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2020 Report1 annual report eve S leep p lc 20 17 2 3 Good morning! Welcome to eve’s first annual report... contents 4 c o m p a n y i n f o r m a t i o n 8 h i g h l i g h t s 1 0 c h a i r m a n ’ s s t a t e m e n t 1 3 s t r a t e g i c r e p o r t 3 0 g o v e r n a n c e r e p o r t 46 a u d i t o r ’ s r e p o r t 5 0 g r o u p fi n a n c i a l s t a t e m e n t s 76 c o m p a n y fi n a n c i a l s t a t e m e n t s eve Sleep p lc 20 17 a nnual repor t 4 5 c o m p a n y information directors Paul Pindar (Non-executive Chairman) Jas Bagniewski (Chief Executive Officer) Abid Ismail (Chief Financial Officer) auditor KPMG LLP, Statutory Auditor 15 Canada Square Canary Wharf Thomas Enraght-Moony (Non-executive Director) Peter Hepworth (Non-executive Director) London E14 5GL secretary Link Company Matters Limited The Registry 34 Beckenham Road Beckenham Kent BR3 4TU registered office 128 Albert Street Camden London NW1 7NE registered number 09261636 6 7 “2017 has been an important year for eve. We have continued to strengthen our position in the UK, where we have become the most searched mattress brand online.” - Jas Bagniewski, CEO 8 9 c o m p a n y the highlights eve has achieved what it set out to do in 2017, in just its third year of operation and its first year as an AIM listed company. +132% +109% g r o u p r e v e n u e g r o w t h Group revenue growth increased 132% from £12.0m in 2016 to £27.7m in 2017. U K & I 5 r e v e n u e UK&I revenue increased 109% from £7.7m in 2016 to £16.1m in 2017. +910 bps +175% g r o s s p r o f i t m a r g i n Gross profit margin increased +910bps from 48.6% in 2016 to 57.7% in 2017. g r o s s p r ofi t Gross Profit increased 175% from £5.8m in 2016 to £16.0m in 2017. 1. 2. 3. 4. 5. Source: Populus Omnibus when asked question “What mattress brands can you think of?” with sample sizes Dec16 / Nov17 (2,042 / 1,993) Trustpilot rating based on reviews on evemattress.co.uk at 29 Mar 2018, which is based on UK customer reviews Based on a market share of £2.1bn per Euromonitor 2018E Financial data has been rounded for presentation purposes. As a result of this rounding the totals, comparatives and calculations presented in this document may vary slightly from the arithmetic totals or calculations using such data UK and Republic of Ireland 9.6 out of 10 t r u s t p i l o t r a t i n g 2 For evemattress.co.uk at Mar 2018. 15 products p r o d u c t o f f e r i n g Inreased number of products from 4 in 2016 to 15 in 2017. +13% n o n - m a t t r e s s r e v e n u e Non-mattress revenue increased from 7% 2016 to 13% in 2017. 0.9% U K m a t t r e s s m a r k e t s h a r e 3 Share of the UK mattress market increased from 0.5% in 2016 to 0.9% in 2017. +5.1% U K b r a n d a w a r e n e s s 1 UK brand awareness increased from 1.4% in Dec 2016 to 6.6% in Nov 2017. +174% n o n - U K r e v e n u e Non-UK revenue increased 174% from £4.2m in 2016 to £11.6m in 2017. 145 stores p a r t n e r s h i p s Available in145 stores across the UK and Germany, up from one in Dec 2016. £19.0m l o s s f o r t h e y e a r The loss for the year increased from £11.3m in 2016 to £19.0m 2017. £26.9m c l o s i n g c a s h Compared to £4.6m in 2016. 10 11 c o m p a n y chairman’s statement During 2017 eve has made extensive strategic progress in terms of international development, increasing the product range and developing an omnichannel offering. Pau l P indar about eve eve has achieved what it set out to do in 2017, in just its third year of operation and its first year as an AIM listed company. The focus has been on rapid sales growth, with increasing cost efficiency. This has been achieved in both the UK and international markets. Underpinning this top line growth is a customer proposition that resonates with consumers and growing brand awareness. At the start of 2017 eve had unprompted brand awareness in the UK of 1.4%, rising to 6.6% by the end of the year. strategic progress It is not just the customer proposition in the sleep market that has been tired and unchanged for many decades; it is also the vertically integrated, high fixed cost business model pursued by many of the more established, larger operators. eve is confident that the sleep market will follow the other retail markets and transition to online and has built a scalable business around a direct to consumer model. eve offers a premium product at an affordable price. Equally by focusing on the product, design and marketing, while outsourcing the manufacturing and delivery, eve can focus on its core strengths, whilst maintaining a low fixed cost, flexible business model. During 2017 eve has made extensive strategic progress in terms of international development, increasing the product range and developing an omnichannel offering. The number of international markets has increased and the product range has broadened and now includes a bed frame, bedspread, throw as well as the Folk and eve sleepwear collection. While eve will retain its direct to consumer focus we recognise the advantages that select retail partnerships provide, including brand awareness and an additional sales channel. Substantial progress has been achieved in retail in 2017, surpassing our own expectations with the signing of Next Homeware in the UK and Karstadt in Germany, which have supplemented our Debenhams partnership. As a result, the number of physical stores offering eve products in the UK and Germany has increased from 1 to 145 by the end of the year. thank you I would like to take this opportunity to thank the world class team we have assembled at eve whose hard work has made all we achieved in 2017 possible. They have created a product, brand and customer experience that has been disrupting a stagnant industry, changing the way people buy and think about mattresses and other sleep products. Paul Pindar Chairman 19 April 2018 “...eve has made extensive strategic progress in terms of international development, increasing the product range and developing an omnichannel offering.” 12 13 s t r a t e g i c r e p o r t introduction our vision eve’s aim is to become the leading pan-European sleep brand. our business There are four principal growth drivers for the eve business: 1. 2. marketing and growing brand awareness in core markets international growth in existing and target european markets 3. extensions to the eve product range 4. omni-channel partnerships in core markets 14 15 s t r a t e g i c r e p o r t marketing and growing brand awareness in core markets Building brand awareness is at the heart of what we do. Our brand and marketing, in alignment with our wider business strategy, aims to position eve as an expert in sleep. Our focus is on continuing to disrupt what has traditionally been a sleepy industry, by focusing on the positive benefits of a good night’s sleep, and the impact sleep has on how you feel the next morning. We believe that a perfect start begins the night before, and our creative brand and marketing communications brings this ethos to life through positive, engaging and design-led content. We assess our success in brand awareness through progress on two key metrics: unprompted brand awareness; and marketing efficiency, measured as marketing spend as percentage of revenue. s t r a t e g i c r e p o r t international growth in existing and target european markets Our business goal is to become the number one sleep brand in Europe. Our low capital expenditure expansion model, alongside our strong in-house tech and product team, enable us to launch new e-commerce markets with relative ease. By outsourcing logistics and manufacturing, we have the ability to launch into new countries effectively, using the strength of our premium products, our marketing effectiveness, and by growing our omni-channel partnerships. 16 17 s t r a t e g i c r e p o r t extensions to the eve product range All of our products are eve branded, and designed by our in-house product development team. Each product is carefully designed to simplify the customer proposition and to be premium quality for an accessible price. Our curated range of sleep products continues to grow, as we move beyond our flagship mattress to other products, all of which support our focus on sleep, such as the eve pillow, linen bedding, duvet and topper. s t r a t e g i c r e p o r t omni-channel partnerships in core markets We put customers first, and we aim to make the customer journey as seamless as possible. Easy access to eve products – giving our customers the chance to touch and feel the eve product range – is an important part of our strategy. Whilst we are a direct-to-consumer e-commerce brand, we are selectively increasing our offline presence in order to give our customers more ways to experience, and purchase, eve products. 18 19 s t r a t e g i c r e p o r t CEO statement This has been a year of aggressive growth and significant efficiency gains at eve Sleep. Jas Bagniewski general review of the year Group marketing efficiency, measured as marketing as a % of revenue, has steadily improved during the second half of the year. In 2017 has been an important year UK&I it improved from 64.1% in H1, to for eve. We have continued to 49.2% in H2, and for the Group as a strengthen our position in the UK, whole it improved from 69.7% in H1 to where we have become the most 56.4% in H2. searched mattress brand online. We have also ramped up our internationalisation efforts, extended our non mattress product offering and grown our retail presence to become a truly pan European sleep brand awareness and marketing business, while in the background This has been a year of aggressive becoming the first UK retail IPO of growth and significant efficiency 2017. gains at eve Sleep. We are particularly pleased to see our In the UK & Republic of Ireland longer-term UK investment in the (“UK&I”), revenue has grown +109% eve Sleep brand starting to bear to £16.1m. Following completion of fruit, with unprompted awareness the IPO process in the first half of the moving from 1.4% in December 2016 year, renewed focus on delivery and to 6.6% in November 2017. This has execution has supported a step up in been aided by a strong reaction growth in the second half of the year, to our Join the Sleep Rich television with UK&I revenue growth increasing advertising campaign, which first from +107% in H1 to +110% in H2. aired in August 2017. Strong trends were also experienced in the international business with H1 revenue growth of +153% rising to +194% in H2, generating revenue growth of +174% for the full year. “ b r a n d e d t r a f f i c t o t h e U K w e b s i t e h a s g r o w n b y 1 2 2 % ” Over the same December 2016 to November 2017 period, branded traffic to the UK website has grown by +122%. This provides significant validation of our brand and marketing strategy, giving us confidence as we roll out similar strategies to our other geographies. international growth 2017 saw us accelerate our international growth strategy and we are now operating in 15 markets. We achieved particularly strong year-on-year growth in France of +493% following a successful launch at the start of February 2016. Though late in the year, the agreement with Karstadt in Germany, which went live in November 2017 for a presence in 79 stores, supports our retail strategy and helps grow brand awareness in Europe’s largest mattress market. The progress achieved to date demonstrates that our customer proposition, which combines a strong value for money proposition with an equally strong and distinctive brand, has international appeal. While the UK&I remains our largest market, contributing 58% of group revenues, the international contribution has risen from 35% in 2016 to 42% in 2017. 20 21 new product development eve considerably strengthened its product portfolio of design-led sleep products from 4 in December 2016 to 15 in December 2017, including a design collaboration with Folk clothing. Customers have shown a high adoption of new products, with non-mattress products contributing 13% of group revenue (2016: 7%). We also have widened our global supply base this year, continuing to focus on European sourcing wherever possible to support the agile and flexible approach to stock holding and management. In 2018 we intend to further build out our capacities for innovation, product design and creative concepts, as well as getting even closer to consumers to identify purchase drivers and human needs through insight generation. omni-channel We have seen considerable growth with Karstadt, one of the leading through omni-channel in 2017, department store chains in Germany, mainly due to the acceleration of giving eve a physical presence in partnerships in the UK, which include 79 stores across Germany. These a mix of offline and online retailers two deals give eve a significant including Amazon, Debenhams, Next omnichannel presence in one of the Home and Fenwick. largest mattress markets in Europe. On the international landscape, eve signed two significant deals in November 2017 in Germany, one with Otto Group, one of the country’s biggest ecommerce and catalogue companies, the second future developments thank you The eve strategy is focused on I would like to take this opportunity winning share from traditional to thank our customers who have operators in the £26bn European embraced a new way of shopping sleep market, as the transition for mattresses and for their advocacy from offline to online purchase which has resulted in thousands of accelerates over the next few recommendations, positive online years. Forecasts by Euromonitor reviews and user generated content expect the online furniture market that continues to build trust in our to be the second fastest growing brand and product offering. category, growing +55% between 2017 and 2022. The company remains I would also like to thank our staff confident that it has a customer and shareholders, new and existing, proposition, direct to consumer without whose investment and focused agile business model and a commitment into our company we fast growing brand that is sufficiently would not have been able to grow strong and differentiated to win in at the speed we have done into the this transition. business we are today. We have invested heavily in our technology platform, brand and team in 2017 and we look forward to continued growth in 2018. Jas Bagniewski Chief Executive Officer 19 April 2018 “ w e h a v e i n v e s t e d h e a v i l y i n o u r t e c h n o l o g y p l a t f o r m , b r a n d a n d t e a m i n 2 0 1 7 a n d w e l o o k f o r w a r d t o c o n t i n u e d g r o w t h i n 2 0 1 8 .” 22 23 s t r a t e g i c r e p o r t key performance indicators The following KPIs are the tools used by management to monitor the performance of the Company, in addition to the more traditional income statement, statement of financial position and cash flow analysis reviewed at regular Board meetings. T he s ix key met ri c s eve lo oks at i n eval u a ti ng i t s business p erformanc e: reve nue grow th gross margins 132% Group revenue of £27.7m (2016: £12.0m) 57.7% +910 BPS improvement (2016: 48.6%) re turn rate s 1 12% UK brand awarene ss 6.6% Group return rates of 12% (2016: 17%) Unrprompted UK brand awareness at Nov-17 (Dec16: 1.4%) marke ting as % of reve nu e closing c ash 61.9% + 360 BPS improvement (2016: 65.5%) £26.9m at 31 December 2017 1. Return rate % is calculated by dividing the total value of sales returns by the value of net sales of goods including freight (all excluding VAT). 24 25 s t r a t e g i c r e p o r t financial review This has been a year of significant growth and targeted investment at eve. Ab i d Ismail £m Revenue Gross profit Distribution Gross profit after distribution Payment fees Marketing Gross profit after distribution, payment fees and marketing Wages & Salaries Other administrative expenses Adjusted EBITDA Loss IPO Related Expenditure Net finance income Share based payment charge Loss before tax % of Revenue Gross Profit Distribution Gross profit after distribution Marketing Administrative expenses excluding marketing 2017 27.7 16.0 (3.4) 12.6 (0.7) (17.2) (5.3) (4.5) (5.3) (15.1) (2.1) 0.0 (1.8) (19.0) 2017 57.7% (12.4%) 45.3% (61.9%) (37.9%) 2016 12.0 5.8 (1.2) 4.6 (0.4) (7.8) (3.7) (2.6) (5.1) (11.3) - - - Movement +132% +175% (179%) +174% (54%) (119%) (43%) (75%) (5%) (33%) - - - (11.3) (67%) 2016 Movement 48.6% (10.3%) 38.3% (65.5%) (67.5%) +910bps (210bps) +700bps +360bps +2960bps Administrative expenses per the income statement include payment fees, marketing, wages & salaries and other administrative expenses revenue eve group revenue grew by +132% from £12.0m to £27.7m, underpinned by growth across all regions. UK&I revenue was up +109% and represented 58% of the group (2016: 65%). International revenues have grown +174% underpinned by France and Germany. gross margins In 2017, gross margins improved to 57.7% (2016: 48.6%), despite foam raw material prices increasing throughout the year. The margin improvements were driven primarily by economies of scale (500bps), lower product return rates and cost recovery through refurbished mattresses (310bps) and efficiency gains (100bps). distribution costs Distribution costs increased in 2017 in line with business growth, reflecting the expansion into more European countries an increased product range. Consequently, distribution costs over revenue increased to 12.4% in 2017 (2016: 10.3%). U K & I r e v e n u e + 1 0 9 % marketing costs Marketing expenditure includes all media buying spend by eve with the two primary channels being TV and digital marketing (primarily Facebook and Google Ads). In 2017, total marketing spend increased 119% to £17.2m. However, despite this increased investment in building the eve brand, Group marketing efficiency improved by 360 bps, and UK&I by 750 bps compared with 2016. administrative expenses (excluding marketing) The largest cost within this category is wages & salaries making up 43% of the total cost (2016: 32%). The increase in wages & salaries reflects the investment in the eve team, with average headcount increasing from 51 to 96. Despite this, administrative expenses as a proportion of revenue improved to 37.9% (2016: 67.5%). adjusted EBITDA loss (before IPO costs & share based payment charges) The underlying EBITDA loss increased to £15.1m (2016: £11.3m) and reflects the investment in marketing and the team to support the continued growth targeted in 2018. 26 27 IPO costs capital expenditure On 18 May 2017, eve Sleep Ltd was Due to the Group’s outsourced admitted on to the AIM following a business model, capital expenditure successful Initial Public Offering (IPO). requirements remain low. The main The one-off costs associated with the area of capital expenditure in 2017 IPO were £2.1m. share based payment In accordance with IFRS, a share based payment charge for the options exercised in 2017 has been related to development work on the eve websites. The total capital expenditure for 2017 was £0.4m (2016: £0.0m). cash position calculated and charged to the The Group had net cash of £26.9m income statement. The charge for at year end. 2017 was £1.8m and reflects the accelerated vesting of some of the options in May 2017 as part of the IPO. loss for the year The loss for the year has increased to £19.0m (2016: £11.3m). Abid Ismail Chief Financial Officer 19 April 2018 28 29 s t r a t e g i c r e p o r t principal risks and uncertainties Risk management is an important part of the management process for the Group. Regular reviews are undertaken to assess the nature of risks faced, the magnitude of the risk presented to business performance and the manner in which the risk may be mitigated. Where controls are in place, their adequacy is regularly monitored. The risks considered to be particularly important at the current time are set out below. marketing product Marketing is an important investment The Group is responsible for the area for the Group and there is a risk design of eve products and could that this expenditure may not result face exposure to product liability in the targeted increase in sales or claims or claims against health and brand awareness levels. safety procedures or practices in different territories. There could also eve constantly monitors and analyses be high return rates owing to the financial performance and key 100 night trial offered on the eve business metrics to ensure up to mattress. date and accurate forecasting. The Group also supplements its The Group has a robust new product in-house marketing expertise with and supplier onboarding process to third party media and marketing ensure new products and suppliers agencies to monitor and advise on are of the highest standards. The the effective implementation and Group also retains insurance brokers roll out of marketing and advertising to review and analyse insurance campaigns to meet targeted KPIs. coverage to ensure sufficient insurance coverage for product liability and associated losses. In addition, return rates is a KPI which is monitored closely. The Group is subject to fluctuations in the cost of materials which may adversely impact on the Group’s profit margins. The Group manufactures its EU mattress in the EU and manufactures its UK mattress in the UK creating a hedge against currency movement for its key products. For other products and markets the Company looks to agree prices for a period of time where possible to provide a degree of certainty on currency fluctuations. operations competition The Group operates in the highly competitive mattress and pillow industries and may not be able to grow, or maintain, its existing marketing share. The Group constantly reviews and analyses its performance against its business plan and against market competitors. The Group has both internal talent and external advisors who can advise on and respond to any changes in the competitive environment to ensure it maintains on track for execution to business plan. As the Group is growing rapidly, there Approved and signed on behalf of is a reliance on outsourced partners, the board there is a risk that the business may be unable to cope with rapid demand or disruption occurring with its manufacturing or logistics partners. The Group has a close working relationship with its outsourced Abid Ismail partners and regularly reviews Chief Financial Officer forecasts to ensure capacity 19 April 2018 constraints are managed. In addition, the Group maintains a list of alternative suppliers who can be onboarded or switched to very quickly, reducing the risk of relying on any specific supplier. 30 31 g o v e r n a n c e r e p o r t board of directors Paul Pindar Chairman of the Board appointed: November 2016 experience Paul joined the eve Board in November 2016. Prior to this, Paul spent 26 years at Capita Plc, retiring in February 2014. Paul was one of the UK’s longest serving Chief Executive Officers of a FTSE100 company. During his tenure, the market value of Capita grew to £7.5bn and employee numbers grew from 33 to 62,000. Paul was a founder investor in online estate agent Purplebricks which originally launched in April 2014 and is now AIM-listed on the London Stock Exchange. Paul is also Chairman of Literacy Capital Plc, an investment company focussed on investing in and supporting early stage and small companies whilst also providing charitable funding in order to materially improve child literacy in the UK. committee membership: Audit Committee Nomination Committee (Chair) Remuneration Committee (Chair) Jas Bagniewski Founder and Chief Executive Officer appointed: January 2015 experience Jas co-founded eve in 2014 alongside Kuba Wieczorek and James Fryer. Previously, Jas was Chief Executive Officer of Zen Bedrooms, a direct to consumer mattress company. Prior to this, Jas worked at Rocket Internet as a Country Manager of various start-ups including Zalando and Groupon. Jas started his career as a consultant at Accenture. committee membership: None Abid Ismail Chief Financial Officer appointed: November 2016 experience Abid joined eve in 2016 from Capita Plc, having been Chief Financial Officer and then Chief Executive Officer of AXELOS Ltd — a joint venture between Capita Plc and the UK government. Prior to this Abid held senior positions within Capita group as well as Ernst & Young’s M&A team. Abid is a Chartered Accountant. committee membership: None Peter Hepworth Senior Independent Non-Executive Director appointed: April 2017 experience Peter joined eve in April 2017. Peter is currently Executive Officer of the Professional Services Division of Capita Plc, as well as Chief Executive Officer of AXELOS — a joint venture between Capita Plc and the UK Government. Prior to AXELOS, Peter held a number of positions at Activision Blizzard, one the world’s leading interactive entertainment companies, including being Managing Director of UK & Ireland. Prior to Activision, Peter worked in senior finance, sales and marketing positions in France and the UK at L’Oréal and Sara Lee Corporation. Peter is a Chartered Accountant. committee membership: Audit Committee (Chair) Nomination Committee Remuneration Committee Thomas Enraght-Moony Independent Non-Executive Director appointed: April 2017 experience Tom joined Eve in April 2017. Tom is the Chief Customer Officer at McArthurGlen, Europe’s leading owner & operator of Designer Outlet Malls. Prior to McArthurGlen Tom spent over 15 years leading brand transformation and growth for tech-enabled consumer businesses including Leisure Pass Group, Match.com, E*TRADE, AT&T Wireless and Clearwire. He holds an undergraduate degree from The University of Glasgow and an MBA from INSEAD in France. committee membership: Audit Committee Nomination Committee Remuneration Committee 32 33 and, where appropriate, agreed with the rest of the Board. The table below sets out the Board and Committee attendance from the date the Company’s shares were admitted to trading on AIM up to 31 December 2017. Attendance is shown as the number of meetings attended out of the total number of meetings possible for the individual Director during the year. If any Directors are unable to attend a meeting, they are encouraged to communicate their opinions and comments on the matters to be considered via the Chairman of the Board or the relevant committee chairman. attendance at Board and Commitee meetings since May 2017 Paul Pindar Jas Bagniewski Abid Ismail Thomas Enraght-Moony Peter Hepworth Board 3 of 3 3 of 3 3 of 3 3 of 3 3 of 3 Audit Committee Remuneration Committee 1 of 1 1 of 1 - - 1 of 1 1 of 1 - - 1 of 1 1 of 1 g o v e r n a n c e r e p o r t corporate governance report The Board is committed to achieving high standards of corporate governance, integrity and business ethics. Under the AIM Rules for Companies the Company is not required to comply with the provisions of the UK Corporate Governance Code published by the Financial Reporting Council. Whilst that code has not been applied in full, the Board has taken into consideration the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies produced by the Quoted Companies Alliance, and taken steps to apply the principles of the UK Corporate Governance Code in so far as it can be applied practically, given the size of the Company and the nature of its operations. the Board and its Committees The Board is collectively responsible to the shareholders for the overall direction and control of the company and delegates the day to day management of the business to the executive directors and senior management. The Board also delegates certain matters to its Board Committees so that it can operate efficiently and give the right level of attention and consideration to relevant matters. The composition, responsibilities and activities of each of the Board Committees are set out on pages 36 to 38. The terms of reference of each committee are available from our website. board composition The successful delivery of our strategy depends upon attracting and retaining the right talent. This starts with having a high-quality Board. Balance is an important requirement for the composition of the Board, not only in terms of the number of Executive and Non-executive Directors, but also in terms of skill, knowledge and expertise each Director brings. The Board comprises a non-executive chairman, two executive directors and two other independent non-executive directors. A short biography of each of the directors in office at the year end is set out on pages 30 to 31. Peter Hepworth and Thomas Enraght- Moony are considered by the Board to be independent. The Board are of the opinion that both act in an independent and objective manner and are free from any relationship that could affect their judgement. Paul Pindar, as non-executive chairman, was considered independent on appointment. Notwithstanding any cross-directorships, the Board is satisfied that it has a suitable balance between independence (of both character and judgement) on the one hand, and knowledge of the Company on the other, to enable it to discharge its duties and responsibilities effectively. There are effective procedures in place to monitor and deal with conflicts of interest. The Board is aware of the other commitments and interests of its directors, and changes to these commitments and interests are reported to 34 35 Board and Committee effectiveness relations with shareholders We are committed to communicating openly with our shareholders to ensure that our strategy and performance are clearly understood. We communicate with shareholders through the Annual Report and Accounts, full-year and half-year announcements, trading updates and the annual general meeting (AGM); and we encourage shareholders’ participation in face-to-face meetings. A range of corporate information (including all announcements and presentations) is also available to shareholders, investors and the public on our corporate website at investor.evemattress.co.uk. The Board continually strives to improve its effectiveness and recognises that its annual evaluation process is an important tool in reaching that goal. We will be undertaking an evaluation of the Board’s effectiveness, and of the effectiveness of each of the Board Committees in 2018, and will report to shareholders in the 2018 Annual Report on the outcomes of that exercise. internal controls and risk management The Group has a comprehensive system of internal controls in place, designed to ensure that risks are mitigated and that the Group’s objectives are attained. The Board recognises its responsibility to present a fair, balanced and understandable assessment of the Group’s position and prospects. It is accountable for reviewing and approving the effectiveness of internal controls operated by the Group, including financial, operational and compliance controls, and risk management. The Board recognises its responsibility in respect of the Group’s risk management process and system of internal control, and oversees the activities of the Group’s external auditors and the Group’s risk management function (supported by the Audit Committee). A review of the Group’s risk management approach, and detail on the management and mitigation of each principal risk is discussed in the Strategic Report on pages 28 to 29. 36 37 g o v e r n a n c e r e p o r t audit committee report g o v e r n a n c e r e p o r t nomination committee Committee composition The Committee comprises Peter Hepworth (Committee chair), Paul Pindar and Thomas Enraght-Moony. Committee responsibilities The main responsibilities of the Audit Committee are: • Monitoring the integrity of the financial statements; • Reviewing the Company’s internal control arrange- ments and risk management systems; • Making recommendations to the Board as regards the appointment, re-appointment and removal of the Company’s external auditor; and • Overseeing the relationship with the external auditor. objectivity and independence of the external audit It is the Committee’s responsibility to monitor the performance, objectivity and independence of the Auditor and this is evaluated by the Committee each year. In evaluating their performance the Committee examines five main criteria – robustness of the audit process, independence and objectivity, quality of delivery, quality of people and service, and value-added advice. Having carried out the review the Committee is satisfied with the Auditor’s performance, objectivity and independence. significant issues considered in relation to the financial statements The Board has discussed areas of risk with the auditors and agreed for the following areas of heightened risk to be reviewed and assessed in the audit of the Company’s performance in the financial year to 31 December 2017. risk of fraud in revenue recognition: The greatest risk of revenue recognition fraud is at the financial statement level, through the posting of manual journals. The expectation from investors has put pressure on management which would increase the risk of fraud for premature revenue recognition/ under-recognition of sales return provision. inventory valuation and existence: Inventory is a material balance and there is a risk that the closing stock is not accurately recorded in the financial statements. management override of controls: Management is in a unique position to perpetrate fraud because of their ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Although the Committee did not meet formally in the period from IPO up until 31 December 2017, it did meet on 6 March 2018 to discuss year end matters. The Committee reviewed the size, structure and composition of the Board and agreed that this remains appropriate. Committee composition The Committee comprises Paul Pindar (Committee chair), Peter Hepworth and Thomas Enraght-Moony. Committee responsibilities The main responsibilities of the Nomination Committee are: • Reviewing the size structure and composition of the Board; • Considering succession plans for Directors and senior management; • Satisfying itself that plans are in place for orderly succession for appointments to the Board; • Identifying and nominating to the Board candi- dates for Board vacancies. 38 39 g o v e r n a n c e r e p o r t remuneration report composition key activities in 2017 The main focus of the Committee in 2017 has been to review proposals around Executive Directors’ remuneration arrangements for 2018 and scrutinise management bonus scheme proposals. The Committee will continue to focus in 2018 on ensuring that executive remuneration and shareholder interests remain closely aligned. The Remuneration Committee comprises three non-executive directors: Paul Pindar (Chairman of the Committee), Thomas Enraght-Moony and Peter Hepworth. Members of the management team are invited to attend meetings as appropriate, unless there is an actual or potential conflict of interest. responsibilities The role of the Committee is to assist the Board to fulfil its responsibility to shareholders to ensure that the remuneration policy and practices of the Company reward fairly and responsibly, with a clear link to corporate and individual performance, having regard to statutory and regulatory requirements. The Terms of Reference for the Remuneration Committee are available on our website at investor.evemattress.co.uk/corporate- governance#committee-composition. These were last reviewed by the Committee on 22 November 2017. remuneration policy The Company’s policy is that the remuneration package of the Executive Directors should be sufficiently competitive to attract, retain and motivate those directors to achieve the Company’s objectives without making excessive payments. The Board determines the terms and conditions of the Non-Executive directors. fixed remuneration elements Purpose How it operates Maximum opportunity Performance-related framework Base salary Reflects an individual’s Reviewed annually, normally There is no prescribed The performance of the responsibilities, experience with effect from 1 January, maximum annual base individual in the period since and performance in their with any changes taking salary or salary increase. the last review is considered role. effect from that date. The Committee is guided when their salary is being Salaries are normally paid by the general increase reviewed. monthly. for the broader employee population but has discretion Decisions on salary to decide to award a levels are influenced lower or higher increase to by: responsibilities, Executive Directors. abilities, experience and performance of an individual the performance of the individual in the period since the last review the Company’s salary and pay structures and general workforce salary increases. Pension To contribute financially post Defined contribution The Company may Not applicable. retirement. arrangement. contribute up to 1% of base Only base salary is salary. pensionable. The Committee has Employees may opt out of discretion to amend the the scheme. contribution level should market conditions change. variable remuneration elements Purpose How it operates Maximum opportunity Performance-related framework Supports the strategy and Awards of share options Not applicable Not applicable business plan by incentivising to certain employees, and retaining the eve senior which normally vest management team in a way after three years subject Share plan that is aligned both with to the achievement of the Company’s long-term performance conditions. financial performance and with the interests of shareholders. To support the personal Benefits include private There is no overall maximum Not applicable health and wellbeing of medical insurance and level of benefits provided employees. discount on eve products. to Executive Directors, Other benefits To reflect and support the Company’s culture. and the level of some of these benefits is not pre- determined but may vary from year to year based on the overall cost to the Company. 40 41 g o v e r n a n c e r e p o r t remuneration report (continued) Directors’ remuneration table The remuneration of the Directors for the year to 31 December 2017 is set out in the table below Director Appointed Resigned Salary / fees £ Pension £ Total remuneration £ 2017 2016 2017 2016 2017 2016 Executive Directors Jas Bagniewski(1) Abid Ismail(2) Kuba Wieczorek(3) Non-Executive Directors Paul Pindar Peter Hepworth Thomas Enraght-Moony Luke Hakes 6 January 2015 N/A 132,708 77,897 2 November 2016 N/A 130,000 13,576 8 December 2015 28 April 2017 36,667 70,423 21 November N/A 25,000 2,000 2016 28 April 2017 28 April 2017 N/A N/A 17,500 20,115 1 August 2015 28 April 2017 - - - - 98 98 - - - - - 361,990 163,896 196 - - - - - - - - 132,806 77,897 130,098 13,576 36,667 70,423 25,000 2,000 17,500 20,115 - - - - 362,186 163,896 Directors interest in share plans Director Scheme Date of Grant As at 31 December Performance Exercise Price 2017 (No of Shares) conditions (pence) Jas Bagniewski (Executive Director) EMI 12/05/2017 243,628 Length of service 101.2p Unapproved 12/05/2017 353,372 Length of service 101.2p Abid Ismail (Executive Director) EMI 12/05/2017 242,932 Length of service 101.2p Unapproved 12/05/2017 146,911 Length of service 101.2p Peter Hepworth (Non-Executive Director) Thomas Enraght-Moony (Non-Executive Director) EMI EMI 12/05/2017 99,000 Length of service 101.2p 12/05/2017 99,000 Length of service 101.2p There were no options granted before 2017. Directors shareholdings The Directors who held office at 31 December 2017 had the following interests in the shares of the Company, Director Beneficially owned at 31 December 2017 No. of shares Beneficially owned at 18 May 2017 No. of shares Beneficially owned at 31 December (1) 2016 No. of shares Outstanding share options at 31 December 2017 Jas Bagniewski (Executive Director) 9,341,668 9,341,668 5,893,480 597,000 Abid Ismail (Executive Director) 4,151,841 4,151,841 - 389,843 There were no taxable benefits, bonus, long term incentives or other incomes Paul Pindar (Non-Executive Director) (2) 6,287,927 6,287,927 6,287,927 - 1. On 18 May 2017, 3,448,188 ordinary shares of 0.1 pence each were allotted to Jas Bagniewski, following the exercise of options over ordinary shares. The gain on these options amounted to £3,582,667. The charge for the year for all options held by this director amounted to £341,371. 2. On 12 May 2017, 4,151,841 ordinary C shares of 0.1 pence each were allotted to Abid Ismail, following the exercise of options over ordinary C shares. The gain on these options amounted to £3,995,510. The charge for the year for all options held by this director amounted to £244,959. 3. The charge for the year for all options held by this director amounted to £174,810. Peter Hepworth (Non-Executive Director) Thomas Enraght-Moony (Non-Executive Director) - - - - - - 99,000 99,000 There were no sales of shares by a director to report. 1. 2016 comparative requires modification to account for bonus issue and consolidation of shares 2. Includes connected persons 42 43 g o v e r n a n c e r e p o r t statement of directors’ responsibilities in respect of the annual report and the financial statements g o v e r n a n c e r e p o r t directors’ report 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 and a Directors’ Report 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. 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. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU) and applicable law and have elected to prepare the parent Company financial statements on the same basis. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent Company financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasona- ble, relevant and reliable; • state whether they have been prepared in accor- dance with IFRSs as adopted by the EU; • assess the Group and parent Company’s ability to continue as a going concern, disclosing, as appli- cable, matters related to going concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s transactions and disclose with reasonable accuracy at any time the financial The Corporate Governance Report approved by the Board is provided on pages 32 to 34 and incorporated by reference into this Directors’ Report. presence outside of UK the company has the following subsidiaries outside of the UK Eve sleep inc Eve Sleep SASU Principal place of 185 W. Broadway, business/ Registered Suite 101, PO Box office address 1150, Jackson, USA Registered Number EIN 47-4164566 Ownership 2017 Ownership 2016 100% 100% 5 Rue Des Suisses, 75014, Paris 823397419 R.C.S Paris 100% 100% information contained elsewhere in this Annual Report Information required to be included in this Directors’ Report can be found elsewhere in the Annual Report as indicated in the table below and is incorporated into this report by reference: Information Page(s) Future Developments Going Concern Statement Risk Management and principal risks Corporate Governance Statement Information on the Group’s financial risk management objectives and policies, and its exposure to credit risk, liquidity risk, interest rate risk, foreign currency risk and financial instruments 21 54 28 42 72 significant events since the end of the financial year There have been no significant events affecting the Company since 1 January 2018. 44 45 annual general meeting The Annual General Meeting of the Company will be held at 12.00pm on Thursday 24 May 2018 at Instinctif offices, 1st Floor, 65 Gresham Street, London, EC2V 7NQ . The Notice of Meeting has been sent to shareholders along with this Annual Report. Approved and signed on behalf of the Board Paul Pindar Chairman 19 April 2018 auditor KPMG LLP was appointed as auditor and is willing to continue in office. In accordance with s489(4) of the Companies Act 2006 a resolution for their reappointment will be proposed at the forthcoming Annual General Meeting. share capital The issued share capital of the Company at 31 December 2017 was 138,621,020 ordinary shares of 0.1p. Full details of the issued share capital, together with the details of shares issued during the year to 31 December 2017, are shown in Note 16 to the financial statements on page 68. statement on disclosure of information to auditors The directors confirm that, so far as each is aware, there is no relevant audit information of which the Group’s auditors are unaware. Each of the directors has taken all the steps he should have taken as a director to make himself aware of any relevant audit information and to establish that the Group’s auditors are aware of that information. dividends The directors do not recommend the payment of a dividend. strategic report This is set out on pages 13 to 29 of the Annual Report and includes an indication of likely future developments, and forms part of this Directors’ Report. research and development The Group undertakes a continuous programme of development expenditure. Development expenditure is capitalised only when the end product is technically and commercially feasible and when sufficient resource is available to complete the development, as disclosed in note 2.10 to the accounts. political donations The interests of the directors and their closely associated persons in the share capital of the Company, along with details of directors’ share options and awards, are contained in the Directors’ Remuneration Report on pages 40 to 41. At no time during the year did any of the directors have a material interest in any significant contract with eve Sleep plc. The Company’s policy is for all of the Executive Directors to have twelve month rolling service contracts. All Non-Executive Directors are salaried and are appointed for an initial term of three years from Admission to AIM which took place on 18 May 2017. eve maintains directors’ and officers’ liability insurance which gives appropriate cover for any legal action brought against its directors. The Company has also provided an indemnity for its directors, which is a qualifying third-party indemnity provision, for the purposes of section 234 of the Companies Act 2006. This was in place throughout the year and up to the date of approval of the financial statements. No political donations have been made during this financial year. articles of association directors Details of the directors as at the date of this report and who served throughout the period are set out on page 40. eve Sleep’s Articles of Association can only be amended by special resolution and are available on our website. 46 47 g o v e r n a n c e r e p o r t independent auditor’s report to the members of eve Sleep plc 1. Our opinion is unmodified Basis for opinion We have audited the financial statements of eve Sleep Plc (“the Group”) for the year ended 31 December 2017 which comprise the consolidated statement of profit and loss and other comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows, Company statement of financial position, Company statement of changes in equity, Company statement of cash flows and the related notes, including the accounting policies in note 2. 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 31 December 2017 and of the Group’s loss for the year then ended; • the group financial statements have been pro- perly prepared in accordance with Internatio- nal Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU); • the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Com- panies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Materiality: Group financial statements as a whole £0.25m (2016: £0.3m) 1% (2016: 2.5%) of total Group revenues Coverage 100% (2016: 100%) of Group loss before tax We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Risks of material misstatement Consolidated and parent Company - recurring risk Revenue recognition including management override of controls Risk vs 2016: Down (cid:122) Consolidated and parent Company - new risk Accounting for share options scheme New risk 2017 2. Key audit matters: our assessment of risks of material misstatement Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance, were as follows: Revenue recognition including management override of controls (Consolidated: £27.7m; 2016: £12.0m) Refer to page 36 (Audit Committee Report) and note 2.15 on page 57 (accounting policy) Accounting for eve sleep share option scheme (Consolidated and parent Company:£1.8 million; 2016: £ nil) Refer to note 2.17 on page 58 (accounting policy) and note 17 on pages 69 to 71 (financial disclosures). The risk Our Reponse Sales revenue recognition Our procedures included: The Group’s revenues have increased significantly in the current year in line with the business model and investment in the group’s chosen markets following its admission to AIM in May 2017. Accordingly, there is significant focus on management to deliver revenue growth from the group’s operating activities. We therefore concluded that there was heightened risk at the financial statement level of management override of control, as the directors may seek to modify the results through the posting of fictitious sales transactions by way of manual journal entries or by intentionally manipulating judgements used in determining the provision for sales returns. - Tests of detail: We agreed gross revenue (before accounting for returns) recognised in the financial year to cash receipts per bank statements and taking into account year on year movements in trade receivables in order to check the occurrence of revenue recognised. - Benchmarking assumptions: We challenged the key assumptions used in sales return provision calculation, in particular the rate of return through comparing the year end provision to actual 2017 sales returns in 2018. In addition, we also considered the historical accuracy of the provision by checking historical return data trends. Tests of detail: We considered the adequacy of the Group’s disclosures in respect of revenue and provision for sales returns. - Assessing transparency: We considered the adequacy of the Group’s disclosures in respect of revenue and provision for sales returns. Subjective valuation Our procedures included: The directors have put in place new share option schemes during in 2017. A number of options were issued prior to the IPO which were valued using a valuation model, which includes various assumptions. There is a heightened risk of error due to the number of options issued and the fact that certain option vested early on IPO. - Benchmarking assumptions: We obtained the valuations prepared by the directors and challenged the key assumptions applied in determining the grant date fair value of the options awarded, being the risk free rate, volatility rate, enterprise value and option life against externally derived data. - Re-performance: We independently recalculated the value of the awards granted, accelerated due to the IPO, and the related share based payment expense recognised. - Assessing transparency: We considered the adequacy of the Group’s disclosures in respect of the employee share option schemes. 3. Our application of materiality and an overview of the scope of our audit Materiality for the Group financial statements as a whole was set at £0.25m (2016: £0.30m), determined with reference to a benchmark of Group revenue of £27.4m (2016: £12.0m), of which it represents 1% (2016: 2.5%). We consider total revenue to be the most appropriate benchmark as it provides a more stable measure year on year than group loss before tax. Materiality for the parent company financial statements as a whole was set at £0.18m (2016: £0.19m), determined with reference to a benchmark of company total revenue of £16.1m (2016: £7.7m), of which it represents 1% (2016: 2.5%). We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding £0.013m (2016: £0.0.15m), in addition to other identified misstatements that warranted reporting on qualitative grounds. The Group team performed the audit of the Group as if it was a single aggregated set of financial information. The audit was performed using the materiality levels set out above. 4. We have nothing to report on going concern We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects. 48 49 g o v e r n a n c e r e p o r t independent auditor’s report to the members of eve Sleep plc Continued 5. We have nothing to report on the other information in the Annual Report The directors are responsible for the other information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements audit work, the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on that work we have not identified material misstatements in the other information. Strategic report and directors’ report Based solely on our work on the other information: • we have not identified material misstatements in the strategic report and the directors’ report; • in our opinion the information given in those reports for the financial year is consistent with the financial statements; and • in our opinion those reports have been prepared in accordance with the Companies Act 2006. 6. We have nothing to report on the other matters on which we are required to report by exception Under the Companies Act 2006, we are required to report to you if, in our opinion: • adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent Company financial statements 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 ex- planations we require for our audit. We have nothing to report in these respects 7. Respective responsibilities Directors’ responsibilities As explained more fully in their statement set out on page 42, 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. 7. Respective responsibilities (Continued) 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. 8. The purpose of our audit work and to whom we owe our responsibilities This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Craig Douglas (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 15 Canada Square London E14 5GL 19 April 2018 50 51 consolidated statement of profi t and loss and other comprehensive income for the year ended 31 December 2017 consolidated statement of fi nancial position at 31 December 2017 Revenue Cost of sales Gross Profi t Distribution expense Administrative Expenses Operating loss before IPO related expenditure and share based payment charge IPO Related expenditure Share based Payment Charges Operating loss Net fi nance income Loss before tax Taxation Loss for the year Note 3 4 17 7 8 2017 £ 2016 £ Non-current assets Property, Plant and equipment 27,744,995 11,966,770 Intangible assets (11,749,049) (6,152,136) 15,995,946 5,814,634 (3,430,085) (1,231,308) (27,686,895) (15,921,078) (15,121,034) (11,337,752) (2,124,528) (1,757,204) - - (19,002,766) (11,337,752) 25,096 - (18,977,670) (11,337,752) - - (18,977,670) (11,337,752) Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Provisions Total liabilities Net assets Note 9 10 11 12 13 14 15 2017 £ 36,458 378,538 414,996 691,340 4,177,056 26,926,389 2016 £ 7,945 - 7,945 491,181 1,049,660 4,639,355 31,794,785 6,180,196 32,209,781 6,188,141 4,548,019 2,186,241 826,702 715,097 5,374,721 2,901,338 5,374,721 2,901,338 26,835,060 3,286,803 Basic and diluted loss per share 18 (16.17p) (16.78p) There was no other comprehensive income for the year. All results relate to continuing activities. Notes 1 to 24 form part of the historical fi nancial information shown above Equity attributable to equity holders of the parent Share capital Share Premium 16 138,631 316 36,716,371 16,124,928 Share based payment reserve 138,794 - Retained earnings Total Equity (10,158,736) (12,838,441) 26,835,060 3,286,803 Notes 1 to 24 form part of the historical fi nancial information shown above These fi nancial statements were approved by the board of directors on eve Sleep plc and were signed on it’s behalf by: Abid Ismail Director 19 April 2018 Company registered number: 09261636 52 53 consolidated statement of changes in equity for the year ended 31 December 2017 consolidated statement of cash flows for the year ended 31 December 2017 For the year ended 31 December 2017 Share Capital £ Share Premium £ Share based payment reserve £ Retained Earnings £ Total Equity £ Balance at 1 January 2017 316 16,124,928 Issue of shares Bonus share issue 38,767 85,948 40,698,396 (85,948) Share premium cancellation - (20,038,965) Exercise of options 13,600 17,960 Share based payment charge Transfer on exercise of options - - - - - - - - - 1,757,204 (12,838,441) 3,286,803 - - 20,038,965 - - 40,737,163 - - 31,560 1,757,204 (1,618,410) 1,618,410 - Transactions with owners 138,315 20,591,443 138,794 21,657,375 42,525,927 Cash flows from operating activities Operating loss after taxation IPO related expenditure 2017 £ 2016 £ (18,977,670) (11,337,752) 2,124,528 - Operating loss before IPO related expenditure (16,853,142) (11,337,752) Adjustments for Net finance income Depreciation and amortisation Increase in trade and other receivables Increase in inventories Increase in trade and other payables Increase in provisions Share based payment charge IPO related expenditure (25,096) 7,945 (3,127,396) (200,159) 2,361,778 111,606 1,757,204 (2,124,528) - 2,647 (629,515) (491,181) 1,992,740 540,962 - - Loss for the year (18,977,670) (18,977,670) Net cash outflow from operating activities (18,091,788) (9,922,099) Balance at 31 December 2017 138,631 36,716,371 138,794 (10,158,736) 26,835,060 for the year ended 31 December 2016 Balance at 1 January 2016 226 3,112,439 Issue of shares Transactions with owners Loss for the year 90 90 13,012,489 13,012,489 Balance at 31 December 2016 316 16,124,928 - - - - (1,500,689) 1,611,976 - - 13,012,579 13,012,579 (11,337,752) (11,337,752) (12,838,441) 3,286,803 Cash flows from investing activities Acquisition of property, plant and equipment Development of intangible assets (36,458) (378,538) (10,592) - Net cash outflows from investing activities (414,996) (10,592) Cash flows from financing activities Proceeds from issue of share capital 40,768,722 13,012,579 Net finance income 25,096 - Net cash inflows from financing activities 40,793,818 13,012,579 Cash at beginning of year Movement in cash Cash at end of year 4,639,355 22,287,034 26,926,389 1,559,467 3,079,888 4,639,355 54 notes to the financial statements forming part of the financial statements 1. Reporting Entity notes to the financial statements continued Transactions eliminated on consolidation 55 eve sleep PLC (the “Company”) is a public company, domiciled and registered in England in the UK. The registered number is 09261636 and the registered address at 31st December 2017 was Interchange Atrium, The Stables Market, Chalk Farm Road, London, England, NW1 8AH. On 5th February 2018 the company changed its registered address to 128 Albert Street, London, England, NW1 Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the 7NE 2. Accounting Policies 2.1 Basis of preparation The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”). The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group 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 2.19. 2.2 Measurement Convention The financial statements are prepared on the historical cost basis. 2.3 Going Concern The financial statements are prepared on a going concern basis, notwithstanding that the Group has reported an operating loss of £19.0m (2016: £11.3m) and has operating cash outflows of £18.1m (2016: £9.9m) for the year ended 31 December 2017, which the directors believe to be appropriate for the reasons set out below The directors consider that despite incurring losses since inception, the business plan and cashflow forecasts that the directors have prepared demonstrate that the Group will generate cash inflows from operating activities and there is sufficient cash to enable the group to operate. With cash resources of £26.9M as at 31 December 2017 the directors are of the opinion that there is sufficient cash for the Group and parent company to continue to meets its liabilities for a period of at least 12 months from the date of approval of these financial statements. 2.4 Functional and presentation Currency The financial statements are presented in Sterling, which is the functional and presentational currency of the Company 2.5 Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. extent that there is no evidence of impairment. 2.6 Foreign Currency Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement (except for differences arising on the retranslation of a financial liability designated as a hedge of the net investment in a foreign operation that is effective, or qualifying cash flow hedges, which are recognised directly in other comprehensive income). Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency, Sterling, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and accumulated in the foreign currency translation reserve (FCTR) or non-controlling interest, as the case may be. When a foreign operation is disposed of, such that control, joint control or significant influence (as the case may be) is lost, the entire accumulated amount in the FCTR, net of amounts previously attributed to non-controlling interests, is recycled to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while still retaining control, the relevant proportion of the accumulated amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while still retaining significant influence or joint control, the relevant proportion of the cumulative amount is recycled to profit or loss. 2.7 Classification of financial instruments issued by the Group Following the adoption of IAS 32, financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions: (a) they include no contractual obligations upon the group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Group; and (b) where the instrument will or may be settled in the company’s own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the company’s own equity instruments or is a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the company’s own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares. 2.8 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. 56 notes to the financial statements continued 2.8 Non-derivative financial instruments (Continued) Trade and other receivables notes to the financial statements continued 2.11 Inventories 57 Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing cost using the effective interest method, less any impairment losses. location and condition. A provision is also made to write down any slow-moving or obsolete inventory to net realisable value. Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average principle and includes Trade and other payables 2.12 Investments Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost Investments in subsidiary companies are stated at cost and are subject to review for impairment indicator if identified. using the effective interest method. Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. 2.13 Impairment excluding inventories Financial assets (including receivables) A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that component of cash and cash equivalents for the purpose only of the cash flow statement. can be estimated reliably. 2.9 Property, plant and equipment An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts of the impaired asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. equipment. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. The estimated useful lives are as follows: " " Computer equipment Fixtures and fittings 3 years 3 years Depreciation methods, useful lives and residual values are reviewed at each balance sheet date. 2.10 Intangible assets 2.14 Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability. 2.15 Revenue Revenue and profit before tax are attributable to the one principal activity of the business. Revenue represents the net sales of goods including freight, excluding value added tax. Revenue from the sale of goods is recognised when the Group has transferred the goods to the buyer, less appropriate deduction for actual and expected returns and relevant discounts. The costs of acquiring and developing software that is not integral to its related hardware is capitalised separately as an intangible asset. 2.16 Expenses Capitalised software costs include external direct costs of material and services and payroll related costs for employees who are directly associated with the project. Capitalised software development costs are stated at historic cost less accumulated Operating lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. amortisation. Amortisation is calculated on a straight-line basis over the assets’ expected economic lives, normally between three Lease incentives received are recognised in the income statement as an integral part of the total lease expense. to five years, and applied starting in the financial year after capitalisation. Software under development is held at cost less any recognised impairment loss. Expenditure on development activity is capitalised if the product or process is technically and commercially feasible, and if the Financing income and expenses Financing expenses comprise interest payable, finance charges on shares classified as liabilities and finance leases recognised in Group intends to, and has the technical ability and sufficient resources to complete development, future economic benefits are profit or loss using the effective interest method, unwinding of the discount on provisions, and net foreign exchange losses that are probable, and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. recognised in the income statement (see foreign currency accounting policy). Borrowing costs that are directly attributable to the Development activities involve a plan or design for the production of new or substantially improved products or processes. acquisition, construction or production of an asset that takes a substantial time to be prepared for use, are capitalised as part of the cost of that asset. Financing income comprise interest receivable on funds invested, dividend income, and net foreign exchange Where no intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is gains. incurred. Expenditure on research activities is recognised as an expense in the period in which it is incurred. 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 entity’s right to receive payments is established. Foreign currency gains and losses are reported on a net basis. 58 notes to the financial statements continued notes to the financial statements continued 59 2.17 Employee benefits 2.19 Significant estimates and judgements Defined contribution plans The company operates a defined contribution plan. A defined contribution plan is a post-employment benefit plan under which the The preparation of financial statements in conformity with IFRS as adopted by the EU requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. liabilities. The estimates and assumptions are based on historical experience and various other factors believed to be reasonable Obligations for contributions to defined contribution pension plans are recognised as an expense in the profit and loss account in under the circumstances. Actual results could differ from these estimates and any subsequent changes are accounted for when such the periods during which services are rendered by employees information becomes available. The judgements, estimates and assumptions that are the most subjective or complex are discussed Share based payment transactions Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Group. below: Accounting estimates Inventory valuation Note 11: Inventories: Inventory is carried at the lower of cost or net realisable. The estimation of net realisable value may be different The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a from the future actual value realised due provisions for slow moving or obsolete inventory. The provision for slow moving or corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair obsolete inventory is based upon an analysis of the inventory turnover and management’s best estimate of the subsequent volumes value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which of inventory held at year end sold in subsequent periods. This estimate is sensitive to the evaluation of slow moving inventory. the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the Actual net realisable value may be different from these estimates. Refer to note 11 for amounts relating to valuation of inventories. related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with market and non-vesting conditions, the grant date fair value of the share-based payment is Trade receivables Note 12: Trade and other receivables: Management assess the likely recoverability of amounts invoiced to customers on the measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes. creditworthiness of its credit partners and the age of debts at the period end. The directors consider the carrying amount of trade Share based payments reserve This comprises the cumulative share-based payment charge recognised in the Statement of Comprehensive Income in relation to equity-settled options and share rights issued but not yet exercised. 2.18 Taxation receivables approximates to their fair value. Share based payments Note 17: Share based payments: The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The estimate of fair value is measured using the Black-scholes model. The use of a valuation model such as this involves making certain assumptions around the inputs into the model. There is also uncertainty around the number of shares likely to vest and the model therefore takes into accounts management’s best estimate of this. Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Accounting judgements Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Intangible Assets Note 10: Intangible assets: Development expenditure is recognised on the statement of financial position when certain criteria are met, as described more fully in the accounting policy on the treatment of research and development expenditure. Management Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting uses its judgment in assessing development against the criteria. After capitalisation, management monitors whether the recognition purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial requirements continue to be met and whether there are any indicators that the asset may be impaired, as discussed above. recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, 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. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. 60 notes to the financial statements continued notes to the financial statements continued 61 2.20 Adopted IFRS not yet applied 3 Segmental analysis The accounting policies applied are consistent with those adopted and disclosed in the Group financial statements for the year IFRS 8, “Operating Segments”, requires operating segments to be determined based on the Group’s internal reporting to the Chief ended 31 December 2016. Various new accounting standards and amendments were issued during the year, none of which have an Operating Decision Maker. The Chief Operating Decision Maker has been determined to be the executive board and the primary impact on the current year. segmental reporting format of the Group is geographical by customer location, based on the Group’s management and internal The following accounting standards are in issue but not yet effective and have not been adopted by the Group: reporting structure. The executive board assesses the performance of each segment based on revenue and gross profit after distribution expenses, which IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments Recognition and Measurement’. The standard is effective for accounting periods beginning on or after 1 January 2018. The Group has completed an assessment of IFRS 9 and it is expected that adoption will not have a material impact on the results or financial position of the Group. IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’. This standard is effective for accounting periods beginning on or after 1 January 2018. The Group has completed an assessment of IFRS 15 and it is expected that adoption will not have a material impact on the results or financial position of the Group. IFRS 16 ‘Leases’ is effective for periods beginning on or after 1 January 2019. Early adoption is permitted if IFRS 15 has also been adopted. The standard will require lease liabilities and the right of use assets for leases to be recognised on the Statement of Financial Position. The Group has completed an assessment of IFRS 16. The net impact on the income statement between the old and the new leasing standards is immaterial, and a recognition of leased assets and liabilities will be presented on the balance sheet. excludes administrative expenses. For the year ended 31 December 2017 Revenue Cost of Sales Gross Profit Distribution expenses Segment results Administration expenses IPO Related expenditure Share based payment charge Net finance income Loss for the year For the year ended 31 December 2016 Revenue Cost of Sales Gross Profit Distribution expenses Segment results Administration expenses IPO Related expenditure Share based payment charge Net finance income Loss for the year UK&I Rest of Europe Rest of the World Total 16,145,542 10,565,634 1,033,819 27,744,995 (6,554,822) (4,861,552) (332,675) (11,749,049) 9,590,720 5,704,082 701,144 15,995,946 (1,412,199) (1,828,462) (189,423) (3,430,084) 8,178,521 3,875,620 511,721 12,565,862 (27,686,895) (2,124,528) (1,757,204) 25,096 (18,977,670) UK&I Rest of Europe Rest of the World Total 7,733,404 3,150,950 1,082,416 11,966,770 (3,781,404) (1,769,754) (600,978) (6,152,136) 3,952,000 1,381,196 481,438 5,814,634 (628,538) (369,591) (233,178) (1,231,308) 3,323,462 1,011,605 248,260 4,583,326 (15,921,078) - - - (11,337,752) No analysis of the assets and liabilities of each operating segment is provided to the Chief Operating Decision Maker in the monthly management accounts. Therefore no measure of segmental assets or liabilities is disclosed in this note. Due to the nature of its activities the group is not reliant on any major customers. 62 notes to the financial statements continued 4 Expenses and auditor’s remuneration Included in profit/loss are the following: Auditors remuneration: Audit of these financial statements Audit of these financial statements Audit related assurance services Amounts received by auditor’s and their associates in respect of: Tax advisory services Reporting accounting for admission to AIM Other non audit services Tax compliance services Other items Depreciation of property, plant and equipment Cost of inventory sold Cost of inventory write down Adjustment of inventories to net realisable value Lease expenditure - other 5 Staff numbers and cost 2017 £ 60,000 15,000 126,650 150,000 7,500 10,649 7,945 11,749,049 - - 423,959 2016 £ 47,500 - - - - - 2,647 5,541,540 610,596 92,969 269,057 The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows: Finance Marketing Operations 2017 2016 4 22 70 96 3 15 33 51 notes to the financial statements continued The aggregate payroll costs of these persons were as follows: Wages and salaries Social Security costs Share based payment Expenses relating to defined contribution plans 63 2017 £ 3,992,354 476,234 1,757,204 6,894 6,232,686 2016 £ 2,356,332 202,929 - - 2,559,261 6 Remuneration of key management personnel and Directors The aggregate compensation to the Directors of eve Sleep PLC (Executive and Non-Executive) who were the key management personnel was as follows: Salaries or fees Pension Employer’s national insurance Share based payment charge 2017 £ 361,990 196 44,109 761,139 1,167,434 2016 £ 163,896 - 19,995 - 183,891 Directors’ aggregate emoluments, pension payments, and gains on the exercise of share options are detailed in the Directors’ Remuneration Report on pages 40, along with directors’ interests in issued shares and share options on page 41, which form part of these audited financial statements. Directors of the Company and their immediate relatives control 14.3% per cent of the voting shares of the Company. 7. Finance income Finance income receivable on cash and cash equivalents is recognised in the Statement of Total Comprehensive Income as it is earned Interest receivable on cash and cash equivalents 2017 £ 25,096 2016 £ - 64 notes to the financial statements continued 8 Taxation Recognised in the income statement: Current tax expense UK Corporation tax for the current year Total current tax Deferred Tax Deferred tax for the current year Total deferred tax Taxation charge to the income statement Reconciliation of effective tax rate: Loss for the year Total tax expense 2017 £ 2016 £ - - - - - - - - - - 2017 £ 2016 £ (18,977,670) (11,337,752) - - Loss excluding taxation (18,977,670) (11,337,752) notes to the financial statements continued 9 Property, plant and equipment Plant and equipment £ Fixtures & Fittings £ Cost Balance at 1 January 2016 Acquisitions Balance at 31 December 2016 Acquisitions Balance at 31 December 2017 Depreciation and Impairment Balance at 1 January 2016 Depreciation charge for the year Balance at 31 December 2016 Depreciation charge for the year Balance at 31 December 2017 Net Book Value At 31 December 2016 At 31 December 2017 10 Intangible Assets - 7,326 7,326 - 7,326 - 1,831 1,831 5,495 7,326 5,495 - - 3,266 3,266 36,458 39,724 - 816 816 2,450 3,266 2,450 36,458 65 Total £ - 10,592 10,592 36,458 47,050 - 2,647 2,647 7,945 10,592 7,945 36,458 Tax using the UK corporation tax rate of 19.25% (2016: 20%) (3,653,201) (2,267,550) Development Costs £ Assets under construction £ Total £ Effects of: Expenses not deductible for tax purposes Fixed asset differences 799,837 472 64,716 - Current year losses for which no deferred tax asset was recognised 2,852,892 2,202,834 Total Tax expense - - The Group has accumulated tax losses available for offset against future profits of £26,653,156 (2016: £11,899,457). A deferred tax asset has not been recognised in respect of these losses as there is uncertainty regarding the timing of when these losses will be recovered. A reduction in the UK corporation tax rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Cost Balance at 1 January 2017 Acquisitions - internally generated Acquisitions - externally generated Balance at 31 December 2017 Depreciation and Impairment Balance at 1 January 2017 Amortisation and impairment for the year Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October Balance at 31 December 2017 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This will reduce the company’s future current tax charge accordingly. Net Book Value At 31 December 2016 At 31 December 2017 - 92,705 190,235 282,940 - - - - - - 95,598 95,598 - - - - - 92,705 285,833 378,538 - - - - 282,940 95,598 378,538 Development costs relate to internal and external costs incurred in respect of the infrastucture of the website platform. Assets under construction at 31 December 2017 relate to internal and external costs incurred for the development of ERP software for internal use. The software is expected to go live in 2018. 66 notes to the financial statements continued 11 Inventories Finished Goods 2017 £ 691,340 691,340 2016 £ 491,181 491,181 There was no write-down of inventories to net realisable value in the year (2016: £703,565). Included within Inventories is a slow-moving inventory provision of £181,752 (2016: £610,596) Inventory days were 21 days in 2017 (2016: 29 days). 12 Trade and Other receivables Trade Receivables Other receivables Prepayments 2017 £ 767,426 2,608,934 800,696 4,177,056 2016 £ 322,503 494,806 232,351 1,049,660 The average credit period offered on sales of goods during 2017 was 34 days (2016: 60 days). The average days sales outstanding (‘‘DSO’’) in 2017 was 51 days (2016: 60 days). At 31 December 2017, trade receivables at a nominal value of £25,301 (2016: £0) were impaired and fully provided for. notes to the financial statements continued In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the relevant year-end. Aside from the major retail customers accounting for the year end trade receivable balance mentioned above, the concentration of credit risk is limited due to the customer base being large and 67 diverse. 13 Cash and Cash equivalents Cash and cash equivalents per balance sheet Cash and cash equivalents per cash flow statement 14 Trade and other payables Trade payables Non trade-payables and accrued expenses Taxes and social security payable 2017 £ 26,926,389 26,926,389 2017 £ 1,591,520 2,796,848 159,651 4,548,019 2016 £ 4,639,355 4,639,355 2016 £ 1,424,718 463,856 297,667 2,186,241 All trade and other payables are short-term. The directors consider that the carrying amount of trade and other payables All trade and other receivables are short-term. The directors consider that the carrying amount of trade receivables approximates to approximates to their fair value. their fair value. All trade and other receivables have been reviewed for indications of impairment. Trade receivables represent amounts due from wholesale and retail customers. The Group has not charged interest for late payment of invoices in the current year or prior period. Allowances against doubtful debts are estimated by reference to irrecoverable amounts based on past default experience. Specific counterparty risk is also considered where an analysis of the counterparty’s current financial position indicates a change in credit risk. Before accepting any significant new customer, the Group uses a variety of credit scoring systems to assess the potential customer’s 15 Provisions Balance at 1 January 2017 Provisions made during the year Refunds £ 560,683 4,118,714 Sales Return £ Total £ 154,414 - 715,097 4,118,714 credit quality and to define credit limits for each customer. Limits and scoring attributed to customers are reviewed regularly. Provisions used during the year (3,815,835) (154,414) (3,970,249) Three major retail customers each accounted for more than 10% of the total balance of trade receivables on 31 December 2017, compared to 2016 where 72% of the total balance was attributable to one major customer. Unused amounts reversing in the year Balance at 31 December 2017 (36,860) 826,702 - - (36,860) 826,702 Advances for which related work has not started, and billings in excess of costs incurred and recognised profits are presented as A refund provision is required as the Group provides certain products to customers under a 100 day trial period. deferred income and amounted to £0.5m (2016: £0.2m) Included in other receivables is £0.7m relating to VAT which is expected to be fully recoverable. Not overdue Overdue between 0-30 days Overdue between 31-60 days Overdue between 61-90 days 2017 £ 378,260 378,240 10,183 743 767,426 2016 £ 294,172 4,203 3,664 20,464 322,503 During this period the customer is entitled to return goods for a full refund. The provision is calculated by reference to the rate of returns experienced by the Group in preceding periods and the level of sales subject to the relevant trial periods of each product at the year end. An analysis of the rate of return over historical periods does not indicate a significant variation in the rate of refunds provided to customers and accordingly, whilst there is a degree of estimation in the calculation of this provision, any reasonable sensitivity analysis in the rate applied to sales at the year end would not result in a material impact. A sales return provision was required in 2016 as inventory purchased by a specific wholesale customer was expected to be returned under warranty or other contractual conditions. The Group is able to monitor the level of inventory held by third parties in order to identify the level of returns likely to arise at period ends. At 31 December 2017 no provision was recognised in this respect. 68 notes to the financial statements continued 16 Share Capital Allotted, issued and fully paid: Number Nominal Value £ 31 December 2017 31 December 2016 Ordinary Shares 138,631,020 Ordinary Shares Ordinary A Shares Ordinary B Shares Ordinary C Shares Preference Shares 830,400 738,780 68,500 165,412 358,600 Preference A Shares 1,001,379 £0.001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 138,631 - - - - - - Total 138,631 - 83 74 7 17 36 100 316 69 notes to the financial statements continued 16 Share Capital (Continued) The following fully paid shares were allotted during the year at a premium as shown below: - 68,077 Preference AA shares of £0.0001 each were allotted with £11.75 paid up on each share - 206,773 Preference A shares of £0.0001 each were allotted with £24.18 paid up on each share On 12 May 2017, the company issued 859,480,250 bonus shares to meet the minimum nominal share capital requirements for a public company and consolidated the share capital of the company so that shares of 0.01 pence each in the capital of the Company of every class were consolidated into shares of 0.1 pence each, with the resulting total share capital being 20,843,040 ordinary shares of 0.1 pence each, 18,543,378 Ordinary A shares of 0.1 pence each, 1,719,350 Ordinary B shares of 0.1 pence each, 4,151,841 Ordinary C shares of 0.1 pence each, 9,000,860 Preference shares of 0.1 pence each and 32,033,347 Preference A shares of 0.1 pence each. On 12 May 2017, 4,151,841 Ordinary C shares of 0.1 pence each were allotted, following the exercise of options over ordinary C shares. The Company was re-registered as a public company on 12 May 2017 and by special resolution changed its name to eve Sleep PLC. Immediately prior to admission all shares in the company converted to Ordinary Shares in accordance with Articles 10, 12A and 12B of the company’s articles of association in force at the relevant time with the resulting total share capital being 90,443,657 Ordinary The table below summarises the movements in number of shares at the beginning and end of the period shares immediately prior to admission. Ordinary Shares Ordinary A Shares Ordinary B Shares Ordinary C Shares Pref Shares Pref A Shares The Company’s issued share capital on admission to AIM became 138,349,644 Ordinary shares (with an aggregate nominal value of £138,350) by virtue of the 34,587,411 placing shares and exercise over options of 13,318,576 shares. Share Capital 31 Dec 2016 830,400 738,780 68,500 165,412 358,600 1,001,379 138,631,020 at 31 December 2017. Nominal Value £ £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 During the year since admission to AIM, a further 281,376 exercise over options took place to bring the total share capital to Value of Share Capital £ 83 74 Summary of Movements Investors shares allotted - - 7 - 17 36 100 17. Share based payments - - 274,850 The Group recognised a charge of £1.8m (2016: £0.0m) related to share-based payments during the year to 31 December 2017, all of which relates to equity-settled schemes. Of this charge, £1.6m related to options exercised. Shares prior to bonus issue 830,400 738,780 68,500 165,412 358,600 1,276,229 Bonus issue and consolidation prior to admission 20,012,640 17,804,598 1,650,850 3,986,429 8,642,260 30,757,118 Shares post bonus issue 20,843,040 18,543,378 1,719,350 4,151,841 9,000,860 32,033,347 Exercise of options over C Ordinary shares - - - 4,151,841 - - Conversion of all share classes to ordinary shares 69,600,617 (18,543,378) (1,719,350) (8,303,682) (9,000,860) (32,033,347) Shares allotted on admission to AIM 34,587,411 Exercise of share options over ordinary shares 13,599,952 Share capital 31 December 2017 138,631,020 - - - - - - - - - - - - - - - Nominal Value £ £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 Value of Share capital £ 138,631 - - - - - The Company issues equity-settled share-based payments to certain employees, whereby employees render services in exchange for shares or rights over shares of the parent company. Equity-settled awards are measured at fair value at the date of grant. The fair value is calculated using an appropriate option pricing model and is expensed to the Statement of Total Comprehensive Income on a straight-line basis over the vesting period after allowing for an estimate of shares that will eventually vest. 70 notes to the financial statements continued notes to the financial statements continued 71 17. Share based payments (Continued) 17. Share based payments (Continued) The Company operates an HMRC approved executive management incentive plan (EMI). The vesting conditions are based on length The number and weighted average exercise prices of share options are as follows: of service with typically 25% of the options vesting on or after the 12-month anniversary of the employee’s start after which vesting occurs in equal monthly tranches so that options vest in full on the 48-month anniversary of the employee’s start date. All options are equity settled. Weighted Average Exercise Price £ Number of Options *Immediately prior to admission to AIM, the contracts indicated below were modified from the original terms such that their vesting Outstanding at beginning of year £0.001 419,171 schedules were accelerated. The terms and conditions of the grants are as follows: Grant Date Number of Contracts Number of Options 16/01/2017* 16/01/2017 23/01/2017* 25/01/2017* 20/02/2017* 10/04/2017* 12/05/2017 13 3 3 22 1 1 18 14,017,897 4,653,841 56,626 1,289,236 18,825 251,000 2,222,731 Exercise Price £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 £1.012 Performance Conditions Expiry Date Length of service 16/01/2027 Performance Based 16/01/2027 Length of service 23/01/2027 Length of service 25/01/2027 Length of service 20/02/2027 Length of service 10/04/2027 Length of service 12/05/2027 The Company operates an unapproved executive incentive plan. The vesting conditions for grants made on 12 May 2017 are based on length of service with 100% of the options vesting on 36-month anniversary of the employee’s start date. The remaining options have vesting conditions based on length of service with typically 25% of the options vesting on or after the 12-month anniversary of the employee’s start date after which vesting occurs in equal monthly tranches so that options vest in full on the 48-month anniversary of the employee’s start date. All options are equity settled. The terms and conditions of the grants are as follows: Grant Date Number of Contracts Number of Options 13/07/2015 01/01/2016 01/02/2016 26/01/2016 12/05/2017 12/10/2017 20/10/2017 1 1 1 1 6 1 1 132,905 49,447 224,269 12,550 991,798 23,939 23,833 Exercise Price £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 Performance Conditions Expiry Date Length of service 13/07/2025 Length of service 01/01/2026 Length of service 01/02/2026 Length of service 26/01/2026 Length of service 12/05/2027 Length of service 12/10/2027 Length of service 20/10/2027 All options over the ordinary shares granted prior to 12 May 2017, remained in place following admission but have been adjusted, in accordance with the terms of the option agreements, to take into account the Share Capital Reorganisation such that, prior to any exercise of options in connection with the admission, there were options over 16,554,755 Ordinary shares. The number of options in the tables above are presented in values in effect after the Share Capital Reorganisation. Granted During the year Forfeited during the year Exercised during the year Lapsed during the year Outstanding at the end of the year Exercisable at the end of the year £0.139 £0.566 £0.001 - £0.519 £0.001 23,549,726 (574,401) (17,751,793) - 5,642,703 1,000,755 Included in the 17,751,793 options exercised during the year were 4,151,841 options over C Ordinary shares. The weighted average share price at the date of exercise of share options exercised during the year was 103.94p. The options outstanding at the year end have an exercise price in the range of £0.001 to £1.012 and a weighted average contractual life of 10 years. Awards are categorised with reference to different fair values calculated for each agreement. The fair value of employee share options is measured using a Black-scholes model. Measurement inputs and assumptions are as follows: Share class Fair Value Award 1 16/01/17 £ Ord C £0.06 Award 2 16/01/17 £ Ord £0.10 Award 3 23/01/17 £ Ord £0.10 Award 4 25/01/17 £ Ord £0.10 Award 5 26/01/17 £ Ord £0.10 Award 6 20/02/17 £ Ord £0.10 Exercise Price £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 Expected volatility Option Life 103% 10yrs 103% 10yrs 103% 10yrs 103% 10yrs 103% 10yrs 102% 10yrs Risk free interest rate 0.200% 0.200% 0.235% 0.276% 0.300% 0.148% For the purpose of calculating the share based payment charge, awards made between 21 February 2017 and 18 May 2017 have a fair value of £0.96 with reference to the investment on 15 March 2017. Subsequent awards fair value is determined in reference to the market share price at the date of grant. 72 notes to the financial statements continued notes to the financial statements continued 73 18. Earnings per share 19. Financial Instruments (Continued) The basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Group by the weighted ‘Loans and receivables’ includes trade and other receivables and cash and cash equivalents and excludes prepayments and average number of ordinary shares in issue during the year. inventories. Included in ‘Financial liabilities at amortised cost’ are trade payables, accruals and other payables. The carrying value Weighted average shares in issue Loss attributable to the owners of the parent company Basic earnings/(loss) per share (pence) Diluted earnings/(loss) per share (pence) 2017 117,336,860 (18,977,670) (16.17) (16.17) 2016 67,567,744* (11,337,752) (16.78) (16.78) *2016 comparative requires modification to account for bonus issue and consolidation of shares. EPS and diluted EPS are not calculated for each class of share as the shares carry the same right to share in profit or loss for the year. During the year the Company issued bonus shares prior to its admission to AIM on a 250:1 basis followed by a consolidation of shares. The number of shares in issue for the current period has been stated to reflect the share capital structure post-bonus issue; this adjustment assumes the total number of bonus shares were in issue throughout the whole of the period before the IPO on 18 May 2017. The calculation for the year ended 31 December 2016 is based on the share capital pre IPO Share capital re-organisation and re- registration of eve Sleep Ltd to become eve Sleep PLC which completed on 18 May 2017. For the periods presented the weighted average number of shares used for calculating the diluted loss per share are identical to those for the basic loss per share. This is because the outstanding share options would have the effect of reducing the loss per share and would not be dilutive under IAS 33. At 31 December 2017, options outstanding amounted to 5,642,703. Given the loss for the year of £18,977,670 (2016 loss: £11,337,752), these options are anti-dilutive. 19. Financial Instruments Categories of financial instruments: Financial Assets Loans and Receivables Financial Liabilities Amortised Cost 2017 £ 2016 £ 30,302,749 5,456,664 (5,374,722) 2,186,241 of financial assets and liabilities approximates their fair value. Risk management The Company seeks to reduce exposures to capital risk, liquidity risk, credit risk and foreign currency risk, to ensure liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Group does not engage in speculative trading in financial instruments and transacts only in relation to underlying business requirements. The Group’s treasury policies and procedures are periodically reviewed and approved by the Board. Capital risk The Group’s objectives when managing capital (defined as cash and cash equivalents plus equity attributable to owners of the parent) are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders through an appropriate amount of equity funding, while maintaining a strong credit rating and sufficient headroom. The Group makes adjustments to its capital structure in light of changes to economic conditions and the Group’s strategic objectives. Credit risk Credit risk is the risk that a counterparty may default on its obligation to the Group in relation to lending, hedging, settlement and other financial activities. The Group’s principal financial assets are trade and other receivables, bank balances, and cash in hand. The Group’s credit risk is primarily attributable to its trade and other receivables. The amounts included in the Statement of Financial Position are net of allowances for doubtful receivables. An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows. The Group has a low retail credit risk due to transactions being principally of high volume, low value and short maturity. Whilst a significant proportion of trade receivables is with a few customers the Group assessed the risk of default as low due to the nature of these customers to be large well established retailers with which the Group has a good relationship. The credit risk on liquid funds is considered to be low, as the counterparties are all major banks with high credit ratings from all the key ratings agencies. Liquidity risk Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The Group manages its exposure to liquidity risk by continuously monitoring short- and long-term forecasts and actual cash flows and ensuring it has the necessary banking and reserve borrowing facilities available to meet the requirements of the business. 74 notes to the financial statements continued notes to the financial statements continued 75 19. Financial Instruments (Continued) 22. Investments The company has the following investments in subsidiaries Principal place of business/ Registered office address Registered Number Ownership 2017 Ownership 2016 Company: eve sleep Inc eve sleep SASU 185 W. Broadway, Suite 101, PO Box 1150, Jackson, USA EIN 47-4164566 5 Rue Des Suisses, 75014, Paris 823397419 R.C.S Paris 100% 100% 100% 100% All operating subsidiaries are included in the consolidated financial statements, based on percentage of voting rights held. No subsidiaries have non-controlling interests that are material to the consolidated financial statements 23. Commitments There were no commitments in the year. 24. Subsequent events There were no subsequent events to disclose. Foreign currency risk The Group operates internationally and is therefore exposed to foreign currency transactions risk, primarily on sales denominated in US dollars and Euros. The Group’s presentational currency is pounds sterling, therefore the Group is also exposed to foreign currency translation risks due to movements in foreign exchange rates on the translation of non-sterling assets and liabilities. Foreign currency sensitivity The Group’s principal financial instrument foreign currency exposures are to US dollars and EUROs. The table below illustrates the hypothetical sensitivity of the Group’s reported profit before tax and closing equity to a 10% increase and decrease in the value of each of these currencies relative to pounds sterling at the reporting date, assuming all other variables remain unchanged. The sensitivity rate of 10% is deemed to represent a reasonably possible change based on historic exchange rate volatility. The following assumptions were made in calculating the sensitivity analysis: • • All sensitivities affecting the Statement of Total Comprehensive Income also impact equity Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity analysis Sterling strengthen by 10% against US Dollar Euro Other Sterling weaken by 10% against US Dollar Euro Other 2017 £ (27,490) (106,714) (52,112) 27,490 106,714 52,112 2016 £ (347) (2,974) - 347 2,974 - A 10% percent strengthening of these currencies against the pound sterling at 31 December 2017 would have decreased profit or loss by 0.98%. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date. 20. Contingencies There were no contingent liabilities to be disclosed. 21. Related Parties During the year, before the company listed on the AIM stock exchange, the Group purchased consultancy services and photography equipment from Kuba Photography for a value of £4,317 (2016: £58,037). Kuba Photography is owned by Kuba Wieczorek, a Director of the company until 28/04/2017. The balance owing to him at 31 December 2017 was nil. Key management compensation (considered to be the Directors of eve Sleep PLC) disclosures can be found in Note 6 and on pages 40 to 41 of the Director’s remuneration report. 76 company balance sheet at 31 December 2017 Non-current assets Property, Plant and equipment Intangible assets Investments Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payable Provisions Total liabilities Net assets Equity attributable to equity holders of the parent Share capital Share Premium Foreign Currency translation reserve Share based payment reserve Retained earnings Total Equity Note 3 4 5 6 7 8 9 10 2017 £ 36,458 378,538 1,669 416,665 589,344 4,837,014 26,210,595 31,636,953 2016 £ 7,945 - 1,669 9,614 491,181 1,004,629 4,561,437 6,057,247 32,053,618 6,066,861 (4,311,212) (2,053,006) (687,127) (435,052) (4,998,339) (2,488,058) (4,998,339) (2,488,058) 27,055,280 3,578,803 company cash fl ow for the year ended 31 December 2017 Cash fl ows from operating activities Operating loss after taxation IPO Related Expenditure 77 2017 £ 2016 £ (19,043,452) (11,052,422) 2,124,528 - Operating loss before IPO related expenditure (16,918,924) (11,052,422) Adjustments for Net fi nance income Depreciation and amortisation Increase in trade and other receivables Increase in inventories Increase in trade and other payables Increase in provisions Share based payment charge Impact of Forex Reserve IPO Related Expenditure (25,096) 7,945 (3,832,385) (98,163) 2,258,206 252,073 1,757,204 (5,996) (2,124,528) - 2,647 (584,484) (491,181) 1,859,505 260,916 - 5,996 - Net cash outfl ow from operating activities (18,729,664) (9,999,023) Cash fl ows from investing activities Acquisition of property, plant and equipment Development of intangible assets Investment in subsidiaries (36,458) (378,538) - (10,592) - (994) Net cash outfl ows from investing activities (414,996) (11,586) 11 138,631 316 Cash fl ows from fi nancing activities 36,716,371 16,124,928 - 138,794 5,996 - (9,938,516) (12,552,437) 27,055,280 3,578,803 Proceeds from issue of share capital 40,768,722 13,012,579 Net fi nance income 25,096 - Net cash infl ows from fi nancing activities 40,793,818 13,012,579 Cash at beginning of year Movement in cash Cash at end of year 4,561,437 21,649,158 26,210,595 1,559,467 3,001,970 4,561,437 Notes 1-15 form part of the historical financial information shown above These financial statements were approved by the board of directors on eve Sleep PLC and were signed on its behalf by: Abid Ismail Director 19 April 2018 Company registered number: 09261636 78 company changes in equity for the year ended 31 December 2017 Share Capital £ Share Premium £ Share based payment reserve £ Retained Earnings £ Foreign Currency translation reserve £ Total Equity £ For the year ended 31 December 2017 Balance at 1 January 2017 316 16,124,928 Issue of shares 38,767 40,698,396 Bonus share issue 85,948 (85,948) Share premium cancellation - (20,038,965) Exercise of options 13,600 17,960 Share based payment charge Transfer on exercise of options - - - - - - - - - 1,757,204 - - 20,038,965 - - (1,618,410) 1,618,410 notes to the company financial statements 79 1. Accounting Policies Basis of preparation The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee (IFRS IC) interpretations, as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. As at the year end, these are the standards, subsequent amendments and related interpretations issued and adopted by the International Accounting Standards Board (IASB) that have been (12,552,437) 5,996 3,578,803 endorsed by the European Union. 40,737,163 - - 31,560 1,757,204 - The financial statements are prepared under the historical cost convention. The accounting policies have been applied consistently in the current and prior years. The financial statements have been prepared on a going concern basis as explained in the Directors’ Report. No new accounting standards or amendments issued during the year have had, or are expected to have, any significant impact on the Company. The financial statements are presented in sterling. The Company’s principal accounting policies are the same as those set out in Note 2 of the Group financial statements, with the addition of those included within the relevant notes below. Unless otherwise stated, these policies have been consistently applied to all the periods presented. The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own Statement of comprehensive income in these financial statements. The loss after tax of the parent Company for the year was £19,043,452 (2016 - loss £11,052,422). - - 27,055,280 1,612,650 13,012,579 13,012,579 (1,500,015) - - Transactions with owners 138,315 20,591,443 138,794 21,657,375 - 42,525,927 Loss for the year (19,043,454) (5,996) (19,049,450) 2. Loss for the year Balance at 31 December 2017 138,631 36,716,371 138,794 (9,938,516) for the year ended 31 December 2016 Balance at 1 January 2016 226 3,112,439 Issue of shares Transactions with owners Loss for the year 90 90 13,012,489 13,012,489 Balance at 31 December 2016 316 16,124,928 - - - - (11,052,422) 5,996 (11,046,426) (12,552,437) 5,996 3,578,803 80 81 notes to the company financial statements continued notes to the company financial statements continued 3 Property, plant and equipment Plant and equipment £ Fixtures & Fittings £ Cost Balance at 1 January 2016 Acquisitions Balance at 31 December 2016 Acquisitions Balance at 31 December 2017 Depreciation and Impairment Balance at 1 January 2016 Depreciation charge for the year Balance at 31 December 2016 Depreciation charge for the year Balance at 31 December 2017 Net Book Value At 31 December 2016 At 31 December 2017 4 Intangible Assets Cost Balance at 1 January 2017 Acquisitions - internally generated Acquisitions - externally generated Balance at 31 December 2017 Depreciation and Impairment Balance at 1 January 2017 Amortisation and impairment for the year Balance at 31 December 2017 Net Book Value At 31 December 2016 At 31 December 2017 - 7,326 7,326 - 7,326 - 1,831 1,831 5,495 7,326 5,495 - - 3,266 3,266 36,458 39,724 - 816 816 2,450 3,266 2,450 36,458 Total £ - 10,592 10,592 36,458 47,050 - 2,647 2,647 7,945 10,592 7,945 36,458 Development Costs £ Assets under construction £ - 92,705 190,235 282,940 - - - - - - 95,598 95,598 - - - - Total £ - 92,705 285,833 378,538 - - - - 282,940 95,598 378,538 Development costs relate to internal and external costs incurred in respect of the infrastucture of the website platform. Assets under construction at 31 December 2017 relate to internal and external costs incurred for the development of ERP software for internal use. The software is expected to go live in 2018. 5. Investments The company has the following investments in subsidiaries Principal place of business/ Registered office address Registered Number Ownership 2017 Ownership 2016 Company: eve sleep Inc eve sleep SASU 6. Inventories Finished Goods 185 W. Broadway, Suite 101, PO Box 1150, Jackson, USA EIN 47-4164566 5 Rue Des Suisses, 75014, Paris 823397419 R.C.S Paris 100% 100% 2017 £ 589,344 589,344 100% 100% 2016 £ 491,181 491,181 There was no write-down of inventories to net realisable value in the year (2016: £703,565). Included within Inventories is a slow- moving inventory provision of £162,513 (2016: £552,598). Inventory days were 24 days in 2017 (2016: 34 days). 7. Trade and Other receivables Trade Receivables Other receivables Receivables from subsidiary undertakings Prepayments 2017 £ 760,330 2,417,455 858,533 800,696 4,837,014 2016 £ 322,503 449,775 - 232,351 1,004,629 82 83 notes to the company financial statements continued notes to the company financial statements continued 7. Trade and Other receivables (Continued) 8. Cash and Cash equivalents As at 31 December 2017, receivables from subsidiary undertakings of £0.8m (2016: £0.0m) were unimpaired and considered by management to be fully recoverable. The ageing analysis of these receivables is as follows: Less than 12 months More than 12 months 2017 £ 858,533 - 858,533 2016 £ - - - The average credit period offered on sales of goods during 2016 was 34 days (2016: 60 days). The average days sales outstanding (‘‘DSO’’) in 2017 was 51 days (2016: 60 days). All other trade and other receivables are short-term. The directors consider that the carrying amount of trade receivables approximates to their fair value. All trade and other receivables have been reviewed for indications of impairment. Trade receivables represent amounts due from wholesale and retail customers. Cash and cash equivalents per balance sheet Cash and cash equivalents per cash flow statement 9. Trade and other payables Trade payables Non trade-payables and accrued expenses Taxes and social security payable 2017 £ 26,210,595 26,210,595 2017 £ 1,525,332 2,626,229 159,651 4,311,212 2016 £ 4,561,437 4,561,437 2016 £ 1,424,718 463,856 164,432 2,053,006 The Company has not charged interest for late payment of invoices in the current year or prior period. approximates to their fair value. All trade and other payables are short-term. The directors consider that the carrying amount of trade and other payables Allowances against doubtful debts are estimated by reference to irrecoverable amounts based on past default experience. Specific counterparty risk is also considered where an analysis of the counterparty’s current financial position indicates a change in credit 10. Provisions risk. Before accepting any significant new customer, the Group uses a variety of credit scoring systems to assess the potential customer’s credit quality and to define credit limited for each customer. Limits and scoring attributed to customers are reviewed regularly. Balance at 1 January 2017 Three major retail customers each accounted for more than 10% of the total balance of trade receivables on 31 December 2017, compared to 2016 where 70% of the total balance was attributable to one major customer. Advances for which related work has not started, and billings in excess of costs incurred and recognised profits are presented as deferred income and amounted to £0.4m (2016: £0.1m) Provisions made during the year Provisions used during the year Unused amounts reversing in the year Balance at 31 December 2017 Refunds £ 435,052 3,430,454 (3,141,519) (36,860) 687,127 Not overdue Overdue between 0-30 days Overdue between 31-60 days Overdue between 61-90 days 2017 £ 371,169 378,235 10,183 743 760,330 2016 £ 294,172 4,203 3,664 20,464 322,503 A refund provision is required as the Group provides certain products to customers under a 100 day trial period. During this period the customer is entitled to return goods for a full refund. The provision is calculated by reference to the rate of returns experienced by the Group in preceding periods and the level of sales subject to the relevant trial periods of each product at the year end. An analysis of the rate of return over historical periods does not indicate a significant variation in the rate of refunds provided to customers and accordingly, whilst there is a degree of estimation in the calculation of this provision, any reasonable sensitivity analysis in the rate applied to sales at the year end would not result in a material impact. In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the relevant year-end. Aside from the major retail customers accounting for the year end trade receivable balance mentioned above, the concentration of credit risk is limited due to the customer base being large and diverse. 84 85 notes to the company financial statements continued 11 Share Capital Allotted, issued and fully paid: Number Nominal Value £ 31st December 2017 31st December 2016 Ordinary Shares 138,631,020 Ordinary Shares Ordinary A Shares Ordinary B Shares Ordinary C Shares Preference Shares 830,400 738,780 68,500 165,412 358,600 Preference A Shares 1,001,379 £0.001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 138,631 - - - - - - Total 138,631 - 83 74 7 17 36 100 316 notes to the company financial statements continued 11 Share Capital (Continued) The following fully paid shares were allotted during the year at a premium as shown below: - 68,077 Preference AA shares of £0.0001 each were allotted with £11.75 paid up on each share - 206,773 Preference A shares of £0.0001 each were allotted with £24.18 paid up on each share On 12 May 2017, the company issued 859,480,250 bonus shares to meet the minimum nominal share capital requirements for a public company and consolidated the share capital of the company so that shares of 0.01 pence each in the capital of the Company of every class were consolidated into shares of 0.1 pence each, with the resulting total share capital being 20,843,040 ordinary shares of 0.1 pence each, 18,543,378 Ordinary A shares of 0.1 pence each, 1,719,350 Ordinary B shares of 0.1 pence each, 4,151,841 Ordinary C shares of 0.1 pence each, 9,000,860 Preference shares of 0.1 pence each and 32,033,347 Preference A shares of 0.1 pence each. On 12 May 2017, 4,151,841 Ordinary C shares of 0.1 pence each were allotted, following the exercise of options over ordinary C shares. The Company was re-registered as a public company on 12 May 2017 and by special resolution changed its name to eve Sleep PLC. Immediately prior to admission all shares in the company converted to Ordinary Shares in accordance with Articles 10, 12A and 12B of the company’s articles of association in force at the relevant time with the resulting total share capital being 90,443,657 Ordinary shares immediately prior to admission. The Company’s issued share capital on admission to AIM became 138,349,644 Ordinary shares (with an aggregate nominal value of £138,350) by virtue of the 34,587,411 placing shares and exercise over options of 13,318,576 shares. The table below summarises the movements in number of shares at the beginning and end of the period During the year since admission to AIM, a further 281,376 exercise over options took place to bring the total share capital to Ordinary Shares Ordinary A Shares Ordinary B Shares Ordinary C Shares Pref Shares Pref A Shares 138,631,020 at 31 December 2017. 12. Financial Instruments Share Capital 31 Dec 2016 830,400 738,780 68,500 165,412 358,600 1,001,379 Categories of financial instruments: Nominal Value £ £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 £0.0001 Value of Share Capital £ 83 74 Summary of Movements Investors shares allotted - - 7 - 17 36 100 - - 274,850 Shares prior to bonus issue 830,400 738,780 68,500 165,412 358,600 1,276,229 Bonus issue and consolidation prior to admission 20,012,640 17,804,598 1,650,850 3,986,429 8,642,260 30,757,118 Shares post bonus issue 20,843,040 18,543,378 1,719,350 4,151,841 9,000,860 32,033,347 Financial Assets Loans and Receivables Financial Liabilities Amortised Cost 2017 £ 2016 £ 29,389,833 5,456,664 (4,998,339) 2,186,241 Exercise of options over C Ordinary shares Conversion of all share classes to ordinary shares - - - 4,151,841 - - inventories. Included in ‘Financial liabilities at amortised cost’ are trade payables, accruals and other payables. The carrying value ‘Loans and receivables’ includes trade and other receivables and cash and cash equivalents and excludes prepayments and 69,600,617 (18,543,378) (1,719,350) (8,303,682) (9,000,860) (32,033,347) of financial assets and liabilities approximates their fair value. Shares allotted on admission to AIM 34,587,411 Exercise of share options over ordinary shares 13,599,952 Share capital 31 December 2017 138,631,020 - - - - - - - - - - - - - - - Nominal Value £ £0.001 £0.001 £0.001 £0.001 £0.001 £0.001 Value of Share capital £ 138,631 - - - - - Risk management The Company seeks to reduce exposures to capital risk, liquidity risk, credit risk and foreign currency risk, to ensure liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. The Company does not engage in speculative trading in financial instruments and transacts only in relation to underlying business requirements. The Company’s treasury policies and procedures are periodically reviewed and approved by the Board. 86 87 notes to the company financial statements continued notes to the company financial statements continued Capital risk The Company’s objectives when managing capital (defined as cash and cash equivalents plus equity attributable to owners of the A 10% percent strengthening of these currencies against the pound sterling at 31 December 2017 would have decreased profit or loss by 0.68%. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures parent) are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders and existing at that date. benefits for other stakeholders through an appropriate amount of equity funding, while maintaining a strong credit rating and sufficient headroom. The Company makes adjustments to its capital structure in light of changes to economic conditions and the Company’s strategic objectives. 13. Related Parties Credit risk Credit risk is the risk that a counterparty may default on its obligation to the Company in relation to lending, hedging, settlement During the year, before the company listed on the AIM stock exchange, the Group purchased consultancy services and photography equipment from Kuba Photography for a value of £4,317 (2016: 58,037). Kuba Photography is owned by Kuba Wieczorek, a Director and other financial activities. The Company’s principal financial assets are trade and other receivables, bank balances, and cash of the company until 28/04/2017. The balance owing to him at 31 December 2017 was nil. in hand. The Company’s credit risk is primarily attributable to its trade and other receivables. The amounts included in the Statement of Financial Position are net of allowances for doubtful receivables. An allowance for impairment is made where there Key management compensation (considered to be the DIrectors of eve Sleep PLC) disclosures can be found in Note 6 of the group is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows. The accounts and on pages 40 to 41 of the Director’s report. Company has a low retail credit risk due to transactions being principally of high volume, low value and short maturity. Whilst a significant proportion of trade receivables is with a few customers the Company assessed the risk of default as low due to the nature of these customers to be large well established retailers with which the Company has a good relationship. The credit risk on liquid 14. Commitments funds is considered to be low, as the counterparties are all major banks with high credit ratings from all the key ratings agencies. Liquidity risk Liquidity risk is the risk that the Company will no be able to meet its financial obligations as they fall due. There were no commitments in the year. 15. Subsequent events The Company manages its exposure to liquidity risk by continuously monitoring short- and long-term forecasts and actual cash flows and ensuring it has the necessary banking and reserve borrowing facilities available to meet the requirements of the business. There were no subsequent events to disclose. Foreign currency risk The Company operates internationally and is therefore exposed to foreign currency transactions risk, primarily on sales denominated in Euros. Foreign currency sensitivity The Company’s principal financial instrument foreign currency exposures is to EURO’s. The table below illustrates the hypothetical sensitivity of the Company’s reported profit before tax and closing equity to a 10% increase and decrease in the value of each of these currencies relative to pounds sterling at the reporting date, assuming all other variables remain unchanged. The sensitivity rate of 10% is deemed to represent a reasonably possible change based on historic exchange rate volatility. The following assumptions were made in calculating the sensitivity analysis: • All sensitivities affecting the Statement of Total Comprehensive Income also impact equity • Translation of foreign subsidiaries and operations into the Group’s presentation currency has been excluded from the sensitivity analysis Sterling strengthen by 10% against US Dollar Euro Other Sterling weaken by 10% against US Dollar Euro Other 2017 £ 464 (78,482) (52,112) (464) 78,482 52,112 2016 £ (347) (2,974) - 347 2,974 - 88 89 90 every great day starts the night before
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