Stonewall, to support with education, policy reviews and
the launch of an LGBTQ+ Allyship network.
– Implementing an Inclusion Impact Assessment to be applied to all Capital projects, ensuring careful
consideration of the effect on all protected characteristics.
– Active involvement in Pride Month, to include our first external show of support in the DFS Tottenham
Court showroom with an affiliation to a local LGBTQ+ Charity supporting education in schools.
– The formal creation of an Inclusion Council made up of representatives from minority groups across
the business, to act as a sounding board for our plans and to act as the voice of our colleagues.
– Development of governance around Inclusion as a Transformational project, including monthly steering
groups with executive sponsorship and a Programme Board responsible for delivery for change by brand
and function.
CEO pay ratio
This is the second year in which we are required to disclose the CEO Pay ratio.
As for last year, the Company has adopted Option B: Gender Pay Gap data, this approach was considered
to remain appropriate due to data availability and to allow consistency with prior year comparison. 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 for each year were identified in April (2021 and 2020) using our
Gender Pay Gap data. 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) and June 2021 (financial year
FY21). The pay and benefits figure includes:
– all earnings paid through the payroll, e.g. salary, bonus, long-term incentives
– the value of the employer pension contributions
– 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 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 FY21 and 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.
F Y 2 1 A N D F Y 2 0 P AY R AT I O D ATA
Year
2021
Method
Measure
CEO
Option B
Pay Ratio
Salary
£410,000
Total pay
and benefits
£2,027,809
2020
Option B
Pay Ratio
Salary
Total pay
and benefits
£386,667
£568,399
25th
percentile
76:1
£23,864
£26,691
24:1
£21,850
£23,644
50th
percentile
66:1
£28,470
£30,905
20:1
£25,648
£28,740
75th
percentile
61:1
£31,000
£33,110
16:1
£30,367
£35,048
The change in pay ratio is primarily due to 100% of maximum vesting outcome on both the FY21 annual
bonus and 2018 LTIP Award.
It is also reflective of the increase to the CEO’s salary from 1 April 2021 which the Committee initially
envisaged as being a stepped increase over two years but was delayed in relation to the pandemic and
so a larger increase occurred in a single year.
M AT T E R S C O V E R E D D U R I N G T H E C O M M I T T E E ’ S M E E T I N G S I N F Y 2 1
As at 27 June 2021, the Committee consisted of the following members:
– Steve Johnson Chair
– Alison Hutchinson
– Jo Boydell
– Jane Bednall
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ remuneration report continued
The key matters covered by the Committee during the year are summarised below.
July 20
Sep 20
Feb 21
April 21
Matter
Reviewed base salaries for FY21
Approved bonus outcomes for 2020
Approved bonus scorecard for FY21 and monitored interim
performance
Signed-off LTIP performance outcomes for 2018 LTIP
Reviewed Covid-19 impact pay report
Appointed Willis Towers Watson
Approved LTIP performance targets for 2021 LTIP
Signed-off Directors Remuneration Report
Reviewed pay and conditions for wider workforce
Review of people and reward calendar
Review of Remuneration Committee calendar
Review of corporate governance code changes and market practice
update
FY21 annual pay review
Gender pay reporting and diversity and inclusiveness initiatives
Remuneration policy review updates
Note:
Details of meeting attendance by Committee members can be found on page 79 of this Annual Report.
113
I N T E R N A L A N D E X T E R N A L S U P P O R T F O R T H E C O M M I T T E E
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 during FY21 from PwC and Willis Towers Watson. PwC were the
Committee’s independent advisors until October 2020 when further to a competitive tender process,
Willis Towers Watson were appointed as the Committees independent advisors.
Both Willis Towers Watson and PWC are considered by the Committee to be objective and independent,
both 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 Willis Towers
Watson 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 £22,250. The total
fees paid to Willis Towers Watson in respect of services to the Committee during the year were £51,000.
All fees were determined based on the scope and nature of the projects undertaken for the Committee.
Steve Johnson
Chair of the Remuneration Committee
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Directors’ report
The Directors’ Report includes
information required to be
disclosed under the Companies
Act 2006 (“the Act”), the UK
Corporate Governance Code
(“the Code”), the Financial
Conduct Authorities Listing
Rules (“Listing Rules”) and the
Disclosure and Transparency
Rules (“DTRs”).
DFS Furniture plc
Registered office address:
1 Rockingham Way,
Redhouse Interchange,
Adwick-le-Street, Doncaster,
DN6 7NA
Company Number:
07236769
Date of Incorporation:
27 April 2010
Telephone Number:
01302 573 200
DFS Furniture PLC ( the “ Company”) 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 27 June 2021.
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 27 June 2021, in accordance with section
415 of the Companies Act 2006.
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.
The Strategic report and this Directors’ report
together with sections of the Corporate
Governance report incorporated by reference,
together form the Management Report for the
purpose of DTR 4.1.8R. The Directors’ Report fulfils
the requirements of the corporate governance
statement for the purposes of DTR 7.2.3R.
The table below makes reference to the relevant
sections of the Annual Report:
Disclosure
Audit Committee Report
Colleague Engagement
Corporate Governance Report
Community
Diversity & Inclusion
Directors’ Interests
Page
83-88
63-67
75-82
69
63
108
Directors’ Remuneration Report
91-113
Executive Share Plans
Health & Safety
Modern Slavery
Independent Auditors
Internal Controls / Risk Management
Nomination Committee Report
S.172 & Stakeholder Engagement
108
66
57
118-124
36-45
89-90
46-50
A N N U A L G E N E R A L M E E T I N G
( “A G M ” )
The Company’s next AGM will take place on
12 November 2021 at DFS Head Office,
1 Rockingham Way, Redhouse Interchange,
Adwick-le-Street, Doncaster, DN6 7NA at 3:30pm.
Due to the uncertainty around the Covid-19
pandemic, the Board took the difficult decision
to hold a closed AGM on 13 November 2020,
with shareholders not permitted to attend.
Throughout the year the Board has followed the
evolution of hybrid meetings and reviewed best
practice adopted by listed companies, as well as
monitoring the ongoing restrictions imposed by the
Government. The Company will seek the approval
of shareholders at the 2021 AGM to allow hybrid
meetings for the future.
Restrictions related to the pandemic were
substantively lifted on 19 July therefore the
intention of the Company is to host the AGM
with no restrictions. All shareholders are therefore
welcome, and actively encouraged to attend
the AGM. Further information on this, including
resolutions to be tabled at the meeting, will
be found in the Notice of AGM to be received
in September.
Shareholders should continue to monitor the
Company’s website for the most up to date
information on the arrangements for the AGM.
To encourage shareholders to participate in the
AGM process, the Company offers 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.
114
D I R E C T O R S
The membership of the Board and biographical
details of the Directors are provided on pages 72 to
and 74. 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 108. Options granted to directors under
the Save As You Earn (“SAYE”), and Executive Share
Option Schemes are shown on page 106. Further
information regarding employee share option
schemes is provided in note 25 to the financial
statements.
Director
Ian Durant
Position
Chair
Tim Stacey
Chief Executive
Officer
Mike Schmidt
Chief Financial
Officer
Alison Hutchinson Senior
Independent
Non-Executive
Director
Service in the year
ended 27 June
2021
Served
throughout
the year
Served
throughout
the year
Served
throughout
the year
Served
throughout
the year
Jo Boydell
Steve Johnson
Jane Bednall
Loraine Martins
Independent
Non-Executive
Director
Served
throughout
the year
Independent
Non-Executive
Director
Served
throughout
the year
Independent
Non-Executive
Director
Served
throughout
the year
Independent
Non-Executive
Director
Appointed
28 June 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Directors’ report continued
Appointment & Removal of Directors
Directors are appointed or replaced in accordance
with the Company’s Articles of Association (the
“Articles”), the Act and the Code. The Articles
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 Directors stand for re-election on an annual
basis at the Company’s AGM in accordance with
the recommendations of the Code. The business
of the Company will be managed by the Board in
accordance with the Articles, the Act and any
directions given by special resolution.
Executive Directors’ Contracts
The Executive Directors serve under rolling contracts.
Details of which are set out on page 102 of the
Directors’ Remuneration Report. Non-Executive
Directors have letters of appointment. The term is
for an initial period of two three-year terms with a
provision for termination on three months’ notice
from either party, or six months’ notice from either
party in the case of the Chairman. Letters are then
renewed annually.
The letter of appointment will terminate without
compensation if the Director is not reappointed
at the AGM. The Directors’ service contracts and
letters of appointment are available for inspection
by shareholders at the Company’s registered
office 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’ indemnities and insurance
In accordance with the Companies Act 2006
and the Company’s Articles, the Company has
purchased and has maintained throughout the
year, directors’ and officers’ liability insurance cover.
This cover has been renewed during the period and
remains in force at the date of this report. An annual
review is carried out to ensure that the Board
remains satisfied that an appropriate level of cover
is in place.
Each Director and Officer also has the benefit of a
qualifying indemnity, as defined by the Act, and as
permitted by the Articles, providing cover for any
liabilities incurred in the performance of their duties.
Neither arrangement provides cover should it be
proven that the Director acted fraudulently or
dishonestly. No amount was paid under these
arrangements in the period other than the
applicable insurance premiums.
Conflicts of interest
The company has robust procedures in place to
identify, authorise and manage potential or actual
conflicts of interest, and these procedures have
operated effectively during the year. Where
potential conflicts arise, they are reviewed, and if
appropriate, approved by the Board. Processes for
managing such conflicts are put in place to ensure
no conflicted Director is involved in any decision
related to his or her conflict. Directors’ other key
appointments are set out in the Directors’
biographies on pages 73 and 74.
Dividends
On 10 March 2021 the Board announced its interim
results, however in order to preserve liquidity in the
continued uncertainty of the pandemic, no interim
dividend was paid. The Board recognises the
importance of dividend payments to shareholders
and proposes a final dividend payment of 7.5p per
share to be paid in respect of the 52 weeks ended
27 June 2021. The final dividend will be paid on
23 December to all shareholders on the register
at 26 November 2021. The Company’s shares
will trade ex-dividend from 25 November 2021.
The dividend is subject to approval by shareholders
at the AGM on 12 November 2021.
No interim dividend
(last year 0.0p per share)
7.5p proposed final
dividend
Total dividend of 7.5p
per share for 2020/21
(last year 0.0p per share)
(last year 0.0p per share)
Substantial Shareholders
As at 10 September 2021, 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:
Number of
Ordinary
Shares
% voting
rights
Date of
notification
24,294,528
9.40
Investor
Liontrust
Sustainable
Investments
25 Nov
2019
30 Apr
2020
13 Apr
2020
20 Oct
2020
17 Feb
2021
12 Dec
2019
26 Sep
2017
24 May
2021
7 June
2021
Aviva Investors
21,818,822
8.44
Franklin Templeton
Fund Mgt
19,524,928
7.56
Jupiter
Asset Mgt
JO Hambro
Capital Mgt
Pelham
Capital Mgt
Stadium
Capital Mgt
16,856,645
6.52
15,540,459
6.01
15,498,121
6.00
13,898,874
5.38
Aberforth Partners 13,176,711
5.10
12,768,091
4.94
Aberdeen
Standard
Investments
(Standard Life)
Janus Henderson
Investors
11,442,840
4.43
115
Takeover directive information
Following the implementation of the European
Directive on Takeover Bids by certain provisions of
the Companies Act 2006, the Company is required
to disclose certain additional information in the
Directors’ Report. This information is set out below:
Share capital & Treasury Shares
The Company has only one class of shares,
Ordinary Shares of £0.10 pence each.
As at 23 September, the Company had an issued
share capital of 258,636,720 ordinary shares of
£0.10p each.
On 27 June 2021, the Company held 250,332
Ordinary Shares in treasury (2020:266,473).
Treasury shares are held in the expectation that
they will be utilised to satisfy future share-based
employee-awards.
Details of the Company’s share capital are set out in
note 22 to the consolidated financial statements.
The rights and obligations attached to these shares
are governed by Companies Act 2006 and the
Company’s Articles. At a general meeting of the
Company, on a show of hands, every shareholder
present in person or by proxy has one vote only and,
in the case of a poll, every shareholder present in
person or by proxy has one vote for every share in
the capital of the Company held by him or her.
Under the Company’s code on dealings in
securities in the Company, persons discharging
managerial responsibilities and some other senior
executives may in certain circumstances be
restricted as to when they can transfer shares
in the Company.
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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 116
medium and long-term facilities in place, including
a £225.0m senior revolving credit facility, extended
during the year until December 2023
with two further one-year extension options.
Out of this £225.0m, £8.0m is currently utilised at
the date of this report. Further details of the
facilities and the Group’s financial management
objectives are detailed in note 24 to the financial
statements on pages 154 to 157.
On the basis of their assessment of the Group’s
financial position, forecasts and projections,
the Company’s Directors have a reasonable
expectation that the Company and the Group will
be able to continue in operational existence as
detailed in the Viability Statement on page 45.
Thus, they continue to adopt the going concern
basis of accounting in preparing the annual
financial statements.
This report has been approved by the Board of
Directors and has been signed on its behalf by:
Elizabeth McDonald
Group General Counsel & Company Secretary
23 September 2021
Directors’ report continued
Authority to purchase own shares
At the last AGM of the Company on 13 November
2020, 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 12 November 2021 unless revoked,
varied, or renewed prior to that meeting.
A resolution will be proposed at the 2021 AGM
to renew this authority.
Authority to allot shares
At the last AGM of the Company on 13 November
2020, the Company was granted a general
authority by its shareholders to allot shares up to
an aggregate nominal amount of £127,685,124
(or up to £255,370,247 in connection with an offer
by way of a rights issue).
During the year, the Company allotted 3,000,000
new ordinary shares of £0.10 pence each for the
purposes of satisfying the vesting of outstanding
awards granted between 2017 and 2019 under the
DFS Furniture plc 2015 Long Term Incentive Plan,
the DFS Furniture plc 2015 Restricted Share Plan
and the DFS Furniture plc Share save Scheme. The
shares were purchased at nominal value by the DFS
Furniture plc Equity Plan Employee Trust (the “EBT”)
– the Company’s employee benefit trust.
A resolution will be proposed at the 2021 AGM
to renew this authority.
Change of control
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 change of
control provisions. Outstanding options and awards
may vest on a change of control.
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.
Articles of Association
The Articles of Association of the Company can
only be amended by special resolution at a general
meeting of the shareholders.
The Company proposes to adopt revised articles of
association at the 2021 AGM. Due to the pandemic
the 2020 AGM was a closed meeting with the
minimum shareholders present to achieve a
quorum and the Company appreciates that
shareholders may not have been able to express
their views appropriately. The proposed
amendment to the articles will allow for hybrid
physical and online meetings to be held in the
future and will ensure adequate measures are in
place to facilitate engagement with shareholders.
T R E A S U R Y A N D R I S K M A N A G E M E N T
The Company’s approach to treasury and financial
risk management, including its use of hedging
instruments, is explained in the Risks and
Uncertainties section on page 44 and note 24
to the annual financial statements.
I N D E P E N D E N T A U D I T O R S
In accordance with section 489 of the Companies
Act 2006 and the recommendation of the Audit
and Risk Committee, a resolution is to be proposed
at the AGM for the reappointment of KPMG LLP
as auditor of the Group.
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.
Subsequent events
Between 27 June 2021 and the date of this report,
Loraine Martins was appointed to the Board as an
Independent Non-Executive Director and the
Board established the Responsible and Sustainable
Business Committee. There were no further
reportable events.
D I S C L A I M E R
This Directors’ Report, Strategic Report and the
financial statements contain certain forward-
looking statements with respect to the financial
condition, results, operations, and business of DFS
Furniture plc. These statements and forecasts
involve risk and uncertainty because they relate to
events and depend upon circumstances that will
occur in the future. There are a number of factors
that could cause actual results or developments to
differ materially from those expressed or implied by
these forward-looking statements and forecasts.
Nothing in this Directors’ Report and Strategic
Report or in these financial statements should be
construed as a profit forecast.
Donations
The Group does not make any political donations.
The Group has a policy of not making donations
to political organisations or independent election
candidates.
The Group made charitable donations of £138,000
during the year.
Going concern
The performance of the Group throughout the
pandemic has been resilient. The Group remains
highly cash generative and currently has sufficient
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 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 are
required to prepare the Group financial statements
in accordance with international accounting
standards in conformity with the requirements of
the Companies Act 2006 and applicable law and
have elected to prepare the parent Company
financial statements in accordance with UK
accounting standards and applicable law, including
FRS 101 Reduced Disclosure Framework. In
addition, the Group financial statements are
required under the UK Disclosure Guidance and
Transparency Rules to be prepared in accordance
with International Financial Reporting Standards
adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union
(“IFRSs as adopted by the EU”).
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.
Under applicable law and regulations, the directors
are also responsible for preparing a Strategic
Report, Directors’ Report, Directors’ Remuneration
Report and Corporate Governance Statement
that complies with that law and those regulations.
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.
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 the Group’s 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, reliable, and prudent.
– For the Group financial statements, state
whether they have been prepared in accordance
with international accounting standards in
conformity with the requirements of the
Companies Act 2006 and International Financial
Reporting Standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in
the European Union (“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 parent company 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.
117
Responsibility statement of the directors in
respect of the annual financial report
Each of the Directors whose names and functions
are set out on pages 73 and 74 confirms that, to
the best of their 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 strategic report/directors’ 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.
We consider the annual report and accounts, 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 Directors’ Report was approved by a duly
authorised committee of the Board of Directors on
23 September 2021 and signed on its behalf by:
Elizabeth McDonald
Group General Counsel & Company Secretary
23 September 2021
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 118
Independent auditor’s report
to the members of DFS Furniture plc
1 . O U R O P I N I O N I S U N M O D I F I E D
We have audited the financial statements of DFS
Furniture plc (“the Company”) for the year ended
27 June 2021 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 the 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 27 June 2021 and of
the Group’s profit for the year then ended;
– The Group financial statements have been
properly prepared in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006;
– 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 to the extent applicable.
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.
Overview
Materiality:
group financial
statements as a
whole
Coverage
Key audit matters
Recurring risks
We were first appointed as auditor by the
shareholders on 6 July 2015. The period of total
uninterrupted engagement is for the 7 financial
years ended 27 June 2021. A competitive tender
process was run in 2021 for the FY22 year end
audit. 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.
£3.0m (2020:£1.8m)
4.2% (2020: 3.6%) of three
financial year average absolute
Group profit/loss before tax
excluding non-underlying items
91% (2020:72%) of Group profit
before tax (2020: Group loss
before tax)
vs 2020
Going concern
Recoverability of goodwill and of
the parent’s investment in
subsidiaries and receivables from
other group companies
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Independent auditor’s report continued
2 . K E Y A U D I T M AT T E R S : O U R A S S E S S M E N T O F R I S K S O F M AT E R I A L M I S S TAT E M E N T
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 decreasing order of audit significance, 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.
119
Going concern
Refer to page 36 (Principal Risks),
page 45 (Viability reporting), page 85
(Audit Committee Report), page 116
(Director’s report) and page 131
(accounting policy).
The risk
Disclosure quality:
Our response
Our procedures included:
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 to operate 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 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;
– Reduced customer demand for furniture as we exit the Covid-19 pandemic; and
– Regulatory changes to the sale of financial products, including extended warranties.
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 the fact would have been required to be disclosed.
– 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 forecast accuracy versus actual cash flow 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 sensitivity of 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 scenarios, including various Covid-19 lockdown scenarios, and a
reduction in sales due to a decrease in customer confidence;
– 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, and reduction in bonuses; and
– 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 (2020:
acceptable).
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 120
Independent auditor’s report continued
2 . K E Y A U D I T M AT T E R S : O U R A S S E S S M E N T O F R I S K S O F M AT E R I A L M I S S TAT E M E N T C O N T I N U E D
The risk
Our response
Recoverability of goodwill and
of the parent’s investment
in subsidiaries and receivables from
other group companies.
Forecast based assessment:
There is a risk 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.
Group’s goodwill £509.3m; 2020
£509.3m; impairment expense
£0m (2020: £5.3m) parent Company’s
investment in subsidiaries £250.1m;
2020: £246.5m; parent Company’s
receivables £355.7m; 2020 £356.7m)
Refer to page 85 (Audit Committee
Report), page 133 (accounting policy),
note 10 on page 147 (financial
disclosures), notes 2 and 3 to parent
Company financial statements on
page 163.
This risk remains significant in light of FY20 financial 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. In conducting our
final audit work we concluded that reasonably possible changes to the value in use would not be
expected to result in material impairment.
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 and discount
factor in order to determine their impact on the value in use calculations;
– Our sector experience: Engaged our internal valuation specialists to asses and challenge
the discount rate by obtaining the detail of the inputs used in the discount rate calculation,
benchmarking 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 and receivables.
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
(2020: acceptable).
For each of the key audit matters reported, we performed the detailed tests above rather than seeking to rely on any of the Group’s controls. This is because our knowledge of the design of these controls indicated that
we would not be able to obtain the required evidence to support reliance on controls.
In the prior year we reported a key audit matter in respect of the impact of uncertainties due to the UK exiting the European Union. Following the trade agreement between the UK and the EU, and the end of the EU-exit
implementation period, the nature of these uncertainties has changed. We continue to perform procedures over material assumptions in forward looking assessments such as going concern and impairment tests
however we no longer consider the effect of the UK’s departure from the EU to be a separate key audit matter.
We continue to perform procedures over the DFS Trading Guarantee Provision. However, due to its size relative to materiality, the consistency in approach taken by management in previous years, and the availability of
corroborating data supporting the assumptions within the model, we have not assessed this as one of the most significant risks in our current year audit and, therefore, it is not separately identified in our report this year.
We continue to perform procedures over IFRS 16. However, as the key audit matter recognised in the previous year was specifically over the transition, we have not assessed this as one of the most significant risks in our
current year audit and, therefore, it is not separately identified in our report this year.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 121
Independent auditor’s report continued
3 . O U R A P P L I C AT I O N O F
M AT E R I A L I T Y A N D A N O V E R V I E W
O F T H E S C O P E O F O U R A U D I T
Materiality for the Group financial statements as a
whole was set at £3.0m (2020: £1.8m), 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 4.2% (2020: 3.6%).
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 £1.6m (2020:
£1.0m), determined with reference to a benchmark
of the parent Company total assets, of which it
represents 0.26% (2020: 0.17%).
In line with our audit methodology, our procedures
on individual account balances and disclosures were
performed to a lower threshold, performance
materiality, so as to reduce to an acceptable level
the risk that individually immaterial misstatements
in individual account balances add up to a material
amount across the financial statements as a whole.
Three financial year average
absolute Group profit/loss
before tax excluding
non-underlying items
£3.0m (2020: £50.2m)
Performance materiality was set at 75% (2020:
75%) of materiality for the financial statements as a
whole, which equates to £2.25m (2020: £1.35m) for
the group and £1.2m (2020: £0.75m) for the parent
company. We applied this percentage in our
determination of performance materiality because
we did not identify any factors indicating an
elevated level of risk.
We agreed to report to the Audit Committee any
corrected or uncorrected identified misstatements
exceeding £0.15m (2020: £0.09m), in addition to
other identified misstatements that warranted
reporting on qualitative grounds.
Of the group’s 9 (2020: 9) reporting components,
we subjected 3 (2020: 3) to full scope audits for
group purposes.
■ Normalised profit
■ Group materiality
Group materiality
£3.0m (2020: £1.8m)
£3.0m
Whole financial statements materiality (2020: £1.8m)
£2.25m
Whole financial statements performance materiality (2020: £1.35m)
£2.55m
Range of materiality at 9 components (£1.3m-£2.55m) (2020: £0.1m to £1.5m)
£0.15m
Misstatements reported to the audit committee (2020: £0.09m)
The components within the scope of our work
accounted for the percentages illustrated opposite.
The work on all components, including the audit of
the parent company, was performed by the Group
audit team.
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.
Group revenue
Group profit before tax
Group total assets
97%
(2020 – 93%)
91%
(2020 – 72%)
97%
(2020 – 97%)
■ Full scope for group audit purposes 2021
■ Full scope for group audit purposes 2020
■ Residual components
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Independent auditor’s report continued
4 . G O I N G C O N C E R N
The Directors have prepared the financial
statements on the going concern basis as they do
not intend to liquidate the Group or the Company
or to cease their operations, and as they have
concluded that the Group’s and the Company’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”).
An explanation of how we evaluated management’s
assessment of going concern is set out in the
related key audit matter in section 2 of this report.
Our conclusions based on this work:
– We consider that the directors’ use of the going
concern basis of accounting in the preparation
of the financial statements is appropriate;
– We have not identified, and concur with the
directors’ assessment that there is not, a
material uncertainty related to events or
conditions that, individually or collectively,
may cast significant doubt on the Group’s
or Company’s ability to continue as a going
concern for the going concern period;
– We have nothing 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
Company’s use of that basis for the going
concern period, and we found the going concern
disclosure in note 1 to be acceptable; and
– The related statement under the Listing Rules
set out on page 116 is materially consistent
with the financial statements and our audit
knowledge.
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 above conclusions are not a guarantee that the
Group or the Company will continue in operation.
5 . F R A U D A N D B R E A C H E S
O F L A W S A N D R E G U L AT I O N S
– A B I L I T Y T O D E T E C T
Identifying and responding to risks of material
misstatement due to fraud
To identify risks of material misstatement due to
fraud (“fraud risks”) we assessed events or
conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity
to commit fraud. Our risk assessment procedures
included:
– Enquiring of directors, the audit committee,
internal audit and general counsel and company
secretary as to the Group’s high-level policies
and procedures to prevent and detect fraud,
including the internal audit function, and the
Group’s channel for “whistleblowing”, as well as
whether they have knowledge of any actual,
suspected or alleged fraud.
– Reading Board and audit committee minutes.
– Considering remuneration incentive schemes
and performance targets for management/
directors.
– Using analytical procedures to identify any
unusual or unexpected relationships.
We communicated identified fraud risks throughout
the audit team and remained alert to any
indications of fraud throughout the audit.
122
As required by auditing standards, and taking into
account possible pressures to meet profit targets
and the unusually high trading and order book
during the financial year, we perform procedures
to address the risk of management override
of controls and the risk of fraudulent revenue
recognition, the risk that Group management may
be in a position to make inappropriate accounting
entries, and the risk of bias in accounting estimates
and judgements such as provisions.
We did not identify any additional fraud risks.
In determining the audit procedures we took into
account the results of our evaluation of some of
the Group-wide fraud risk management controls.
We performed procedures including:
– Identifying journal entries to test for all full scope
components based on risk criteria and
comparing the identified entries to supporting
documentation. These included unexpected
accounts combinations, and unusual cash
journals.
– Evaluated the business purpose of significant
unusual transactions.
– Assessing significant accounting estimates
for bias.
Identifying and responding to risks of material
misstatement due to non-compliance with laws
and regulations
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.
As the Group is regulated, our assessment of risks
involved gaining an understanding of the control
environment including the entity’s procedures
for complying with regulatory requirements,
in particular the current FCA focus on consumer
duty with regards to the provision of Sofacare.
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. We identified the following areas as those
most likely to have such an effect: health and safety,
anti-bribery, employment law, regulatory capital and
liquidity and certain aspects of company legislation
recognising the financial and regulated nature of
the Group’s activities and its legal form. Auditing
standards limit the required audit procedures to
identify non-compliance with these laws and
regulations to enquiry of the directors and
inspection of regulatory and legal correspondence,
if any. Therefore if a breach of operational
regulations is not disclosed to us or evident from
relevant correspondence, an audit will not detect
that breach.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Independent auditor’s report continued
5 . F R A U D A N D B R E A C H E S
O F L A W S A N D R E G U L AT I O N S
– A B I L I T Y T O D E T E C T C O N T I N U E D
Context of the ability of the audit to detect fraud
or breaches of law or regulation
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
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 fraud, as these may
involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal
controls. Our audit procedures are designed to
detect material misstatement. We are not
responsible for preventing non-compliance or fraud
and cannot be expected to detect non-compliance
with all laws and regulations.
6 . W E H A V E N O T H I N G T O R E P O R T
O N T H E O T H E R I N F O R M AT I O N I N
T H E A N N U A L R E P O R T
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
We are required to perform procedures to identify
whether there is a material inconsistency between
the directors’ disclosures in respect of emerging
and principal risks and the viability statement, and
the financial statements and our audit knowledge.
Based on those procedures, we have nothing
material to add or draw attention to in relation to:
– The directors’ confirmation within the Viability
Reporting (page 45) that they have carried out
a robust assessment of the emerging and
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 how emerging risks
are identified, 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
We are also required to review the Viability
Reporting (page 45) under the Listing Rules. Based
on the above procedures, we have concluded that
the above disclosures are materially consistent with
the financial statements and our audit knowledge.
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 Company’s longer-
term viability.
123
Corporate governance disclosures
We are required to perform procedures to identify
whether there is a material inconsistency between
the directors’ corporate governance disclosures
and the financial statements and our audit
knowledge.
Based on those procedures, we have concluded
that each of the following is materially consistent
with the financial statements and our audit
knowledge:
– 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;
– The section of the annual report describing the
work of the Audit Committee, including the
significant issues that the audit committee
considered in relation to the financial
statements, and how these issues were
addressed; and
– The section of the annual report that describes
the review of the effectiveness of the Group’s
risk management and internal control systems.
We are required to review the part of the Corporate
Governance Statement relating to the Group’s
compliance with the provisions of the UK Corporate
Governance Code specified by the Listing Rules
for our review. We have nothing to report in
this respect.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
Independent auditor’s report continued
124
7 . W E H A V E N O T H I N G T O R E P O R T
O N T H E O T H E R M AT T E R S O N
W H I C H W E A R E R E Q U I R E D T O
R E P O R T B Y E X C E P T I O N
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.
9 . T H E P U R P O S E O F O U R A U D I T
W O R K A N D T O W H O M W E O W E
O U R R E S P O N S I B I L I T I E S
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
23 September 2021
8 . R E S P E C T I V E R E S P O N S I B I L I T I E S
Directors’ responsibilities
As explained more fully in their statement set out
on page 117, 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 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 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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS
S T R AT E G I C
R E P O R T
R E S P O N S I B I L I T Y
& S U S TA I N A B I L I T Y
G O V E R N A N C E
R E P O R T
125
Financial
statements
This section presents details
of the Group’s and the Company’s
financial performance and position
as at 27 June 2021.
C O N T E N T S
126 Consolidated income statement
127 Consolidated statement of
comprehensive income
128 Consolidated balance sheet
129 Consolidated statement of changes in equity
130 Consolidated cash flow statement
131 Notes to the consolidated financial statements
160 Company balance sheet
161 Company statement of changes in equity
162 Notes to the Company financial statements
165 Financial history
166 Shareholder information
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021FINANCIAL STATEMENTS
52 weeks to 27 June 2021
Non-underlying
£m
–
Underlying
£m
1,368.7
1,067.7
(466.5)
601.2
(303.4)
(75.2)
222.6
(77.4)
(7.9)
–
137.3
–
(32.9)
104.4
(11.9)
92.5
–
–
–
–
(2.1)
(2.1)
–
–
–
(2.1)
–
(3.1)
(5.2)
1.4
(3.8)
Total
£m
1,368.7
1,067.7
(466.5)
601.2
(303.4)
(77.3)
220.5
(77.4)
(7.9)
–
135.2
–
(36.0)
99.2
(10.5)
88.7
52 weeks to 28 June 2020
Non-underlying
£m
–
Underlying
£m
935.0
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)
–
(3.1)
(3.1)
(2.1)
(0.2)
(5.4)
–
–
(11.2)
(16.6)
–
–
(16.6)
0.9
(15.7)
36.0p
35.6p
(1.5)p
(1.4)p
34.5p
34.2p
(24.3)p
(24.3)p
(7.1)p
(7.1)p
(31.4)p
(31.4)p
126
Total
£m
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)
Consolidated income statement for 52 weeks ended 27 June 2021 (52 weeks ended 28 June 2020)
Gross sales1
Revenue
Cost of sales
Gross profit
Selling and distribution costs
Administrative expenses
Operating profit before depreciation, amortisation and impairment
Depreciation
Amortisation
Impairments
Operating profit/(loss)
Finance income
Finance expenses
Profit/(loss) before tax
Taxation
Profit/(loss) for the period
Earnings per share
Basic
Diluted
Note
1, 2
2
3
2, 3
5
5
6
7
7
1. Refer to pages 33 to 35 for APM definitions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Consolidated statement of comprehensive income for 52 weeks ended 27 June 2021 (52 weeks ended 28 June 2020)
127
Profit/(loss) 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 for the period, net of income tax
Total comprehensive income/(expense) for the period
52 weeks to
27 June 2021
£m
88.7
52 weeks to
28 June 2020
£m
(69.2)
(22.4)
9.2
1.9
2.6
(8.7)
80.0
3.9
(8.3)
0.7
0.4
(3.3)
(72.5)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Consolidated balance sheet at 27 June 2021 (28 June 2020)
128
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 (excluding bank overdrafts)
Total assets
Current liabilities
Bank overdraft
Trade payables and other liabilities
Lease liabilities
Provisions
Other financial liabilities
Non-current liabilities
Interest bearing loans and borrowings
Lease liabilities
Provisions
Other financial liabilities
Total liabilities
Net assets
Equity attributable to owners of the Company
Share capital
Share premium
Merger reserve
Capital redemption reserve
Treasury shares
Employee Benefit Trust shares
Cash flow hedging reserve
Retained earnings
Total equity
Note
8
8, 9
10
12
13
14
12
15
16
9
20
17
18
9
20
17
22
22
22
22
22
22
22
27 June 2021
£m
28 June 2020
£m
91.6
345.1
535.4
0.1
24.7
996.9
61.1
0.1
17.1
6.9
22.7
107.9
1,104.8
(16.7)
(297.4)
(88.1)
(15.1)
(6.7)
(424.0)
(23.1)
(366.0)
(5.7)
(1.5)
(396.3)
(820.3)
284.5
25.9
40.4
18.6
357.8
(0.7)
(0.2)
(8.0)
(149.3)
284.5
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
These financial statements were approved by the
board of directors on 23 September 2021 and were
signed on its behalf by
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
Company registered number: 7236769
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Consolidated statement of changes in equity
Balance at 30 June 2019
Adjustment on initial application of IFRS 16 (net of tax)
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
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Issue of shares to Employee Benefit Trust
Employee Benefit Trust shares issued
Repurchase and cancellation of deferred shares
Settlement of share based payments
Share based payments
Balance at 27 June 2021
Share
capital
£m
319.5
–
319.5
–
–
–
–
–
–
63.9
–
–
383.4
–
–
–
0.3
–
(357.8)
–
–
25.9
Share
premium
£m
40.4
–
40.4
Merger
reserve
£m
18.6
–
18.6
Capital
redemption
reserve
£
–
–
–
Treasury
shares
£m
(2.1)
–
(2.1)
Employee
Benefit Trust
shares
£m
–
–
–
Cash flow
hedging
reserve
£m
7.0
–
7.0
–
–
–
–
–
–
–
–
–
40.4
–
–
–
–
–
–
–
–
40.4
–
–
–
–
–
–
–
–
–
18.6
–
–
–
–
–
–
–
–
18.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
357.8
–
–
357.8
–
–
–
–
(1.1)
2.5
–
–
–
(0.7)
–
–
–
–
–
–
–
–
(0.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
0.1
–
–
–
(0.2)
–
(3.7)
(3.7)
–
–
–
–
–
–
3.3
–
(11.3)
(11.3)
–
–
–
–
–
(8.0)
Retained
earnings
£m
(131.6)
(26.4)
(158.0)
(69.2)
0.4
(68.8)
(15.9)
–
(1.2)
–
(1.6)
2.4
(243.1)
88.7
2.6
91.3
–
1.0
–
(2.1)
3.6
(149.3)
129
Total
equity
£m
251.8
(26.4)
225.4
(69.2)
(3.3)
(72.5)
(15.9)
(1.1)
1.3
63.9
(1.6)
2.4
201.9
88.7
(8.7)
80.0
–
1.1
–
(2.1)
3.6
284.5
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Consolidated cash flow statement for 52 weeks ended 27 June 2021 (52 weeks ended 28 June 2020)
130
Profit/(loss) for the period
Adjustments for:
Income tax expense/(credit)
Finance income
Finance expenses
Exceptional financing costs
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
Gain on disposal of right of use assets
Loss on sale of subsidiaries
Settlement of share based payments
Share based payment expense
Decrease/(increase) in trade and other receivables
Increase in inventories
Increase in trade and other payables
Increase in provisions
Net cash from operating activities before tax
Tax paid
Net cash from operating activities
Investing activities
Proceeds from sale of property, plant and equipment
Proceeds received from sale of subsidiaries
Interest received
Acquisition of property, plant and equipment
Acquisition of other intangible assets
Net cash used in investing activities
Financing activities
Interest paid
Interest paid on lease liabilities
Payment of lease liabilities
Exceptional financing costs
(Repayment)/drawdown of borrowings
Proceeds on issue of shares
Purchase of own shares
Proceeds from sale of own shares
Ordinary dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents (including bank overdraft) at end of period
52 weeks to
27 June 2021
£m
88.7
52 weeks to
28 June 2020
£m
(69.2)
10.5
–
32.9
3.1
19.7
57.7
7.9
–
(1.2)
(1.4)
0.7
(2.1)
3.6
4.6
(2.2)
81.4
3.3
307.2
(8.2)
299.0
1.5
0.3
–
(38.0)
(11.2)
(47.4)
(6.1)
(26.7)
(77.1)
(4.1)
(195.0)
0.3
(0.3)
1.1
–
(307.9)
(56.3)
62.3
6.0
(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
Note
6
5
5
5
8
9
10
3
3
3
25
8
10
9
9
26
22
26
26
26
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 131
Notes to the consolidated financial statements at 27 June 2021
1 A C C O U N T I N G P O L I C I E S
DFS Furniture plc (“the Company”) is a company
incorporated and domiciled 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.
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 1.18.
1.1 Basis of preparation
The consolidated financial statements have
been prepared and approved by the directors in
accordance with both international accounting
standards in conformity with the requirements
of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in
the European Union. 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 27 June 2021 (last year 52 weeks
to 28 June 2020).
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 160 to 164.
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 £225.0m revolving credit facility
with a consortium of seven banks maturing in
December 2023, with two one-year options to
extend the facility, subject to mutual agreement.
At 20 September 2021, £217.0m of the revolving
credit facility remained undrawn, in addition to cash
in hand, at bank of £9.0m.
Covenants applicable to the revolving credit facility
are consistent with those on the previous facility
(prior to the temporary alternative covenants in
place from April 2020 to December 2020): 3.0x net
Debt/EBITDA and 1.5x Fixed Charge Cover, and are
assessed on a six-monthly basis at June and
December. The Directors have prepared cash flow
forecasts for the Group covering a period of at least
twelve months from the date of approval of these
financial statements, which indicate that the Group
will be in compliance with these covenants. These
forecasts include a number of assumptions in
relation to: market size and the Group’s order
intake; impacts on gross margin from regulatory
and other changes; sector-wide manufacturing and
supply chain capacities; 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
scenarios included: further two month Covid-19
related showroom closures; significantly reduced
customer spending; and impacts on gross margin
from inflationary cost pressures. 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 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 Covid-19 pandemic,
and are confident that the Group has adequate
resources to continue to meet all liabilities as and
when they fall due for the foreseeable future and
at least twelve months from the date of approval
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.
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 aftercare services for which the
Group acts as an agent. 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 within a few
days of 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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 1 A C C O U N T I N G P O L I C I E S
C O N T I N U E D
1.3 Gross sales and revenue continued
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 Government grants
Government grants are recognised where there is
reasonable assurance that the Group will comply
with all attached conditions and that the grant will
be received.
When the grant relates to an expense item, it
is recognised as a deduction from the related
expense within the period it becomes receivable.
1.5 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 measured at present value. Finance
income comprises interest receivable on funds
invested, dividend income, and net foreign
exchange gains and losses.
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.
1.6 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.
1.7 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.
132
1.8 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
effective differences arising on qualifying cash flow
hedges, which are recognised directly in other
comprehensive income.
1.9 Business combinations
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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 133
1 A C C O U N T I N G P O L I C I E S
C O N T I N U E D
1.9 Business combinations continued
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.
1.10 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
life of each part of an item of property, plant and
equipment. Land is not depreciated. The estimated
useful lives are as follows:
– Buildings
50 years
– Plant and equipment
3 to 10 years
– Motor vehicles
4 years
Depreciation methods, useful lives and residual
values are reviewed at each balance sheet date.
1.11 Leases
At the inception of a contract, the Group assesses
whether a contract is, or contains, a lease under
IFRS 16. 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.
Lease liability – initial recognition
The Group recognises right of use assets and lease
liabilities at the lease commencement date. The
lease liabilities are recognised at the present value
of future lease payments discounted at the
incremental borrowing rate applicable to the lease.
Lease payments included in the measurement of
the lease liability comprise the following:
In both scenarios, the carrying value of the right of
use asset will generally 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. Generally, right
of use assets are initially measured at an amount
equal to the lease liability.
Right of use asset – subsequent measurement
Right of use assets are subsequently measured
at initial carrying value:
– Fixed payments, including in-substance fixed
– Less any accumulated depreciation and any
payments; and
accumulated impairments losses: and
– Amounts expected to be payable under a
– Adjusted for any remeasurement of the lease
residual value guarantee
liability.
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.
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.
Practical expedients and exemptions used
The Group has opted to apply the following
practical expedients and exemptions:
– Use of a single discount rate to a portfolio of
leases with reasonably similar characteristics;
– Recognising lease payments on short-term
(less than 12 months) leases and low value
leases as an expense;
– Covid-19 Related Rent Concessions
amendment to IFRS 16 “Leases” – deferrals of
lease payments as a direct result of Covid-19
have been assessed as non-modifying.
The published Covid-19 Related Rent Concessions
amendment to IFRS 16 “Leases” was adopted by
the IASB on 28 May 2020 and endorsed by the
European Union on 12 October 2020. On 31 March
2021, the IASB published a further amendment
to extend the date of the practical expedient
from 30 June 2021 to 30 June 2022. The Group
continues to apply this amendment to all relevant
rent concessions during the period. These
concessions did not include waivers of rent payable.
1.12 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.
Implementation costs associated with software
and cloud computing arrangements are only
capitalised where they relate to an identifiable
asset under the control of the Group.
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 3 years
– Acquired brand names
10 to 20 years
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 134
1 A C C O U N T I N G P O L I C I E S
C O N T I N U E D
1.13 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.
1.14 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.
1.15 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 1.18.
1.16 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.
1.17 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.
1.18 Significant areas of estimation and judgement
In the application of the Group’s accounting
policies, the Directors are required to make
judgements, 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, but may
differ from actual results. No significant areas of
judgement or estimation arose in the current
financial statements.
The following are other areas of important
estimates 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 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 27 June 2021.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 135
1.19 New accounting standards
There are no new standards, amendments to
existing standards or interpretations that are
effective for the first time in the period ended
27 June 2021 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.
1 A C C O U N T I N G P O L I C I E S
C O N T I N U E D
1.18 Significant areas of estimation and judgement
continued
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 are provided in note 10.
The Directors are satisfied that no reasonably
possible change in these estimates would result in
the recognition of an impairment within the next
twelve months and accordingly the carrying value of
goodwill is not considered a significant estimate as
at 27 June 2021.
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 27 June 2021.
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 27 June 2021.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 2 S E G M E N TA L A N A LY S I S
The Group’s operating segments under IFRS 8 have
been determined based on management accounts
reports reviewed by the Group Leadership Team.
Segment performance is assessed based upon
brand contribution. Brand contribution is defined as
underlying EBITDA (being earnings before interest,
tax, depreciation, amortisation 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:
the manufacture and retailing of
upholstered furniture and related
products through DFS and Dwell
branded stores and websites.
Sofology:
the retailing of upholstered furniture
and related products through Sofology
branded stores and website.
During the current financial year, the retail
operations and management of the Dwell brand
were combined with the DFS brand and accordingly
they are now presented as one segment. Prior year
comparative figures have been re-presented to
align with the revised presentation. Other segment
activities comprise the retailing of upholstered
furniture and related products through
Sofa Workshop until it was disposed of on
18 September 2020.
Segment revenue and profit
External sales
Internal sales
Total gross sales
136
DFS
Sofology
Other segments
Gross sales
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 27 June 2021
Revenue
Cost of sales
Gross profit
Selling & distribution costs (excluding property costs)
Brand contribution (segment profit)
Property costs
Underlying administrative expenses
Underlying EBITDA
52 weeks to
27 June 2021
£m
1,093.2
269.2
6.3
1,368.7
52 weeks to
28 June 2020
Re-presented
£m
735.3
181.7
18.0
935.0
52 weeks to
27 June 2021
£m
–
–
–
–
52 weeks to
28 June 2020
Re-presented
£m
–
–
–
–
DFS
£m
848.0
(363.4)
484.6
(244.4)
240.2
Sofology
£m
214.6
(101.8)
112.8
(55.6)
57.2
52 weeks to
27 June 2021
£m
1,093.2
269.2
6.3
1,368.7
52 weeks to
27 June 2021
£m
1,368.7
(217.4)
(83.6)
1,067.7
1,013.2
54.5
1,067.7
Other
£m
5.1
(1.3)
3.8
(0.5)
3.3
52 weeks to
28 June 2020
Re-presented
£m
735.3
181.7
18.0
935.0
52 weeks to
28 June 2020
£m
935.0
(146.4)
(64.1)
724.5
676.0
48.5
724.5
Total
£m
1,067.7
(466.5)
601.2
(300.5)
300.7
(2.9)
(75.2)
222.6
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 137
2 S E G M E N TA L A N A LY S I S C O N T I N U E D
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
Underlying EBITDA
Non-underlying items
Depreciation & amortisation
Impairments
Operating profit/(loss)
Finance income
Finance expenses
Non-underlying financing costs
Profit/(loss) before tax
A geographical analysis of revenue is presented below:
United Kingdom
Europe
Total revenue
DFS
Re-presented
£m
566.5
(227.5)
339.0
(205.3)
133.7
Sofology
£m
143.7
(72.3)
71.4
(47.8)
23.6
Other
Re-presented
£m
14.3
(7.6)
6.7
(7.2)
(0.5)
Note
3
5
52 weeks to
27 June 2021
£m
222.6
(2.1)
(85.3)
–
135.2
–
(32.9)
(3.1)
99.2
52 weeks to
27 June 2021
£m
1,044.6
23.1
1,067.7
Total
£m
724.5
(307.4)
417.1
(260.3)
156.8
(27.2)
(67.7)
61.9
52 weeks to
28 June 2020
£m
61.9
(16.6)
(88.7)
(0.3)
(43.7)
0.1
(37.6)
–
(81.2)
52 weeks to
28 June 2020
£m
701.7
22.8
724.5
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 138
2 S E G M E N TA L A N A LY S I S C O N T I N U E D
Segment assets and liabilities
DFS
Sofology
Other segments
Total segments
Loans and financing
Financial assets/(liabilities)
Current tax
Deferred tax
Eliminations
Total Group
Assets
Liabilities
27 June 2021
£m
903.4
174.1
–
1,077.5
–
0.2
6.9
24.7
(4.5)
1,104.8
28 June 2020
Re-presented
£m
997.0
145.5
7.5
1,150.0
–
5.3
7.8
24.0
(15.5)
1,171.6
27 June 2021
£m
(659.2)
(157.8)
–
(817.0)
(23.1)
(8.2)
–
–
28.0
(820.3)
28 June 2020
Re-presented
£m
(595.4)
(143.9)
(25.2)
(764.5)
(218.7)
(2.0)
–
–
15.5
(969.7)
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 include both tangible and intangible non-current assets.
1. 2020: DFS: includes impairment charges of £1.4m.
2. 2020: Sofology: includes impairment charges of £0.3m.
3. 2020: Other segments: includes impairment charges of £9.8m.
Additions to
non-current assets
Depreciation, amortisation
and impairment
52 weeks to
27 June 2021
£m
51.6
17.9
–
69.5
52 weeks to
28 June 2020
Re-presented
£m
22.9
7.6
0.6
31.1
52 weeks to
27 June 2021
£m
66.4
17.8
1.1
85.3
52 weeks to
28 June 2020
Re-presented
£m
68.31
18.82
13.13
100.2
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 139
3 O P E R AT I N G P R O F I T
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
Net gain on disposal of right of use assets
Cost of inventories recognised as an expense
Write down of inventories to net realisable value
Other costs of sales
Operating lease rentals
52 weeks to
27 June 2021
£m
77.4
7.9
–
–
–
(1.2)
(1.4)
465.5
5.6
(4.6)
0.5
During the period the Group did not receive any Government support through the Coronavirus Job Retention Scheme (2020: £19.5m).
Non-underlying items
Restructuring costs
Impairment of goodwill and brand names
Impairment of tangible and right of use assets
Write down of inventories on restructuring
Loss on disposal of subsidiaries
52 weeks to
27 June 2021
£m
1.4
–
–
–
0.7
2.1
52 weeks to
28 June 2020
£m
81.9
6.8
5.2
1.0
5.3
(1.1)
–
317.1
7.2
(13.8)
1.9
52 weeks to
28 June 2020
£m
2.3
6.3
4.9
3.1
–
16.6
On 18 September 2020, the Group formally completed the sale of the entire issued share capital of The Sofa Workshop Limited for cash consideration of £0.3m.
The loss on disposal includes professional fees, property guarantees and other costs associated with the disposal.
In addition, non-underlying redundancy costs of £1.4m were incurred in the year in respect of a significant operational restructuring of the DFS sales
administration function.
In the 52 weeks to 28 June 2020, non-underlying costs 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 relating to Sofa Workshop was fully impaired, together with the right of use and other tangible assets relating to stores being
closed, and the brand name was written down to £0.3m. 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.
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
27 June 2021
£m
52 weeks to
28 June 2020
£m
0.4
0.2
–
0.6
0.3
0.1
–
0.4
During the period, an amount of £50,000 was receivable by the Company’s auditor in respect of the review of the Group’s interim financial statements (2020: £20,000),
and £5,000 in respect of other audit-related services (2020: £nil).
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 140
4 S TA F F N U M B E R S A N D C O S T S
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
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
Number of employees
52 weeks to
27 June 2021
1,088
902
2,808
4,798
52 weeks to
27 June 2021
£m
171.9
17.5
4.7
194.1
3.6
197.7
–
197.7
52 weeks to
27 June 2021
£m
2.0
0.1
1.1
52 weeks to
28 June 2020
1,160
1,056
3,281
5,497
52 weeks to
28 June 2020
£m
163.1
15.5
5.5
184.1
2.4
186.5
(19.5)
167.0
52 weeks to
28 June 2020
£m
1.1
0.1
0.1
Two directors accrued retirement benefits under pension schemes in the period (2020: one). All of the directors’ pension contributions were to defined
contribution schemes.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 5 F I N A N C E I N C O M E A N D E X P E N S E
Finance income
Interest income on bank deposits
Total finance income
Finance expense
Interest payable on senior revolving credit facility
Bank fees
Unwind of discount on provisions
Interest on lease liabilities
Other interest
Total underlying finance expense
Non-underlying items:
Refinancing costs
Total finance expense
141
52 weeks to
27 June 2021
£m
52 weeks to
28 June 2020
£m
–
–
0.1
0.1
52 weeks to
27 June 2021
£m
52 weeks to
28 June 2020
£m
(4.2)
(2.0)
(0.1)
(26.5)
(0.1)
(32.9)
(3.1)
(36.0)
(7.6)
(0.5)
–
(29.2)
(0.3)
(37.6)
–
(37.6)
Non-underlying finance costs of £3.1m relate to the refinancing of the Group’s revolving credit facility in December 2020. This includes the write off of unamortised
underwriting fees associated with the old revolving credit facility, break costs associated with exiting interest rate swaps that were no longer required, and
professional fees incurred in relation to the arrangement of the new revolving credit facility.
6 TA X AT I O N
Recognised in the income statement
Current tax
Current period
Adjustments for prior years
Current tax expense/(credit)
Deferred tax
Origination and reversal of temporary differences
Deferred tax rate change
Adjustments for prior years
Deferred tax expense/(credit)
Total tax expense/(credit) in income statement
52 weeks to
27 June 2021
£m
52 weeks to
28 June 2020
£m
8.9
0.1
9.0
7.4
(5.2)
(0.7)
1.5
10.5
(2.6)
–
(2.6)
(6.8)
(1.9)
(0.7)
(9.4)
(12.0)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 142
6 TA X AT I O N C O N T I N U E D
Reconciliation of effective tax rate
Profit/(loss) before tax for the period
Tax using the UK corporation tax rate of 19% (2020: 19%)
Non-deductible expenses
Tax exempt revenues
Effect of tax rates in foreign jurisdictions
Disposal of subsidiaries
Recognition of previously unrecognised tax 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 expense/(credit)
52 weeks to
27 June 2021
£m
99.2
52 weeks to
28 June 2020
£m
(81.2)
18.8
0.8
(0.3)
0.3
(0.5)
(2.6)
(0.2)
(0.6)
(5.2)
10.5
(15.4)
2.5
–
0.2
–
2.9
0.4
(0.8)
(1.8)
(12.0)
The Finance Act 2021, which was substantively enacted in May 2021, included provisions to increase the rate of UK corporation tax to 25% with effect from
1 April 2023.
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 25% has been applied when calculating
deferred tax assets and liabilities at 27 June 2021 (19% at 28 June 2020).
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
27 June 2021
£m
(3.9)
1.7
0.1
(0.5)
(2.6)
52 weeks to
28 June 2020
£m
0.9
(1.6)
0.1
0.2
(0.4)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 7 E A R N I N G S P E R S H A R E
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 22 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 share based payment
arrangements (note 25). 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
Profit/(loss) 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
143
52 weeks to
27 June 2021
pence
34.5
34.2
52 weeks to
27 June 2021
£m
88.7
52 weeks to
28 June 2020
pence
(31.4)
(31.4)
52 weeks to
28 June 2020
£m
(69.2)
27 June 2021
No.
257,096,686
2,352,481
259,449,167
28 June 2020
No.
220,289,976
–
220,289,976
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.
Profit/(loss) for the period attributable to equity holders of the parent company
Non-underlying loss after tax
Underlying profit/(loss) for the period attributable to equity holders of the parent company
Underlying basic earnings per share
Underlying diluted earnings per share
52 weeks to
27 June 2021
£m
88.7
3.8
92.5
52 weeks to
27 June 2021
pence
36.0
35.6
52 weeks to
28 June 2020
£m
(69.2)
15.7
(53.5)
52 weeks to
28 June 2020
pence
(24.3)
(24.3)
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 144
8 P R O P E R T Y, P L A N T A N D E Q U I P M E N T
Land and
buildings
£m
Plant and
equipment
£m
Motor
vehicles
£m
Right of use
assets
£m
Cost
Balance at 30 June 2019
Recognised on adoption of IFRS 16
Reclassifications
Additions
Remeasurements
Disposals
Balance at 28 June 2020
Reclassifications
Additions
Remeasurements
Disposals
Balance at 27 June 2021
Depreciation and impairments
Balance at 30 June 2019
Reclassifications
Depreciation charge for the period
Disposals
Impairments
Balance at 28 June 2020
Reclassifications
Depreciation charge for the period
Disposals
Balance at 27 June 2021
Net book value
At 30 June 2019
At 28 June 2020
At 27 June 2021
8.6
–
–
–
–
8.6
0.3
13.0
–
(1.4)
20.5
1.3
–
0.2
–
–
1.5
0.2
1.0
(1.0)
1.7
7.3
7.1
18.8
161.6
–
(1.3)
15.9
–
(1.8)
174.4
(0.8)
24.2
–
(5.3)
192.5
92.0
(0.7)
19.3
(1.9)
0.8
109.5
(0.7)
17.6
(5.0)
121.4
69.6
64.9
71.1
28.3
–
(17.1)
0.9
–
(0.1)
12.0
–
0.8
–
(2.6)
10.2
15.3
(7.2)
1.8
–
–
9.9
–
1.1
(2.5)
8.5
13.0
2.1
1.7
–
434.5
18.4
7.7
(2.9)
(3.3)
454.4
–
20.3
13.4
(25.2)
462.9
–
7.9
60.6
(3.0)
4.4
69.9
–
57.7
(9.8)
117.8
–
384.5
345.1
Total
£m
198.5
434.5
–
24.5
(2.9)
(5.2)
649.4
(0.5)
58.3
13.4
(34.5)
686.1
108.6
–
81.9
(4.9)
5.2
190.8
(0.5)
77.4
(18.3)
249.4
89.9
458.6
436.7
Remeasurements of right of use assets relate to leases where the terms have been renegotiated during the period.
Capital commitments
At 27 June 2021 the Group had contracted capital commitments of £3.6m (2020: £1.7m) for which no provision has been made in the financial statements.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 145
9 L E A S E S
Right of use assets
Cost
Balance at 30 June 2019
Recognised on adoption of IFRS 16
Reclassifications
Additions
Remeasurements
Disposals
At 28 June 2020
Additions
Remeasurements
Disposals
Balance at 27 June 2021
Depreciation and impairment
At June 2019
Reclassifications
Depreciation charge for the period
Disposals
Impairment of right of use asset
At 28 June 2020
Depreciation charge for the period
Disposals
At 27 June 2021
Net book value
At 30 June 2019
At 28 June 2020
At 27 June 2021
Property
£m
Vehicles
£m
Equipment
£m
–
434.5
–
2.4
(2.9)
–
434.0
17.4
13.4
(21.5)
443.3
–
–
56.1
–
4.4
60.5
53.8
(6.3)
108.0
–
373.5
335.3
–
–
17.1
5.3
–
(3.3)
19.1
2.3
–
(3.7)
17.7
–
7.2
4.2
(3.0)
–
8.4
3.7
(3.5)
8.6
–
10.7
9.1
–
–
1.3
–
–
–
1.3
0.6
–
–
1.9
–
0.7
0.3
–
–
1.0
0.2
–
1.2
–
0.3
0.7
Total
£m
–
434.5
18.4
7.7
(2.9)
(3.3)
454.4
20.3
13.4
(25.2)
462.9
–
7.9
60.6
(3.0)
4.4
69.9
57.7
(9.8)
117.8
–
384.5
345.1
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 146
9 L E A S E S C O N T I N U E D
Amounts recognised in the consolidated balance sheet:
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:
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:
Total cash outflow for lease liabilities
Non-cancellable short-term lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
27 June 2021
£m
88.1
366.0
28 June 2020
£m
88.6
428.6
52 weeks to
27 June 2021
£m
26.7
(0.6)
(0.5)
1.6
52 weeks to
28 June 2020
£m
29.2
2.1
(1.0)
0.8
52 weeks to
27 June 2021
£m
103.8
52 weeks to
28 June 2020
£m
65.5
27 June 2021
£m
0.1
–
–
0.1
28 June 2020
£m
1.2
–
–
1.2
The Group has entered into short-term leases in respect of warehouses and equipment.
At 27 June 2021, future rentals receivable under non-cancellable leases where the Group is the lessor were £2.7m (2020: £2.1m).
During the period ended 27 June 2021 the Group applied the practical expedient to all Covid-19 related rent concessions. This gave rise to £nil impact on profit
and loss during the period (2020: £nil).
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 147
1 0 I N TA N G I B L E A S S E T S
Cost
Balance at 30 June 2019
Additions
Balance at 28 June 2020
Additions
Disposals
Balance at 27 June 2021
Amortisation and impairments
Balance at 30 June 2019
Amortisation charge for the period
Impairments
Balance at 28 June 2020
Amortisation charge for the period
Disposals
Balance at 27 June 2021
Net book value
At 30 June 2019
At 28 June 2020
At 27 June 2021
Goodwill
The carrying amount of goodwill is allocated to the following cash generating units:
DFS Trading Limited
Sofology Limited
DFS Spain Limited
Computer
software
£m
Brand
Names
£m
28.0
6.6
34.6
11.2
(0.9)
44.9
17.5
5.3
–
22.8
6.5
(0.8)
28.5
10.5
11.8
16.4
16.8
–
16.8
–
(2.0)
14.8
2.9
1.5
1.0
5.4
1.4
(1.7)
5.1
13.9
11.4
9.7
Goodwill
£m
514.6
–
514.6
–
(5.3)
509.3
–
–
5.3
5.3
–
(5.3)
–
514.6
509.3
509.3
Total
£m
559.4
6.6
566.0
11.2
(8.2)
569.0
20.4
6.8
6.3
33.5
7.9
(7.8)
33.6
539.0
532.5
535.4
Goodwill
27 June 2021
£m
479.9
28.4
1.0
509.3
28 June 2020
£m
479.9
28.4
1.0
509.3
Goodwill is tested annually for impairment on the basis of value in use. The key assumptions underlying the calculations are those regarding expected future sales
volumes, changes in selling prices and direct costs 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 an estimated 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 of 9.9%-10.1% (2020: 8.0%-11.1%). 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 PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 148
1 0 I N TA N G I B L E A S S E T S C O N T I N U E D
For the DFS brands and Sofology, these calculations showed 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.
1 1 I N V E S T M E N T S I N S U B S I D I A R I E S
The following companies are incorporated in England & 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
Sofology Limited3
Sofaworks Limited1
Haydock Furniture Limited3
The Sofa Delivery Company Limited1
The Sofa Manufacturing Company Limited1
The Sofa Servicing Company Limited1
Coin Retail Limited (Jersey)2
Coin Furniture Limited1
DFS Spain Limited1
Registered offices:
1. Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster DN6 7NA
2. 13-14 Esplanade, St Helier, Jersey JE1 1BD
3. Ashton Road, Golborne, Warrington, WA3 3UL
Principal activity
Intermediate holding company
Intermediate holding company
Intermediate holding company
Intermediate holding company
Furniture retailer
Furniture retailer
Dormant
Dormant
Contract logistics
Dormant
Dormant
Intermediate holding company
Furniture retailer
Furniture retailer
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 1 2 O T H E R F I N A N C I A L A S S E T S
Non-current
Foreign exchange contracts
Current
Foreign exchange contracts
27 June 2021
£m
28 June 2020
£m
0.1
0.1
0.8
4.5
Foreign exchange contracts comprise forward contracts which are used to hedge exchange risk arising from the Group’s overseas purchases (note 23).
1 3 D E F E R R E D TA X
Deferred tax assets and liabilities are attributable to the following:
149
Fixed asset timing differences
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
The deferred tax movement in the period is as follows:
At start of period
Recognised on adoption of IFRS 16
(Charged)/credited to the income statement:
Fixed asset timing differences
Unwind of IFRS 16 transition impact
Tax losses carried forward
Brand names
Share based payments
Corporate interest restriction
Other temporary differences
Disposal of subsidiaries
Recognised in the statement of comprehensive income
At end of period
27 June 2021
£m
7.3
11.9
2.0
2.4
(2.2)
1.3
–
2.0
24.7
52 weeks to
27 June 2021
£m
24.0
–
28 June 2020
£m
6.2
10.3
(0.6)
6.3
(2.0)
1.0
1.8
1.0
24.0
52 weeks to
28 June 2020
£m
8.7
5.4
1.5
1.6
(3.9)
(0.2)
0.3
(1.8)
1.0
(0.4)
2.6
24.7
2.3
0.1
4.8
0.2
–
1.8
0.3
–
0.4
24.0
Deferred tax assets on losses of £2.7m (2020: £6.8m) have not been recognised as there is uncertainty over the utilisation of these losses.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 150
1 4 I N V E N T O R I E S
Raw materials and consumables
Finished goods and goods for resale
Provision for net realisable value
27 June 2021
£m
6.6
68.6
75.2
(14.1)
61.1
28 June 2020
£m
7.4
63.2
70.6
(11.7)
58.9
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 or 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.
1 5 T R A D E A N D O T H E R R E C E I V A B L E S
Trade receivables
Prepayments
Accrued income
Other receivables
27 June 2021
£m
9.3
7.2
0.4
0.2
17.1
28 June 2020
£m
10.4
10.1
0.9
0.8
22.2
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.
1 6 T R A D E P AYA B L E S A N D O T H E R L I A B I L I T I E S
Current
Payments received on account
Trade payables
Other creditors including other tax and social security
Accruals
27 June 2021
£m
28 June 2020
£m
117.7
83.9
31.3
64.5
297.4
86.8
41.9
39.0
48.3
216.0
Payments on account represent contract liabilities under IFRS 15. The FY20 amounts have been realised through revenue in FY21 and it is anticipated that the
FY21 amounts will be realised through revenue in the subsequent financial year. Trade payables do not bear interest and are paid within agreed credit terms.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 1 7 O T H E R F I N A N C I A L L I A B I L I T I E S
Non-current
Interest rate derivatives
Foreign exchange contracts
Current
Foreign exchange contracts
27 June 2021
£m
28 June 2020
£m
–
1.5
1.5
6.7
1.9
–
1.9
0.1
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).
151
1 8 O T H E R I N T E R E S T - B E A R I N G L O A N S A N D B O R R O W I N G S
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
The revolving credit facility bears interest at a rate of 3 month LIBOR plus 2.75% and is currently repayable on 21 December 2023, with two one-year options to
extend the facility, subject to mutual agreement. The revolving credit facility is secured on a first priority basis with fixed and floating charges over substantially all of
the assets of the Group. On 21 December 2020 the Group agreed the size of the revolving credit facility to be £225.0m, reducing to £215.0m from 26 June 2022.
For more information on the maturity of the Group’s lease liabilities, see note 24.
1 9 E M P L O Y E E B E N E F I T S
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 £4.7m (2020: £5.5m).
27 June 2021
£m
25.0
(1.9)
23.1
28 June 2020
£m
220.0
(1.3)
218.7
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 152
2 0 P R O V I S I O N S
Balance at 28 June 2020
Provisions made during the period
Provisions reclassified during the period
Provisions used during the period
Provisions released on disposal of subsidiary
Provisions released during the period
Balance at 27 June 2021
Current
Non-current
Guarantee
provision
£m
8.1
6.6
–
(5.6)
–
–
9.1
6.2
2.9
9.1
Property
provisions
£m
1.6
3.1
0.8
–
(0.7)
(1.1)
3.7
0.9
2.8
3.7
Other
provisions
£m
6.1
3.2
–
(1.1)
–
(0.2)
8.0
8.0
–
8.0
Total
£m
15.8
12.9
0.8
(6.7)
(0.7)
(1.3)
20.8
15.1
5.7
20.8
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 £0.9m. The directors have therefore concluded that reasonably possible
variations in estimate would not result in a material difference.
Property provisions relate to potential obligations under lease guarantees offered to former subsidiary companies, the majority of which expire in 2025,
and repair and remediation costs for Group properties based on anticipated lease expiries and renewals, which 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. Subsequent to the balance sheet date, the deferred consideration was finalised and settled on
11 August 2021.
2 1 D I V I D E N D S
The following dividends were recognised and paid during the period:
Final ordinary dividend for FY19
Pence per
ordinary share
7.5p
52 weeks to
27 June 2021
£m
–
–
52 weeks to
28 June 2020
£m
15.9
15.9
The Directors recommend a final dividend of 7.5p in respect of the financial period ended 27 June 2021, resulting in a total proposed dividend of £19.4m. Subject
to shareholder approval it is intended that this dividend will be paid on 23 December 2021. DFS Furniture plc shares will trade ex-dividend from 25 November 2021
and the record date will be 26 November 2021. This dividend has not therefore been recognised as a liability in these financial statements.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 153
2 2 C A P I TA L A N D R E S E R V E S
Share capital
Allotted, called up and fully paid
At the start of the financial period
Subdivision of ordinary share capital
Repurchase of deferred shares
Issued during the year
At the end of the financial period
Ordinary shares of £1.50 each
Ordinary shares of £0.10 each
Deferred shares of £1.40 each
‘000
£m
‘000
255,637
(255,637)
–
–
–
383.4
(383.4)
–
–
–
–
255,637
–
3,000
258,637
£m
–
25.6
–
0.3
25.9
‘000
£m
–
255,637
(255,637)
–
–
–
357.8
(357.8)
–
–
Total share
capital
£m
383.4
–
(357.8)
0.3
25.9
Ordinary shares
Following a resolution at the 2020 Annual General Meeting, on Friday 13 November 2020 the ordinary shares of £1.50 each in the capital of the Company in issue
were each subdivided into one ordinary share of £0.10 in the capital of the Company, having the same rights and being subject to the same restrictions in all
respects as the ordinary shares of £1.50 each in the capital of the Company prior to that date (save as to nominal value) and one deferred share of £1.40 in
the capital of the Company. The deferred shares were subsequently purchased for cancellation on 25 November 2020 for aggregate consideration of £0.01.
On 16 November 2020 the Company issued 3,000,000 ordinary shares of £0.10 each to the Employee Benefit Trust, as noted below.
Deferred shares
The deferred shares carry no entitlement to dividends, distributions or returns of capital save in the event of a winding-up of the Company (such entitlement
being limited to the repayment of the amount paid up on the deferred shares), nor any further or other right of participation in the assets of the Company.
Holders of deferred shares are not entitled to receive notice of, nor attend, speak or vote at any general meeting of the Company.
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
of 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.
Capital redemption reserve
The capital redemption reserve arose on the cancellation of deferred shares of £1.40 each on 25 November 2020.
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 27 June 2021 16,141 of the Company’s own ordinary shares (2020: 990,451) were used to satisfy employee share based payment
awards. At 27 June 2021 the company had 250,332 ordinary shares held in treasury (2020: 266,473).
Employee Benefit Trust shares
The Employee Benefit Trust holds ordinary shares which are issued for the purpose of satisfying future employee share based payments awards.
During the period ending 27 June 2021 the Company issued 3,000,000 ordinary shares to the Employee Benefit Trust of which 1,135,013 were subsequently used
during the period. At 27 June 2021 the Employee Benefit Trust held 1,864,987 of the Company’s ordinary shares.
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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 154
2 3 F I N A N C I A L I N S T R U M E N T S : C AT E G O R I E S A N D F A I R V A L U E
Financial assets
Derivatives in designated hedging relationships
Loans and receivables
Cash
Financial liabilities
Derivatives in designated hedging relationships
Senior revolving credit facility
Bank overdraft
Amortised cost
Fair value
Finance lease obligations
27 June 2021
£m
28 June 2020
£m
0.2
9.5
24.1
(8.2)
(23.1)
(16.7)
(164.2)
(5.0)
(454.1)
5.3
11.2
62.3
(2.0)
(218.7)
–
(101.0)
(5.0)
(517.2)
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 have reviewed for expected credit losses and consider the amount of any such losses to be immaterial.
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.
2 4 F I N A N C I A L I N S T R U M E N T S : R I S K M A N A G E M E N T
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:
27 June 2021
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
148.4
86.1
0.7
15.1
250.3
–
(119.5)
144.3
275.1
1 to 2 years
£m
–
80.0
0.7
2.9
83.6
–
(60.7)
44.9
67.8
2 to 5 years
£m
–
203.1
25.4
–
228.5
–
–
–
228.5
Over 5 years
£m
–
187.0
–
2.8
189.8
–
–
–
189.8
Total
£m
148.4
556.2
26.8
20.8
752.2
–
(180.2)
189.2
761.2
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 155
2 4 F I N A N C I A L I N S T R U M E N T S : R I S K M A N A G E M E N T C O N T I N U E D
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
Less than
1 year
£m
90.2
88.0
4.6
11.9
194.7
0.9
(107.7)
114.5
202.4
1 to 2 years
£m
–
85.9
3.9
2.5
92.3
0.8
(34.3)
27.1
85.9
2 to 5 years
£m
–
214.5
220.6
–
435.1
0.1
–
–
435.2
Over 5 years
£m
–
235.3
–
1.4
236.7
–
–
–
236.7
Total
£m
90.2
623.7
229.1
15.8
958.8
1.8
(142.0)
141.6
960.2
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 0.7%.
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 2.75%. Due to the
significantly reduced amount of drawn facility at 27 June 2021, the level of this risk to the Group is minimal and as such no interest rate hedging is in place. In the
prior year, the Group had in place four participating interest rate swaps and caps. The effect of these instruments was 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:
27 June 2021
£m
28 June 2020
£m
Interest rate swaps
Derivatives in designated hedging relationships
–
(1.9)
Foreign exchange risk management
The Group is exposed to the risks of exchange rate fluctuations on the purchase of products denominated in foreign currencies. The Group is exposed to foreign
currency risk, most significantly to the US dollar as a result of sourcing certain products which are paid for predominantly in US dollars. The Group hedges these
exposures using forward foreign exchange contracts and hedge accounting is applied when the requirements of IFRS 9 are met, which include that a forecast
transaction must be “highly-probable”.
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 24 months in advance. These contracts are designated as cash flow hedges and their critical terms are aligned to the hedged transactions.
The Group assesses the effectiveness of these hedging relationships prospectively via a capacity test and retrospectively using the dollar offset method.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 156
2 4 F I N A N C I A L I N S T R U M E N T S : R I S K M A N A G E M E N T C O N T I N U E D
The table below summarises the forward foreign exchange contracts outstanding at the period end:
Derivatives in designated hedging relationships
US Dollar
27 June 2021
28 June 2020
Notional
amount
£m
Fair value
£m
Notional
amount
£m
Fair value
£m
189.2
(8.8)
141.7
4.1
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
27 June 2021
£m
7.6
2.9
28 June 2020
£m
7.7
4.4
27 June 2021
£m
(8.6)
(0.3)
28 June 2020
£m
(7.8)
(0.1)
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
27 June 2021
£m
–
(0.3)
52 weeks to
28 June 2020
£m
–
(0.4)
52 weeks to
27 June 2021
£m
(17.8)
–
52 weeks to
28 June 2020
£m
(14.7)
–
The net of outstanding US Dollar denominated monetary items at the year end is low, therefore the impact on the income statement would be £nil, but a change
in rate would result in a change in the value of the derivatives in designated hedging relationships, resulting in a movement through equity.
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.
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group’s risk management objectives and strategy and to apply a
qualitative and forward-looking approach to assessing hedge effectiveness. The Group determines the existence of an economic relationship between the hedging
instrument and the hedged item based on the currency, amount and timing of their respective cash flows. The Group assesses whether the derivative designated
in each hedging relationship is expected to be and, has been, effective in offsetting cash flows of the hedged item using the hypothetical derivative method.
In these hedge relationships, the main sources of ineffectiveness are:
– the effect of counterparties and the Group’s own credit risk on the fair value of the forward foreign exchange contracts, which is not reflected in the change
in the fair value of the hedged cash flows attributable to the change in exchange rates; and
– changes in the timing of the hedged transactions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 157
2 4 F I N A N C I A L I N S T R U M E N T S :
R I S K M A N A G E M E N T C O N T I N U E D
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.
The Group does not offer any credit to its
customers, therefore credit risk relating to exposure
to customers is low.
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. The
Group considers that expected credit losses on
derivative assets arising from the default of
counterparties are not material (see note 1.3).
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. The
Group’s maximum credit exposure arising from
derivatives is equal to the carrying value at the
reporting date.
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.
2 5 S H A R E B A S E D P AY M E N T S
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 during the year is given in the Directors’
Remuneration Report on page 106 in the sections
entitled ‘LTIP Awards Vesting in Relation to
Performance in FY21 – Audited’ and ‘Scheme
Interests Awarded in FY21 (2020 Awards) –
Audited’.
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). For awards granted
on or after 1 July 2019, 50% of awards made to
each individual are subject to either an earnings per
share or underlying profit before tax performance
target; remaining awards are not subject to other
performance conditions.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021
2 5 S H A R E B A S E D P AY M E N T S C O N T I N U E D
Save as You 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:
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
LTIP
No.
1,676,222
849,903
(87,902)
–
(508,992)
–
1,929,231
17.6
–
RSP
No.
3,605,064
1,127,187
(225,875)
(1,392,847)
–
–
3,113,529
16.7
£2.28
SAYE
No.
2,508,458
3,032,379
(88,039)
(719,058)
(160,685)
(375,816)
4,197,239
26.3
£2.33
At 27 June 2021 the weighted average exercise price of outstanding SAYE options was £1.69 (2020: £1.79) and the range of exercise prices was £1.61 to £1.88
(2020: £1.61 to £1.88).
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
Valuation date1
Share price at date of grant
Share price at valuation date
Exercise price
Volatility
Expected life
Risk free rate
Dividend yield
Fair value per share
Market based performance conditions
Non-market based performance condition
No performance condition
LTIP
6 October 2020
9 March 2021
£2.01
£2.40
Nil
51.0-64.8%2
3 years
0.1-0.3%2
–4
RSP
SAYE
6 October 2020 27 November 2020
11 March 2021 27 November 2020
£2.03
£2.03
£1.62
47.2%
3.1 years
0.0%
2.8%
£2.01
£2.45
Nil
–3
3 years
–3
2.8%
£1.39-£1.532
£2.19-£2.402
–
–
£1.89
£2.28
–
–
£0.70
Expected volatility is calculated over the period of time commensurate with the relevant performance period or holding period. 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 £3.6m (2020: £2.4m).
158
1. Performance conditions for the 2020 LTIP and RSP awards were
determined subsequent to the initial date of grant on 9 March 2021
and 11 March 2021 respectively. The fair value calculations in respect
of those awards subject to performance conditions were therefore
calculated based on share price and other inputs prevailing at the
valuation date.
2. The 2020 LTIP grant included a number of required holding
periods, giving a range of volatility and fair values.
3. Volatility and risk free rates do not impact the fair value
calculation for awards with no exercise price or market based
performance condition.
4. LTIP participants are entitled to receive dividend equivalents on
unvested awards therefore dividend yield does not impact the fair
value calculation.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 159
2 6 N E T D E B T
Cash in hand, at bank
Bank overdraft
Cash and cash equivalents (including bank overdraft)
Senior revolving credit facility
Lease liabilities
Total net debt
Cash in hand, at bank
Cash and cash equivalents
Senior revolving credit facility
Lease liabilities
Total net debt
28 June 2020
£m
62.3
–
62.3
(218.7)
(517.2)
(673.6)
IFRS 16
transition
£m
–
–
–
(536.6)
(536.6)
Cash flow
£m
(39.6)
(16.7)
(56.3)
195.0
77.1
215.8
Cash flow
£m
32.5
32.5
(25.0)
36.3
43.8
Other non-cash
changes
£m
–
–
–
0.6
(14.0)
(13.4)
Other non-cash
changes
£m
–
–
0.3
(4.8)
(4.5)
27 June 2021
£m
22.7
(16.7)
6.0
(23.1)
(454.1)
(471.2)
28 June 2020
£m
62.3
62.3
(218.7)
(517.2)
(673.6)
30 June 2019
£m
29.8
29.8
(194.0)
(12.1)
(176.3)
Non-cash changes include the addition of leases within the period of £20.3m (2020: £7.7m), lease remeasurements of £13.5m (2020: £2.9m), disposals of leases
of £13.6m (2020: £nil), impact of the disposal of Sofa Workshop on lease liabilities of £6.2m (2020: £nil) and the amortisation of capitalised debt issue costs of
£0.6m (2020: £0.3m).
2 7 R E L AT E D P A R T I E S
Key Management Personnel
At 27 June 2021, Directors of the Company held 0.3% of its issued ordinary share capital (2020: 0.3%), and a further 0.1% (2020: 0.1%) 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
27 June 2021
£m
4.9
1.2
0.3
6.4
52 weeks to
28 June 2020
£m
2.9
0.7
0.2
3.8
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSNotes to the consolidated financial statements continued at 27June 2021 Company balance sheet at 27 June 2021
Non-current assets
Investments
Amounts due from group companies
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
Capital redemption reserve
Treasury shares
Shares held by employee benefit trust
Retained earnings
Equity shareholders’ funds
The Company’s profit for the period was £nil (2020: £nil).
Note
27 June 2021
£m
28 June 2020
£m
2
3
3
4
5
5
5
5
5
5
250.1
355.7
605.8
246.5
–
246.5
–
356.7
(112.0)
493.8
(112.0)
491.2
25.9
40.4
18.6
357.8
(0.7)
(0.2)
52.0
493.8
383.4
40.4
18.6
–
(0.7)
–
49.5
491.2
160
These financial statements were approved by the
board of directors on 23 September 2021 and were
signed on its behalf by:
Tim Stacey
Chief Executive Officer
Mike Schmidt
Chief Financial Officer
Company registered number: 07236769
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 161
Company statement of changes in equity at 27 June 2021
Balance at 30 June 2019
Profit for the period
Other comprehensive income
Total comprehensive income 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
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Purchase of shares held by employee benefit trust
Repurchase and cancellation of deferred shares
Employee benefit trust shares issued
Settlement of share based payments
Share based payments
Balance at 27 June 2021
Share
capital
£m
319.5
Share
premium
£m
40.4
Merger
reserve
£m
18.6
Capital
redemption
reserve
£m
–
Treasury
shares
£m
(2.1)
Shares held by
employee
benefit trust
£m
–
Retained
earnings
£m
65.8
Total
equity
£m
442.2
–
–
–
–
–
–
63.9
–
–
383.4
–
–
–
0.3
(357.8)
–
–
–
25.9
–
–
–
–
–
–
–
–
–
40.4
–
–
–
–
–
–
–
–
40.4
–
–
–
–
–
–
–
–
–
18.6
–
–
–
–
–
–
–
–
18.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
357.8
–
–
–
357.8
–
–
–
–
(1.1)
2.5
–
–
–
(0.7)
–
–
–
–
–
–
–
–
(0.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
0.1
–
–
(0.2)
–
–
–
(15.9)
–
(1.2)
–
(1.6)
2.4
49.5
–
–
–
–
–
1.0
(2.1)
3.6
52.0
–
–
–
(15.9)
(1.1)
1.3
63.9
(1.6)
2.4
491.2
–
–
–
–
–
1.1
(2.1)
3.6
493.8
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 162
Notes to the Company financial statements at 27 June 2021
1 A C C O U N T I N G P O L I C I E S
Basis of preparation
The financial statements are prepared in
accordance with Financial Reporting Standard 101
Reduced Disclosure Framework (“FRS 101”).
continue to meet all liabilities as and when they fall
due for the foreseeable future and at least for the
period of 18 months to March 2023. 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 at fair value and subsequently
measured at amortised cost less any provision
for impairment.
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 of assets and liabilities for financial
reporting purposes and the amounts used for
taxation purposes.
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 (2020: £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 Company heads a group which has a £225.0m
revolving credit facility maturing in December 2023,
with two one-year options to extend the facility,
subject to mutual agreement with the consortium
of lending banks. The Directors have considered
the projected trading and cash flow forecasts
for the Company’s group, including the inherent
uncertainty in forecasting the future impacts of the
Covid-19 pandemic, and are confident that the
Company and its Group has adequate resources to
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 consolidated financial statements for
Key Management Personnel compensation.
Credit risk
The ability of subsidiary undertakings to repay
outstanding balances to the Company is assessed
at each reporting date and counterparty credit
risk is reviewed on a regular basis using IFRS 9’s
expected credit loss impairment model.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Notes to the Company financial statements continued at 27 June 2021
163
2 I N V E S T M E N T S
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
52 weeks to
27 June 2021
£m
246.5
3.6
250.1
244.1
2.4
246.5
Details of the Company’s investments are given in note 11 to the consolidated financial statements. Additions in the current and prior period relate to capital
contributions made in respect of share based payments schemes for the Group’s employees. No impairment indicators or impairment charges were identified
in the current financial period.
3 D E B T O R S
Amounts due from subsidiary undertakings
Current assets
Non-current assets
27 June 2021
£m
28 June 2020
£m
–
355.7
356.7
–
Amounts due from subsidiary undertakings are non-interest bearing and repayable on demand. During the year the Directors reviewed the expectation of the
timing of settlement of these balances and accordingly reclassified them to non-current assets. No material impairment of the receivable was recorded at
27 June 2021 or 28 June 2020.
4 C R E D I T O R S : A M O U N T S D U E I N L E S S T H A N O N E Y E A R
Amounts due to subsidiary undertakings (non-interest bearing, repayable on demand)
27 June 2021
£m
112.0
28 June 2020
£m
112.0
5 C A P I TA L A N D R E S E R V E S
Share capital
Allotted, called up and fully paid
At the start of the financial period
Subdivision of ordinary share capital
Repurchase of deferred shares
Issued during the year
At the end of the financial period
Ordinary shares of £1.50 each
Ordinary shares of £0.10 each
Deferred shares of £1.40 each
‘000
£m
‘000
255,637
(255,637)
–
–
–
383.4
(383.4)
–
–
–
–
255,637
–
3,000
258,637
£m
–
25.6
–
0.3
25.9
‘000
£m
–
255,637
(255,637)
–
–
–
357.8
(357.8)
–
–
Total share capital
£m
383.4
–
(357.8)
0.3
25.9
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 164
Notes to the Company financial statements continued at 27 June 2021
Capital redemption reserve
The capital redemption reserve arose on the
cancellation of deferred shares of £1.40 each
on 25 November 2020.
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 27 June 2021 16,141
of the Company’s own ordinary shares (2020:
990,451) were used to satisfy employee share
based payment awards. At 27 June 2021 the
company had 250,332 ordinary shares held in
treasury (2020: 266,473).
Employee Benefit Trust shares
The Employee Benefit Trust holds ordinary shares
which are issued for the purpose of satisfying future
employee share based payments awards.
During the period ending 27 June 2021 the
Company issued 3,000,000 ordinary shares to the
Employee Benefit Trust of which 1,135,013 were
subsequently used during the period. At 27 June
2021 the Employee Benefit Trust held 1,864,987
of the Company’s ordinary shares.
5 C A P I TA L A N D R E S E R V E S
C O N T I N U E D
Ordinary shares
Following a resolution at the 2020 Annual General
Meeting, on Friday 13 November 2020 the ordinary
shares of £1.50 each in the capital of the Company
in issue were each subdivided into one ordinary
share of £0.10 in the capital of the Company, having
the same rights and being subject to the same
restrictions in all respects as the ordinary shares
of £1.50 each in the capital of the Company prior
to that date (save as to nominal value) and one
deferred share of £1.40 in the capital of the
Company. The deferred shares were subsequently
purchased for cancellation on 25 November 2020
for aggregate consideration of £0.01.
On 16 November 2020 the Company issued
3,000,000 ordinary shares of £0.10 each to the
Employee Benefit Trust, as noted below.
Deferred shares
The deferred shares carry no entitlement to
dividends, distributions or returns of capital save in
the event of a winding-up of the Company (such
entitlement being limited to the repayment of the
amount paid up on the deferred shares), nor any
further or other right of participation in the assets
of the Company. Holders of deferred shares are not
entitled to receive notice of, nor attend, speak or
vote at any general meeting of the Company.
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 of 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.
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS Financial history
Gross sales
Revenue
Underlying EBITDA
Underlying (loss)/profit before tax excluding brand amortisation
Profit/(loss) before tax
Basic earnings per share
Ordinary dividends per share
Special dividends per share
Purchase of own shares
Total shareholder return
1. Sofology acquired 30 November 2017.
2. Audited statutory period: 48 weeks ended 30 June 2019.
3. Unaudited proforma period: 52 weeks ended 30 June 2019.
165
FY21
FY20
IFRS 16
£m
£m
£m
£m
£m
p
p
p
£m
%
1,368.7
1,067.7
222.6
105.8
99.2
34.5
7.5
–
–
+71.4
935.0
724.5
61.9
(63.1)
(81.2)
(31.4)
–
–
1.1
-32.5
FY193
52 weeks
FY192
48 weeks
FY181
FY17
1,287.2
996.2
90.2
50.2
43.6
16.5
11.2
–
–
+31.9
IAS 17
1,165.0
901.0
65.1
28.2
22.4
8.6
11.2
–
–
+31.5
1,125.6
870.5
76.1
38.3
25.8
8.9
11.2
–
–
+1.9%
990.8
762.7
82.4
50.2
50.1
18.7
11.2
9.5
–
+6.5%
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS 166
Annual General Meeting 2021
This year’s AGM will be held at 3:30pm on
12 November 2021 at DFS Group Support Centre,
1 Rockingham Way, Redhouse Interchange,
Adwick-le-Street, Doncaster, DN6 7NA
Financial calendar
FY21 full year results
Annual General Meeting
23 September 2021
12 November 2021
Report and Accounts
Registered number 7236769
27 June 2021
Company No. 07236769
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 helpline: 0371 384 2030.
Overseas holders should contact
+44 (0)121 415 7047.
Lines are open 8.30am to 5.30pm, 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 (0)20 7353 4200
Shareholder information
Contacts
Chief Executive Officer
Tim Stacey
Chief Financial Officer
Mike Schmidt
Group Company Secretary & General Counsel
Elizabeth McDonald
Companysecretary@dfs.co.uk
Investor relations
Philip Hutchinson
Investor.relations@dfs.co.uk
Corporate website
www.dfscorporate.co.uk
Registered office
DFS Furniture plc
1 Rockingham Way
Redhouse Interchange
Adwick-le-Street
Doncaster
DN6 7NA
Corporate advisors:
Auditor
KPMG LLP
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
Remuneration advisor
Willis Towers Watson
51 Lime Street
London, England EC3M 7DQ
Brokers
Peel Hunt Limited & Jefferies International Limited
DFS FURNITURE PLCANNUAL REPORT & ACCOUNTS 2021RESPONSIBILITY & SUSTAINABILITYSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTS CBP008951
The outer cover of this report has been laminated
with a biodegradable film. Around 20 months after
composting, an additive within the film will initiate
the process of oxidation.
www.dfscorporate.co.uk
www.dfs.co.uk
www.sofology.co.uk
www.dwell.co.uk