annual report
eve S leep plc 201 9
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e v e S l e e p p l c 2 0 1 9 a n n u a l r e p o r t
good morning!
welcome to eve’s
2019 annual report
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c o n t e n t s
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c o m p a n y i n f o r m a t i o n
c h a i r m a n ’ s s t a t e m e n t
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s t r a t e g i c r e p o r t
2 7
g o v e r n a n c e r e p o r t
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a u d i t o r ’ s r e p o r t
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g r o u p f i n a n c i a l s t a t e m e n t s
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c o m p a n y f i n a n c i a l s t a t e m e n t s
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c o m p a n y
information
directors
Paul Pindar (Non-executive Chairman)
James Sturrock (Chief Executive Officer)
Tim Parfitt (Chief Financial Officer)
Nikki Crumpton (Senior Non-executive Director)
Thomas Enraght-Moony (Non-executive Director)
secretary
Link Company Matters Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
auditor
Nexia Smith & Williamson
Statutory Auditor
25 Moorgate
London
EC2R 6AY
registered office
29A Kentish Town Road
Camden
London
NW1 8NL
registered number
09261636
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8
g r o u p
chairman’s statement
We are confident that we have a winning
product, the right strategy and the team
to build a sleep wellness brand of size and
strength that delights our customers and
delivers value to all of our stakeholders.
Pau l P inda r
delivering the rebuild strategy
The focus in 2019 has been on the continued
execution of the rebuild strategy through
the prioritisation of reducing losses and
stemming cash flows, over chasing sales
growth at any cost. To effect this we have
sharpened our focus on profitable sales,
removing unprofitable channels, while
further improving our marketing efficiency.
We remain confident that this is the
right strategy for the business, particularly
given the continued challenging retail
backdrop and the ongoing discount–reliant
competition in the mattress market. To
fund the execution of the strategy and
to strengthen the statement of financial
position we successfully raised £11.7m (net
of expenses) plus £0.9m of advertising
credits with Channel 4 in February 2019. As
at 31 December 2019 eve has £8.0m of cash
and cash equivalents, £0.3m of advertising
credits available for use and no debt
(excluding the lease liability arising under
IFRS 16).
The team has made good strategic
and financial progress in the year. Product
development which is central to our aim
of building a sleep wellness brand, was
strong in both mattress and wider sleep
range products. The eve premium hybrid
mattress, which was launched in June 2019
was announced as the top scoring mattress
by Which? in December 2019, giving eve’s
full mattress range a Which? Best Buy
rating. Good progress was also made with
the expansion of wider sleep products
including the launch of new bed frames
and bedding, all of which has driven a 140
bps and 590 bps year–on–year increase
in the contribution from non-mattress
sales in the UK&I and France respectively.
Range expansion has also supported an
improvement in the customer repeat rate,
increasing 230 bps in the UK&I and 360 bps
in France.
We continue to develop our multi–
channel offering through partnerships with
leading retailers where the relationship
is strategically and commercially value
creating for both parties. During the year
we signed and launched partnerships
with Argos, Homebase and Dunelm
and in addition to creating more sales
opportunities, these partnerships help to
raise eve’s brand awareness.
Elevating the brand position above
our peers has always been a core strength
at eve and it remains so. In July 2019 we
launched a new and highly successful
brand campaign featuring the eve sloth
and in September we signed a three year
deal with British Rowing to be their official
sleep partner, including managing the
sleep environment of the GB Rowing Team
athletes both at home and overseas.
Together, these marketing initiatives have
driven a 50% increase in unprompted brand
awareness to 15%.
improving financial
performance
As planned, Group revenues from Core
Markets reduced year on year, declining
by 19% to £23.8m (2018: £29.4m) as we
optimised our DTC marketing, scaling back
marketing investment by 32% across UK&I
and France in order to prioritise profitable
revenues over revenue growth alone.
Year-on-year gross profit margin improved
from 52.8% to 53.1% reflecting margin
prioritisation over revenue growth. Group
underlying EBITDA losses¹ reduced by 44%
to £10.7m, supported by a 24% reduction
in administrative expenses (excluding
marketing expenses, fundraise-related
expenditure, depreciation, amortisation
and impairment charges) for the year. The
reduction in the cash outflow from operating
activities was even greater, down 55% year–
on–year.
Our results in the last four months of the
year showed further progress on our path
to profit, reaching for the first time break-
even at the operating level, defined as a
positive margin contribution after all direct
costs and marketing but before overheads.
The attainment of this milestone follows
further significant cost savings in Q4 as well
as the benefits flowing through from earlier
initiatives. Accordingly, we see our results
for the final four months of the year as more
indicative of our prospects for 2020.
our people
This has been the second year of
considerable change for our people, which
has included a move to new local offices as
well as an organizational restructure. Whilst
this has been the right course of action
strategically for the business, I understand
that it is both difficult and unsettling and
I would like to thank them all personally
for their continued loyalty, positivity and
commitment to rebuilding eve.
We are confident that we have a
winning product, the right strategy and the
team to build a sleep wellness brand of size
and strength that delights our customers
and delivers value to all of our stakeholders.
9
current trading and outlook
Trading in the first two months of the year
has started well and is in-line with the
Board’s expectations, with demand for the
premium hybrid mattress proving particularly
strong. The business has now generated a
positive marketing contribution2 for the six
months to 29 February 2020.
Wider market uncertainty increased
further in the first two weeks of March with
the advent of COVID-19 but at that time
there had been no noticeable impact on
demand, our operations or our supply chain.
Since mid-March 2020, we have seen some
impact on traffic and consumer demand
attributable to the fast changing COVID-19
situation, and believe it is reasonable to
expect somewhat subdued demand for a
period of time whilst the COVID-19 situation
prevails.
The Board has reviewed planning
scenarios and has prepared a number
of appropriate measures to conserve the
Group’s cash balance and ensure the
robustness of the business should it be
required. Given eve’s business model as a
direct to consumer (DTC) led retailer, its most
significant costs are marketing rather than
the costs associated with a store estate, and
we have significant flexibility to control our
spending and therefore cash outflows in this
regard. The Company’s marketing spend
will continue to be kept under constant
review, with adjustments to plans made
where appropriate and in line with the fast
changing economic situation.
To date we have seen only a small
impact upon our supply chain, and
where we have seen impact, we have
taken precautionary measures including
stronger stock holding of products to
ensure adequate coverage for the coming
months, and hence we currently envisage
being able to meet customer demand
for our products, albeit at reduced levels.
Further interventions by governments in the
jurisdictions in which we operate may have
a material impact on our supply chain and/
or delivery capability going forward.
Paul Pindar
Chairman
23 March 2020
Notes
1.
2.
Underlying EBITDA is calculated as earnings before interest, taxation, depreciation, amortisation, impairment, share-based payment charges connected
with employee remuneration, fundraise-related expenditure (2019 only) and staff and country exit costs (2018 only). It should be noted that the application
of IFRS 16 in 2019 has resulted in a depreciation charge recognised in 2019 of £0.2m (2018: £0.0m); this charge is excluded from underlying EBITDA. Under IAS
17 however, expenditure relating to operating lease rentals (presented within administrative expenses) would have totalled £0.2m and would have been
included within underlying EBITDA. In this way, £0.2m of the year on year improvement to underlying EBITDA is attributable to the application of IFRS 16.
Marketing contribution is defined as the profit after marketing expenditure but before payroll and overhead costs..
10
s t r a t e g i c r e p o r t
strategic review
Building customer loyalty and ultimately
driving repeat sales is at the centre
of the eve model and is essential to
attaining profitability.
on trend in a large and
growing market
Wellness is a mega trend, transcending age
and geography. Within the wellness sphere
there is an increasing understanding and
recognition that sleep sits alongside nutrition
and physical fitness as the foundations of
wellness. There is also a growing body of
research and evidence which testifies to the
importance of sleep and the risks to physical
and mental health of insufficient sleep. In a
recent poll of 2,000 UK adults commissioned
by eve, 58% of respondents expressed worry
about the potential impact a lack of sleep
can have on mental and physical health and
75% of customers tell us they are better slept
simply by having one of our products.
With the increasing understanding of the
importance of sleep has come consumer
change. Consumers are spending more on
wellness and the sleep market has been a
beneficiary of this. Not only are consumers
spending more on sleep wellness related
products but they are willing to spend more on
the central element of a good night’s sleep;
the mattress. The strong sales performance of
eve’s most recently launched premium hybrid
mattress testify to this point.
Data from Euromonitor estimates that
the European sleep market is worth £26bn,
with the Core Markets that eve is focused
on (UK&I and France) being worth £6bn.
The market is however highly fragmented,
populated by many traditional operators
offering a proposition that has changed
little in the last fifty years. There is also an
increasing willingness on the part of consumers
to purchase big ticket items online, with
Euromonitor predicting that the online
furniture market will be the second fastest
growing retail category, with online purchase
penetration expected to increase by 55%
between 2018 and 2023.
In terms of the competitive landscape
there are a limited number of well branded
new digital offerings. However, no company
is yet to break through in terms of establishing
a sleep wellness brand which commands
widespread recognition and brand loyalty.
eve’s ambition is to achieve just this; to be
seen as the go to brand for sleep wellness
products.
business model
eve is a digitally native business, with a direct
to consumer (DTC) led proposition, supported
by partnerships with leading retailers. This
omni-channel approach reflects how
consumers increasingly identify, research and
purchase items, moving seamlessly between
online and offline channels. By being where
the customer is, eve increases its potential
sales opportunities and grows its brand
awareness and product understanding.
Building customer loyalty and ultimately
driving repeat sales is at the centre of the eve
model and is essential to attaining profitability.
To achieve this goal eve is focused on
establishing itself as a go to brand for sleep
wellness products, which would provide the
authority and consumer trust to sell a broader
range of products in the category.
As a DTC focused business, eve maintains
close relationships with its customers and
leverages a rich data set from which to
better target repeat customers and attribute
purchases to the many touchpoints eve
has in the marketplace. eve has worked to
greatly expand its collection and use of such
data during 2019 culminating in detailed
econometric and attribution insight now
at the forefront of the business. The insights
gained from customer feedback also power
new product development and refinements
to existing ranges. The continued growth in
eve’s customer repeat rate which in the UK
has more than doubled to 17.3% in the second
half of 2019 from just 8.0% in the first half of
2016, demonstrates that eve is succeeding in
11
s t r a t e g i c r e p o r t
building brand loyalty amongst its customers.
As a brand led business, resources in terms
of investment and talent are focused on the key
operations of product development, branding,
marketing and customer experience. As is common
in the industry, manufacturing and fulfilment, which
require heavy fixed cost investment, are outsourced
to leading third party suppliers in the UK and
Continental Europe. This set-up has proved to be
highly scalable and flexible, enabling significant
seasonal variations in monthly product demand to
be met without any noticeable margin impact or the
requirement to hold large amounts of product stock.
There is also a close working relationship with eve’s
manufacturing partners to innovate and develop new
products that work better in terms of function and
design and that differentiate eve from peers, without
a premium price tag.
The outsourced manufacturing and fulfilment
model, coupled with the DTC led setup, enables a
lower and more flexible cost base than a traditional
retailer. Although marketing costs are one of the
largest costs for eve, they are more flexible in nature
and it is easy to scale them up and down quickly and
switch between marketing channels.
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s t r a t e g i c r e p o r t
chief executive’s report
What is certain is that eve has closed
out 2019 in a stronger position than it
started the year. There is still much that
can and will be done to drive further
improvements and this work
will continue through 2020.
James Sturro ck
introduction
In 2019 we completed the restructuring of
to attain our stated goal of profitability and
the management team, made significant
positive cash generation in the near term.
progress in professionalising internal
There is still much that can and will be done to
operations, processes and reporting,
drive further improvements and this work will
optimised our supplier and logistics footprint,
continue through 2020 and beyond.
and significantly reduced the operating
What is certain is that eve has closed
costs of the business. These things, alongside
out 2019 in a stronger position than it started
the progress of our customer facing rebuild
the year. We have a broader, award-winning
strategy have significantly improved EBITDA
product range. Operational KPIs, including
results on the path to profitability and
the customer repeat rate and the sale of
put eve on a steadier footing to deliver
non-mattress products improved during
our plans for the long–term health of the
the year, while our financial performance
business. We consider that headwinds in
strengthened considerably, evidenced by a
the competitor landscape and discounting
reduction in administrative expenses excluding
pressure will continue, but the premium
marketing costs, fundraise-related expenditure,
positioning of the brand and the work we
depreciation, amortisation and impairment
have completed to create a stable and
of 24%. We reduced our underlying EBITDA
lean platform, along with a healthy cash
losses by 44% and trimmed our cash outflows
balance, will aid the execution against our
from operating activities by 55%, which is all
plans in order to succeed in the future.
the more pleasing given the challenging retail
The first few months of my tenure, which
backdrop and ongoing price led competition
commenced in September 2018, were spent
in the mattress market. Our cash position has
evaluating the business and formulating
also improved, with a year–end net cash
what we refer to as the rebuild strategy.
position of £8.0m plus £0.3m of advertising
Although implementation of the rebuild
credits with Channel 4, compared with £6.0m
strategy commenced in late 2018, work has
as at 31 December 2018, owing to the fund
continued throughout 2019 on effecting
raising in February 2019.
and embedding change and improvement
throughout all areas of the business in order
13
s t r a t e g i c r e p o r t
The rebuild strategy
The rebuild strategy focuses on
three core pillars:
• differentiated brand
positioning;
• expanded product
range; and
•
lower friction customer
experience.
differentiated brand
positioning
To differentiate eve from the plethora of
existing marketing campaigns whilst testing
mattress in a box brands, where competition
new promotional strategies and channel mix,
is largely price led, our strategy is to establish
as well as carrying out analysis on a granular
eve as a trusted go to destination for sleep
level of marketing return on investment. This
wellness products. To achieve this we have
supported the development of the new brand,
been refocusing and aligning our marketing
communications and the creative strategy,
investment and communications on the
which launched in the UK&I at the start of H2
benefits that eve can bring consumers in
2019 with the ‘wake up dancing’ campaign,
sleep wellness. This is best exemplified in the
featuring the eve sloth. The campaign
three–year partnership deal we signed in
has proved immensely successful, raising
2019 with British Rowing to be their official
unprompted brand awareness by 50% to 15%
sleep partner. As part of the deal we will
between January 2019 and August 2019. It
be managing the sleep environment of the
has also driven increased engagement with
GB Rowing Team athletes as they train and
customers, so much so that in response to
compete both at home and overseas.
customer demand we have produced and
During the first half of the year we ran
sold circa. 6,000 soft toy eve sloths at the
close of 2019.
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s t r a t e g i c r e p o r t : chief executive's report
In France, the investment and media strategy
has been adapted to make better use of
expanded product range
the peak sales periods, driving more efficient
In 2019 we stepped up new product
spend with an optimised creative strategy
development, building out a range of sleep
and revitalised positioning. This positioning,
products to complement our successful next
which launched with the ‘reborn again
generation foam mattress. Range expansion
each morning’ (‘renaissez chaque matin’)
gives eve a clear trajectory to dominating
campaign in July 2019 is designed to elevate
the ecommerce sleep wellness space in our
eve to be the premium brand in the nascent
chosen markets and provides the opportunity
direct-to-consumer mattress category in
to grow the frequency of customer purchases.
France, premium mattress sales making up
In the mattress category we launched
44.9% of total mattress sales in December
the premium hybrid mattress, which received
2019.
a Which? Best Buy rating, scoring the highest
The success of our marketing to date is
rating ahead of all competitor mattresses in
demonstrated in our unprompted UK brand
the UK in December 2019. At the close of 2019,
awareness, which has increased from 11.2%
eve now has a suite of four mattress products
in November 2018 to approximately 15% at
sold via its DTC channel – the premium foam,
August 2019.
the premium hybrid, the original foam and the
In addition to refocusing the positioning
hybrid, as well as the baby mattress.
of our marketing, considerable effort has
The rate of new product development
gone into improving marketing efficiency,
increased significantly in the period, with the
including the development of a bespoke-built
launch of new bedframes and expanded
optimisation model. Subsequently, marketing
ranges of bedding, pillows, sleep accessories
investment has been substantially reviewed,
and the baby category. Sales of bedframes,
with the removal of channels that were not
including two new storage bedframes, have
generating a sufficient return, in line with
performed particularly well.
our strategy of focusing on profitable sales
The improvements in this pillar of the
and margin positive first orders. The success
strategy are evident in our KPIs. In 2019 the
of this strategy is best evidenced in the
customer repeat rate in the UK&I grew 230bps
efficiency of our marketing spend, which has
to 16.7% and in France increased 360bps to
improved in all three of our core markets in
17.0%. This growth was underpinned by an
tandem with growing awareness. In the UK&I
increase in sales of non-mattress products in
marketing efficiency has improved from 54.1%
each of the core markets. In the UK&I, the
in 2018 to 52.3% in 2019; marketing efficiency
contribution from non-mattress DTC sales
being defined as marketing expenditure as
increased by 130bps to 24.8% and in France
a percentage of revenue. This is the third
improved by 590bps to 28.2%.
successive year of improvement and we
To measure our success in delivering on
see scope to further reduce this percentage
this strategic pillar we will continue to monitor
in 2020. In France, marketing efficiency
and report on the KPIs of conversion rates and
improved from 82.9% in 2018 to 44.1% in 2019.
the growth in non-mattress sales.
To measure our success in delivering on
this strategic pillar we will continue to monitor
and report on the KPI of unprompted brand
awareness in the UK and marketing efficiency,
lower friction customer
experience
given its importance for the pathway to
Enhancing the customer experience
profitability.
throughout the online journey and in our
service proposition to enable stronger site
conversion and customer satisfaction metrics
is central to our rebuild strategy. Improved
conversion will not only drive higher revenues
but also greater marketing efficiency, which is
key to achieving profitability.
The entire customer journey through
the eve website prior to purchase has been
substantially upgraded during the year. This
includes a 50% plus increase in the speed of
loading the website plus a redesigned home
page with more focus on inspiring customers,
building out category pages to help users
more easily discover products within our
expanded ranges and new imagery, with
copy/zoom functionality. Improvements have
also been made to how promotions are
presented on the website.
To improve the purchase process, the
basket and checkout have been rebuilt to
make them faster and more intuitive, resulting
in an improvement in the basket completion
rate. The delivery proposition has also been
improved with a move to a new carrier
portfolio and warehouse consolidation, which
is expected to result in improved delivery
experience for customers and efficiencies
in distribution costs. In addition to better
communications with customers around
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s t r a t e g i c r e p o r t : chief executive's report
responsible business
As a business we recognise our responsibility
to our stakeholders and the wider
community at large. We continue to
strive to make improvements throughout
our operations in order to reduce our
environmental footprint. Our localised
production facilities mean that we are not
trucking or airfreighting long distances, while
our mattress boxes used for packaging are
produced in the UK and made from Forest
Stewardship Council approved card. When
customers return mattresses they are either
broken down and the materials recycled or
refurbished, depending on their condition.
We do not send mattresses to landfill.
Within the Corporate Governance
statement on page 44, an overview of
Board-level decision making processes
is presented and demonstrates the
interactions with stakeholders during 2019.
culture and diversity
confirmation, delivery tracking and product
We thrive on individuality at eve. We believe
care guides, customers are now able to select
that irrespective of age, gender, ethnic
a nominated delivery day for larger orders.
origin, religion, sexual orientation, gender
The changes made to the website and
identity, gender expression, or disability,
customer proposition have driven a 30bps
eve is a place of opportunity, respect and
year-on-year improvement in the conversion
support for individuals to bring their best to
rate.
work and do their best work.
We recognise the importance of providing
eve are pleased to present the following
an omnichannel approach, for consumers
metrics relating to gender balance as at 31
that freely move between online and offline
December 2019. The following breakdown
channels, when researching and purchasing
shows the number of persons of each sex
products. During the year we have extended
who were:
our reach with three new retail partnerships
with Argos, Homebase and Dunelm, all of
which have subsequently launched.
(i)
(ii)
directors of the company;
senior managers of the company (other
than those falling within category (i));
To measure our success in delivering on
(iii)
and employees of the company.
this strategic pillar we will be monitoring and
reporting on the KPIs of conversion rates and
eve’s new sleep wellness score, a measure of
customers reporting improved sleep as a result
Directors
of purchasing an eve product.
Senior Managers
Employees
Male
Female
4
3
28
1
4
33
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s t r a t e g i c r e p o r t : chief executive's report
2020 focus
In the second half of 2019 we took the decision to
accelerate our move to profitability and positive
cash generation by making additional significant cost
efficiencies in the business, primarily in the areas of
marketing and overheads. These changes were made
in the fourth quarter of the year.
The cumulative benefits of management
initiatives and efficiencies made throughout 2019 as
part of the rebuild strategy are coming through in
an improved financial performance. I am delighted
to report that in the final four months of the year
we reached a milestone in terms of achieving
operational breakeven, after all direct costs and
marketing but before overheads. We enter 2020 with
a sizeable year-on-year reduction in both overheads
and planned marketing investment, which we expect
to drive a further substantial reduction in losses and
cash burn.
We are well placed to make further significant
progress in 2020, with a differentiated brand position,
a broader product range than peers and ongoing
improvements to the customer experience, supported
by a lower cost base, a substantial cash balance of
£7.8m as at 29 Feburary 2020 and no debt (excluding
the lease liability arising under IFRS 16).
James Sturrock
Chief Executive Officer
23 March 2020
17
s t r a t e g i c r e p o r t
Key performance
indicators
In 2019, the key performance indicators
(KPIs) used to evaluate and monitor the
performance of the business were as follows
designed to support the three core pillars
of the rebuild strategy (differentiated brand
positioning, extended product range and
lower friction customer experience).
There are three financial KPIs and five
operational KPIs.
Financial KPIs1
Overall
revenue
growth
Marketing
efficiency
Underlying
EBITDA
Operational KPIs1
UK brand
awareness
Product
return rates
eve website
conversion rate
eve customer
sleep wellness
score
Non-mattress
revenue
growth
Notes
1. Definitions of Financial and Operational KPIs, see page 19.
18
s t r a t e g i c r e p o r t : key performance indicators
The results of the KPIs are set out below. Financial KPIs
focus on both Group and Core Markets results whilst
the operational KPIs focus on measures tracked in the
Core Markets of UK&I and France. Whilst lower than
original expectations (due to the reasons set out in
the Strategic Report), both financial and operational
KPIs show broadly positive trends against 2018:
Group and Core Markets Financial KPIs¹
• Group revenue decreased by 31% to £23.9m
(2018: £34.8m);
• Core Markets revenue decreased by 19% to
£23.9m (2018: £29.4m);
•
Improvement in Group marketing efficiency by
1313bps to 50.5% (2018: 63.7%);
•
Improvement in Core Markets marketing
efficiency of 1030bps to 50.5% (2018: 60.8%);
• Group underlying EBITDA losses reduced by 44% to
£10.7m loss (2018: £19.1m loss).
Core Markets Operational KPIs¹
•
Increase in non-mattress Core Markets sales as a
proportion of total sales by 230bps to 22.0% (2018:
19.0%);
• Unprompted UK brand awareness: 380bps
increase in unprompted UK brand awareness
(August 2019: 15.0%; November 2018: 11.2%);
• eve customer sleep wellness score: 8/10 (2018:
n/a as a new metric in 2019)
•
40bps year-on-year improvement in the returns
rate to 8.9% (2018: 9.3%);
•
30bps year-on-year improvement in the eve
website conversion rate.
Notes
1. Definitions of Financial and Operational KPIs, see page 19.
Glossary
Definitions of Financial and
Operational KPIs:
Overall revenue growth – % change in
value of reported revenue for the specified
segment of the latest period vs the previous
period.
Marketing efficiency – total reported
marketing cost divided by the reported
revenue for the specified segment, thus as
the reported percentage falls marketing
efficiency improves.
Underlying EBITDA – earnings before
interest, tax, depreciation, amortisation and
impairment, share-based payment charges
connected with employee remuneration
(2018 and 2019), fundraise-related
expenditure (2019 only) and staff and
country exit costs (2018 only). Underlying
EBITDA reflects what management believe
to demonstrate the underlying performance
of the business in a given year.
s t r a t e g i c r e p o r t : key performance indicators
19
Non-mattress sales as a proportion
of total sales – % of reported sales
attributable to non-mattress products for
the specified financial period. The Group
track this Operational KPI in addition to
the Financial KPI of overall revenue growth
as returns and deferrals are not tracked in
isolation for non–mattress sales. Total sales
represents all sales after discounts and
VAT and before deferred revenue, refunds
processed and the refunds provision. Non-
mattress sales represents the value of sales
from non-mattress products.
UK Brand awareness – when asked the
question “What mattress brands can you
think of?” the % of total respondents that
answer eve (externally assessed using
industry polling agencies).
Product return rates – return rate % is
calculated by dividing the total value of
sales returns by the value of net sales of
goods including freight (all excluding VAT).
eve website conversion rate – the
percentage of website traffic in a specific
period that complete a purchase.
Calculated by dividing the number of
completed sales orders divided by the total
website traffic. This figure is compared on a
bps movement between periods.
eve customer sleep wellness score – the
average number of customers out of every
ten customers that report improved sleep
as a result of purchasing an eve product
(internally assessed using post–purchase
email campaigns).
20
21
s t r a t e g i c r e p o r t
financial review
While Core Markets revenue fell by
19% from £29.4m in 2018 to £23.9m in
2019, eve achieved a 70% reduction
in group losses after distribution
costs, payment fees and marketing
expenses with losses falling from
(£8.6m) in 2018 to (£2.5m) in 2019.
Tim Parfitt
Group financial performance
£m
Core Markets revenue
Other revenue
Group revenue
Core Markets gross profit
Other gross profit
Gross profit
Distribution expenses
Profit after distribution expenses
Payment fees
Marketing costs¹
Loss after distribution expenses, payment fees and marketing costs
Wages & Salaries (excluding share-based payment charges)
Other administrative expenses
Share-based payment charges connected to employee remuneration
Operating loss
Net finance income
Loss before tax
Taxation
Loss after tax
Reconcilliation to underlying EBITDA
Taxation
Net finance income
Fundraise-related expenditure
Share-based payment charge connected with employee remuneration
Staff and country exit costs
Depreciation and amortisation
Impairment
Underlying EBITDA
Notes
2019
23.9
(0.0)
23.9
12.8
(0.1)
12.7
(2.7)
9.9
(0.4)
(12.1)
(2.5)
(4.4)
(5.0)
(0.5)
(12.5)
0.0
(12.5)
0.4
(12.1)
(0.4)
(0.0)
0.2
0.5
-
0.5
0.6
2018
Restated
Movement
(19%)
(101%)
(31%)
(18%)
(103%)
(31%)
+33%
(31%)
+41%
+46%
+70%
(18%)
(17%)
+76%
(39%)
(60%)
(38%)
+82%
(40%)
29.4
5.5
34.8
15.5
2.9
18.4
(4.1)
14.3
(0.7)
(22.2)
(8.6)
(5.4)
(6.1)
(0.3)
(20.3)
0.0
(20.3)
0.2
(20.1)
(0.2)
(0.0)
-
0.3
0.8
0.1
0.0
(10.7)
(19.1)
(44%)
1. In 2019, management modified the classification of marketing expenditure to include both direct and indirect costs of marketing, whereas in 2018 only direct costs of marketing were included as marketing
expenditure. Indirect marketing costs include PR and the production costs of creating advertising assets such as the Sloth campaign in 2019. This has resulted in the restatement of marketing costs and marketing
efficiency metrics for 2018. The impact of this restatement solely impacts management information (direct and indirect marketing costs being included in administrative expenses in both the current and prior
period) and therefore there is no impact of the restatement on the statutory statement of profit and loss and other comprehensive income. In 2019, marketing costs include a £0.6m share-based payment charge
relating to equity issued to Channel Four in exchange for marketing services (2018: £nil)
22
s t r a t e g i c r e p o r t : financial review
group financial performance as a % of revenue
% of Revenue
Gross Profit
Distribution
Profit after distribution
Marketing
Administrative expenses excluding marketing
Administrative expenses excluding marketing, fundraise-related
expenditure, depreciation, amortisation and impairment expenditure
UK&I financial performance
£m
Revenue
Gross Profit
Distribution
Profit after distribution
Payment fees
Marketing
Loss after distribution, payment fees and marketing
(before overhead allocation)
France financial performance
£m
Revenue
Gross Profit
Distribution
Profit after distribution
Payment fees
Marketing
2019
53.1%
(11.4%)
41.7%
(50.5%)
(41.4%)
(35.9%)
2018 Restated
Movement
52.8%
(11.6%)
41.1%
(63.7%)
(35.0%)
+37bps
+21bps
+57bps
+1313bps
(634bps)
(34.6%)
(135bps)
2019
2018 Restated
Movement
18.5
10.2
(1.8)
8.4
(0.4)
(9.7)
(1.7)
22.5
11.8
(1.7)
10.1
(0.4)
(12.2)
(2.5)
(18%)
(14%)
+7%
(17%)
(13%)
(20%)
(31%)
2019
2018 Restated
Movement
5.3
2.6
(1.0)
1.6
(0.1)
(2.4)
6.8
3.7
(1.2)
2.5
(0.1)
(5.7)
(22%)
(29%)
(16%)
(36%)
(34%)
(58%)
Loss after distribution, payment fees and marketing
(before overhead allocation)
(0.9)
(3.3)
(74%)
Other financial performance
£m
Revenue
Gross Profit
Distribution
Profit after distribution
Payment fees
Marketing
Loss after distribution, payment fees and marketing (before
overhead allocation)
2019
(0.0)
(0.1)
0.1
0.0
0.0
0.0
0.0
2018 Restated
Movement
5.5
2.9
(1.2)
1.7
(0.2)
(4.3)
(101%)
(103%)
(108%)
(99%)
(103%)
(100%)
(2.8)
(101%)
23
s t r a t e g i c r e p o r t : financial review
revenue
Revenue in Core Markets decreased by 19% to
In addition to cash and cash equivalents, the
£23.9m in 2019 (2018: £29.4m). Group revenues
Group had £0.3m of advertising credits with
during 2018 totalled £34.8m, reflecting nine
Channel 4 available at the year-end date,
months in the year of operating on a wider
following a placing of shares in February
international footprint. Direct to consumer
2019, which raised £11.7m (net of expenses)
remains the dominant revenue channel, with
from investors and secured £0.9m in future
revenues from omni-channel contributing 27%
advertising with Channel 4, which will be
of the group total (2018: 22%). Reflecting a
satisfied through the issuance of new shares
strategic focus on profitable revenues and
when fully utilised.
a reduction in marketing investment, UK&I
revenues decreased by 18% and in France by
22% during 2019 as expected.
gross margins
Gross margins in Core Markets have remained
at attractive levels, supported by a focus
on profitable sales. Core Markets gross profit
margin increased by 70bps to 53.4% in 2019
(2018: 52.7%).
administrative expenses
(excluding marketing)
Wages & Salaries (excluding share-based
payment charges connected with employee
remuneration) are the largest component of
administrative expenses, contributing 36.2%
(2018: 36.8%) of total administrative expenses
excluding marketing costs in the year. The
cost of Wages & Salaries decreased by 18% to
£4.4m (2018: £5.4m) primarily reflecting a lower
headcount.
distribution costs
Distribution costs as a percentage of revenue
underlying EBITDA loss
(earnings before interest, tax, depreciation,
reduced by 20bps to 11.4% in 2019 (2018:
amortisation, impairment charges, share-
11.6%). Core Markets profit after distribution
based payment charges relating to employee
fell by 130bps to 41.6% in 2019 (2018: 42.8%)
remuneration, fundraise-related expenditure in
reflecting increased outbound logistics and
2019 and staff and country exit costs in 2018)
The Directors consider that they are best able
to monitor Group financial performance via
underlying EBITDA by removing fundraise–
related expenditure, share-based payment
charges relating to employee remuneration
and staff and country exit costs from EBITDA on
the basis that these items do not occur evenly
year on year.
warehousing costs in H2 2019.
marketing investment
Marketing is an important driver of growth in
the business. In 2019, marketing investment in
Core Markets was reduced by 32% to £12.1m
(2018: £17.8m). The efficiency of marketing
investment is closely monitored and is an
important KPI for the business. In 2019 Core
Markets marketing efficiency, defined as
marketing costs as a percentage of revenues,
improved by 1030 bps to 50.5% (2018: 60.8%).
In the UK&I marketing efficiency improved
by 176bps to 52.3% (2018: 54.1%). In France,
marketing efficiency improved significantly by
3876bps to 44.1% (2018: 82.9%).
24
s t r a t e g i c r e p o r t : financial review
The underlying Group EBITDA loss decreased
by £8.5m to (£10.7m) loss in 2019 (2018:
(£19.1m) loss). The 44% reduction in the loss
reflects the increased focus on profitable
sales, greater efficiency in marketing spend,
substantial overhead reductions and losses
in 2018 relating to the wider international
footprint for part of the year.
UK&I performance for the year
demonstrated improved efficiency,
where the loss after distribution expenses,
payment fees and marketing costs (before
overhead allocation) totalled (£1.7m) loss
(2018: (£2.5m) loss). This was achieved on
lower revenues down 18% to £18.5m (2018:
£22.5m).
share-based payment
In accordance with IFRS, a share-based
payment charge for 2019 has been
calculated and charged to the statement
of profit and loss. The fair value of options
granted is recognised as an expense over
the vesting period with a corresponding
credit being recognised in equity. The
charge for 2019 was £1.1m (2018: £0.3m)
of which £0.6m related to equity issued in
exchange for marketing services and £0.5m
relating to employee remuneration.
loss after tax
France, whilst at an earlier stage
The loss after tax reduced to £12.1m loss
of development for eve compared to
(2018: £20.1m loss) as a result of the 44%
UK&I, made headway in reducing losses
reduction in the underlying EBITDA loss.
after distribution expenses, payment fees
and marketing costs (before overhead
allocation) by 74% to (£0.9m) loss (2018:
(£3.3m) loss) despite revenues falling 22% to
£5.3m (2018: £6.8m).
It should be noted that the application
of IFRS 16 in 2019 has resulted in a
depreciation charge recognised in 2019
of £0.2m (2018: £0.0m); this charge is
excluded from underlying EBITDA. Under
IAS 17 however, expenditure relating to
operating lease rentals (presented within
administrative expenses) would have
totalled £0.2m and would have been
capital expenditure
Due to the Group’s outsourced business
model, capital expenditure requirements
remain low. The main area of capital
expenditure in 2019 related to ERP systems
infrastructure. Total capital expenditure in
2019 in the form of intangible software assets
totalled £0.5m (2018: £0.4m).
cash position
included within underlying EBITDA. In this
The Group had cash and cash equivalents
way, £0.2m of the year on year improvement
of £8.0m at the year-end (2018: £6.0m).
to underlying EBITDA is attributable to the
application of IFRS 16.
Tim Parfitt
Chief Financial Officer
23 March 2020
25
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
Marketing is an important investment area for
cost of materials which may adversely impact on
the Group and there is a risk that this expenditure
the Group’s profit margins.
may not result in the targeted increase in sales or
The Group primarily manufactures its EU
brand awareness levels.
mattress in the EU and its UK mattress in the UK
eve constantly monitors and analyses
for its main product (the eve original mattress),
financial performance and key business metrics
creating a natural hedge against currency
to ensure up to date and accurate forecasting.
movement for its key products. For other products
The Group also supplements its in-house marketing
and markets the Group looks to agree prices for a
expertise with third party media and marketing
period of time with manufacturers where possible
agencies to monitor and advise on the effective
to provide a degree of certainty over currency
implementation and roll out of marketing and
fluctuations.
advertising campaigns to meet targeted KPIs with
especial focus on marketing efficiency.
product
The Group is responsible for the design of eve
operations
As the Group relies on outsourced partners, there
is a risk that the business may be unable to cope
with rapid demand or disruption occurring with its
products and could face exposure to product
manufacturing or logistics partners.
liability claims or claims against health and safety
The Group maintains a close working
procedures or practices in different territories.
relationship with its outsourced partners and
There could also be high return rates owing to the
regularly reviews and communicates forecasts
100–night trial offered on the eve mattress.
to ensure capacity constraints are managed. In
The Group has a robust product and supplier
addition, the Group maintains a list of alternative
onboarding process to ensure new products and
product suppliers who can be onboarded to
suppliers are of the highest standards. The Group
supplement supply, reducing the risk of relying on
also retains insurance brokers to review and
any specific supplier.
analyse insurance 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
26
s t r a t e g i c r e p o r t : principle risks and uncertainties
During 2019, investment in automation across ERP
outcome. The Group is already registered as a sponsoring
infrastructure particularly across supply chain and logistics
entity with the relevant UK authorities and also has a French
functions, has delivered greater visibility of logistics partner
subsidiary, which combined with the expected transitional
performance and mitigates the risk of disruption and allows
period provides the foundations for mitigating the
for logistics partners to easily be switched between.
immediate effect of Brexit on the Group in this regard.
competition
The Group operates in the highly competitive mattress and
COVID–19 virus
The Group manufactures core mattress products in the
pillow industries and may not be able to grow, or maintain,
territories in which it sells them. However, our supply chain
its existing marketing share.
has some reliance on sourcing from China, the Far East and
The Group constantly reviews and analyses its
European countries outside the Core Markets for the wider
performance against its business plan and against market
sleep range products.
competitors. The Group has both internal talent and
There is the risk of reduced consumer demand as
external advisors who can advise on and respond to any
well as disruption to the supply chain from global events
changes in the competitive environment.
and pandemics such as the COVID–19 virus. Management
brexit
As with all UK companies involved in intra-community cross
border trade the impact of Brexit is a potential risk for the
Group.
The board of directors and senior management
regularly review developments surrounding Brexit
throughout the organisation and in addition to this the
operations team has a dedicated task force focused on
Brexit planning within the supply and logistics chain. The
Group has a natural Brexit hedge with its UK and French
companies and its main product, the eve original mattress,
is manufactured in both the UK and the EU providing a
hedge for its most significant product.
As with most UK based companies leveraging
technology to deliver its value proposition, eve employs
a significant non-UK workforce in the UK and thus the
outcome of Brexit with regards to freedom of movement will
have an effect on our workforce planning and recruitment.
For this reason, during 2019, regular communication for
EU nationals has been established and in-house support
provided for those considering applications for settled
status or visas.
At present the precise details of Brexit; how it relates
to freedom of movement between the EU and UK; how it
will impact goods movement across borders between the
EU and UK; and how it will affect currency exchange rates
following the transition period (currently expected to end
on 31 December 2020) are under negotiation and therefore
not fully clarified. However, the Group continuously monitors
the situation to ensure it is as prepared as possible for any
have assessed the availability of stock on hand and are in
close communication with suppliers to mitigate any adverse
impact of planned supply chain movements in order to fulfil
consumer demand during this period.
The Group’s employees are able to work remotely
from eve’s main office as a result of laptop computers and
the use of multiple communication channels including
email, direct messaging and video conferencing. In the
event of restricted movement around London and the UK,
the work force would be able to continue working and
would be able to communicate across teams and key
stakeholders ensuring business continuity.
To date we have seen only a small impact upon our
supply chain, and where we have seen impact, we have
taken precautionary measures including stronger stock
holding of products to ensure adequate coverage for the
coming months, and hence we currently envisage being
able to meet customer demand for our products, albeit at
reduced levels.
Approved and signed on behalf of the board.
Tim Parfitt
Chief Financial Officer
23 March 2020
27
g o v e r n a n c e r e p o r t
Directors’ Governance
Statement
The Board had dedicated significant
time in 2019 toward overseeing and
scrutinising the development and
delivery of eve’s long-term strategy.
Pau l P inda r
Dear
Shareholders,
The Board recognises the importance of
High standards of corporate governance
achieving the highest possible standards of
remain pivotal to, and complementary to,
corporate governance.
our long-term strategy. Our commitment to
As detailed elsewhere in this Annual
good corporate governance is based on a
Report, the Board has dedicated significant
recognition that good governance allows
time in 2019 toward overseeing and
us as Board to identify and to focus on
scrutinising the development and delivery of
supporting the drivers of long-term growth; it
eve’s long-term strategy. As we also reflect
allows us to take into account the full range
elsewhere, we have as a Board had to make
of our stakeholders, including investors,
a number of important decisions to shape
employees, customers and those in our
the ways in which our company continues
supply chain; and facilitates constructive
to grow and provides long-term value to our
discussions between the Board and
shareholders.
management on the Company’s strategic
and operational priorities.
28
As a Board, we are pleased with the
progress we have made on a range of
corporate governance actions in 2019, of
Further information on each of the above
points is set out subsequently in this report.
which I would particularly like to highlight
The Board decided in 2018 to formally adopt
the following:
• We have successfully supported the on–
boarding of Tim Parfitt as the Company’s
new Chief Financial Officer.
• We have spent greater time in 2019
looking at our corporate culture, the
ways in which our culture helps us to
recruit and retain some of the very best
talent, and the ways in which our culture
can underpin the development and
delivery of our long-term strategy.
• We have also ensured that we focus
on succession planning at senior
management, and are pleased with the
strength and depth of talent we are
developing at all levels of the business.
• We received and challenged a number
of detailed updates on a number of our
core operational functions, including
product development and marketing
functions.
• We undertook an internally facilitated
Board evaluation in 2019, which was a
very positive exercise in ‘taking the
temperature’ of how we function as a
Board and how we perform our roles
and responsibilities as a group and
as individuals.
the QCA Code (the “Code”), and reported
in September 2018 on the Company’s
compliance with the Code. The Board
was briefed on the revisions made to the
Code for the 2019 reporting year, as well
as additional legislation introduced by the
Government. We remain fully committed to
the principles and spirit of the Code, and
disclose both in our compliance statement,
and in this governance statement, on how
we have applied the Code’s principles.
Approved and signed on behalf of the
board.
Paul Pindar
Chairman
23 March 2020
29
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 CEO's 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 is Chairman of and 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 focused 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 (Chair)
Nomination Committee
Remuneration Committee (Chair)
James Sturrock
Chief Executive Officer
appointed: September 2018
experience
James joined eve in September 2018 having previously
been Managing Director of Moonpig, the UK’s leading
online greetings card, flower and gift company, where he
delivered four consecutive years of double-digit revenue
and EBITDA growth, expanded the product offering, and
led the successful rebranding of the business in 2017.
Prior to Moonpig, James was part of Direct Line Group
and formerly Direct Line Insurance for more than seven
years where he held a number of senior divisional and
marketing roles across the Group before becoming
General Manager of Commercial Direct in 2012.
committee membership:
None
30
g o v e r n a n c e r e p o r t : board of directors
Tim Parfitt
Chief Financial Officer
appointed: June 2019
experience
Tim joined eve in June 2019. Prior to this, he spent six
years as Finance Director with privately–owned, multi–
channel furniture retailer, Loaf, during which turnover
grew from £8m to £50m. Before Loaf, Tim held finance
director roles with early stage businesses including Benugo
and Deliverance. He also spent four years as a portfolio
finance director helping owner-managers to grow their
business.
committee membership:
None
Nikki Crumpton
Senior Independent Non-Executive Director
appointed: September 2018
experience
Nikki joined eve in September 2018. Nikki is founder of
brand and communications consultancy The Active
Strategist and has previously held senior roles within
international agencies including McCann Worldgroup
where she was Regional Planning Director EMEA, and as
Chief Strategy Officer for McCann London for seven years.
committee membership:
Audit Committee
Nomination Committee
Remuneration Committee
Thomas Enraght-Moony
Independent Non-Executive Director
appointed: April 2017
experience
Tom joined Eve in April 2017. Tom has nearly 20 years of
executive experience in leading brand transformation and
growth for tech–enabled consumer businesses including
Leisure Pass Group, Match.com, E*TRADE, AT&T Wireless,
Clearwire, and McArthurGlen. He holds an undergraduate
degree from The University of Glasgow and an MBA from
INSEAD in France.
committee membership:
Audit Committee
Nomination Committee (Chair)
Remuneration Committee
31
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, which it believes in turn serve to
drive growth over the long term. Under the AIM Rules for Companies, the
Company has decided to apply the QCA Corporate Governance Code
for Small and Mid-Size Quoted Companies (the “Code”) and provides
details to shareholders, both through this Annual Report and in an annually
updated compliance statement available on the Company’s website, on
eve’s compliance with the Code.
our governance structure
The Board
Responsible for setting
the tone from the top,
determining strategic
direction and monitoring
operational delivery
Chief Executive
Officer
Responsible for day-
to-day management
of eve
Audit
Committee
Nomination
Committee
Remuneration
Committee
Responsible for
Responsible for ensuring
Responsible for
reviewing the integrity
that the board and
determining executive
of eve's financial, risk
senior management has
remuneration and for
management and
the right balance of
reviewing the overall
reporting processes and
skills, experience
approach to pay across
oversight of the external
and diversity
eve
audit function
The Board has adopted a Board Governance
document, which sets out Board membership
and processes alongside powers reserved for
the Board. This document was last reviewed
by the Board in February 2020.
The Board is collectively responsible to
shareholders and to our wider stakeholders
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. For details
of who we consider to be our key stakeholders,
and the ways in which we engage with them,
please see page 44.
We see the Board as having the
following main roles:
setting our purpose, strategy,
values and culture
By setting the tone at the top,
establishing the core values of
the Group and demonstrating our
leadership, management are able to
implement key policies and procedures
in a manner that clearly sets an
expectation that every employee acts
ethically and transparently in all of
their dealings.
setting and oversight of execution
of strategy
Among our responsibilities are setting
and overseeing the execution of
eve’s strategy within a framework
of effective risk management and
internal controls.
oversight of operations
We monitor management’s execution
of strategy and financial performance.
While our ultimate focus is long-term
growth, the Group also needs to
deliver on short-term objectives and
we seek to ensure that management
strikes the right balance between the
two.
shareholder and stakeholder
engagement
We actively engage with shareholders
throughout the year to ensure that
the Board understands the views of
shareholders and our key stakeholders
on some of our most critical decisions
and incorporates these into its
decision-making process.
32
g o v e r n a n c e r e p o r t : corporate governance report
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 35 to 42. The terms of reference
of each committee are available from our website
found at https://investor.evesleep.co.uk/corporate-
governance#governance-docs.
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 29 and 30.
The role of Chairman is to run the business of
the Board, ensuring appropriate strategic focus and
direction in the Board’s discussions, and to facilitate
relationships and engagement with shareholders. The
Chairman also holds responsibility for ensuring that
the Company is appropriately governed and that
eve embraces not just the principles of good
corporate governance but also the values that
underpin those principles.
Nikki Crumpton 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 to be independent upon
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, with
Directors’ other current commitments being
disclosed at each and every Board meeting. As
such, the Board is aware of the other commitments
and interests of its directors, and changes to these
commitments and interests are reported to and,
where appropriate, agreed with the rest of the Board.
board and committee meetings
The table below sets out the Board and Committee
attendance for 2019. 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 during 2019
Paul Pindar
James Sturrock
Abid Ismail (resigned 17 May 2019)
Tim Parfitt (appointed 17 June 2019)
Board
Audit
Remuneration
Committee
Committee
Nomination
Committee
6 of 6
3 of 3
3 of 3
2 of 2
6 of 6
3 of 3
3 of 3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Nikki Crumpton
5 of 6
2 of 3
2 of 3
2 of 2
Thomas Enraght-Moony
6 of 6
3 of 3
3 of 3
2 of 2
g o v e r n a n c e r e p o r t : corporate governance report
33
board and committee effectiveness
The Board continually strives to improve its
effectiveness and recognises that an annual
evaluation process is an important tool in
reaching that goal. The Directors are aware
of the importance to monitor performance
through Board evaluations and that feedback
from these evaluations leads to improving
Board effectiveness.
During the year, an internally facilitated
performance evaluation of the Board,
committees and individual directors was
undertaken. The evaluation was informed in
part by a tailored questionnaire that each
Director responded to, which focused on
Board composition, Board dynamics and
behaviours, the ways in which the Board
was fulfilling its remit and responsibilities and
suggested focal areas for the Board in 2020.
Overall, the Board was pleased with
the findings. The evaluation found strong
general agreement amongst respondents that
the Board and Committees have the right
membership, that the focus and dynamics of
Board and Committee meetings are strong
and the support mechanisms in place to
support Directors are appropriate. Helpful
suggestions were provided in terms of the
support processes in place for new Non-
Executive Directors, and in terms of the quality
and timeliness of Board meeting materials,
which will both be taken forward over 2020
between management and the Company
Secretary. A number of other suggestions were
received in respect of the focal areas for the
Board in 2020.
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
review and mitigation of principal risks and
uncertainties is discussed in the Strategic
Report on pages 25 and 26.
our corporate culture
The Board believes that our corporate
culture continues to serve as one of our key
competitive advantages. We encourage all
of our employees at all levels of the Group to
take responsibility for their work and to actively
contribute toward the development and
delivery of our strategy.
In respect of the Board’s role, we
recognise the importance of setting a tone
from the top, and have met with a number of
staff over 2019 at various levels of the business
to understand different perceptions of the
culture that we are developing. Our aim is to
promote a culture within the Group of ethical
values and behaviours, and we also have a
number of due diligence processes in place
to ensure that all suppliers meet our standards
and our values.
We have internal policies covering a
range of ethical behaviours, such as an anti–
bribery and anti-corruption policy and an
anti–money laundering policy, which serve
to promote and preserve the right corporate
behaviours.
As part of our induction process, new
employees receive training on all corporate
policies and the expectations of the Company
when it comes to ethical values and
behaviours and this is refreshed on a regular
basis for all employees.
We have an active programme of
employee engagement, including regular
employee engagement surveys, throughout
the year. Such engagement shapes both the
way in which we develop our products and
deliver services. We also have a whistleblowing
policy and hotline available for all employees.
In 2019, there were no instances of the
anti-bribery and anti-corruption policy or
whistleblowing policy being invoked.
In respect of our forthcoming priorities
for 2020, the Board will be looking to develop
metrics for measuring and monitoring culture
and employee engagement.
34
g o v e r n a n c e r e p o r t : corporate governance report
relations with shareholders
our engagement with stakeholders
We are committed to communicating
openly with shareholders to ensure that
the Group’s 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 https://investor.evesleep.co.uk/.
The Board places due weight on stakeholder
awareness and engagement. It assesses
stakeholders according to the definition of
stakeholders set out in the Global Reporting
Initiative (Standard 101 paragraph 1.1) as
organisations or individuals who have “a
reasonable expectation of being
significantly affected” by the Group’s
activities or products.
In addition to our shareholders, the
Board has identified the Group’s other major
stakeholders, and approved a strategy for
engaging with these groups as follows:
Stakeholder
Channel of engagement
Employees
•
•
•
•
•
Quarterly performance reviews;
Weekly feedback exercises;
Exit interviews;
Mental health awareness and training and employee support; and
Continuing personal development plans.
Local communities
through selective partnerships and the regular review of additional ways it can provide support to the local
The Company has a range of initiatives including volunteer days for employees, support of relevant charities
community and relevant charitable organisations.
Key suppliers
Regular meetings and reviews with key contact within Company and senior management team.
35
audit committee report
g o v e r n a n c e r e p o r t
committee composition
The Committee comprises Paul Pindar (Chair),
Nikki Crumpton and Thomas Enraght–Moony.
committee responsibilities
The Committee reports to the Board on how it
discharges its responsibilities and makes
recommendations to the Board, all of which
have been accepted during the year 2019.
The main responsibilities of the Committee are
set out below:
financial reporting
• review the integrity of the interim and annual
financial statements;
• review the appropriateness of accounting
policies and practices; and
• review the significant issues and judgements
considered in relation to the financial state-
ments, including how each was addressed.
external audit
• review and monitor the objectivity and
independence of the External Auditor,
including the policy to govern the provision
of non-audit services;
• review and monitor the effectiveness of the
external audit process and the on-going
relationship with the External Auditor; and
• review and make recommendations to the
Board on the tendering of the external
audit contract, and the appointment,
remuneration and terms of engagement
of the External Auditor.
risk management and internal control
• review and monitor the effectiveness of the
management of risk and internal control
and appropriate systems;
• review the framework and analysis to
support both the going concern and
ongoing viability statement; and
• oversee appropriate whistleblowing and
fraud prevention arrangements.
The Terms of Reference for the Audit
Committee are available on our website:
https://investor.evesleep.co.uk/corporate-
governance#committee-composition. These
were last reviewed and approved by the
Board on 21 November 2019.
key activities in 2019
The main focus of the Committee in 2019 has
been to:
• review and recommend the reappointment to
shareholders of the Company’s external
auditor at the 2019 AGM and to recommend
the appointment of Nexia Smith &
Williamson as external auditor to the Board
in October 2019;
• review and approve the 2018 FY preliminary
results;
• review and approve the 2019 interim results;
• assess the company’s risk management
systems and the risk register and conducted
an annual review of the Committee’s
Terms of Reference.
1. financial reporting
A principal responsibility of the Committee is
to consider the significant areas of complexity,
management judgement and estimations that
have been applied in the preparation of the
financial statements.
Significant issues considered in relation to the
financial statements
One of the focal areas for the Committee
was in considering the most significant financial
reporting for the Company. These are set out
below, alongside details of how such risks are
mitigated which are detailed below, and details
of how those risks are mitigated:
Significant
Risk
What?
How this is mitigated
Going concern
meet liabilities as
financial forecasts and
Risk of inability to
Review of 24-month rolling
they fall due
cash projections
Revenue
recognition
Fraud risk related
to misstatement of
revenues
Review of methodology
to define risk and reward
transfer criteria for
recognition as revenue
Inventory
Risk of error in
Review of gross profit
valuation and
stock costing and
margins and bi-annual
existence
provisioning
inventory counts
Fraud risk related
Management
to unpredictable
override of
way management
controls
override of controls
may occur
Review of control processes
and permission structures
within Finance and the
wider business
36
g o v e r n a n c e r e p o r t : audit committee report
Fair, balanced and understandable
In line with the best practice, the Committee
has reviewed the 2019 Annual Report to
consider whether it provided a true and fair
view of the group’s affairs at the end of the
year and provided shareholders with the
necessary information in a fair, balanced and
understandable way in order to enable them
to assess the Group’s position, performance,
business model and strategy.
When forming its opinion, the Committee
considered the following questions in order
to encourage challenge and assess whether
the Annual Report and Accounts was fair,
balanced and understandable:
Conclusion
After completion of its detailed review,
the Committee is satisfied, when taken
as a whole, the Group’s Annual Report
and Accounts are fair, balanced and
understandable, and provide the
information necessary for shareholders to
assess eve’s performance, business model
and strategy.
2. risk management and internal control
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 committee has had regard to a
number of sources of assurance over the
course of the year on the adequacy of
the risk management and internal control
processes in place across eve, including the
following:
• Reviewed and scrutinised the corporate
risk register, including the approach
toward assessing the impact and
likelihood of these risks and the ways in
which management has proposed to
manage the risks;
• Reviewed the anti-fraud and bribery
policies and procedures in place across
the Company and the ways in which
such policies are implemented; and
• Reviewed the external audit plan for the
2019 financial year and findings from the
2018 external audit.
As in previous years, the Group did not
adopt an internal audit function. The
Committee remains of the view that, due
to the size and current complexity of the
Group, the adoption of such a function
would not be appropriate, and that the
existing control environment remains robust.
Is the report fair?
• Is the whole story presented?
• Have any sensitive material areas been
omitted?
Is the report
balanced?
• Is the whole story presented?
• Have any sensitive material areas been
omitted?
Is the report
• Is there a clear and understandable
understandable?
framework to the Annual Report?
• Is the Annual Report presented in
straightforward language and a
user-friendly and easy to understand
manner?
3. external audit
tendering for a new audit provider
One of the Committee’s key roles in 2019
has been in its involvement in securing
a new external audit provider for eve
following the resignation of KPMG LLP as the
company’s auditor during 2019. The tender
process that was followed was broadly as
follows:
Requests for proposal
Focused on two key areas:
1) To secure high quality external
audit services from a reputable and
credible provider
2) To secure excellent value for
money
Evaluation and assessment
The assessment process
focused on
the following key areas:
1) Capability and
competence
2) Communication
3) Behaviour and deliverables
4) Pricing
Decision
Following engagement with
members of the Audit Committee,
a decision was made to appoint
Nexia Smith & Williamson as
eve’s external auditor
Following a competitive tender process,
we were delighted to announce the
appointment of Nexia Smith & Williamson
as our external auditor. The Committee is
confident that the relationship between
the external auditor, management and the
Audit Committee is developing positively,
and we detail in the following sections our
processes for reviewing the effectiveness
and independence of the external auditor.
external audit effectiveness
We have an established framework for
assessing the effectiveness of the external
audit process. This includes:
• a review of the audit plan, including the
materiality level set by the auditors and
the process they have adopted to identify
financial statement risks and key areas of
audit focus;
• regular communications between the
external auditor and both the Committee
and management, including discussion of
regular reports prepared by the external
auditor; and
• a review of the final audit report, noting the
conclusions reached by the auditors and
the reasoning behind such conclusions.
The Committee held a meeting with Nexia
Smith & Williamson (without management
present) and management (without the
external auditor present) in order to discuss
the external audit process and to identify any
potentials for improvement for the forthcoming
audit process.
We are confident that the evaluation
process is effective, allowing for an objective
assessment against the principal focus areas.
After carefully considering the outcome of the
above review, we concluded, in conjunction
with management, and reported to the Board
that in our opinion:
g o v e r n a n c e r e p o r t : audit committee report
37
• the audit team was sound and reliable;
• the quality of the audit service provided
was of a high standard;
• that Nexia Smith & Williamson were, and
are, effectively able to challenge man-
agement when required; and
• that productive discussions were held
with the Committee throughout the audit
planning process.
objectivity and independence of the
external audit process
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 Nexia Smith &
Williamson’s performance, objectivity and
independence.
Taking all of the above into account,
The Committee has recommended to the
Board that Nexia Smith & Williamson be
re-appointed under a new external audit
contract and the Directors will be proposing
the re-appointment and the determination
of Nexia Smith & Williamson’s remuneration
to shareholders at the 2020 AGM.
Following a tender for the provision of
external audit services in 2019, the Group
will put the external audit contract out to
tender no later than 2029. The Committee is
comfortable that this period is appropriate
for the Group and that there are a number
of measures in place to monitor and assure
the external auditor’s independence, as set
out in this Audit Committee report.
Approved and signed on behalf of the
committee
Paul Pindar
Chairman
23 March 2020
38
g o v e r n a n c e r e p o r t
nomination committee
committee composition
The Committee comprises Thomas Enraght–
Moony (Committee chair), Paul Pindar and
Nikki Crumpton.
committee responsibilities
The main responsibilities of the Nomination
Committee are:
• Reviewing the size structure and composi-
tion 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
candidates for Board vacancies.
The Terms of Reference for the Nomination
Committee are available on our website:
https://investor.evesleep.co.uk/corporate-
governance#committee-composition
These were last reviewed and approved
by the Board on 21 November 2019.
key activities in 2019
succession planning
Paul Pindar and Tom Enraght-Moony, as
Chairman of the Nomination Committee, were
closely involved with the appointment of Tim
Parfitt as Chief Financial Officer.
Further, the Committee spent significant
time in 2019 in reviewing the strength
of management talent in each area of
the business along with information from
management on the ways in which talent is
managed in the business. The Committee is of
the view that it is important to develop career
pathways for each individual in the business,
including those identified as having potential
to in future occupy senior management
positions within the business.
The Committee considers that succession
needs to involve a combination of internal
talent with external hires, which balances
creating internal expertise and retention
incentives with fresh perspectives.
Following the report from the Committee
this year, we are pleased with the ways in
which careers opportunities and pathways are
being developed and with the overall strength
of our talent pool across the business. The
Committee will maintain succession planning
and talent management as focal areas for
2020.
board composition
A further focus of the Committee in 2019
has been to review the size, structure
and composition of the Board and Board
Committees to ensure these remained
appropriate. Following consideration, the
Committee remains of the view that the size
of the Board, and structure for the Board
and committees of the Board, remains
appropriate in view of the Company’s current
size and scale. As detailed in the Board
evaluation section earlier in this report, each
Director was asked to review the current
Board composition, and considers there to
be a good balance of skills, background,
experience and diversity of thought that each
contribute to the overall effectiveness of the
Board.
The Committee therefore consider that
the Board composition remains appropriate,
but this will be an area that will be kept under
continued review.
Our AGM Notice includes details of the
contributions of each Director to the Board
and to the Company more widely, and the
reason for the recommendation from the
Board to re-elect each Director.
The Committee also conducted an annual
review of the Committee Terms of Reference.
Approved and signed on behalf of the
committee.
Thomas Enraght-Moony
Chairman
23 March 2020
39
g o v e r n a n c e r e p o r t
remuneration report
committee composition
key activities in 2019
The Remuneration Committee comprises
three non-executive directors: Paul Pindar
(Chairman of the Committee), Thomas
Enraght-Moony and Nikki Crumpton.
Members of the management team are
invited to attend meetings as appropriate,
unless there is an actual or potential conflict of
interest.
The main focus of the Committee in 2019
has been to review proposals around
Executive Directors’ remuneration
arrangements for 2019 and scrutinise
management bonus scheme proposals. The
Committee will continue to focus in 2020 on
ensuring that executive remuneration and
shareholder interests remain closely aligned.
responsibilities of the committee
renumeration policy
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: https://investor.evesleep.
co.uk/corporate-governance#committee-
composition These were last reviewed and
approved by the Board on 21 November 2019.
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.
We have summarised the main
principles behind Executive Directors’
remuneration in the table below:
40
g o v e r n a n c e r e p o r t : remuneration committee report
fixed remuneration elements
Purpose
How it operates
Maximum opportunity
Performance-related
framework
base salary
Reflects an individual’s
responsibilities, experience
and performance in their
role.
There is no prescribed
The performance of the
maximum annual base salary
individual in the period since
or salary increase.
the last review is considered
The Committee is guided
when their salary is being
by the general increase
reviewed.
for the broader employee
population but has discretion
to decide to award a
lower or higher increase to
Executive Directors.
Reviewed annually, normally
with effect from 1 January,
with any changes taking
effect from that date.
Salaries are normally paid
monthly.
Decisions on salary
levels are influenced
by: responsibilities,
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 contributes
Not applicable.
retirement.
arrangement.
up to 3% of base salary on a
Base salary and bonus
“relief at source” basis.
elements are pensionable.
The Committee has
Employees may opt out of
discretion to amend the
the scheme.
contribution level should
market conditions or
legislation change.
variable remuneration elements
Purpose
How it operates
Maximum opportunity
Performance-related
framework
Supports the strategy and
Awards of share options to
Not applicable.
Not applicable.
share plan
business plan by incentivising
certain employees, which
and retaining the eve senior
normally vest after three
management team in a way
years subject to length of
that is aligned both with
service conditions.
the Company’s long-term
financial performance
and with the interests of
shareholders.
other benefits
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. To reflect and
discount on eve products.
to Executive Directors, and
support the Company’s
culture.
the level of some of these
benefits is not predetermined
but may vary from year to
year based on the overall
cost to the Company.
g o v e r n a n c e r e p o r t : remuneration committee report
41
Directors’ remuneration table
The remuneration of the Directors for the year to 31 December 2019 is set out in the table
below.
Director
Appointed
Resigned
Salary / fees
£
Pension
£
2019
2018
2019
2018
Compensation
for loss of office
£
2019
Total remuneration
£
2019
2018
Executive
Directors
10
N/A
200,000
54,615
1,188
269
-
201,188
54,884
James Sturrock
September
2018
Tim Parfitt
17 June 2019
N/A
66,523
-
658
-
-
67,181
-
2 November
17 May
77,865
140,000
421
703
31,788
110,074
140,703
2016
2019
21 November
N/A
26,667
30,000
-
-
2016
Nikki Crumpton
3 September
N/A
26,667
10,000
557
160
2018
28 April 2017
N/A
26,667
30,000
-
-
Thomas Enraght-
Moony
-
-
-
26,667
30,000
27,223
10,160
26,667
30,000
Abid Ismail
Non-Executive
Directors
Paul Pindar
There were no bonuses, long term incentives or
other income awarded to directors.
Details of directors interest in share plans
is shown on the following page and details of
the share-based payment charge attributable
to directors is shown in note 6.
Private medical insurance was provided to
James Sturrock, Tim Parfitt and Abid Ismail, the
value of which management have deemed
immaterial to the users of these financial
statements.
42
g o v e r n a n c e r e p o r t : remuneration committee report
Directors interest in share plans
The Directors who held office at 31 December 2019 had the following interests in the share plans
of the Group.
Director
Date of Grant
As at 31
December
2019
(no. of
options)
Service
Conditions
Exercise
Price
(pence)
As at 31
December
2018 (no.
of options)
Sevice
Conditions
Exercise
Price
Executive Directors
James Sturrock
23 May 2019
17 December 2019
4,400,000
4,400,000
Tim Parfitt
17 December 2019
2,000,000
Length of
service
Length of
service
0.1p
0.1p
Non-Executive
Directors
Paul Pindar
n/a
n/a
n/a
n/a
Nikki Crumpton
1 April 2019
180,000
Length of
service
0.1p
-
-
-
-
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Thomas Enraght-Moony
1 April 2019
180,000
Length of
service
0.1p
99,000
Length of
service
101.2p
No directors exercised share options during 2019 therefore no gain on option exercise is
presented here nor in note 6 to the financial statements.
Directors shareholdings
The Directors who held office at 31 December 2019 had the following interests in the shares of
the Group.
Director
Executive Directors
James Sturrock
Tim Parfitt
Non-Executive Directors
Beneficially owned at 31
Beneficially owned at 31
December 2019
(no. of shares)
December 2018
(no. of shares)
252,750
27,048
52,750
-
Paul Pindar
15,334,885
6,527,126
Nikki Crumpton
Thomas Enraght-Moony
-
-
-
-
Approved and signed on behalf of the committee.
Paul Pindar
Chairman
23 March 2020
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
The directors are responsible for preparing the Annual Report alongside
the Group and parent Company financial statements in accordance
with applicable law and regulations.
The directors are responsible for preparing the
Annual Report and the financial statements
in accordance with applicable law and
regulations. Company law requires the
directors to prepare financial statements
for each financial year. Under that law the
directors have elected to prepare the financial
statements in accordance with International
Financial Reporting Standards as adopted by
the European Union (IFRSs). 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 and profit or loss of the Company
for the period. In preparing these financial
statements, the directors are required to:
• select suitable accounting policies and
then apply them consistently;
• make judgments and accounting estimates
that are reasonable and prudent;
• state whether applicable IFRSs have been
followed, subject to any material depar-
tures disclosed and explained in the finan-
cial statements; and
• prepare the financial statements on the go-
ing concern basis unless it is inappropriate
to presume that the Company will continue
in business.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the Company and enable them to ensure
that the financial statements comply with the
Companies Act 2006. They are also responsible
for safeguarding the assets of the Company
and hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The directors confirm that:
• the management report includes a fair
review of the development and perf-
ormance of the business and the position
of the Group, together with a description of
the principal risks and uncertainties.
• so far as each director is aware, there is
no relevant audit information of which the
Company’s auditor is unaware; and
• the directors have taken all steps that they
ought to have taken as directors in order
to make themselves aware of any relevant
audit information and to establish that the
Company’s auditor is aware of that infor-
mation.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
By order of the board:
Paul Pindar and James Sturrock
44
g o v e r n a n c e r e p o r t
section 172 reporting
The directors have identified and selected the following Board-level decision
making processes as those of greatest strategic significance made during 2019
and would like to highlight the consultation undertaken by eve across a range
of stakeholders due to their business impact.
people restructuring
Our people power eve and the ingenuity and
determination they bring to work every day
made the decision that led to redundancies in
the last quarter of 2019 especially complex. The
process required three-stages of consultation;
first with senior management to review the
activities and priorities of their team, secondly,
with those individuals identified as at risk of
redundancy to describe and explain the
proposed changes to the company’s people
structure and finally, to evaluate proposals
made by employees affected as to how their
redundancy might be mitigated.
In some cases, the consultation process
ended with individuals choosing to continue
their employment with eve under revised
terms and at all times it was necessary to
consider operational continuity including the
management of supplier relationships. At an
early stage, given the impact on individual
livelihoods, it was judged by the Board and
current employees to be necessary to support
the future career objectives of affected
employees an initiative led by eve’s Head of
People.
competitive tender of courier and
warehouse supplier relationships
Given the nature of eve’s business model, the
health of third-party courier and warehouse
relationships are a key component to eve’s
success. Close monitoring of operational
performance, value for money and the
transparency of suppliers in this category is
undertaken alongside mining the feedback
customers provide as to the reliability and quality
of their delivery experience.
An impact assessment was conducted
to assess how any transition of these supplier
relationships would impact employee and
customer satisfaction and a competitive tender
process set up in order to measure short-term
financial and operational considerations against
longer-term goals for improved customer
experience.
long-term profitability of retail partnerships
The mutual decision in the first quarter of 2019,
to terminate the retail partnership agreement
with Dreams reinforced eve’s continued
commitment to its full cohort of retail partners,
direct to consumer customer base, suppliers
and shareholders, representing a decision to
prioritise profitability over revenue growth at all
costs and the need to act fairly to all partners.
Prior to the decision being made, the
known likely consequence was the loss of retail
revenues planned with this partner during
2019, and while those were not planned to
be material, what was less clear was the
impact on brand awareness created via the
partnership. However, in balancing these
factors against the renegotiated terms of a
future agreement were deemed to dilute the
profitability and long-term sustainability of the
company and thus mutual termination of the
agreement was the preferred route.
appointment of new CFO
Following the resignation of Abid Ismail,
eve’s Chief Financial Officer at the outset
of the year, the subsequent recruitment and
appointment of Tim Parfitt required the Board
to consider the constellation of skills and
experience that an incoming finance leader
would require. The Nomination Committee led
this process consulting closely with CEO, James
Sturrock.
The search for a complementary finance
leader acknowledged the public-facing
nature of eve’s listing on the Alternative
Investments Market requiring a profile capable
of managing retail investor relationships as well
as an individual capable of operating beyond
the confines of the traditional finance function
including oversight of eve’s technology
infrastructure and ambitions.
sustainable packaging
Following the consultation of both customer
and employee groups and with a view to
identifying profit-enhancing initiatives as
part of the 2020 budgeting process; the
Board performed a detailed review into the
business’s environmental impact with the
first focus identified to be the reduction and
sustainable-sourcing of reduction, a project
being implemented in early 2020.
45
g o v e r n a n c e r e p o r t
directors’ report
The Corporate Governance Report approved by the Board is provided
on pages 27 and 28 and incorporated by reference
into this Directors’ Report.
information contained elsewhere in this
Annual Report
significant events since the end of the
financial year
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 principle 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
9
46
25-26
27-28
75-77
The worldwide outbreak of the COVID–19 virus
represents a significant event since the end
of the financial period. In light of the impact
of the virus upon supply chain and consumer
demand, the Group has reviewed its cash
flow forecasts and considered the impact on
going concern, concluding that the going
concern basis remains an appropriate basis
of preparation for these financial statements
given the likely cash flow impact of operations
12 months from the date of signing this report.
presence outside of UK
the company has the following subsidiaries
outside of the UK:
eve Sleep
SASU
eve Sleep Inc
Trading Status
Trading
Dormant
Principal place of
5 Rue Des
business / registered
Suisses, 75014,
office address
Paris
185 W. Broadway,
Suite 101, PO Box
1150, Jackson,
USA
Registered number
823397419
R.C.S Paris
EIN 47-4164566
Ownership 2019
100%
100%
Ownership 2018
100%
100%
46
g o v e r n a n c e r e p o r t : director's report
going concern
IFRS 16).
The financial statements are prepared on a
going concern basis notwithstanding that
the Group is still generating losses.
The Group has reported an underlying
EBITDA of (£10.7m) loss (2018: (£19.1m) loss)
with an operating cash outflow of £9.3m
(2018: £20.6m). The closing cash balance at
31 December 2019 was £8.0m (2018: £6.0m).
The directors have prepared a business
plan and financial model including cashflow
forecasts covering a period of more than 12
months from the date of approval of these
financial statements.
The business plan makes the following key
assumptions:
• Economies in product and logistics costs;
• Marketing efficiency within DTC is
enhanced as a result of greater brand
awareness and the focus on more
profitable performance marketing activi-
ties leading to a significant improvement
in profit/loss after distribution expenses,
payment fees and marketing costs;
• The full-year benefit of savings made to
overheads in 2019 generating a
significant reduction in annual
fixed costs;
• Reduction in stock levels.
These forecasts in the base case indicate
that the group will have sufficient funds to
meet its liabilities as they fall due until such
point that it achieves sustainable profitability
and cash generation. However, the delivery
of the strategic plan is subject to uncertainty
and these have been modelled through
sensitivity analysis. Where sensitivity analysis
indicates the possibility of a material
impact to the ability of the group to meet
liabilities as they fall due, the directors
have considered what mitigating actions
would be required and the timeframe
within which those actions are needed.
The key mitigating factors are centered
around further reductions in controllable
spend, including further marketing cost
appraisal and reductions in other categories
of discretionary spend. The directors also
consider that it would be reasonable to
target working capital improvements such
as reducing stock days through lower stock
levels and reducing debtor days through
facilities such as debt factoring as the
group does not presently have any debt
(excluding the lease liability arising under
Uncertainties are such that potential mitigating
actions, which would be over and above the
current strategic plan, may not be sufficient to
mitigate all reasonably possible downsides in
assumptions. In such downsides the Directors
would need further funding and would
consider ways of sourcing this, which could
include debt or possible further equity funding.
The Directors consider that such scenarios are
possible, but not the likely outcome.
Based on the above, the directors
believe it remains appropriate to prepare the
financial statements on a going concern basis.
However, these circumstances represent a
material uncertainty that may cast significant
doubt upon the company’s ability to continue
as a going concern and, therefore to continue
realising its assets and discharging its liabilities
in the normal course of business. The financial
statements do not include any adjustments
that would result from the basis of preparation
being inappropriate.
dividends
The directors do not recommend the payment
of a dividend.
political donations
No political donations have been made during
this financial year.
strategic report
This is set out on pages 10 to 26 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.
g o v e r n a n c e r e p o r t : director's report
47
directors
auditor
The Directors who held office during the year
were:
• Nikki Crumpton
• Thomas Enraght-Moony
• Abid Ismail (resigned 17 May 2019)
• Tim Parfitt (appointed 17 June 2019)
• Paul Pindar
• James Sturrock
Biographical details of the Directors are shown
on pages 29 and 30.
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 39 to 42. 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.
articles of association
eve Sleep’s Articles of Association can
only be amended by special resolution
and are available on our website at
https://investor.evesleep.co.uk/corporate-
governance#governance-docs pursuant to
AIM Rule 26.
Nexia Smith & Williamson was appointed as
auditor in November 2019 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 2019 was 263,444,823 ordinary
shares of 0.1p pence. Full details of the issued
share capital, together with the details of
shares issued during the year to 31 December
2019, are shown in Note 16 to the Group
financial statements.
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.
annual general meeting
The Annual General Meeting of the Company
will be held at 10am on Friday 29 May 2020
at finnCap offices, 60 New Broad St, London,
EC2M 1JJ. 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
23 March 2020
48
independent auditor’s report
to the members of eve Sleep plc
49
i n d e p e n d e n t a u d i t o r ’ s r e p o r t
We are independent of the Group and Parent
Company in accordance with the ethical
requirements that are relevant to our audit of
the financial statements in the UK, including
the FRC’s Ethical Standard as applied to
listed entities, and we have fulfilled our other
ethical responsibilities in accordance with
these requirements. We believe that the audit
evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
material uncertainty related to going
concern
We draw attention to note 2.4 of the financial
statements which indicates there is a material
uncertainty relating to the Group and Parent
Company’s ability to continue as a going
concern.
The Group has reported an operating
cash outflow of £9.3m for the year to 31
December 2019 with cash on hand as at that
date of £8.0m. The directors have prepared a
business plan and financial model including
cashflow forecasts covering a period of more
than 12 months from the date of approval of
these financial statements. These forecasts
indicate the Group will have sufficient funds
to meet its liabilities as they fall due until such
point that it achieves sustainable profitability
and cash generation.
However, the achievement of the
projections is subject to uncertainties, which
have been modelled through sensitivity
analysis. Where sensitivity analysis indicates
the possibility of a material impact to the
ability of the group to meet its liabilities as
they fall due, the Directors have considered
what mitigating actions would be required
and the timeframe within which these actions
are needed. The uncertainties are such that
potential mitigating actions may not be
sufficient to mitigate all reasonably possible
downsides in assumptions, hence further
funding may be required. These conditions,
along with the other matters explained in note
2.4, represent a material uncertainty that may
cast significant doubt on the Group’s and the
Parent Company’s ability to continue as a
going concern.
Our opinion is not modified in respect
of this matter.
opinion
We have audited the financial statements
of eve Sleep plc (the ‘Parent Company’)
and its subsidiary (the ‘Group’) for the year
ended 31 December 2019 which comprise
the Consolidated Statement of Profit and
Loss and Other Comprehensive Income, the
Consolidated and Company Statements
of Financial Position, the Consolidated and
Company Statements of Changes in Equity,
the Consolidated and Company Statements
of Cash Flows, and the notes to the financial
statements, including a summary of
significant accounting policies. The financial
reporting framework that has been applied
in their preparation is applicable law and
International Financial Reporting Standards
(IFRSs) as adopted by the European Union
and, as regards the parent company financial
statements, as applied in accordance with the
provisions of the Companies Act 2006.
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 2019 and of the Group’s loss for
the year then ended;
• the Group financial statements have been
properly prepared in accordance with
IFRSs as adopted by the European Union;
• the Parent Company financial statements
have been properly prepared in
accordance with IFRSs as adopted by the
European Union and as applied in
accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been
prepared in accordance with the
requirements of the Companies Act 2006.
basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described
in the Auditor’s responsibilities for the audit of
the financial statements section of our report.
50
i n d e p e n d e n t a u d i t o r ’ s r e p o r t
key audit matters
In addition to the matter described in the
material uncertainty related to going concern
section, we have determined the matters
described below to be the key audit matters
to be communicated in our report. Key audit
matters include the most significant assessed
risks of material misstatement, including those
risks that had the greatest effect on our overall
audit strategy, the allocation of resources in
the audit and the direction of the efforts of the
audit team.
In addressing these matters, we have
performed the procedures below which were
designed to address the matters in the context
of the financial statements as a whole and in
forming our opinion thereon. Consequently, we
do not provide a separate opinion on these
individual matters.
revenue recognition – Group and
Parent Company
Description of risk
Under International Standards on Auditing
there is a rebuttable presumption that
revenue recognition gives rise to a material
risk of fraud, and given that eve Sleep has a
potential incentive to overstate its revenue
to respond to market pressure, we have not
rebutted this presumption with respect to
cut–off of revenue at the statement of
financial position date.
Specifically, we identified the risk that
revenue transactions recorded in the year
may not have been delivered to the customer
before year end and therefore may have
been recorded in the incorrect period.
How the matter was addressed in the audit and
key observations arising with respect
to that risk
We reviewed management’s revenue
recognition policy and ensured revenue
was being measured and recognised in
accordance with IFRS 15.
As part of our procedures we:
• Substantively tested revenue by agreeing
amounts recognised in the year through to
invoice and payment.
• Substantively tested that revenue is
complete, through ensuring that all orders
from the sales ordering systems which have
been fulfilled in the year have been
included in revenue.
• Ensured revenue has been recognised in
the correct period, through agreeing a
sample of revenue entries from either side
of the year-end to goods delivered notes,
to ultimate end customer if applicable.
• Checked the revenue recognition policy
for compliance against IFRS 15, through
reference to the five-step revenue
recognition policy. This included identifying
the contract with the customer for each
revenue stream; identifying performance
obligations; determining the transaction
price; allocating the price to relevant
performance obligations; and ensuring
revenue is then recognised as the above
performance obligations are met, being
delivery to the ultimate end customer.
51
i n d e p e n d e n t a u d i t o r ’ s r e p o r t
provision for returns – Group and Parent
Company
Description of risk
• Reviewed post year-end evidence of
actual returns to gain comfort over the
completeness of the provision.
The Group offers a 100-night trial on the
eve mattress, giving customers the option
to return the mattress within 100 days of
purchase and receive a full refund. A
material provision is therefore recorded
based on the expected number of returns
post year end.
The level of expected returns is subject
to estimation uncertainty. There is a risk that
the provision could be materially misstated
due to the high degree of estimation
uncertainty. The financial statements (note
2.19) disclose the sensitivity estimated by the
Group.
How the matter was addressed in the audit
and key observations arising with respect to
that risk
We reviewed management’s policy
for estimating the returns provision. We
challenged the assumptions and assertions
made by management in their assessment
and considered the completeness of the
provision with reference to post year-end
actual returns.
As part of our procedures we:
• Confirmed the estimate was recognised
and measured in accordance with IAS
37.
• Confirmed the methods were consistent
with the prior year.
• Corroborated management’s inputs and
assertions where reasonably practicable,
through agreement to supporting
documentation.
• Performed sensitivity analysis on the key
assumptions used in the model.
• Confirmed appropriate disclosures have
been made in the accounts.
materiality
The materiality for the Group financial
statements as a whole was set at £475,000.
This has been determined with reference
to the benchmark of the Group’s revenues,
which we consider to be one of the principal
considerations for members of the Parent
Company in assessing the performance of
the Group. Materiality represents 2% of the
Group’s revenues as presented on the face of
the Consolidated Statement of Profit and Loss
and Other Comprehensive Income.
The materiality for the Parent Company
financial statements as a whole was set at
£308,750. This has been determined with
reference to the benchmark of the Parent
Company’s revenues, which we consider to
be one of the principal considerations for
members of the Parent Company in assessing
the performance of
the Company. Materiality represents
2% of revenue.
an overview of the scope of our audit
The audit team performed the audit of the
Group as if it was a single aggregated set
of financial information, given the financial
information of all components is included
within one accounting system and is subject
to the same processes and controls. The audit
was performed using the materiality levels set
out above.
52
i n d e p e n d e n t a u d i t o r ’ s r e p o r t
other information
The other information comprises the
information included in the Annual Report,
other than the financial statements and our
auditor’s report thereon. The directors are
responsible for the other information. Our
opinion on the financial statements does not
cover the other information and, except to the
extent otherwise explicitly stated in our report,
we do not express any form of assurance
conclusion thereon.
In connection with our audit of the
financial statements, our responsibility is to
read the other information and, in doing
so, consider whether the other information
is materially inconsistent with the financial
statements or our knowledge obtained
in the audit or otherwise appears to be
materially misstated. If we identify such
material inconsistencies or apparent material
misstatements, we are required to determine
whether there is a material misstatement
in the financial statements or a material
misstatement of the other information. If,
based on the work we have performed, we
conclude that there is a material misstatement
of this other information, we are required to
report that fact.
We have nothing to report in this regard.
opinion on other matters prescribed by
the Companies Act 2006
In our opinion, based on the work undertaken
in the course of the audit:
• the information given in the Chairman’s
Statement, the Strategic Report and the
Governance Report for the financial year
for which the financial statements are
prepared is consistent with the financial
statements; and
• the Chairman’s Statement, Strategic Report
and Governance Report have been pre-
pared in accordance with applicable legal
requirements.
matters on which we are required to
report by exception
In the light of the knowledge and
understanding of the Group and the Parent
Company and their environment obtained in
the course of the audit, we have not identified
material misstatements in the chairman’s
statement, strategic report or the governance
report.
We have nothing to report in respect of
the following matters where the Companies
Act 2006 requires us 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 explanations we require for our audit.
responsibilities of Directors
As explained more fully in the Statement of
Directors’ Responsibilities set out on page
42, the Directors are responsible for the
preparation of the financial statements and
for being satisfied that they give a true and
fair view, and for such internal control as the
Directors determine is necessary to enable the
preparation of financial statements that are
free from material misstatement, whether due
to fraud or error.
In preparing the financial statements,
the Directors are responsible for assessing the
Group’s and the 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 the Directors either intend
to liquidate the Group or the Parent Company
or to cease operations, or have no realistic
alternative but to do so.
53
i n d e p e n d e n t a u d i t o r ’ s r e p o r t
auditor’s responsibilities for the audit
of the financial statements
use of our report
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 an auditor’s report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a 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
the aggregate, they could reasonably be
expected to influence the economic decisions
of users taken on the basis of these financial
statements.
A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms
part of our auditor’s report.
This report is made solely to the Parent
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
Parent 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
Parent Company and the Parent Company’s
members as a body, for our audit work, for this
report, or for the opinions we have formed.
Sancho Simmonds
Senior Statutory Auditor, for and on
behalf of
Nexia Smith & Williamson
Statutory Auditor
Chartered Accountants
25 Moorgate
London
EC2R 6AY
23 March 2020
54
consolidated statement of profit and loss and other
comprehensive income
for the year ended 31 December 2019
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses
Operating loss
Net finance income
Loss before tax
Taxation
Loss for the year
Other comprehensive income
Note
2019
£
2018
£
3
3
3
3
4
7
8
23,852,931
34,818,260
(11,176,905)
(16,442,852)
12,676,026
18,375,408
(2,729,317)
(4,056,075)
(22,453,901)
(34,663,758)
(12,507,192)
(20,344,425)
18,022
44,822
(12,489,170)
(20,299,603)
352,240
193,192
(12,136,930)
(20,106,411)
Foreign currency differences from overseas operations
17,310
98,720
Total comprehensive loss for the year
(12,119,620)
(20,007,691)
Basic and diluted loss per share
18
(4.92p)
(14.46p)
All results relate to continuing activities.
Notes 1 to 26 form part of these financial statements.
consolidated statement of financial position
at 31 December 2019
55
Non-current assets
Property, plant and equipment
Intangible assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current tax receivable
Total assets
Non-current liabilities
Lease liabilities
Current liabilities
Trade and other payables
Provisions
Lease Liabilities
Total liabilities
Net assets
Equity attributable to equity holders of the parent
Share capital
Share premium
Share-based payment reserve
Retained earnings
Note
9
10
11
12
13
23
14
15
23
16
17
2019
£
518,575
344,456
863,031
1,574,648
2,637,650
7,988,769
354,466
2018
£
-
669,742
669,742
1,127,876
4,626,750
6,031,936
193,192
12,555,533
11,979,754
13,418,564
12,649,496
40,000
40,000
3,983,174
768,965
470,391
-
-
4,561,792
955,949
-
5,222,530
5,517,741
5,262,530
5,517,741
8,156,034
7,131,755
263,445
139,735
48,887,392
36,716,372
998,495
250,073
(42,109,328)
(30,073,145)
Foreign currency translation reserve
116,030
98,720
Total equity
8,156,034
7,131,755
Notes 1 to 26 form part of these financial statements.
These financial statements were approved by the board of directors on eve Sleep plc and were signed on its behalf by:
Tim Parfitt
Director
23 March 2020
Company registered number: 09261636
56
consolidated statement of changes in equity
for the year ended 31 December 2019
Share
Capital
£
Share
Premium
£
Share-based
reserve
£
Retained
Earnings
£
Foreign
currency
translation
reserve
£
Total Equity
£
For the year ended 31 December 2019
Balance at 1 January 2019
139,735
36,716,372
250,073
(30,073,145)
98,720
7,131,755
Issue of shares
120,317
11,911,415
Exercise of employee share options
Share-based payment charge
Transfer on exercise of employee share
options
Transfer on issue of equity for marketing
services
770
-
-
-
-
-
-
-
1,111,396
-
-
-
(100,747)
100,747
2,623
259,605
(262,228)
-
Total transactions with owners
123,710
12,171,020
748,421
100,747
-
-
-
-
-
-
-
12,031,732
770
1,111,396
-
-
13,143,898
(12,136,930)
Loss for the year
Other comprehensive income for the year
-
-
-
-
-
-
(12,136,930)
-
17,310
17,310
Balance at 31 December 2019
263,445
48,887,392
998,495
(42,109,328)
116,030
8,156,034
For the year ended 31 December 2018
Balance at 1 January 2018
138,631
36,716,372
138,794
(10,158,736)
Exercise of options
Share-based payment charge
Transfer on exercise of options
1,104
-
-
Total transactions with owners
1,104
Loss for the year
Other comprehensive income for the year
-
-
-
-
-
-
-
-
-
303,281
-
-
(192,002)
192,002
111,279
192,002
(20,106,411)
-
-
-
98,720
98,720
-
-
-
-
-
-
26,835,061
1,104
303,281
-
304,385
(20,106,411)
Balance at 31 December 2018
139,735
36,716,372
250,073
(30,073,145)
98,720
7,131,755
consolidated statement of cash flows
for the year ended 31 December 2019
57
Cash flows from operating activities
Loss for the year
Adjustments for:
Depreciation
Amortisation
Impairment
Interest payable
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Share-based payment charge
Note
2019
£
2018
£
(12,136,930)
(20,106,411)
198,048
263,046
594,724
9,144
(446,772)
1,827,827
(578,619)
(186,984)
1,111,396
-
120,571
39,608
-
(436,536)
(642,885)
13,773
129,247
303,281
Net cash outflow from operating activities
(9,345,120)
(20,579,352)
Cash flows from investing activities
Additions to property, plant and equipment
Additions to intangible assets
Right of use asset initial direct costs
-
(532,484)
(15,375)
(3,150)
(411,775)
-
Net cash outflows from investing activities
(547,859)
(414,925)
Cash flows from financing activities
Proceeds from issue of share capital
12,032,502
Repayment of capital element of finance lease rentals
24
(200,000)
Net cash inflows from financing activities
11,832,502
1,104
-
1,104
Net cash inflow/(outflow)
1,939,523
(20,993,173)
Cash at beginning of year
Movement in cash
Effect of exchange rate fluctuations on cash held
Cash at end of year
6,031,936
26,926,389
1,939,523
17,310
(20,993,173)
98,720
7,988,769
6,031,936
58
notes to the financial statements
forming part of the the financial statements
1.
Reporting entity
eve sleep PLC (the “Company”) is a public company, domiciled and registered in England in the UK. eve sleep PLC is a company
limited by shares. The registered number is 09261636 and the registered address at 31st December 2019 was 29A Kentish Town Road,
London, England, NW1 8NL effective from 5th August 2019. Prior to that date, the registered address of the Company was 128 Albert
Street, London, England, NW1 7NE.
2.
2.1
Accounting policies
Basis of preparation
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the “Group”).
The Group financial statements have been prepared and approved by the directors in accordance with International
Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”). The Company has elected to prepare its parent company
financial statements in accordance with adopted IFRS, these are presented on pages 81 to 92.
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
Changes in accounting policy
(a) New and amended Standards and Interpretations adopted by the Group and Company.
In these financial statements, the Group has changed its accounting policies in the following areas:
•
Lease recognition
The Group has adopted the following IFRSs in these financial statements:
•
IFRS 16 Leases (see note 23)
The Company has considered the change in accounting policy associated with the application of IFRS 16. The Company’s
lease of 128 Albert Street, London, NW1 7NE terminated in line with the agreed upon lease term on 17 August 2019 and
therefore the Company has taken advantage of the short-term lease exemption for lease assets and lease liabilities where
a lease term ends within 12 months of the date of initial application of IFRS 16. Thus the presentation of this lease as an
operating lease for the twelve months ending 31 December 2019 remains consistent with previous periods under IAS 17.
On 1 August 2019 the Company commenced a 24-month lease of 29A Kentish Town Road, London, NW1 8NL. The Company
has recognised a lease asset and lease liability in relation to this lease from the inception of the lease.
(b) New and amended Standards and Interpretations mandatory for the first time for the financial year beginning 1 January 2019
but not currently relevant to the Group or Company
The following new and amended Standards and Interpretations are not currently relevant to the Group or Company;
however, they may have a significant impact in future years:
• IFRIC 23 “Uncertainty over Income Tax Treatments”
• Amendment to IFRS 9: “Prepayment Features with Negative Compensation”
• Amendment to IAS 28: “Investments in Associates and Joint Ventures”
• Amendment to IAS 19: “Employee Benefits”
• Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 in “Annual Improvements 2015-2017 cycle”
(c) New and amended Standards and Interpretations issued but not effective for the financial year beginning 1 January 2019
Amendments have been made to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors in relation to the definition of material. The new definition will apply for the first time in
the next financial year. The amendments clarify the definition of what is material to the financial statements and how to
apply the definition.
The amendments will have an impact on the presentation and disclosure in the financial statements. After applying
the new definition, the financial statement may have less disclosures as it may be easier to justify that certain disclosures
are immaterial to users of financial statements. Furthermore, more meaningful disclosures may be presented in a more
prominent manner due to the additional guidance on the effects of obscuring information.
notes to the financial statements continued
59
2.3
Measurement convention
The financial statements are prepared under the historical cost convention.
2.4
Going concern
The financial statements are prepared on a going concern basis notwithstanding that the Group is still generating losses.
The Group has reported an operating loss of £12.5m (2018: (£20.3m) loss) with an operating cash outflow of £9.3m (2018:
£20.6m). The closing cash balance at 31 December 2019 was £8.0m (2018: £6.0m).
The directors have prepared a business plan and financial model including cashflow forecasts covering a period of more
than 12 months from the date of approval of these financial statements.
The business plan makes the following key assumptions:
• Economies in product and logistics costs;
• Marketing efficiency within DTC is enhanced as a result of greater brand awareness and the focus on more profitable perfor-
mance marketing activities leading to a significant improvement in profit/loss after distribution expenses, payment fees and
marketing costs. Marketing spend is presented within administrative expenses in the financial statements;
• The full-year benefit of savings made to overheads in 2019 generating a significant reduction in annual fixed costs;
• Improvement in the slow-moving stock levels alongside optimised demand planning.
These forecasts in the base case indicate that the group will have sufficient funds to meet its liabilities as they fall due until
such point that it achieves sustainable profitability and cash generation. However, the delivery of the strategic plan is subject to
uncertainty and these have been modelled through sensitivity analysis. Where sensitivity analysis indicates the possibility of a
material impact to the ability of the group to meet liabilities as they fall due, the directors have considered what mitigating actions
would be required and the timeframe within which those actions are needed. The key mitigating factors are centred around further
reductions in controllable spend, including further marketing cost appraisal and reductions in other categories of discretionary
spend. The directors also consider that it would be reasonable to target working capital improvements such as reducing stock days
through lower stock levels and reducing debtor days through facilities such as debt factoring as the group does not presently have
any debt (excluding the lease liability arising under IFRS 16).
Uncertainties are such that potential mitigating actions, which would be over and above the current strategic plan, may
not be sufficient to mitigate all reasonably possible downsides in assumptions. The impact of COVID-19 virus is one such uncertainty
which management are assessing and managing the impact of on the business (further detail on this is provided on page 26). In such
downsides the Directors would need further funding and would consider ways of sourcing this, which could include debt or possible
further equity funding. The Directors consider that such scenarios are possible, but not the likely outcome.
Based on the above, the directors believe it remains appropriate to prepare the financial statements on a going concern
basis. However, these circumstances represent a material uncertainty that may cast significant doubt upon the company’s ability
to continue as a going concern and, therefore to continue realising its assets and discharging its liabilities in the normal course
of business. The financial statements do not include any adjustments that would result from the basis of preparation being
inappropriate.
2.5
Presentational currency
The Group financial statements are presented in Sterling.
2.6
Basis of consolidation
Subsidaries
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.
Transactions eliminated on consolidation
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
extent that there is no evidence of impairment.
60
notes to the financial statements continued
2.7
Foreign currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange
rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the statement of
financial position 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 statement of profit and loss. 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 are translated to the Group’s presentational currency, Sterling, at foreign
exchange rates ruling at the statement of financial position 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).
2.8
Classification of financial instruments issued by the Group
This note provides information about the group’s financial instruments, including:
• an overview of all financial instruments held by the group
• specific information about each type of financial instrument
• accounting policies
• information about determining the fair value of the instruments, including judgements and
estimation uncertainty involved.
The group holds the following financial assets:
Financial
Financial asset
Note
Classification rationale
instrument type
Financial assets held at
Trade receivables
12
Trade receivables are amounts due from customers for
amortised cost
goods sold or services performed in the ordinary course of
business. They are generally due for settlement within 60
days and are therefore all classified as current.
Trade receivables are recognised initially at the amount of
consideration that is unconditional.
The group holds the trade receivables with the objective
of collecting the contractual cash flows and therefore
measures them subsequently at amortised cost using the
effective interest method.
Details about the group’s impairment policies and the
calculation of the loss allowance are provided in note 12.
Other receivables
Other current assets
12
12
These receivables relate to items that cannot be classified
as trade receivables including VAT receivables, rent
deposits, accrued income and volume rebate receivables.
Current tax receivable
N/A
Collateral is not normally obtained and although interest
may be charged or is automatically due where the terms
of repayment exceed six months, this is not normally
effected.
Cash and cash equivalents
13
Cash comprises cash balances and call deposits (financial
assets held with electronic money providers) whilst cash
equivalents comprise term deposits. Term deposits are
presented as cash equivalents if they have a maturity of
three months or less from the date of acquisition and are
repayable with 24 hours’ notice with no loss of interest.
2.9 Non-derivative financial instruments
2.8 Classification of financial instruments issued by the Group
notes to the financial statements continued
61
2.8
Classification of financial instruments issued by the Group (continued)
The group holds the following financial liabilities:
Financial
Financial asset
Note
Classification rationale
instrument type
Liabilities at amortised
Trade payables
cost
Non-trade payables and
accrued expenses
14
14
These payables are unsecured and are usually paid within
30 days of recognition.
The carrying amounts of these payables are considered
to be the same as their fair values, due to their short-term
Taxes and social security
14
nature.
payables
Lease liabilities
23
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include
the net present value of the following lease payments:
• fixed payments (including in-substance fixed pay-
ments), less any lease incentives receivable
• variable lease payment that are based on an index or
a rate, initially measured using the index or rate as at
the commencement date
• amounts expected to be payable by the group under
residual value guarantees
• the exercise price of a purchase option if the group is
reasonably certain to exercise that option, and
• payments of penalties for terminating the lease, if the
lease term reflects the group exercising that option.
Lease payments to be made under reasonably certain
extension options are also included in the measurement
of the liability.
2.9
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts of
an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and
equipment. Depreciation is charged to the statement of profit and loss 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:
Right of use asset
3 years
Depreciation methods, useful lives and residual values are reviewed at each statement of financial position date.
2.10
Intangible assets
The costs of acquiring and developing software that is not integral to its related hardware is capitalised separately as an intangible
asset. 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 amortisation.
Amortisation is calculated on a straight-line basis over the assets’ expected economic lives, normally three years, and applied starting
in the financial year after capitalisation. Amortisation and impairment charges are recognised within administrative expenses on the
face of the statement of profit and loss. 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 Group intends to, and has the technical ability and sufficient resources to complete development, future economic benefits
are probable, and if the Group can measure reliably the expenditure attributable to the intangible asset during its development.
Development activities involve a plan or design for the production of new or substantially improved products or processes.
Where no intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it
is incurred. Expenditure on research activities is recognised as an expense in the period in which it is incurred.
The estimated useful lives are as follows:
Development Costs
3 years
Amortisation methods, useful lives and residual values are reviewed at each statement of financial position date.
62
notes to the financial statements continued
2.11
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average principle and includes
expenditure incurred in acquiring the inventories, production or conversion costs and other costs in bringing them to their existing
location and condition. A provision is also made to write down any slow-moving or obsolete inventory to net realisable value.
2.12
Investments
Investments in subsidiary companies are stated at cost and are subject to review for impairment indicators if identified.
2.13 Impairment excluding inventories
The Group recognises loss allowances for expected credit losses (ECLs) on financial assets measured at amortised cost (as defined in
IFRS 9).
Loss allowances for all financial assets are always measured at an amount equal to lifetime ECL.
2.14
Provisions
A provision is recognised in the statement of financial position 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.
As required under IFRS 15, a disaggregation of revenue in respect of primary geographical markets is shown in the Group’s
Segmental analysis (note 3) and significant distribution channels set out below:
Direct to consumer revenue
Multi-channel revenue
2019
£
17,382,370
6,470,562
23,852,931
2018
£
26,996,512
7,821,748
34,818,260
Whilst direct to consumer revenues represent sales placed and fulfilled via the Group’s own websites, multi-channel revenues
represent wholesale sales to third-party partners of the Group who ultimately sell the product on to their own end customers.
2.16
Expenses
Operating lease payments
In line with the short-term lease exemption under IFRS 16, payments relating to the short-term lease of the former
registered office of the Group at 128 Albert Street have been recognised in the statement of profit and loss on a straight-line basis
over the remaining term of the lease.
Financing income and expenses
Financing expenses comprises interest payable related to lease liabilities and the unwinding of the discount on provisions.
Financing income comprises interest earned on cash equivalents.
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
2.17
Employee benefits
Defined contribution plans
The company operates a defined contribution plan. A defined contribution plan is a post-employment benefit plan under which the
company pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of profit and loss
in the periods during which services are rendered by employees.
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.
notes to the financial statements continued
63
2.17
Employee benefits (continued)
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a
corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair
value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which
the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the
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
measured to reflect such conditions and there is no true-up for differences between expected and actual outcomes.
Share–based payments reserve
This comprises the cumulative share-based payment charge recognised in the statement of profit and loss in relation to
equity-settled options and share rights issued but not yet exercised.
2.18
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the statement of profit and loss except
to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
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 statement of financial position date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the
initial recognition of goodwill; the initial recognition of assets or liabilities 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 statement of financial position
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.
2.19
Significant estimates and judgements
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
liabilities. The estimates and assumptions are based on historical experience and various other factors believed to be reasonable
under the circumstances. Actual results could differ from these estimates and any subsequent changes are accounted for when such
information becomes available.
The judgements, estimates and assumptions that are the most subjective or complex are as follows:
Accounting estimates
Slow-moving inventory provision (note 11)
Inventory is carried at the lower of cost or net realisable value. The estimation of net realisable value may be different from the
future actual value realised. The provision for slow-moving inventory is based upon an analysis of forecast inventory turnover.
Management calculates the best estimate of the subsequent volumes of inventory held at year-end forecast to be sold in a period
greater than twelve months from the statement of financial position date. In reference to this inventory population a slow-moving
stock provision is calculated. Following sensitivity analysis, management have concluded that the estimate is not materially sensitive
to variance of the input estimates and is therefore not a key estimate in the accounts.
Refunds provision (note 15)
The Group recognises a provision for the probable financial liability to refund customers for returned products. Provisions are
calculated in reference to historical return rates. This estimate is therefore sensitive to management’s estimate of expected customer
refunds in subsequent periods. Upon sensitivity analysis management have concluded that the estimate is not materially sensitive to
variance of the input estimates and is therefore not a key estimate in the accounts.
Warranty provision (note 15)
The Group recognises a provision for the probable financial liability to customers in respect of warranty claims. The provision is
calculated in reference to historical rates of successful manufacturer warranty claims. In the application of IFRS 15, management
do not consider the provision of a warranty to customers to be a separate performance obligation. Following sensitivity analysis,
management have concluded that the estimate is not materially sensitive to variance of the input estimates and is therefore not a
key estimate in the accounts. In addition, based on the current level of warranty claims experienced across the Group, there is no
evidence to suggest that current inputs would lead to a material misstatement.
64
notes to the financial statements continued
2.19
Significant estimates and judgements (continued)
Accounting judgements
Intangible assets (note 10)
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 uses its judgement in assessing
development against the criteria. After capitalisation, management monitors whether the recognition requirements continue to be
met and whether there are any indicators that the asset may be impaired, as discussed above.
notes to the financial statements continued
65
3
Segmental analysis
IFRS 8, “Operating Segments”, requires operating segments to be determined based on the Group’s internal reporting to the Chief
Operating Decision Maker (the Board). The Chief Operating Decision Maker has been determined to be the Board and the primary
segmental reporting format of the Group is geographical by customer location, based on the Group’s management and internal
reporting structure.
The Board assesses the performance of each segment based on revenue, gross profit and profit after distribution expenses,
payment fees and marketing expenses. Payment fees and marketing expenses are presented within administrative expenses on the
statement of profit and loss and other comprehensive income.
UK&I
France
Rest of Europe
Rest of the
World
Total
For the year ended 31 December 2019
Revenue
Cost of Sales
Gross profit
18,548,073
5,345,076
(45,141)
4,923
23,852,931
(8,385,865)
(2,751,453)
-
(39,587)
(11,176,905)
10,162,208
2,593,623
(45,141)
(34,664)
12,676,026
Distribution expenses
(1,809,692)
(1,014,774)
94,185
Payment Fees
(352,702)
(90,180)
Marketing expenses
(9,703,321)
(2,357,403)
5,418
6,346
964
245
-
(2,729,317)
(437,219)
(12,054,377)
Segment results
(1,703,507)
(868,734)
60,808
(33,454)
(2,544,887)
Administration expenses (excluding
payment fees and marketing expenses)
Net finance income
Taxation
Loss for the year
(9,962,305)
18,022
352,240
(12,136,930)
UK&I
France
Rest of Europe
Rest of the
World
Total
For the year ended 31 December 2018
Revenue
Cost of Sales
Gross profit
22,520,896
6,833,520
4,744,696
719,148
34,818,260
(10,703,472)
(3,174,414)
(2,197,303)
(367,663)
(16,442,852)
11,817,424
3,659,106
2,547,393
351,485
18,375,408
Distribution expenses
(1,697,775)
(1,204,140)
(1,079,010)
(75,150)
(4,056,075)
Payment fees
(403,616)
(137,270)
(166,366)
(29,206)
(736,458)
Marketing expenses
(12,178,634)
(5,662,664)
(4,200,150)
(126,294)
(22,167,742)
Segment results
(2,462,601)
(3,344,968)
(2,898,133)
120,835
(8,584,867)
Administration expenses (excluding
payment fees and marketing expenses)
Net finance income
Taxation
Loss for the year
(11,759,558)
44,822
193,192
(20,106,411)
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.
66
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
70,000
75,000
Amounts received by auditor’s and their associates in respect of:
2019
£
2018
£
Tax advisory services
Tax compliance services
Other items
Depreciation of property, plant and equipment
Amortisation of intangible assets
Impairment
Cost of inventory write offs (note 11)
Lease expenditure (note 2.16)
Staff and country exit costs
-
-
198,048
263,046
594,724
361,583
424,266
-
61,050
236,502
-
120,571
39,608
70,632
767,480
752,261
In 2018, the Group’s external auditor was KPMG LLP and during the financial year ended 31 December 2018 KPMG LLP were
additionally engaged in providing tax advisory and tax compliance services to the Group. In 2019, the Group retendered the external
audit and appointed Nexia Smith & Williamson whose fees are shown in the table above; Nexia Smith & Williamson did not provide
any professional services to the Group outside the audit of these financial statements.
5
Staff numbers and cost
The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:
Finance
Marketing
Operations
Total
2019
7
17
58
82
2018
6
23
82
111
notes to the financial statements continued
67
5
Staff numbers and cost (continued)
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Share-based payment charge (note 17)
Employer pension contributions
2019
£
2018
£
3,838,096
4,851,555
452,443
534,315
66,999
526,054
303,281
48,664
Total
4,891,853
5,729,554
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
Employer pension contributions
Employer’s national insurance
Share-based payment charge
Compensation for loss of office
Total
2019
£
424,389
2,824
52,746
124,804
31,788
636,551
2018
£
368,423
1,447
65,688
36,553
150,000
622,111
Directors’ aggregate emoluments and pension payments are detailed in the Directors’ Remuneration Report on pages 41, along with
directors’ interests in issued shares and share options on page 42, which form part of these audited financial statements. The gain
on exercise of share options in respect of directors for the year was £nil (2018: £nil).
Directors of the Company and their immediate relatives control 6.38% per cent of the voting shares of the Company.
7
Net finance income
Finance income receivable on cash and cash equivalents is recognised in the statement of profit and loss as it is earned.
Interest receivable on cash and cash equivalents
Interest expense on lease liabilities
Total
2019
£
27,165
(9,143)
18,022
2018
£
44,822
-
44,822
68
notes to the financial statements continued
8
Taxation
Recognised in the statement of profit and loss:
Current tax expense
Research and development tax credit for the prior year
Total current tax
Reconciliation of effective tax rate:
Loss for the year
Total tax credit
2019
£
352,240
352,240
2018
£
193,192
193,192
2019
£
2018
£
(12,136,930)
(20,106,411)
352,240
193,192
Loss excluding taxation
(12,489,169)
(20,299,603)
Tax using the UK corporation tax rate of 19% (2018: 19%)
(2,372,942)
(3,856,925)
Effects of:
Expenses not deductible for tax purposes
Fundraise-related expenditure
Depreciation, amortisation and impairment
Share-based payment charges
Research and development tax credit for the prior year
Current year losses for which no deferred tax asset was recognised
Total Tax credit/(expense)
10,242
46,440
200,605
101,520
352,240
2,014,135
352,240
16,333
-
30,434
57,623
193,192
3,752,534
193,192
The Group has accumulated tax losses available for offset against future profits of £58,552,569 (2018: £46,415,639).
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.
The UK corporation tax rate is consistent year on year at 19%.
Reductions in the UK corporation tax rate from 20% (effective from 1 April 2017) to 18% (effective 1 April 2020) were
substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6
September 2016. This will reduce the Group’s future tax charge accordingly.
notes to the financial statements continued
69
9
Property, plant and equipment
Right of use asset
£
Plant and equipment
£
Fixtures and fittings
£
Total
£
Cost
Balance at 1 January 2018
Additions
Balance at 31 December 2018
Additions
Balance at 31 December 2019
Depreciation and Impairment
Balance at 1 January 2018
Depreciation charge for the year
Impairment charge for the year
Balance at 31 December 2018
-
-
-
716,623
716,623
-
-
-
-
Depreciation charge for the year
198,048
Impairment charge for the year
-
7,326
3,150
10,476
-
10,476
7,326
-
3,150
10,476
-
-
39,724
-
39,724
-
39,724
3,266
-
36,458
39,724
-
-
47,050
3,150
50,200
716,623
766,823
10,592
-
39,608
50,200
198,048
-
Balance at 31 December 2019
198,048
10,476
39,724
248,248
Net Book Value
At 31 December 2018
At 31 December 2019
10 Intangible assets
Cost
Balance at 1 January 2018
Additions - internally generated
Additions - externally generated
Transfers
Balance at 31 December 2018
Additions - internally generated
Additions - externally generated
Transfers
Balance at 31 December 2019
Amortisation and Impairment
Balance at 1 January 2018
Amortisation for the year
Impairment for the year
Balance at 31 December 2018
Amortisation for the year
Impairment for the year
Balance at 31 December 2019
Net Book Value
At 31 December 2018
At 31 December 2019
-
518,575
-
-
-
-
-
518,575
Development costs
£
Assets under construction
£
Total
£
282,940
-
-
105,030
387,970
-
-
747,553
1,135,523
-
120,571
-
120,571
263,046
526,954
910,571
267,399
224,952
95,598
168,833
242,942
(105,030)
402,343
310,573
221,912
(747,553)
187,274
-
-
-
-
-
67,770
67,770
402,343
119,504
378,538
168,833
242,942
-
790,313
310,573
221,912
-
1,322,797
-
120,571
-
120,571
263,046
594,724
978,341
669,742
344,456
70
notes to the financial statements continued
10
Intangible assets (continued)
Development costs relate to internal and external costs incurred in respect of the infrastructure of the website platform and ERP
system; the impairment charge in the period relates wholly to capitalised website platform costs. Assets under construction at 31
December 2019 relate to internal costs incurred for the development of ERP software for internal use where the asset is expected to
go live in 2020.
The carrying value of intangible assets has been reviewed by management at the year-end date for potential impairment
and an impairment charge recognised totalling £594,724 (2018: £nil) relating to capitalised website platform costs following the
decision to transition to a new front-end platform to support the Group’s DTC websites.
11
Inventories
Finished goods
2019
£
2018
£
1,574,648
1,127,876
There was no write-down of inventories to net realisable value in the year (2018: £nil). Included within inventories is £401,998
expected to be recovered in more than 12 months from the statement of financial position date. This balance of inventory is fully
provided for within the Group’s slow-moving inventory provision of £401,998 (2018: £551,580). Inventory days were 51 days in 2019
(2018: 25 days). Finished goods recognised in cost of sales in the year amounted to £11,176,905 (2018: £16,358,170).
12
Trade and other receivables
Trade receivables
Other receivables
Prepayments
Other current assets
2019
£
676,537
447,051
784,083
729,979
2018
£
1,815,260
1,124,112
1,320,555
366,823
2,637,650
4,626,750
The average credit period offered on sales of goods during 2019 was 32 days (2018: 27 days). The average days sales outstanding
(‘‘DSO’’) in 2019 was 38 days (2018: 82 days). At 31 December 2019, trade receivables at a nominal value of £3,481 (2018: £35,681)
were impaired and fully provided for.
All trade and other receivables are short-term. The directors consider that the carrying amount of trade receivables
approximates to their fair value. All trade and other receivables have been reviewed for indications of impairment.
Trade receivables represent amounts due from wholesale and retail customers.
The Group has not charged interest for late payment of invoices in the current year or prior period.
Allowances against doubtful debts are estimated by reference to expected credit losses based on the probability of default
(using past default experience with that customer and alongside analysis of the counterparty’s current financial position where
specific credit risk is known), risk exposure (being the value of receivables outstanding with that customer) and finally a percentage
representative of the loss due to default.
Before accepting any significant new customer, the Group uses a variety of credit scoring systems to assess the potential
customer’s credit quality and to define credit limits for each customer. Limits and scoring attributed to customers are reviewed
regularly.
Four major retail customers each accounted for more than 10% of the total balance of trade receivables on 31 December
2019, an increase from 2018 where three major retail customers each accounted for more than 10% of the total balance of trade
receivables on 31 December 2018.
Not overdue
Overdue between 0-30 days
Overdue between 31-60 days
Overdue between 61-90 days
Overdue over 90 days
2019
£
277,934
21,493
245,198
131,912
-
2018
£
1,177,698
382,274
56,070
73,634
125,584
676,537
1,815,260
notes to the financial statements continued
71
12
Trade and other receivables (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
diverse.
13
Cash and cash equivalents
Cash and cash equivalents
7,988,769
6,031,936
2019
£
2018
£
At 31 December 2019, the Group had an available £3,250,000 credit card facility.
14
Trade and other payables
Trade payables
Non–trade payables and accrued expenses
Deferred revenue
Taxes and social security payable
2019
£
2,430,596
649,995
573,082
329,501
2018
£
1,794,802
1,691,425
538,447
537,118
3,983,174
4,561,792
All trade and other payables are short-term. The directors consider that the carrying amount of trade and other payables
approximates to their fair value. Deferred revenue represents contractual liabilities to deliver goods to customers where
consideration has been received prior to the year-end date. The opening balance of deferred revenue was fully recognised
during the 2019 financial year.
15
Provisions
Balance at 1 January 2018
Refunds
£
826,702
Warranty
£
-
Total
£
826,702
Provisions made during the year
11,647,815
163,832
11,811,647
Provisions used during the year
(11,620,290)
Prior year under/(over) provision recognised in year
Balance at 31 December 2018
Provisions made during the year
Provisions used during the year
Prior year under/(over) provision recognised in year
Balance at 31 December 2019
(62,110)
792,117
7,869,078
(8,116,237)
22,728
567,686
-
-
163,832
73,574
(36,127)
-
201,279
(11,620,290)
(62,110)
955,949
7,942,652
(8,152,364)
22,728
768,965
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 (as considered in
note 2.19).
72
notes to the financial statements continued
15
Provisions (continued)
A warranty provision is required as the Group provides certain products to customers with a 10-year warranty period.
During this period the customer is entitled to claim under warranty a replacement product. The provision is calculated by
reference to the rate of successful claims experienced by the Group in preceding periods and applying a projected distribution of the
claims across the 10-year warranty period. Whilst there is a degree of estimation in the calculation of this provision, any reasonable
sensitivity analysis in the rate applied to claims at the year-end would not result in a material impact (as considered in note 2.19).
16
Share capital
Allotted, issued and fully paid:
Number
Nominal Value
£
31 December 2019
£
31 December 2018
£
Ordinary Shares
263,444,823
£0.001
Total
263,445
263,445
139,735
139,735
The table below summarises the movements in number of shares at the beginning and end of the period:
Ordinary Shares
Share capital 31 December 2018
139,735,161
Nominal Value £
Value of Share Capital £
Summary of Movements
£0.001
£139,735
Issue of shares
122,939,599
Exercise of share options over ordinary shares
770,063
Share capital 31 December 2019
263,444,823
Nominal Value £
Value of Share capital £
£0.001
£263,445
The holders of Ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share
at meetings of the Company.
During 2019, 122,939,599 shares were issued and 770,063 share options were exercised bringing the total share capital of
the Company to 263,444,823 at 31 December 2019.
17
Share–based payments
The Group recognised a charge of £1.1m (2018: £0.3m) related to share-based payments during the year to 31 December 2019, all of
which relates to equity-settled schemes and are presented within administrative expenses.
The charge is made up of two components: share-based payment charges connected with employee remuneration totalling
£0.5m and, share-based payment charges relating to the equity settlement of liabilities due to Channel 4 totalling £0.6m, of which
£0.3m were satisfied with the issue of share capital during the period. At 31 December 2019, the Group benefits from £0.3m in
available marketing credits with Channel 4 for future marketing expenditure.
The Company issues equity-settled share-based payments to certain employees, whereby employees render services in
exchange for shares or rights over shares of the parent company. Equity-settled awards are measured at fair value at the date of
grant. The fair value is calculated using an appropriate option pricing model and is expensed to the consolidated statement of profit
and loss on a straight-line basis over the vesting period after allowing for an estimate of shares that will ultimately vest.
notes to the financial statements continued
73
17
Share-based payments (continued)
The Company operates an HMRC approved executive management incentive plan (EMI). The vesting conditions are based on length
of service with typically 25% of the options vesting on or after the 12-month anniversary of the employee’s start after which vesting
occurs in equal monthly tranches so that options vest in full on the 48-month anniversary of the employee’s start date. All options
are equity settled.
The terms and conditions of the grants are as follows:
Grant Date
Number of
Contracts
Number of Options
Exercise
Price
Performance Conditions
Expiry Date
16/01/2017
16/01/2017
23/01/2017
25/01/2017
20/02/2017
10/04/2017
12/05/2017
01/04/2019
23/05/2019
17/12/2019
13
3
3
22
1
1
18
15
1
4
14,017,897
£0.001
Length of service
16/01/2027
4,653,841
56,626
1,289,236
18,825
251,000
2,222,731
7,004,814
4,400,000
6,850,000
£0.001
£0.001
£0.001
£0.001
£0.001
£1.012
£0.001
£0.001
£0.001
Performance Based
16/01/2027
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
23/01/2027
25/01/2027
20/02/2027
10/04/2027
12/05/2027
01/04/2029
Length of service
23/05/2029
Length of service
17/12/2029
The Company operates an unapproved executive incentive plan. The vesting conditions for grants made on 12 May 2017 and during
2018 are based on length of service with 100% of the options vesting on 36-month anniversary of the employee’s start date. The
remaining options have vesting conditions based on length of service with typically 25% of the options vesting on or after the
12-month anniversary of the employee’s start date after which vesting occurs in equal monthly tranches so that options vest in full
on the 48-month anniversary of the employee’s start date. All options are equity settled.
The terms and conditions of the grants are as follows:
Grant Date
Number of
Contracts
Number of Options
Exercise
Price
Performance Conditions
Expiry Date
13/07/2015
01/01/2016
01/02/2016
26/01/2016
12/05/2017
12/10/2017
20/10/2017
16/01/2018
17/01/2018
02/02/2018
05/02/2018
11/02/2018
01/04/2019
1
1
1
1
6
1
1
1
1
1
1
1
2
132,905
49,447
224,269
12,550
991,798
23,939
23,833
20,000
100,000
15,000
87,500
20,000
£0.001
£0.001
£0.001
£0.001
£1.012
£0.001
£0.001
£1.01
£1.01
£1.01
£1.01
£1.01
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
Length of service
531,600
£0.001
Length of service
13/07/2025
01/01/2026
01/02/2026
26/01/2026
12/05/2027
12/10/2027
20/10/2027
16/01/2028
17/01/2028
02/02/2028
05/02/2028
11/02/2028
01/04/2029
74
notes to the financial statements continued
17
Share-based payments (continued)
The number and weighted average exercise prices of share options are as follows:
Outstanding at beginning of year
Granted during the year
Forfeited during the year
Exercised during the year
Lapsed during the year
Cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
Weighted Average
Exercise Price
£
Number of Options
£0.613
£0.001
£0.179
£0.001
£0.001
£1.012
£0.001
£0.001
3,203,153
18,786,413
(2,531,217)
(770,063)
(165,687)
(1,491,686)
17,030,913
3,166,892
All options exercised during the year were options over Ordinary shares.
The weighted average share price at the date of exercise of share options exercised during the year was 6.37p
(2018: 80.03p.)
The options outstanding at the end of the year have an exercise price in the range of £0.001 and a weighted average
contractual life of 10 years.
The fair value of employee share options is measured using a Black-Scholes model. Measurement inputs and assumptions
for those share options granted during 2019 are as follows:
Share class
Fair Value
Award
01/04/19
£
Award
23/05/19
£
Award
17/12/19
£
Ord
£0.07
Ord
£0.06
Ord
£0.02
Exercise Price
£0.001
£0.001
£0.001
Expected volatility*
Option Life
82%
10yrs
83%
10yrs
84%
10yrs
Risk free interest rate
1.000%
1.000%
1.000%
* Expected volatility is measured at the standard deviation of expected share price movements and based on a review of volatility
used by listed companies of comparable industry sector and years of establishment.
notes to the financial statements continued
75
18
Earnings per share
The basic earnings per share is calculated by dividing the net profit attributable to equity holders of the Group by the weighted
average number of ordinary shares in issue during the year.
Weighted average shares in issue
Loss attributable to the owners of the parent company
Basic loss per share (pence)
Diluted loss per share (pence)
2019
246,739,240
(12,136,930)
(4.92)
(4.92)
2018
139,087,779
(20,106,411)
(14.46)
(14.46)
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 2019, options outstanding amounted to 17,030,913. Given the loss for the year of £12,136,930 (2018 loss:
£20,106,411) these options are anti-dilutive.
19
Financial instruments
Categories of financial instruments:
Financial assets at amortised cost
2019
£
2018
£
Cash and cash equivalents, trade receivables and other receivables
9,842,336
9,338,130
Financial liabilities at amortised cost
Trade payables, other payables and provisions
(4,179,058)
(4,979,295)
76
notes to the financial statements continued
19
Financial instruments (continued)
‘Financial assets held at amortised cost’ includes trade receivables, other receivables (including accrued income) and cash and
cash equivalents and excludes prepayments and inventories. Included in ‘Financial liabilities at amortised cost’ are trade payables,
accruals and other payables (albeit excluding deferred income). The carrying value 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 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. Allowances against doubtful debts are estimated by reference to
expected credit losses based on the probability of default. 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.
The ageing of trade receivables at the statement of financial position date was:
Not overdue
Overdue between 0-30 days
Overdue between 31-60 days
Overdue between 61-90 days
Overdue over 90 days
Total
2019
£
277,934
21,493
245,198
131,912
-
2018
£
1,177,698
382,274
56,070
73,634
125,584
676,537
1,815,260
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.
notes to the financial statements continued
77
19
Financial instruments (continued)
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 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.
Sterling
£
Euro
£
US Dollar
£
Other
£
Total
£
Statement of financial
position exposure
Cash and cash equivalents
6,760,881
1,171,012
54,990
1,886
7,988,769
Trade receivables
494,991
181,546
Other receivables
263,091
183,960
Other current assets
729,979
-
-
-
-
-
-
-
676,537
447,051
729,979
Trade payables
(2,034,133)
(395,055)
(1,448)
40
(2,430,596)
Taxes and social security payables
(233,044)
(23,146)
-
(73,311)
(329,501)
Non-trade payables and accrued
expenses
(434,742)
(204,516)
(10,737)
Provisions
Total
(670,269)
(98,696)
-
4,876,754
815,105
42,805
(71,385)
5,663,279
-
-
(649,995)
(768,965)
Foreign currency sensitivity
The Group’s principal financial instrument foreign currency exposures are to Euros. The Group have considered the sensitivity of the
Group’s reported loss before tax and closing equity to a 10% increase and decrease in the value of this currency 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.
A 10% percent strengthening of these currencies against Sterling at 31 December 2019 would have decreased the Group loss
by 0.71% and an immaterial absolute value. This calculation assumes that the change occurred at the statement of financial position
date and had been applied to risk exposures existing at that date.
20
Contingencies
There were no contingent liabilities to be disclosed (2018: £nil).
Related parties
21
Key management compensation (considered to be the Directors of eve Sleep PLC) disclosures can be found in
Note 6 and on pages 41 to 42 of the Director’s remuneration report.
78
notes to the financial statements continued
22
Commitments
There were no commitments in the year (2018: £nil).
23
Leases
The Group commenced the lease of its registered office at 29A Kentish Town Road, London, NW1 8NL on 1 August 2019.
Excluding the short-term lease discussed below, this is the only lease reflected on the statement of financial position as a
right-of-use asset and a lease liability.
The Group classifies its right-of-use asset in a consistent manner to its property, plant and equipment as an Office
Building.
Based on the fact that the lease of 29A Kentish Town Road is restricted from further sub-leasing and has a lease
term of 24-months with a break clause after 18-months, management have calculated the interest payable on the lease
liability over the shorter time horizon as there was no certainty that the break clause effective 31 January 2021 would not be
made use of at the date of lease inception, and upon review at the statement of financial position date.
The terms of the lease at 29A Kentish Town Road, London, NW1 8NL do not include variable lease payments
therefore management have not been required to consider the impact of such payments.
The Group has elected to take advantage of the short-term lease exemption for lease assets and lease liabilities
where a lease term ends within 12 months of the date of initial application of IFRS 16. The Group’s lease of the former
registered office at 128 Albert Street, London, NW1 7NE, a lease term which ceased on 17 August 2019, fell within the
definition of a short-term lease exemption and therefore payments made under such leases have been expensed to the
statement of profit and loss on a straight-line basis. During the year £424,266 was recognised as an expense in the statement
of profit and loss in respect of the lease of the Group’s former registered office at 128 Albert Street, London, NW1 7NE.
At 31 December 2019, the Group had no further commitments to short-term leases.
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Total
Right-of-use-asset
2019
£
-
-
-
-
2018
£
459,536
-
-
459,536
Additional information on the right-of-use assets by class of assets is as follows:
Asset
Carrying
amount
Additions
Depreciation
Impairment
Office Building
716,623
518,575
716,623
Total
716,623
518,575
716,623
198,048
198,048
-
-
The right-of-use assets are included in the same line item as where the corresponding underlying assets would be presented
if they were owned.
Lease liability
Lease liabilities are presented in the statement of financial position as follows:
Current
Non-Current
Total
31 December 2019
31 December 2018
470,391
40,000
510,391
-
-
-
notes to the financial statements continued
79
24
Reconciliation of liabilities arising from financing activities
31
December
2018
Cash flows
Non-cash changes:
Additions
31 December 2019
Lease liabilities
Total
-
-
(200,000)
710,391
(200,000)
710,391
510,391
510,391
31
December
2017
Cash flows
Non-cash changes:
Additions
31 December 2018
Lease liabilities
Total
-
-
-
-
-
-
-
-
25
Change in significant accounting policies
The Group has adopted the new accounting pronouncements which have become effective this year, and are as follows:
IFRS 16 Leases
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether an
Arrangement contains a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions
Involving the Legal Form of a Lease’).
On transition to IFRS 16, the Group’s lease previously accounted for as an operating lease, namely the Group’s
former registered office at 128 Albert Street, London, NW1 7NE, with a remaining lease term of less than 12 months and
for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to
account for the lease expense on a straight-line basis over the remaining lease term.
For this reason, the cumulative impact of adopting IFRS 16 has not required an adjustment to the opening
balance of retained earnings for the current period and prior periods have not been restated.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised
under IFRS 16 was 3.75% per annum.
The Group has benefited from the use of hindsight for determining the lease term when considering options to
extend and terminate leases.
26
Subsequent events
The worldwide outbreak of the COVID–19 virus represents a significant event since the end of the financial period. In
light of the impact of the virus upon supply chain and consumer demand, the Group has reviewed its cash flow forecasts
and considered the impact on going concern, concluding that the going concern basis remains an appropriate basis of
preparation for these financial statements given the likely cash flow impact of operations 12 months from the date of
signing this report. Please refer to note 2.4 for further detail on the Group’s going concern basis of preparation.
COVID-19 is considered to be a non-adjusting post balance sheet event and therefore has not been taken into
account in preparing the statement of financial position as at 31 December 2019.
80
company statement of financial position
at 31 December 2019
81
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Current assets
Inventories
Trade and other receivables
Current tax receivable
Cash and cash equivalents
Total assets
Non-current liabilities
Lease liabilities
Current liabilities
Trade and other payables
Provisions
Lease liabilities
Total liabilities
Net assets
Note
4
5
6
7
8
9
18
10
11
18
2019
£
518,575
344,456
1,669
864,700
1,574,648
3,100,528
354,466
7,231,061
2018
£
-
669,742
1,669
671,411
870,011
5,499,057
193,192
5,055,952
12,260,703
11,618,212
13,125,403
12,289,623
40,000
-
3,823,970
670,269
470,391
4,349,059
845,824
-
4,964,630
5,194,883
5,004,630
5,194,883
8,120,773
7,094,740
Equity attributable to equity holders of the parent
Share capital
Share premium
12
263,445
139,735
48,887,392
36,716,371
Share-based payment reserve
998,495
250,073
Retained earnings
Total Equity
(42,028,559)
(30,011,439)
8,120,773
7,094,740
Notes 1 to 19 form part of the historical financial information shown above. The loss for the year was £12,117,866.
These financial statements were approved by the board of directors on eve Sleep PLC and were signed on its behalf by:
Tim Parfitt
Director
23 March 2020
Company registered number:
09261636
82
company statement of cash flows
for the year ended 31 December 2019
Cash flows from operating activities
Loss for the year
Adjustments for
Depreciation
Amortisation
Impairment
Interest payable
(Increase)/decrease in trade and other receivables
(Increase)/decrease in inventories
Increase/(decrease) in trade and other payables
Increase/(decrease) in provisions
Share-based payment charge
Note
2019
£
2018
£
(12,117,866)
(20,264,926)
198,048
263,046
594,724
9,144
2,237,255
(704,636)
(525,089)
(175,556)
1,111,396
-
120,571
39,608
-
(855,235)
(280,668)
37,847
158,697
303,281
Net cash outflow from operating activities
(9,109,534)
(20,740,825)
Cash flows from investing activities
Additions to property, plant and equipment
Additions to intangible assets
Right of use asset initial direct costs
-
(532,484)
(15,375)
(3,150)
(411,775)
-
Net cash outflow from investing activities
(547,859)
(414,925)
Cash flows from financing activities
Proceeds from issue of share capital
12,032,502
Repayment of capital element of finance lease rentals
19
(200,000)
Net cash inflow from financing activities
11,832,502
1,104
-
1,104
Net cash inflow/(outflow)
2,175,109
(21,154,646)
Cash at beginning of year
Movement in cash
Cash at end of year
5,055,952
2,175,109
7,231,061
26,210,595
(21,154,646)
5,055,952
83
company statement of changes in equity
for the year ended 31 December 2019
Share Capital
£
Share Premium
£
Share-based
payment
reserve
£
Retained
Earnings
£
Total Equity
£
For the year ended 31 December 2019
Balance at 1 January 2019
139,735
36,716,371
250,073
(30,011,440)
7,094,739
Issue of shares
Exercise of options
Share-based payment charge
Transfer on exercise of options
120,317
11,911,415
770
-
-
-
-
-
-
-
1,111,396
-
-
-
(100,747)
100,747
Transfer on issue of share capital in exchange for
marketing services
2,622
259,605
(262,227)
-
12,031,732
770
1,111,396
-
-
Transactions with owners
123,710
12,171,020
748,422
100,747
13,143,898
Loss for the year
-
-
-
(12,117,866)
(12,117,866)
Balance at 31 December 2019
263,445
48,887,392
998,495
(42,028,559)
8,120,773
For the year ended 31 December 2018
Balance at 1 January 2018
138,631
36,716,371
138,794
(9,938,516)
27,055,280
Exercise of options
Share-based payment charge
Transfer on exercise of options
Transactions with owners
Loss for the year
1,104
-
-
1,104
-
-
-
-
-
-
-
303,281
-
-
1,104
303,281
(192,003)
192,003
-
111,279
192,003
304,385
-
(20,264,926)
(20,264,926)
Balance at 31 December 2018
139,735
36,716,371
250,073
(30,011,440)
7,094,739
84
notes to the company financial statements
1
Accounting policies
All accounting policies of the Group relevant to the Company are applied by the Company in preparing its financial statements. The
Company additionally applies the following accounting policy:
1.1
Investment in subsidiaries
These investments are held at cost less impairment.
2
Loss for the year
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 £12,117,866 (2018: £20,264,926 loss).
3
Directors’ remuneration
The Company shares the same directors as the Group. Please find Directors’ remuneration disclosed in note 6 of the Group financial
statements.
notes to the company financial statements continued
85
4
Property, plant and equipment
Right of use asset
£
Plant and equipment
£
Fixtures & fittings
£
Total
£
Cost
Balance at 1 January 2018
Additions
Balance at 31 December 2018
Additions
Balance at 31 December 2019
Depreciation and Impairment
Balance at 1 January 2018
Depreciation charge for the year
Impairment charge for the year
Balance at 31 December 2018
Depreciation charge for the year
Impairment charge for the year
Balance at 31 December 2019
Net Book Value
At 31 December 2018
At 31 December 2019
5
Intangible assets
Cost
Balance at 1 January 2018
Additions - internally generated
Additions - externally generated
Transfers
Balance at 31 December 2018
Acquisitions - internally generated
Additions - externally generated
Transfers
Balance at 31 December 2019
Amortisation and Impairment
Balance at 1 January 2018
Amortisation for the year
Impairment for the year
Balance at 1 January 2018
Amortisation for the year
Impairment for the year
Balance at 31 December 2019
Net Book Value
At 31 December 2018
At 31 December 2019
-
-
-
716,623
716,623
-
-
-
-
198,048
-
198,048
-
518,575
7,326
3,150
10,476
-
10,476
7,326
-
3,150
10,476
-
-
39,724
-
39,724
-
39,724
3,266
-
36,458
39,724
-
-
47,050
3,150
50,200
716,623
766,823
10,592
-
39,608
50,200
198,048
-
10,476
39,724
248,248
-
-
-
-
-
518,575
Development costs
£
Assets under construction
£
Total
£
282,940
-
-
105,030
387,970
-
-
747,553
1,135,523
-
120,571
-
120,571
263,046
526,954
910,571
267,399
224,952
95,598
168,833
242,942
(105,030)
402,343
310,573
221,912
(747,553)
187,274
-
-
-
-
-
67,770
67,770
402,343
119,504
378,538
168,833
242,942
-
790,313
310,573
221,912
-
1,322,797
-
120,571
-
120,571
263,046
594,724
978,341
669,742
344,456
86
notes to the company financial statements continued
5
Intangible assets (continued)
Development costs relate to internal and external costs incurred in respect of the infrastructure of the website platform and
ERP system. Assets under construction at 31 December 2019 relate to internal costs incurred for the development of ERP
software for internal use where the asset is expected to go live in 2020.
The carrying value of intangible assets has been reviewed by management at the year-end date for potential
impairment and an impairment charge recognised totalling £594,724 (2018: £nil) relating to capitalised website platform
costs following the decision to transition to a new front-end platform to support the Company’s DTC websites.
6
Investments
The company has the following investments in subsidiaries:
Principal place
of business/
Registered office
address
185 W. Broadway,
Suite 101, PO Box
1150, Jackson, USA
5 Rue Des Suisses,
75014, Paris
Company:
eve sleep Inc
eve sleep SASU
Registered Number
Type of share
Ownership
2019
Ownership
2018
EIN 47-4164566
Ordinary
823397419 R.C.S Paris
Ordinary
100%
100%
100%
100%
All 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. Following the decision of July 2018 for the
Group to exit the US market, eve Sleep Inc was a non-trading entity during 2019.
7
Inventories
Finished goods
2019
£
2018
£
1,574,648
870,012
There was no write-down of inventories to net realisable value in the year (2018: £nil). Included within inventories is £401,998
expected to be recovered in more than 12 months from the statement of financial position date. This balance of inventory is fully
provided for within the Company’s slow-moving inventory provision of £401,998 (2018: £551,580). Inventory days were 71 days in
2019 (2018: 25 days). Finished goods recognised in cost of sales in the year amounted to £11,176,905 (2018: £16,358,170).
8
Trade and other receivables
Trade receivables
Other receivables
Receivables from subsidiary undertakings
Other current assets
Prepayments
Total
2019
£
494,991
443,577
650,048
729,979
781,933
2018
£
1,794,871
1,001,937
1,027,915
366,823
1,307,511
3,100,528
5,499,057
As at 31 December 2019, receivables from subsidiary undertakings of £0.7m (2018: £1.0m) have been considered in light of IFRS 9 and
expected credit losses arising were not considered material by management and no allowance has been recognised on this basis. The
ageing analysis of these receivables is as follows:
Less than 12 months
More than 12 months
Total
2019
£
2018
£
650,048
1,027,915
-
-
650,048
1,027,915
87
notes to the company financial statements continued
8
Trade and other receivables (continued)
The average credit period offered on sales of goods during 2019 was 26 days (2018: 26 days). The average days sales outstanding
(‘‘DSO’’) in 2019 was 32 days (2018: 88 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.
The Company has not charged interest for late payment of invoices in the current year or prior period.
Allowances against doubtful debts are estimated by reference to expected credit losses based on the probability of default
(using past default experience with that customer and alongside analysis of the counterparty’s current financial position where
specific credit risk is known), risk exposure (being the value of receivables outstanding with that customer) and finally a percentage
representative of the loss due to default.
Before accepting any significant new customer, the Company 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.
Three major retail customers each accounted for more than 10% of the total balance of trade receivables on 31 December
2019, comparable to 2018 when three major retail customers each accounted for more than 10% of the total balance of trade
receivables.
Not overdue
Overdue between 0-30 days
Overdue between 31-60 days
Overdue between 61-90 days
Overdue over 90 days
Total
2019
£
277,934
-
85,624
131,433
-
2018
£
1,161,596
377,985
56,070
73,634
125,586
494,991
1,794,871
In determining the recoverability of a trade receivable the Company 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.
9
Cash and cash equivalents
Cash and cash equivalents per statement of financial position
7,231,061
5,055,952
2019
£
2018
£
88
notes to the company financial statements continued
10
Trade and other payables
Trade payables
Non-trade payables and accrued expenses
Deferred revenue
Taxes and social security payable
2019
£
2,411,997
559,148
544,478
308,347
2018
£
1,740,634
1,322,691
408,406
877,328
3,823,970
4,349,059
All trade and other payables are short-term. The directors consider that the carrying amount of trade and other payables
approximates to their fair value. Deferred revenue represents contract liabilities to deliver goods to customers where consideration
has been received prior to the year-end date. The opening balance of deferred revenue was fully recognised during the 2019
financial year.
11
Provisions
Balance at 1 January 2018
Refunds
£
687,127
Warranty
£
Total
£
-
687,127
Provisions made during the year
9,924,452
142,351
10,066,803
Provisions used during the year
(9,844,534)
Prior year under/(over) provision recognised in year
(63,572)
-
-
(9,844,534)
(63,572)
Balance at 31 December 2018
703,473
142,351
845,824
Provisions made during the year
7,286,602
43,129
7,329,731
Provisions used during the year
(7,510,509)
(28,289)
(7,538,798)
Prior year under/(over) provision recognised in year
33,512
-
33,512
Balance at 31 December 2019
513,078
157,191
670,269
A refund provision is required as the Company 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 Company in preceding periods and the level of sales subject to the relevant trial periods of
each product at the year end. An analysis of the rate of return over historical periods does not indicate a significant variation in the
rate of refunds provided to customers and accordingly, whilst there is a degree of estimation in the calculation of this provision, any
reasonable sensitivity analysis in the rate applied to sales at the year-end would not result in a material impact.
A warranty provision is required as the Company provides certain products to customers with a 10-year warranty period.
During this period the customer is entitled to claim under warranty a replacement product. The provision is calculated by
reference to the rate of successful claims experienced by the Company in preceding periods and applying a projected distribution
of the claims across the 10-year warranty period. Whilst there is a degree of estimation in the calculation of this provision, any
reasonable sensitivity analysis in the rate applied to claims at the year-end would not result in a material impact.
notes to the company financial statements continued
89
12
Share capital
Allotted, issued and fully paid:
Number
Nominal Value
£
31 December 2019
£
31 December 2018
£
Ordinary Shares
263,444,823
£0.001
Total
263,445
263,445
139,735
139,735
The table below summarises the movements in number of shares at the beginning and end of the period:
Ordinary
Shares
Share capital 31 December 2018
139,735,161
Nominal Value £
Value of Share capital £
Summary of Movements
£0.001
139,735
Issue of shares
122,939,599
Exercise of share options over ordinary shares
770,063
Share capital 31 December 2019
263,444,823
Nominal Value £
Value of Share capital £
£0.001
£263,445
13
Financial instruments
Categories of financial instruments:
Financial Assets
2019
£
2018
£
Cash and cash equivalents, trade receivables, other receivables and
other current assets
9,367,754
9,247,498
Financial Liabilities
Trade payables, taxes and social security payables, non-trade payables,
accrued expenses and provisions
(3,949,762)
(4,786,477)
‘Financial assets held at amortised cost’ include trade receivables, other receivables (including accrued income) and
cash and cash equivalents and excludes prepayments and inventories. ‘Financial liabilities held at amortised cost’
include trade payables, accruals and other payables and excludes deferred income. The carrying value of financial
assets and liabilities approximates their fair value.
90
notes to the company financial statements continued
13
Financial instruments (continued)
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.
Capital risk
The Company’s objectives when managing capital (defined as equity attributable to owners of the parent) are to safeguard the
Company’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 Company
makes adjustments to its capital structure in light of changes to economic conditions and the Company’s strategic objectives.
Credit risk
Credit risk is the risk that a counterparty may default on its obligation to the Company in relation to lending, hedging, settlement
and other financial activities. The Company’s principal financial assets are trade and other receivables, bank balances, and cash 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. Allowances against doubtful debts are estimated by reference
to expected credit losses based on the probability of default. The 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 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.
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.
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 are to Euros. The Group have considered the sensitivity
of the Company’s reported loss before tax and closing equity to a 10% increase and decrease in the value of this currency 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.
A 10% percent strengthening of these currencies against Sterling at 31 December 2019 would have decreased the Company
loss by 0.21% and an immaterial absolute value. This calculation assumes that the change occurred at the statement of financial
position date and had been applied to risk exposures existing at that date.
14
Related parties
Key management compensation (considered to be the Directors of eve Sleep PLC) disclosures can be found in Note 6 of the Group
accounts and on pages 41 and 42 of the Director’s report.
15
Commitments
There were no commitments in the year (2018: £nil).
notes to the company financial statements continued
91
16
Change in significant accounting policies
The Company has adopted the new accounting pronouncements which have become effective this year, and are as follows
IFRS 16 ‘Leases’
IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations (IFRIC 4 ‘Determining whether an Arrangement contains
a Lease’, SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the Substance of Transactions Involving the Legal Form of a
Lease’).
On transition to IFRS 16, the Group’s lease previously accounted for as an operating lease, namely the Group’s former
registered office at 128 Albert Street, London, NW1 7NE, with a remaining lease term of less than 12 months and for leases of low-
value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense
on a straight-line basis over the remaining lease term.
For this reason, the cumulative impact of adopting IFRS 16 has not required an adjustment to the opening balance of
retained earnings for the current period and prior periods have not been restated.
On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS
16 was 3.75% per annum.
The Company has benefited from the use of hindsight for determining the lease term when considering options to extend
and terminate leases.
17
Subsequent events
The worldwide outbreak of the COVID–19 virus represents a significant event since the end of the financial period. In light of the
impact of the virus upon supply chain and consumer demand, the Company has reviewed its cash flow forecasts and considered the
impact on going concern, concluding that the going concern basis remains an appropriate basis of preparation for these financial
statements given the likely cash flow impact of operations 12 months from the date of signing this report. Please refer to note 2.4 of
the Group financial statements for further detail on the Company’s going concern basis of preparation.
COVID-19 is considered to be a non-adjusting post balance sheet event and therefore has not been taken into account in
preparing the statement of financial position as at 31 December 2019.
18
Leases
The Company commenced the lease of its registered office at 29A Kentish Town Road, London, NW1 8NL on 1 August 2019. Excluding
the short-term lease discussed below, this is the only lease reflected on the statement of financial position as a right-of-use asset and
a lease liability.
The Company classifies its right-of-use asset in a consistent manner to its property, plant and equipment as an Office
Building.
Based on the fact that the lease of 29A Kentish Town Road is restricted from further sub-leasing and has a lease term of
24-months with a break clause after 18-months, management have calculated the interest payable on the lease liability over the
shorter time horizon as there was no certainty that the break clause effective 31 January 2021 would not be made use of at the date of
lease inception, and upon review at the statement of financial position date.
The terms of the lease at 29A Kentish Town Road, London, NW1 8NL do not include variable lease payments therefore
management have not been required to consider the impact of such payments.
The Company has elected to take advantage of the short-term lease exemption for lease assets and lease liabilities where
a lease term ends within 12 months of the date of initial application of IFRS 16. The Company’s lease of the former registered office
at 128 Albert Street, London, NW1 7NE, a lease term which ceased on 17 August 2019, fell within the definition of a short-term lease
exemption and therefore payments made under such leases have been expensed to the statement of profit and loss on a straight-
line basis. During the year £424,266 was recognised as an expense in the statement of profit and loss in respect of the lease of the
Company’s former registered office at 128 Albert Street, London, NW1 7NE.
At 31 December 2019, the Company had no further commitments to short-term leases.
92
notes to the company financial statements continued
18
Leases (continued)
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
Total
2019
£
-
-
-
-
2018
£
459,536
-
-
459,536
Right-of-use asset
Additional information on the right-of-use assets by class of assets is as follows:
Asset
Carrying amount
Additions
Depreciation
Impairment
Office Building
Total
716,623
716,623
518,575
518,575
716,623
716,623
198,048
198,048
-
-
The right-of-use assets are included in the same line item as where the corresponding underlying assets would be presented if they
were owned.
Lease liability
Lease liabilities are presented in the statement of financial position as follows:
31 December 2019
31 December 2018
Current
Non-current
Total
470,391
40,000
510,391
-
-
-
19
Reconciliation of liabilities arising from financing activities
31
December
2018
Cash flows
Non-cash changes:
Additions
31 December 2019
Lease liabilities
Total
-
-
(200,000)
710,391
(200,000)
710,391
510,391
510,391
31
December
2017
Cash flows
Non-cash changes:
Additions
31 December 2018
Lease liabilities
Total
-
-
-
-
-
-
-
-
every great day
starts the night before