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Eve Sleep plc: Final Results

Eve Sleep plc (EVE)
24-March-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.

eve Sleep plc ("eve" the "Company" or the "Group")

 

Full Year Results

 

Benefits of rebuild strategy increasingly evident, operationally profitable 4 across last four months of 2019

e ve, a direct-to-consumer sleep wellness brand operating in the UK, Ireland (together the "UK&I") and France, its "Core Markets", today issues its audited results for the year ended 31 December 2019 (the "Period").

Financial Highlights 1

 

 

2019 £m

2018 £m

Movement

Revenue 2

23.9

29.4

-19%

Gross profit 2

12.8

15.5

-18%

Gross profit margin 2

53.4%

52.7%

+70 bps

Marketing contribution 2,3,4

(2.6)

(5.8)

+£3.2m

Underlying EBITDA loss 5

(10.7)

(19.1)

+£8.5m

Statutory loss for the year

(12.1)

(20.1)

+£8.0m

C ash and cash equivalents 6

8.0

6. 0

2 . 0 m

 

Financial Highlights

 

  • Sharpened focus on profitable sales, with gross margin in Core Markets 2 up 70bps;
  • Planned reduction in revenue and focus on move to profitability resulted in improved underlying EBITDA loss, which reduced by 44% to £10.7m (2018: £19.1m loss);
  • Reduced operating cash burn by 55%, with further cost savings made in Q4 such that the combined trading performance in the last four months of the financial year reached the milestone of marketing contribution breakeven 4 ;
  • Raised £11.7m net of expenses in new equity and £0.9m in advertising credits from Channel Four in February 2019.

 

Operational Highlights

  • 50% increase in UK&I unprompted brand awareness from 10% in January 2019 to 15% in August 2019;
  • Increased brand loyalty with the customer repeat rate in the UK&I up 230bps to 16.7% and up 360bps in France to 17.0%;
  • eve's premium hybrid mattress, launched June 2019, announced as the top scoring mattress by Which? in December 2019, giving eve's full adult mattress range Which? Best Buy ratings;
  • Extended ranges, with the contribution of non-mattress products in core markets up 230bps to 22.0%;
  • Extended omni-channel reach with new retail partnerships with Argos, Homebase and Dunelm;
  • Commenced 3 year deal with British Rowing to be their official sleep partner, supporting the GB Rowing Team as they train and compete at home and overseas;
  • Returns rate in core markets reduced 40bps to 8.9% .

 

Current trading

 

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 contribution 4 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. Over the last week, since mid-March, 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.

 

On 15 March, the Board took the decision to ensure all of the Company's employees were to work from home. The Company's employees are more than used to working from home as a result of a flexible working culture and as such we have not experienced any material issues or disruptions to the Company's operations as a result of this decision.

 

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.

 

James Sturrock, CEO of eve Sleep, commented:

"We enter 2020 in good shape, with the benefits of the rebuild strategy becoming increasingly evident. We have award winning products and an increasingly differentiated, premium brand position in sleep wellness compared to the more price led, mattress focused peers, underpinned by upgraded operational capability and a significantly reduced cost base. Improved financial and operational KPIs demonstrate increased customer loyalty across our expanding product suite.

I am delighted that in the six months to 29 February 2020 eve has improved marketing efficiency 7 and reduced central overheads and is on course to deliver a significant EBITDA improvement in 2020. While there remains considerable wider market uncertainty over the rest of the financial year, we have a healthy net cash position of £7.8m as at 29 February 2020 , no debt and a rebuild strategy that is delivering."

Footnotes

 

1 Financial data has been rounded for presentation purposes. As a result of this rounding the totals, comparatives and calculations presented in this document may vary slightly from the arithmetic totals or calculations using such data.

 

2 In July 2018, the Board reviewed the number of territories that eve traded from, deciding to focus on the "Core Markets" of the UK&I and France, and withdrawing from the other territories. Thus, this note presents revenue, gross profit, gross profit margin and marketing contribution attributable to the Core Markets for the current and prior period.

3 Indirect marketing costs, such as the costs of production of TV campaigns, were previously presented within overheads but are now included within marketing costs. 2018 marketing costs have been restated to include these indirect marketing costs. 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.

4 Marketing contribution is defined as the profit /loss after marketing expenditure but before payroll and overhead costs ; a measure also referred to as operational profitability.

5 Underlying EBITDA is defined 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).

 

6 In addition to the cash and cash equivalents balance of £8.0m at 31 December 2019, the Group also benefits from £0.3m in advertising credits outstanding with Channel 4, following £0.9m of credits raised at the fund raising in February 2019.

7 Marketing efficiency is defined as total reported marketing cost divided by the reported revenue for the specified segment, thus as the reported percentage falls marketing efficiency improves.

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014.

For further information, please contact:

 

eve Sleep plc

James Sturrock, Chief Executive Officer

Tim Parfitt, Chief Financial Officer

  via M7 Communications LTD

finnCap Limited (NOMAD and B roker)

Matt Goode / Hannah Boros (Corporate Finance)

Alice Lane / Manasa Patil (ECM)

+44(0)20 7220 0500

M7 Communications LTD

Mark Reed

+44(0) 7903 089 543

 

 

c hairman'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." - Paul Pindar

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 adult 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 Group gross profit margin improved from 52.8% to 53.1% reflecting margin prioritisation over revenue growth. Group underlying EBITDA losse s [1] 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 5 5 % 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.   

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 contribution [2] 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.

 

Paul Pindar

Chairman

23 March 2020

 

strategic report

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 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.   

 

chief executive's rep o rt

"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 Sturrock

introduction

In 2019 we completed the restructuring of the management team, made significant progress in professionalising internal operations, processes and reporting, optimised our supplier and logistics footprint, and significantly reduced the operating costs of the business. These things, alongside the progress of our customer facing rebuild strategy have significantly improved EBITDA results on the path to profitability and put eve on a steadier footing to deliver our plans for the long-term health of the business. We consider that headwinds in the competitor landscape and discounting pressure will continue, but the premium positioning of the brand and the work we have completed to create a stable and lean platform, along with a healthy cash balance, will aid the execution against our plans in order to succeed in the future.

The first few months of my tenure, which commenced in September 2018, were spent evaluating the business and formulating what we refer to as the rebuild strategy. Although implementation of the rebuild strategy commenced in late 2018, work has continued throughout 2019 on effecting and embedding change and improvement throughout all areas of the business in order to attain our stated goal of profitability and positive cash generation in the near term. There is still much that can and will be done to drive further improvements and this work will continue through 2020 and beyond.

What is certain is that eve has closed out 2019 in a stronger position than it started the year. We have a broader, award-winning product range. Operational KPIs, including the customer repeat rate and the sale of non-mattress products improved during the year, while our financial performance strengthened considerably, evidenced by a reduction in administrative expenses excluding marketing costs, fundraise-related expenditure, depreciation, amortisation and impairment of 24%. We reduced our underlying EBITDA losses by 44% and trimmed our cash outflows from operating activities by 5 5 %, which is all the more pleasing given the challenging retail backdrop and ongoing price led competition in the mattress market. Our cash position has also improved, with a year-end net cash position of £8.0m plus £0.3m of advertising credits with Channel 4, compared with £6. 0 m as at 31 December 2018, owing to the fund raising in February 2019.

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 mattress in a box brands, where competition is largely price led, our strategy is to establish eve as a trusted go to destination for sleep wellness products. To achieve this we have been refocusing and aligning our marketing investment and communications on the benefits that eve can bring consumers in sleep wellness. This is best exemplified in the three-year partnership deal we signed in 2019 with British Rowing to be their official sleep partner. As part of the deal we will be managing the sleep environment of the GB Rowing Team athletes as they train and compete both at home and overseas.

During the first half of the year we ran existing marketing campaigns whilst testing new promotional strategies and channel mix, as well as carrying out analysis on a granular level of marketing return on investment. This supported the development of the new brand, communications and the creative strategy, which launched in the UK&I at the start of H2 2019 with the 'wake up dancing' campaign, featuring the eve sloth. The campaign has proved immensely successful, raising unprompted brand awareness by 50% to 15% between January 2019 and August 2019. It has also driven increased engagement with customers, so much so that in response to customer demand we have produced and sold circa. 6,000 soft toy eve sloths at the close of 2019.

In France, the investment and media strategy has been adapted to make better use of the peak sales periods, driving more efficient spend with an optimised creative strategy and revitalised positioning. This positioning, which launched with the 'reborn again each morning' (' renaissez chaque matin ') campaign in July 2019 is designed to elevate eve to be the premium brand in the nascent direct-to-consumer mattress category in France, premium mattress sales making up 44.9% of total mattress sales in December 2019.

The success of our marketing to date is demonstrated in our unprompted UK brand awareness, which has increased from 11.2% in November 2018 to approximately 15% at August 2019.

In addition to refocusing the positioning of our marketing, considerable effort has gone into improving marketing efficiency, including the development of a bespoke-built optimisation model. Subsequently, marketing investment has been substantially reviewed, with the removal of channels that were not generating a sufficient return, in line with our strategy of focusing on profitable sales and margin positive first orders. The success of this strategy is best evidenced in the efficiency of our marketing spend, which has improved in all three of our core markets in tandem with growing awareness.   In the UK&I marketing efficiency has improved from 54.1% in 2018 to 52.3% in 2019; marketing efficiency being defined as marketing expenditure as a percentage of revenue. This is the third successive year of improvement and we see scope to further reduce this percentage in 2020. In France, marketing efficiency improved from 82.9% in 2018 to 44.1% in 2019.

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, given its importance for the pathway to profitability.

expanded product range

In 2019 we stepped up new product development, building out a range of sleep products to complement our successful next generation foam mattress. Range expansion gives eve a clear trajectory to dominating the ecommerce sleep wellness space in our chosen markets and provides the opportunity to grow the frequency of customer purchases.

In the mattress category we launched the premium hybrid mattress, which received a Which? Best Buy rating, scoring the highest rating ahead of all competitor mattress es in the UK in December 2019. At the close of 2019, eve now has a suite of four mattress products sold via its DTC channel - the premium foam, the premium hybrid, the original foam and the hybrid, as well as the baby mattress.

The rate of new product development increased significantly in the period, with the launch of new bedframes and expanded ranges of bedding, pillows, sleep accessories and the baby category. Sales of bedframes, including two new storage bedframes, have performed particularly well.

The improvements in this pillar of the strategy are evident in our KPIs. In 2019 the customer repeat rate in the UK&I grew 230bps to 16.7% and in France increased 360bps to 17.0%. This growth was underpinned by an increase in sales of non-mattress products in each of the core markets. In the UK&I, the contribution from non-mattress DTC sales increased by 130bps to 24.8% and in France improved by 590bps to 28.2%.

To measure our success in delivering on this strategic pillar we will continue to monitor and report on the KPIs of conversion rates and the growth in non-mattress sales.

lower friction customer experience

Enhancing the customer experience 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 confirmation, delivery tracking and product care guides, customers are now able to select a nominated delivery day for larger orders.

The changes made to the website and customer proposition have driven a 30bps year-on-year improvement in the conversion rate.

We recognise the importance of providing an omnichannel approach, for consumers that freely move between online and offline channels, when researching and purchasing products. During the year we have extended our reach with three new retail partnerships with Argos, Homebase and Dunelm, all of which have subsequently launched.

To measure our success in delivering on 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 of purchasing an eve product.

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.

culture and diversity

We thrive on individuality at eve. We believe that irrespective of age, gender, ethnic origin, religion, sexual orientation, gender identity, gender expression, or disability, eve is a place of opportunity, respect and support for individuals to bring their best to work and do their best work.

eve are pleased to present the following metrics relating to gender balance as at 31 December 2019. The following breakdown shows the number of persons of each sex who were:

( i )   directors of the company;

(ii)   senior managers of the company (other than those falling within category ( i )); and

(iii)   employees of the company.

 

Male

Female

Directors

4

1

Senior managers

3

4

Employees

28

33

 

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 February 2020 and no deb t (excluding the lease liability arising under IFRS 16).

 

James Sturrock

Chief Executive Officer

23 March 2020

 

k ey performance indicators

In 2019, the key performance indicators (KPIs) used to evaluate and monitor the performance of the business were as follows and are 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 KPIs [3] :

  • Overall revenue growth;
  • Marketing efficiency;
  • Underlying EBITDA.

Operational KPIs 3 :

  • UK brand awareness;
  • Product return rates;
  • eve website conversion rate;
  • eve customer sleep wellness score;
  • Non-mattress revenue growth.

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 KPIs 3

  • 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 KPIs 3

  • 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.

g lossary

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.

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 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).

 

financial review

"Whilst 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

2019

2018

Restated

Movement

Core Markets revenue

23.9

29.4

(19%)

Other revenue

(0.0)

5.5

(101%)

Group revenue

23.9

34.8

(31%)

Core Markets gross profit

12.8

15.5

(18%)

Other gross profit

(0.1)

2.9

(103%)

Gross profit

12.7

18.4

(31%)

Distribution expenses

(2.7)

(4.1)

+33%

Profit after distribution expenses

9.9

14.3

(31%)

Payment fees

(0.4)

(0.7)

+41%

Marketing costs [4]

(12.1)

(22.2)

+46%

Loss after distribution expenses, payment fees and marketing costs

(2.5)

(8.6)

+70%

Wages & Salaries (excluding share-based payment charges)

(4.4)

(5.4)

(18%)

Other administrative expenses

(5.0)

(6.1)

(17%)

Share-based payment charges connected to employee remuneration

(0.5)

(0.3)

+76%

Operating loss

(12.5)

(20.3)

(39%)

Net finance income

0.0

0.0

(60%)

Loss before tax

(12.5)

(20.3)

(38%)

Taxation

0.4

0.2

+82%

Loss after tax

(12.1)

(20.1)

(40%)

Reconciliation to underlying EBITDA:

 

 

 

Taxation

(0.4)

(0.2)

 

Net finance income

(0.0)

(0.0)

 

Fundraise-related expenditure

0.2

-

 

Share-based payment charge s connected to employee remuneration

0.5

0.3

 

Staff and country exit costs

-

0.8

 

Depreciation and amortisation

0.5

0.1

 

Impairment

0.6

0.0

 

Underlying EBITDA

(10.7)

(19.1)

(44%)

 

group financial performance as a % of revenue

% of Revenue

2019

2018

Restated

Movement

Gross Profit

53.1%

52.8%

+37bps

Distribution

(11.4%)

...