eve Sleep plc

 

Full Year Results

 

Rebuild strategy progressing and funds secured to deliver it

 

 

eve Sleep plc (AIM: EVE), a sleep brand focused on the UK & Ireland ("UK&I") and France (the "Core Markets"), today announces its full year results for the 12 months ended 31 December 2018.

 

Group1, £m	2018	2017	Movement
Revenue	34.8	27.7	+25%
Gross Profit	18.4	16.0	+15%
Gross Profit margin	52.8%	57.7%	490bps
Underlying EBITDA loss2	(19.2)	(15.1)	(4.1)
Statutory loss before tax3	(20.3)	(19.0)	(1.3)
Net Cash	6.0	26.9	(20.9)

 

1 In July 2018, the Board reviewed the number of territories that eve traded from, deciding to focus on the Core Markets and withdrawing from the other territories. As a result, Group revenue for 2018 includes approximately seven months of trading from fifteen territories, and approximately five months of trading only in the Core Markets. The 2017 comparatives have not been restated and reflect trading for the twelve months across a larger European footprint.

 

 

Financial highlights

 

• Group revenue increased by 25% to £34.8m (2017: £27.7m), reflecting the lower than anticipated performance in the year and the refocus on the Core Markets in H2 2018;
• Revenue in the Core Markets increased by 35% to £29.4m (2017: £21.7m);
• Marketing costs as a percentage of revenues in eve's most significant market, UK&I, reduced by 840bps to 46.6% (2017: 55.0%) demonstrating efficiency coming through;
• Core Markets gross profit margin of 52.7% (2017: 58.2%) and UK&I gross profit margin of 52.5% (2017: 59.4%) remain strong, with the reduction primarily a result of planned changes in the channel mix and increased sales of non-mattress products.

 

 

Operational highlights

 

• To address the financial performance which fell short of the Board's and the market's expectations, a full review was undertaken by the new CEO James Sturrock which has resulted in a rebuild strategy which focuses the business on three core pillars: i) differentiated brand positioning, ii) expanded product range, iii) lower friction customer experience;
• Extended non-mattress range and increased mattress range totalling 21 products (2017: 15);
• Non-mattress sales as a proportion of total sales in the Core Markets increased 500bps to 19% (2017: 14%);
• Repeat customer rate in the Core Markets increased 270bps to 14% (2017: 11%) with UK&I increasing 300bps to 14% (2017: 11%) and France increasing 200bps to 13% (2017: 11%);
• Returns rate in the Core Markets reduced by 120bps to 9.3% (2017: 10.5%);
• Conversion rate in the Core Markets improved 33bps;
• NPS score4 of 58 in UK (2017: 56) and 69 in France (2017: 61);

• Trustpilot rating of 9.4 out of 10 and a Which? Best Buy rating;
• UK unprompted brand awareness increased to 10% at February 2019 (March 2018: 6.3%).

 

 

Post-period end

 

• Completion of share placing with investors, raising £11.7m (net of expenses) and £0.9m media for equity commitment against future media spend with Channel 4;
• Closing cash at 28 February 2019 of £17.8m;
• In a separate announcement released today, certain management changes have been made, including the stepping down of CFO Abid Ismail as a Director of the Company. To effect a seamless transition, Abid has agreed to stay on with the Company until the summer.

 

 

Current trading and future prospects

 

2019 will be the first full year of trading in the Core Markets only. The Group's focus in 2019 is to deliver growth but in a sustainable manner. As such, we expect the revenue growth rate for the Core Markets to be broadly in line with the Group revenue growth rate for 2018, but with a substantial reduction in underlying EBITDA losses.

 

Marketing investment will be weighted towards H2 2019. This, alongside revenue benefits from the execution of the rebuild strategy, therefore means we expect the majority of the revenue growth to be delivered in H2 2019.

 

The UK&I is more advanced in its development than France and accordingly will be the main focus for marketing investment over the next twelve months, whilst in France we will be focused on optimising marketing investment to improve profitability. As such, we expect revenue growth in 2019 in the UK&I to be significantly higher than in France.

 

In the announcement on 23 January 2019, the Group stated that it was reviewing its retail and partnership strategy and, as part of that, Dreams had engaged with the Group to renegotiate certain commercial terms in connection with their partnership with eve. These discussions have concluded and both parties have agreed to exit the arrangement as the Board believes there are other more profitable opportunities to be pursued instead. The impact of this step on 2019 performance is not expected to be material due to the low levels of revenue and profitability which were expected to be delivered from the arrangement, alongside the impact of other opportunities mentioned above.

 

The first two months of trading have been in line with the Board's expectations.

 

 

James Sturrock, CEO of eve Sleep commented:

 

"We have made some good early progress with our rebuild strategy and have secured the funds to execute on it. As part of our pathway to profitability plan we have taken decisive action on our cost base, including a significant reduction in administrative expenses compared to 2018 along with a refocused and reduced marketing investment strategy removing inefficient activity.  When combined with the expected benefits of our rebuild strategy, we anticipate a significant reduction in losses in 2019."

 

"The opportunity to create a sleep wellness brand remains undiminished and I am confident that eve's rebuild strategy, centred around a differentiated brand positioning, expanded product range, lower friction customer experience, combined with increasing brand awareness will win out over peers. Our new approach focuses on sustainable growth and sets out a clear path to building a profitable business, which delivers for shareholders."

 

 

Further Notes

 

2 Underlying EBITDA is before share-based payment charges, IPO-related expenditure (2017 only), staff and country exit costs (2018 only), depreciation and amortisation;

3 Included within Statutory loss before tax is £0.8m of staff and country exit costs (2018 only);

4  Results presented from NPS surveys conducted in December 2017 and 2018 respectively.

 

 

For further information, please contact:

eve Sleep plc James Sturrock, Chief Executive Officer Abid Ismail, Chief Financial Officer  via M7 Communications LTD Peel Hunt LLP (NOMAD and broker) Dan Webster George Sellar Guy Pengelley +44(0)20 7418 8900 M7 Communications LTD Mark Reed +44(0)7903 089 543

 

 

Chairman's Statement 2018

 

Overview

 

2018 was a tough year for the business but I am pleased to state that following substantial restructuring in the second half of the year we enter 2019 in better shape and on a sounder financial footing. It became apparent in the first half of 2018 that the costs of rapid international expansion across Europe were too great and that there were more profitable opportunities for growth in the Core Markets in which eve had growing brand awareness and was experiencing more efficient growth in revenue. Swift and decisive action was taken, including a change in CEO and, following a country-by-country review, a refocus, for now, on our most developed markets of the UK&I and France, resulting in the withdrawal from other European territories and the US over the summer months. As a result we now operate from a materially lower cost base.

 

There was also much to be proud of in 2018, with considerable progress made in many key elements of the strategy, which we will build upon in 2019 and beyond. Product development remains a key focus and in 2018 eve extended the mattress range from the original, adding a hybrid mattress (of foam and spring construction) as well as a premium and an entry price offering. In tandem, additional non-mattress sleep products were added, with the result that the total range has increased to 21 products (2017: 15) by the end of the year, with Core Markets non-mattress sales accounting for 19% of total Core Markets sales in 2018 (2017: 14%).

 

We have always believed that we should be where the consumer shops and as such we remain committed to our ecommerce led, multi-channel approach, working with leading retail partners. This approach, along with our marketing investment has driven a substantial improvement in brand awareness in the Core Markets and substantial revenues. As at February 2019 eve was the 5th most recognised mattress brand in the UK and the most well-known of the "mattress in a box" brands. This is an impressive achievement in just four years since launch.

 

Performance

 

Group revenues in the year grew 25% to £34.8m, with gross profit increasing 15% to £18.4m. The gross profit margin reduction from 57.7% to 52.8% year on year was primarily due to the planned shift in channel mix to omni-channel and increased sales of typically lower margin non-mattress products.  Group underlying EBITDA losses increased 27% to £19.2m on the £15.1m reported in 2017, primarily reflecting a 24% increase in administrative expenses and the reduction in gross margin.

 

An analysis of the Core Markets performance provides a better reflection of underlying trading trends. The Core Markets revenues in the year grew 35% to £29.4m (2017: £21.7m), with marketing costs as a percentage of revenues reducing by 360bps to 54.3% in 2018 from 57.9% in 2018. In the UK&I, marketing costs as a percentage of revenues reduced by 840bps to 46.6% in 2018 from 55.0% in 2017.

 

Our people

 

There has been much change this year, which can be unsettling for our people. I have been really impressed with how the entire team has embraced this and I would like to personally thank them for their continued loyalty, professionalism and commitment to eve. Our people are our most valuable asset and we continue to invest in their development and wellbeing. The market opportunity for eve is undiminished and I am confident that we now have the right strategy, funding and team, led by James to deliver value for our shareholders.

 

Paul Pindar

Chairman

 

 

 

Strategic Report

 

Introduction

 

The European sleep market is estimated to be worth £26bn, with the Core Markets that eve is now focused on (UK&I and France) being worth £6bn. While there are many traditional operators, in what is a highly fragmented sleep market across Europe, there are limited well branded digital operators of any meaningful size owning the wider sleep category. 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.

 

There is also an increasing awareness of the importance of sleep for everyday health and wellbeing and the dangers of having insufficient sleep. There is currently no brand in Europe that has established itself as a sleep wellness brand. 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 direct to consumer led business supported by retail partnerships. The direct to consumer focus enables greater control over the customer journey and experience and to build an on-going relationship with the customer. The central strategy for the business is to establish eve as a sleep wellness brand. Accordingly, resources in terms of investment and talent are focused on the key operations of product development, branding, marketing and customer experience that will facilitate the achievement of this objective. 

 

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 mattress 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.

 

Establishing eve as a sleep wellness brand is a major differentiator to its mattress-only focused peers and will give the Group the authority and trust to sell a broader range of products in the category to its customer base. This in turn is expected to increase the level of repeat purchases and improve marketing efficiency, a key element of the new strategy to building a sustainable and growing business on a clear path to profitability. The increased scale from additional revenues is also expected to drive down overheads as a percentage of revenues. Aligned with the business objectives, unprompted brand awareness, eve's website conversion rate and marketing efficiency are all KPIs of the Group. Trends in all operational KPIs in the Core Markets of UK&I and France have been positive in 2018.

 

The inherent agility in the business model was demonstrated in the year, when the decision to focus on the UK&I and France, withdrawing from other European territories, was achieved at minimal cost and disruption.

 

 

Chief Executive's Report

 

What attracted me to eve?

 

I joined eve in September 2018 because I believe in eve's mission to bring sleep wellness to the nation. 1 in 5 consumers say they have restless nights due to discomfort or anxiety (YouGov Survey 2017). Sleep grows ever more relevant in a world where wellbeing, wellness and a desire to switch off and de-stress are becoming more and more of a zeitgeist of modern living. eve has not only created beautiful products to give everyone the best possible start to the day but has also simplified the way mattresses and other sleep products are purchased and delivered. Our sleep products are rated highly by consumers as evidenced by our Trustpilot score of 9.4 out of 10 and our recent win of a Which? Best Buy rating. I believe that we are on our way to building a brand that is differentiated and can be the category leader.

 

Business review

 

While there was considerable progress in 2018, including 35% revenue growth in Core Markets and a substantial improvement in UK unprompted brand awareness, our financial performance fell short of our own and the market's expectations. This was due primarily to company specific factors related to over expansion into too many countries too quickly and not helped by the uncertain and challenging retail market backdrop.

 

To address this underperformance, one of my first actions since joining eve was to lead a Board review of the Group's business, which has resulted in an updated, and fully funded, rebuild strategy, with many improvements already made. The central objective of the strategy is to build the team, the systems and the products in order to create a platform enabling sustainable future growth for the business, which has an increased focus on cash generation and profitability. In addition to a territory refocus, to support this central objective, action has been taken to reduce inefficient investment in marketing and reducing overheads in 2019, when compared to 2018.

 

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

 

We are broadening the Group's current position to become a trusted destination for a wider range of products. To achieve this we are refocusing marketing investment and communications around the benefits that eve can bring consumers in sleep wellness.

 

We start from a good place, having already invested significantly in marketing over the last two years in our Core Markets, including campaigns "Every great day starts the night before" and "Join the Sleep rich". The success of our marketing to date is demonstrated in our unprompted UK brand awareness, which has increased consistently from 1.4% in December 2016 to approximately 10% today. In 2018 eve was the UK's 5th most well-known mattress brand and the most well-known bed-in-a-box brand. In France in 2018, eve was the 8th most well-known mattress brand and the most well-known bed-in-a-box brand.

 

The efficiency of our marketing spend has improved in our Core Markets in tandem with our growing awareness. In the UK&I marketing as a percentage of revenue has fallen from 62.5% in 2016, 55.0% in 2017 to 46.6% in 2018. Notwithstanding this substantial progress, more can be achieved.

 

Our new Chief Marketing Officer, Cheryl Calverley, who has previously worked at the AA and Unilever, joined in December 2018. Cheryl is charged with building a strong brand that consumers can relate to; a brand that will be front of mind when they look at making purchases in the category.

 

To measure our success in delivering on this strategic pillar we will be monitoring and reporting on the KPI of unprompted brand awareness in the UK and marketing costs as a percentage of revenues will continue to be a KPI, given its importance for the pathway to profitability.

 

Expanded product range

 

We are building out a range of sleep products to complement our successful next generation foam mattress, giving eve a clear trajectory to owning the ecommerce sleep wellness space in our chosen markets and encouraging a stronger repeat purchase business model.

 

Recent new products include a baby mattress, a light and premium mattress to address all price points as well as a hybrid mattress (of foam and spring construction) to target a broader range of consumer preferences. During the year we also launched a selection of bed frames and extended our range of bed linens.

 

Range expansion helped to drive a repeat purchase rate of 14% in 2018 in the Core Markets, up from 11% in 2017. In addition, sales from non-mattress products increased in 2018 to 19% of total sales in the Core Markets (2017: 14%).

 

To measure our success in delivering on this strategic pillar we will be monitoring and reporting on the KPIs of product returns rate, conversion rates and the growth in non-mattress sales.

 

Lower friction customer experience

 

Enhancing customer experience throughout the online journey and in our service proposition to enable stronger site conversion and customer satisfaction metrics is core to our rebuild strategy. Improved conversion will not only drive higher revenues but also greater marketing efficiency, which is key to achieving profitability.

 

We have set up specific squads in our Digital Product team tasked with identifying the friction points in the customer research, consideration and purchase journey and implementing solutions to create an optimised experience. A number of improvements to the customer experience have already been made, which have contributed to a positive increase in the conversion rate in the Core Markets. By way of example, we have recently improved our delivery offering, adding a premium service to complement our free standard delivery, as well as a greater choice of time slots, including nominated day delivery and a choice of morning or afternoon slots.

 

There are additional developments to the online purchasing experience including improvements to the search, discovery and checkout processes on the website and plans to further improve post-sales customer relationship marketing encouraging repeat purchase behaviour.

 

To measure our success in delivering on this strategic pillar we will be monitoring and reporting on the KPIs of conversion rates and our Net Promoter Score (NPS).

 

2019 focus summary

 

The focus for the next six to twelve months is to continue to lay the foundations for the rebuild strategy, embed the changes into the business and to focus on reducing underlying EBITDA losses, whilst growing revenue in a sustainable way. Notwithstanding on-going macro headwinds in 2019, I am confident that we have the team, strategy and product range, combined with the strength of brand, to build a sustainable and profitable business which meets the needs of our customers and delivers value for shareholders.

 

James Sturrock

Chief Executive Officer

 

 

Chief Financial Officer Review

 

In 2018, for approximately seven months of the year, eve was operating in fifteen territories. Where Group is referred to this relates to trade in all eve territories. Early in the second half of the year, eve rationalised the markets in which it operated to focus on UK&I and France and these three countries are referred to as the Core Markets.

 

In 2018, the key performance indicators (KPIs) used to evaluate and monitor the performance of the business were updated to support the three core pillars of the rebuild strategy (differentiated brand positioning, extended product range and lower friction customer experience). In 2017, closing cash and gross margin were financial KPIs of the Group; in 2018, the impact on cash and gross margin is monitored via the financial KPIs set out below and therefore these metrics are no longer separate financial KPIs of the business. There are now three financial KPIs and five operational KPIs.

 

Financial KPIs1

 

• Overall revenue growth
• Marketing efficiency
• Underlying EBITDA2

 

Operational KPIs1

 

• Non-mattress sales as a proportion of total sales2
• UK brand awareness
• Product return rates
• eve website conversion rate2
• Net Promoter Score2

 

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 2017:

 

Group and Core Markets Financial KPIs

• Group revenue increased by 25% to £34.8m (2017: £27.7m);
• Core Markets revenue increased by 35% to £29.4m (2017: £21.7m);
• Improvement in Group marketing efficiency of 510bps to 56.8% (2017: 61.9%);
• Improvement in Core Markets marketing efficiency of 360bps to 54.3% (2017: 57.9%);
• Group underlying EBITDA loss: £19.2m (2017: £15.1m loss).

 

Core Markets Operational KPIs

• Increase in non-mattress Core Markets sales as a proportion of total sales by 500bps to 19% (2017: 14%);
• Unprompted UK brand awareness: 560bps year-on-year increase in unprompted UK brand awareness (November 2018: 11.2%; November 2017: 6.6%);

• 120bps year-on-year improvement in the returns rate to 9.3% (2017: 10.5%);
• 33bps year-on-year improvement in the conversion rate;
• Net promoter score of 58 in UK and 69 in France (2017: 56 in UK and 61 in France).

 

1 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

Underlying EBITDA - Earnings before interest, tax, depreciation and amortisation, share-based payment charges (2017 and 2018), IPO-related expenditure (2017 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 - % change in value of reported sales attributable to non-mattress products for the specified segment of the last period vs the previous 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

Net promoter score - calculated based on responses to a single question: "How likely is it that you would recommend our company/product/service to a friend or colleague?" The scoring for this answer is based on a 0-10 scale and KPI is based on % of those that responded with score 9-10 minus the number of those responding 0-6. NPS scores presented are December 2017 and 2018 results.

2 These financial and operational KPIs are monitored by the Group in 2018 which were not monitored in 2017.

 

 

 

Group Financial Performance3

 

£m	2018	2017	Movement
Revenue	34.8	27.7	+25%
Gross profit	18.4	16.0	+15%
Distribution	(4.1)	(3.4)	(18%)
Profit after distribution	14.3	12.6	+14%
Payment fees	(0.7)	(0.7)	(5%)
Marketing	(19.8)	(17.2)	(15%)
Loss after distribution, payment fees and marketing	(6.2)	(5.3)	(16%)
Wages & Salaries (excluding share-based payment charges)	(5.4)	(4.5)	(20%)
Other administrative expenses	(8.5)	(5.3)	(59%)
Share-based payment charges	(0.3)	(1.8)	+83%
Loss before IPO-related expenditure	(20.3)	(16.9)	(21%)
IPO Related Expenditure	-	(2.1)	n/a
Net finance income	0.0	0.0	+79%
Loss before tax	(20.3)	(19.0)	(7%)
Taxation	0.2	-	n/a
Loss after tax	(20.1)	(19.0)	(6%)
Reconciliation to underlying EBITDA:
Taxation	(0.2)	-
Net finance income	(0.0)	(0.0)
IPO-related expenditure	-	2.1
Share-based payment charge	0.3	1.8
Staff and country exit costs	0.8	-
Depreciation and amortisation	0.1	0.0
Underlying EBITDA	(19.2)	(15.1)	(27%)

 

% of Revenue	2018	2017	Movement
Gross Profit	52.8%	57.7%	(490bps)
Distribution	(11.6%)	(12.4%)	+80bps
Profit after distribution	41.1%	45.3%	(420bps)
Marketing	(56.8%)	(61.9%)	+510bps
Administrative expenses3 excluding marketing	(41.9%)	(37.9%)	(400bps)
Administrative expenses3 excluding marketing and staff and country exit costs (2018 only)	(39.7%)	(37.9%)	(180bps)

 

UK&I Financial Performance3

 

£m	2018	2017	Movement
Revenue	22.5	16.1	+40%
Gross Profit	11.8	9.6	+23%
Distribution	(1.7)	(1.4)	(20%)
Profit after distribution	10.1	8.2	+24%
Payment fees	(0.4)	(0.4)	(6%)
Marketing	(10.5)	(8.9)	(18%)
Loss after distribution, payment fees and marketing (before overhead allocation)	(0.8)	(1.1)	+29%

 

 

 

France Financial Performance3

 

£m	2018	2017	Movement
Revenue	6.8	5.5	+23%
Gross Profit	3.7	3.0	+20%
Distribution	(1.2)	(0.8)	(49%)
Profit after distribution	2.5	2.2	+10%
Payment fees	(0.1)	(0.1)	(14%)
Marketing	(5.4)	(3.7)	(48%)
Loss after distribution, payment fees and marketing (before overhead allocation)	(3.1)	(1.6)	(101%)

 

Other Territory Financial Performance3

 

£m	2018	2017	Movement
Revenue	5.5	6.1	(10%)
Gross Profit	2.9	3.4	(14%)
Distribution	(1.2)	(1.2)	+5%
Profit after distribution	1.7	2.2	(19%)
Payment fees	(0.2)	(0.2)	+4%
Marketing	(3.8)	(4.6)	+17%
Loss after distribution, payment fees and marketing (before overhead allocation)	(2.3)	(2.7)	+15%

 

3 Administrative expenses per the Consolidated Statement of Profit and Loss and Other Comprehensive Income include payment fees, marketing, wages & salaries (excluding share-based payment charges) and other administrative expenses.

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

 

Revenue

 

Group revenue increased by 25% to £34.8m in 2018 (2017: £27.7m). Direct to consumer remains the dominant revenue channel. However, Group revenues from omni-channel did grow strongly, representing 22% of revenue in 2018 (2017: 14%), increasing 97% to £7.8m in 2018 (2017: £4.0m). As a result of investment in marketing and product expansion, revenue from the Core Markets of the UK&I and France combined grew by 35% to £29.4m (2017: £21.7m) with UK&I revenues growing 40% and France growing 23% respectively.

 

Gross margin

 

Group gross margins remained strong however they have been negatively impacted by both product mix (increasing non-mattress revenues) and channel mix (increasing omni-channel revenues). As a result, Group gross margin reduced by 490bps to 52.8% in 2018 (2017: 57.7%). Core Markets gross margin (UK&I and France) reduced by 550bps to 52.7% in 2018 (2017: 58.2%).

 

Distribution costs

 

Distribution costs as a percentage of revenue reduced by 80bps to 11.6% in 2018 (2017: 12.4%), reflecting the exit from European countries and increased share of revenue from retail, which typically has lower distribution costs as shipment is often in bulk.

 

Marketing investment

 

Effective investment in marketing is an important driver of growth in the business. In 2018 investment in Group marketing increased by 15% to £19.8m (2017: £17.2m). Marketing investment in the Core Markets increased by 27% to £15.9m (2017: £12.6m). The efficiency of marketing investment is closely monitored and is an important KPI for the business. In 2018 Core Markets marketing efficiency, defined as marketing costs as a percentage of revenues, improved by 360bps to 54.3% (2017: 57.9%). In the UK&I marketing efficiency improved by 840bps to 46.6% (2017: 55.0%). In France, which is at an earlier stage of development than the UK, marketing efficiency reduced by 1330bps to 79.6% (2017: 66.3%).

 

Administrative expenses (excluding marketing)

 

Wages & Salaries (excluding share-based payment charges) remain the largest component of administrative expenses and increased 20% to £5.4m (2017: £4.5m) and making up 36.8% of administrative expenses excluding marketing (2017: 42.6%). Other administrative expenses included £0.8m of staff and country exit costs related to the exit from non-Core Markets in the second half of 2018.

 

Underlying EBITDA loss

(earnings before interest, tax, depreciation, amortisation, share-based payments (2017 & 2018), IPO-related expenditure in 2017, staff and country exit costs in 2018)

 

The Directors consider that they are able to monitor Group financial performance via underlying EBITDA by removing share-based payment charges, IPO-related expenditure and staff and country exit costs from EBITDA on the basis that these items do not occur evenly year on year.

 

The underlying Group EBITDA loss increased by £4.1m to £19.2m in 2018 (2017: £15.1m loss). The increased loss reflects under performance in the first half of the year, where Group losses increased year-on-year by £6.9m to £11.9m. In the second half of the year underlying EBITDA losses reduced reflecting the decision to focus on the Core Markets of the UK&I and France and greater focus on efficiency of marketing spend.

 

France is at an earlier stage of development for eve compared to UK&I. Its revenue grew 23% to £6.8m (2017: £5.5m) driven mainly by higher marketing spend which resulted in a loss after distribution, payment fees and marketing (before overhead allocation) of £3.1m (2017: £1.6m loss).

 

UK&I performance for the year, whilst below original year on year expectations, was positive with revenue growth of 40% to £22.5m (2017: £16.1m) resulted in a loss after distribution, payment fees and marketing (before overhead allocation) of £0.8m (2017: £1.1m loss).

 

Share-based payment

 

In accordance with IFRS, a share-based payment charge for 2018 has been calculated and charged to the income statement. 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 2018 was £0.3m (2017: £1.8m).

 

Loss after tax

 

The loss after tax increased to £20.1m (2017: £19.0m loss) and underlying EBITDA increased to a loss of £19.2m (2017: £15.1m loss).

 

Capital expenditure

 

Due to the Group's outsourced business model, capital expenditure requirements remain low. The main area of capital expenditure in 2018 related to development cost in respect of the infrastructure for the website platform and ERP systems. Total capital expenditure in 2018 was £0.4m (2017: £0.4m).

 

Cash position

 

The Group had net cash of £6.0m at the year end (2017: £26.9m). Since the year end the Group has raised an additional £11.7m (net of expenses) from investors through a placing of new shares and secured £0.9m in future advertising with Channel 4, which will be satisfied through the issuance of new shares when utilised.

 

Abid Ismail

Chief Financial Officer

 

 

 

Consolidated Statement of Profit and Loss and Other Comprehensive Income

 

For the year ended 31 December 2018

 

	Note	2018	2017
		£	£
Revenue		34,818,260	27,744,995
Cost of sales		(16,442,852)	(11,749,049)
Gross profit		18,375,408	15,995,946
Distribution expenses		(4,056,074)	(3,430,085)
Administrative expenses		(34,360,477)	(27,686,895)
Share-based payment charge	6	(303,281)	(1,757,204)
Operating loss before IPO-related expenditure		(20,344,425)	(16,878,238)
IPO-related expenditure		-	(2,124,528)
Operating loss		(20,344,425)	(19,002,766)
Net finance income		44,822	25,096
Loss before tax		(20,299,603)	(18,977,670)
Taxation		193,192	-
Loss for the year		(20,106,411)	(18,977,670)
Other comprehensive income
Foreign currency differences from overseas operations		98,720	-
Total comprehensive loss for the year		(20,007,691)	(18,977,670)
Basic and diluted earnings/(loss) per share (pence)		(14.46)	(16.17)

 

 

 

Consolidated Statement of Financial Position

 

As at 31 December 2018

 

	Note	2018	2017
		£	£
Assets
Non-current assets
Property, plant and equipment		-	36,458
Intangible Assets		669,742	378,538
		669,742	414,996
Current assets
Inventories		1,127,876	691,340
Trade and other receivables	7	4,626,750	4,177,056
Cash and cash equivalents		6,031,936	26,926,389
Current tax receivable		193,192	-
		11,979,754	31,794,785
Total assets		12,649,496	32,209,782
Current liabilities
Trade and other payables		4,561,793	4,548,019
Provisions	8	955,949	826,702
		5,517,741	5,374,721
Total liabilities		5,517,741	5,374,721
Net assets		7,131,755	26,835,060
Equity attributable to equity holders of the parent
Share capital	5	139,735	138,631
Share premium		36,716,371	36,716,371
Share-based payment reserve		250,073	138,794
Retained earnings		(30,073,145)	(10,158,737)
Cumulative translation reserve		98,720	-
Total equity		7,131,755	26,835,060

 

 

Consolidated Statement of Cash Flows

 

For the year ended 31 December 2018

 

		2018		2017
		£		£
Cash flows from operating activities
Loss for the year		(20,106,411)		(18,977,670)
IPO-related expenditure		-		2,124,528
Finance income		(44,822)		(25,096)
Taxation		(193,192)		-
Adjustments for:
Interest paid		44,822		25,096
Amortisation		120,571		7,945
Impairment		39,608		-
Increase in inventories		(436,536)		(200,159)
Increase in trade and other receivables		(449,694)		(3,127,395)
Increase in trade and other payables		13,773		2,361,778
Increase in provisions - net		129,247		111,606
Share-based payment charge		303,281		1,757,204
IPO-related expenditure		-		(2,124,528)
Net cash outflow from operating activities		(20,579,352)		(18,066,692)
Acquisition of property, plant and equipment		(3,150)		(36,458)
Acquisition of intangible assets		(411,775)		(378,538)
Net cash outflow from investing activities		(414,925)		(414,996)
Proceeds from the issue of share capital		1,104		40,768,722
Net cash inflow from financing activities		1,104		40,768,722
Net increase in cash and cash equivalents		(20,993,173)		22,287,034
Cash and cash equivalents at start of period		26,926,389		4,639,355
Movement in cash		(20,993,173)		22,287,034
Effect of exchange rate fluctuations on cash held		98,720		-
Cash and cash equivalents at end of period		6,031,936		26,926,389

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018
		Share Capital	Share Premium	Share-based payment Reserve	Retained Earnings	Foreign Currency Translation Reserve	Total Equity
		£	£	£	£		£
Balance at 1 January 2018		138,631	36,716,371	138,794	(10,158,736)	-	26,835,060
Exercise of options		1,104	-	-	-	-	1,104
Share-based payment charge		-	-	303,281	-	-	303,281
Transfer on exercise of options		-	-	(192,003)	192,003	-	-
Transactions with owners		1,104	-	111,279	192,003	-	304,385
Loss for the year					(20,106,411)		(20,106,411)
Other comprehensive income for the year						98,720	98,720
Balance at 31 December 2018		139,735	36,716,371	250,073	(30,073,145)	98,720	7,131,755
For the year ended 31 December 2017
		Share Capital	Share Premium	Share-based payment Reserve	Retained Earnings	Foreign Currency Translation Reserve	Total Equity
		£	£	£	£	£	£
Balance at 1 January 2017		316	16,124,928	-	(12,838,441)	-	3,286,803
Issue of Shares		38,767	40,698,396	-	-	-	40,737,163
Bonus share issue		85,948	(85,948)	-	-	-	-
Share Premium Cancellation		-	(20,038,965)	-	20,038,965	-	-
Exercise of options		13,600	17,960	-	-	-	31,560
Share-based payment charge		-	-	1,757,204	-	-	1,757,204
Transfer on exercise of options		-	-	(1,618,410)	1,618,410	-	-
Transactions with owners		138,315	20,591,443	138,794	21,657,375	-	42,525,927
Loss for the year		-	-	-	(18,977,670)	-	(18,977,670)
Balance at 31 December 2017		138,631	36,716,371	138,794	(10,158,736)	-	26,835,060

 

 

Notes to the accounts

 

1. Reporting Entity

 

eve sleep PLC (the "Company") is a public company, domiciled and registered in England in the UK. The registered number is 09261636 and the registered address at 31st December 2018 was 128 Albert Street, London, England, NW1 7NE.

 

2. Accounting Policies

2.1  Basis of preparation

 

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").

The Group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU ("Adopted IFRSs"). The Company has elected to prepare its parent company financial statements in accordance with adopted IFRS.

The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group financial statements.

This preliminary announcement is simultaneous with signed financial statements on which the audit report is unqualified and unmodified.

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the registrar of companies, and those for 2018 will be delivered in due course. The auditor has reported on those accounts; their reports were (i) unqualified, (ii) did include a reference to which the auditor drew attention by way of emphasis without qualifying their report in respect of going concern and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

2.2  Changes in accounting policy

In these financial statements, the Group has changed its accounting policies in the following areas:

 

• Financial instruments
• Revenue recognition

 

The Group has adopted the following IFRSs in these financial statements:

 

• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contract with Customers

 

These accounting policies have been applied retrospectively. The impact of transition to these IFRS has not required restatement of the primary statements.

 

2.3 Measurement Convention

 

The financial statements are prepared on the historical cost basis.

 

 

2.4  Going Concern

 

The financial statements are prepared on a going concern basis notwithstanding that the group is competing and disrupting an established market and as is typical for a business at this stage of its lifecycle is still generating losses as it uses working capital to develop the business model and market share.

 

The Group has reported an operating loss of £20.3m (2017: £19.0m) with an operating cash outflow of £20.6m (2017: £18.1m). The closing cash balance at 31 December 2018 was £6.0m however, since the end of the Accounts Period, the Group completed a share placing to raise approximately £11.7m net of expenses, (the "Placing") from existing and new investors and £0.9m of future advertising spend credits. The closing cash balance at 28 February 2019 was £17.8m.

 

The directors have set out the three core pillars of the re-build strategy in the Chief Executive's statement and have prepared a strategic plan in order to grow the business in the refocused markets of UK&I and France. The plan is supported by a financial model, underpinned by a number of key business drivers. The business plan assumes continuing improvement in 2019 over those observed in 2018 for the majority of these drivers. The principle assumptions adopted in the forecast model which reflect these improvements are set out below:

 

• Revenue growth driven primarily by Website traffic growth and Conversion rate improvements;

• Marketing expenditure reduction over the prior year and more targeted spend moving forward.

 

To support the strategic plan the directors have prepared cash flow forecasts covering a period of more than 12 months from the date of approval of these financial statements. 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 days through lower stock levels and reducing debtor days through facilities such as debt factoring as the group does not presently have any debt.

 

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.

 

 

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 Chief Operating Decision Maker has been determined to be the executive 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 executive Board assesses the performance of each segment based on revenue and gross profit after distribution expenses, which excludes administrative expenses.

 

Year ended 31 December 2018

 

		UK&I	France	Rest of Europe	Rest of World	Total
		£	£	£	£	£
Revenue		22,520,896	6,833,520	4,744,696	719,148	34,818,260
Cost of sales		(10,703,472)	(3,174,414)	(2,197,303)	(367,663)	(16,442,852)
Gross Profit		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)	(75,149)	(4,056,074)
Segmental Results		10,119,649	2,454,966	1,468,383	276,335	14,319,334
Administrative expenses						(34,360,478)
IPO Related Expenditure						-
Share-based payment Charge						(303,281)
Net Finance income						44,822
Taxation						193,192
Loss for the year						(20,106,411)

 

 

Year ended 31 December 2017

 

		UK&I	France	Rest of Europe	Rest of World	Total
		£	£	£	£	£
Revenue		16,145,542	5,544,040	5,021,594	1,033,819	27,744,995
Cost of sales		(6,554,822)	(2,498,587)	(2,362,965)	(332,675)	(11,749,049)
Gross Profit		9,590,720	3,045,453	2,658,629	701,144	15,995,946
Distribution expenses		(1,412,199)	(806,097)	(1,022,365)	(189,423)	(3,430,084)
Segmental Results		8,178,521	2,239,355	1,636,265	511,721	12,565,862
Administrative expenses						(27,686,895)
IPO Related Expenditure						(2,124,528)
Share-based payment Charge						(1,757,204)
Net Finance income						25,096
Taxation						-
Loss for the year						(18,977,670)

 

 

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.

 

 

4. 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.

 

 

	31 December 2018	31 December 2017
Weighted average shares in issue	139,087,779	117,336,860
Loss attributable to owners of the parent company	(20,106,411)	(18,977,670)
Basic earnings/(loss) per share (pence)	(14.46)	(16.17)
Diluted earnings/(loss) per share (pence)	(14.46)	(16.17)

 

 

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 2018, options outstanding amounted to 3,203,153. Given the loss for the year of £20,106,411 (2017 loss: £18,977,670) these options are anti-dilutive.

 

 

5. Share Capital

 

Allotted, issued and fully paid:

 

		Number	Nominal Value £	31 December 2018 £	31 December 2017 £
Ordinary Shares		139,735,160	£0.001	139,735	138,631
Total				139,735	138,631

 

 

The table below summarises the movements in number of shares at the beginning and end of the period:

 

 

		Ordinary Shares
Share capital at 31 December 2017		138,631,020
Nominal Value £		£0.001
Value of Share Capital £		138,631
Summary of movements in share capital
Exercise of options over ordinary shares		1,104,141
Share capital at 31 December 2018		139,735,161
Nominal Value £		£0.001
Value of Share Capital £		139,735

 

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 2018, 1,104,141 share options were exercised bringing the total share capital of the Company to 139,735,161 at 31 December 2018.

 

 

6. Share-based payment charge

 

The Group recognised a charge of £0.3m (2017: £1.8m) related to share-based payments during the year to 31 December 2018, all of which relates to equity-settled schemes.

 

The Company issues equity-settled share-based payments to certain employees, whereby employees render services in exchange for shares or rights over shares of the parent company. Equity-settled awards are measured at fair value at the date of grant. The fair value is calculated using an appropriate option pricing model and is expensed to the Statement of Profit and Loss and other comprehensive income on a straight-line basis over the vesting period after allowing for an estimate of shares that will eventually vest.

 

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		13	14,017,897	£0.001	Length of service	16/01/2027
16/01/2017		3	4,653,841	£0.001	Performance Based	16/01/2027
23/01/2017		3	56,626	£0.001	Length of service	23/01/2027
25/01/2017		22	1,289,236	£0.001	Length of service	25/01/2027
20/02/2017		1	18,825	£0.001	Length of service	20/02/2027
10/04/2017		1	251,000	£0.001	Length of service	10/04/2027
12/05/2017		18	2,222,731	£1.012	Length of service	12/05/2027

 

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		1	132,905	£0.001	Length of service	13/07/2025
01/01/2016		1	49,447	£0.001	Length of service	01/01/2026
01/02/2016		1	224,269	£0.001	Length of service	01/02/2026
26/01/2016		1	12,550	£0.001	Length of service	26/01/2026
12/05/2017		6	991,798	£1.012	Length of service	12/05/2027
12/10/2017		1	23,939	£0.001	Length of service	12/10/2027
20/10/2017		1	23,833	£0.001	Length of service	20/10/2027
16/01/2018		1	20,000	£1.010	Length of service	16/01/2028
17/01/2018		1	100,000	£1.010	Length of service	17/01/2028
02/02/2018		1	15,000	£1.010	Length of service	02/02/2028
05/02/2018		1	87,500	£1.010	Length of service	05/02/2028
11/02/2018		1	20,000	£1.010	Length of service	11/02/2028

 

The number and weighted average exercise prices of share options are as follows:

 

 

		Weighted Average Exercise Price 2018	Number of Options 2018
		£
Outstanding at the beginning of the year		£0.519	5,642,703
Granted During the year		£1.010	242,500
Forfeited during the year		£0.768	(1,577,909)
Exercised during the year		£0.001	(1,104,141)
Lapsed during the year		-	-
Outstanding at the end of the year		£0.613	3,203,153
Exercisable at the end of the year		£0.001	836,875

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 80.03p (2017: 103.94p).

 

The options outstanding at the end of the year have an exercise price in the range of £0.001 to £1.012 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 are as follows:

 

 

 

		Award 1 16 Jan 17	Award 2 16 Jan 17	Award 3 23 Jan 17	Award 4 25 Jan 17	Award 5 26 Jan 17	Award 6 20 Feb 17
		£	£	£	£	£	£
Share class		Ord C	Ord	Ord	Ord	Ord	Ord
Fair Value at Grant Date		£0.06	£0.10	£0.10	£0.10	£0.10	£0.10
Exercise Price		£0.001	£0.001	£0.001	£1.012	£0.001	£0.001
Expected Volatility *		103%	103%	103%	103%	103%	102%
Option Life		10 yrs	10 yrs	10 yrs	10 yrs	10 yrs	10 yrs
Risk free interest rate		0.200%	0.200%	0.235%	0.276%	0.300%	0.148%

 

		Award 7 12 May 17	Award 8 16 Jan 18	Award 9 17 Jan 18	Award 10 2 Feb 18	Award 11 5 Feb 18	Award 12 11 Feb 18
		£	£	£	£	£	£
Share class		Ord	Ord	Ord	Ord	Ord	Ord
Fair Value at Grant Date		£0.29	£0.43	£0.43	£0.43	£0.43	£0.43
Exercise Price		£1.012	£1.010	£1.010	£1.010	£1.010	£1.010
Expected Volatility *		55%	77%	77%	77%	77%	77%
Option Life		10 yrs	10 yrs	10 yrs	10 yrs	10 yrs	10 yrs
Risk free interest rate		1.000%	1.000%	1.000%	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.

 

 

7. Trade and other receivables

 

 

		2018	2017
		£	£
Trade receivables		1,815,260	767,426
Other receivables		1,124,112	2,608,934
Prepayments		1,320,556	800,696
Other current assets		366,823	-
Total		4,626,750	4,177,056

The average credit period offered on sales of goods during 2018 was 27 days (2017: 34 days). The average days sales outstanding (''DSO'') in 2018 was 82 days (2017: 51 days). At 31 December 2018, trade receivables at a nominal value of £35,681 (2017: £25,301) 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 irrecoverable amounts based on past default experience. Specific counterparty risk is also considered where an analysis of the counterparty's current financial position indicates a change in credit risk.

Before accepting any significant new customer, the Group uses a variety of credit scoring systems to assess the potential customer's credit quality and to define credit limits 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 2018, consistent with 2017 where three major retail customers each accounted for more than 10% of the total balance of trade receivables on 31 December 2017.

 

Included in other receivables is £0.1m relating to VAT which is expected to be fully recoverable.

 

 

 

Ageing of receivables		2018	2017
		£	£
Not overdue		1,177,697	378,260
Overdue between 0-30 days		382,274	378,240
Overdue between 31-60 day		56,070	10,183
Overdue between 61-90 days		73,634	743
Overdue over 90 days		125,584	-
Total		1,815,260	767,426

 

 

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.

 

 

8. Provisions

 

		Refunds	Sales Return	Warranty	Total
		£	£	£	£
Balance at 1 January 2017		560,683	154,414	-	715,097
Provisions made during the year		4,118,714	-	-	4,118,714
Provisions used during the year		(3,815,835)	(154,414)	-	(3,970,249)
Unused amounts reversing in the year		(36,860)	-	-	(36,860)
Balance at 31 December 2017		826,702	-	-	826,702
Provisions made during the year		11,647,815	-	163,832	11,811,647
Provisions used during the year		(11,620,290)	-	-	(11,620,290)
Unused amounts reversing in the year		(62,110)	-	-	(62,110)
Balance at 31 December 2018		792,117	-	163,832	955,949

 

 

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.

 

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.

 

9. Subsequent events

 

Since the end of the Accounting Period, the Company has undertaken the following significant events:

 

On 11 February 2019, the Company completed a placing of 120,317,323 new ordinary shares of 0.1 pence each ("Ordinary Shares") in the share capital of the Company (the "Placing Shares") at a price of 10 pence per Placing Share (the "Placing Price") to raise approximately £11.7m (the "Placing"), net of expenses, from existing and new investors. In addition, Channel Four, which provides advertising services to the Company and is an existing Shareholder, has agreed that £0.9m of future advertising spend by the Company with Channel Four will, when payable, be satisfied by the issue of new Ordinary Shares at the Placing Price over a period of up to twenty-four months from Admission.

 

In addition, it is proposed that share option plans with a grant date post-IPO (excluding those grants made in October 2017) will be cancelled and replaced with a new share option plan. It is proposed that grants from this pool will be granted on the following basis:

 

    (i)  nominal exercise price of £0.001 per ordinary share

    (ii)  vesting monthly from the date of grant over a 3 year period

 

Following the year end, it was agreed by mutual consent that Abid Ismail, Chief Financial Officer of the Group, would step down as a Director of the Company. Abid has agreed to stay on until Summer 2019 to effect a seamless transition.