ScS Group plc Preliminary results for the year ended 27 July 2019 1 October 2019
Agenda In Introduction & hig ighli lights Da David id Knig ight Chief Executive Officer Financial Fin l review Chris ris Muir ir Chief Financial Officer Review of of th the year & Da David id Knig ight current tr cu tradin ing 2 2
Highlights Continued profitable growth and increasing resilience • A year of further growth in revenue and profit, despite a challenging market • Margins maintained • Further online growth 100 • New store opened in Kirkcaldy Like-for-like orders • Implementation of technology in-store, for delivery, surveying and upholstery teams +4.2% • Orderly exit from House of Fraser concessions Two-year: +5.2% 3 3
Financial review 4
Financial highlights Gross sales* EBITDA* EPS £333.3m July 19 £19.7m 30.3p July 18 £327.5m £19.1m 26.8p £322.1m July 17 £16.1m 23.5p Gross margin* Cash generated from Dividend*** operating activities 45.0% £24.1m 16.70p FY18 – 45.0% FY18 – £21.0m FY18 – 16.20p FY17 – 44.0% FY17 – £19.5m** FY17 – 14.70p *Figures presented are for continuing operations, before exceptional costs ** Excludes £10.6m benefit from timing of year end payment run ***Dividend includes recommended final dividend of 11.20p 5 5
Gross sales from continuing operations Furniture Flooring Online July 19 £274.2m £42.3m £16.8m July 18 £270.9m £42.8m £13.8m July 17 £270.9m £39.9m £11.3m Furniture Flooring Online Increase of £3.3m (+1.2%) Decrease of £0.5m (-1.2%) Increase of £3.0m (+21.7%) Two year increase of £3.3m (+1.2%) Two year increase of £2.4m (+6.0%) Two year increase of £5.5m (+48.7%) Two year CAGR of +0.6% Two year CAGR of +2.9% Two year CAGR +22.1% 6 6
Underlying EBITDA from continuing operations £2.6m (£0.4m) FY19 EBITDA improved £0.6m (3.0%)* (£0.3m) Gross profit increased £2.6m to £149.9m in line with improved sales performance £19.7m (£1.6m) £0.3m £19.1m Gross profit margin maintained at 45.0% Distribution costs increased £0.4m due to increased volume of deliveries Marketing expenditure increased £0.3m Payroll costs increased £1.6m, driven by: • Pay reviews and national living wage (£1.1m) • Increased performance related pay (£0.3m) • Pension contributions due to auto-enrolment (£0.2m) Reduction in other costs mainly driven by lower property related costs 7 *Figures presented are for continuing operations, before exceptional costs. 7
Flexible cost base 76% Flexibility Proportion of cost variability remained consistent year-on-year Sales are made to order creating a £m 2019 2018 % flexible business model Gross sales 333.3 327.5 76% of cost base variable with sales EBITDA 19.7 19.1 Total costs 313.6 308.4 100% 13% semi variable Cost of goods sold (inc. credit) (183.4) (180.2) 58.5% Rent, rates, heat and light 11% of Distribution costs (17.3) (16.9) 5.5% overall cost base Marketing costs (22.4) (22.1) 7.1% Payroll costs (performance related) (14.6) (14.3) 4.7% Other payroll (32.3) (31.0) 10.3% Variable Other costs (7.4) (7.4) 2.4% Semi-variable Rent, rates, heat and light Fixed costs (36.2) (36.5) 11.5% 8 8
Cash flow Strong cash flows £19.4m Free cash flow of £16.0m (2018: £15.2m) (£5.6m) £3.9m (£6.5m) (£1.7m) EBITDA of £19.4m is £19.7m underlying EBITDA £57.7m from continuing operations less £0.3m HoF EBITDA and exceptional costs £48.2m £5.6m capex spend includes £2.1m branch and flooring department improvements, £1.8m for new technology, and £0.4m towards new store in Kirkcaldy £3.9m working capital movement largely due to increased customer deposits and impact of HoF closure (£1.5m) Customer deposits £14.7m (FY18: £12.2m) Negative working capital model Cash or card sales - deposits received at point of order, balance settled before delivery Credit sales - loan provider pays ScS two working days after delivery Majority of suppliers paid at end of month following delivery into our distribution centres 9 9
Resilience Cash £60m £57.7m £50m • Strong operational cash flows £48.2m £40m • No debt with significant cash position £40.1m £30m • Further protection from £12.0m committed revolving credit facility to November 2021 £22.4m £20m £21.1m • Creating strategic options £10m £0m 2015 2016 2017 2018 2019 10 10
Shareholder returns DPS* Dividend cover Share price 260p 1.81x July 19 16.7p 240p 220p 200p 180p 1.65x July 18 16.2p 160p 140p 120p 1.60x July 17 14.7p 100p 2015 2016 2017 2018 2019 76.1p* Progressive Improving security through increasing dividend* per share total cash returns since dividend cover 13.6% January 2015 IPO Supported by strong Equivalent of 43.5% of 175p IPO dividend per share growth free cash flow in the last two years issue price *Dividend includes recommended final dividend of 11.20p 11
Review of the year 12
The market Upholstery Floorcoverings 9.3% 2.6% Market share* *Figures from GlobalData 2018 restated to exclude HoF 2018 – 9.1% 2018 – 2.6% Gross sales growth Upholstery market reduced 2.5% from 2016 to 2019 ScS sales increased 7.3% 2016 14.1% 2017 4.1% 1.7% Flooring market reduced 5.5% from 2016 to 2019 2018 1.8% ScS sales increased 11.0% 2019 Source: Company/GlobalData Consumer confidence (Overall score) Big ticket sales often heavily affected by consumer confidence 2016 -3.3 2017 -8.8 EU referendum and impending October Brexit deadline has 2018 -9.5 negatively affected consumer confidence 2019 YTD -12.6 Source: GfK Consumer Confidence Housing transactions (% movement) A house move often triggers purchase of furniture and flooring +0.5% 2016 -0.8% 2017 Since peak in 2016, housing transactions have continued to fall -2.7% 2018 -3.2% 2019 YTD Source: HMRC UK Property Transaction stats 13
Key ingredients Excellent customer experience with outstanding value, quality and choice Range of price points Easy ways to pay 0% Long-term interest-free making From £299 to £5,295 - always an offer or deal available buying easy Brands Service Long term relationships with leading 5- star “Excellent” Trustpilot rating, furniture and flooring brands, delivered by our passionate and supporting well recognised own brands caring team On key retail parks Online High quality stores in prime locations Rapidly growing sales platform, and our ‘other’ shop window for customer research 14 14
Our people Improve our ability to attract, recruit, develop and retain the right people • Strengthened our internal HR team and working with third party trainers • Primary focus on how we recruit, retain, reward and develop our people • Streamlined our retail team • New recruitment website now live and successfully attracting applicants to the business • Delivery of tangible 2018 employee survey actions 15 15
Our customers Placing customers at the heart of our business Trustpilot – TrustScore: • Continue to hold a 5-star ‘Excellent’ Trustpilot rating 2019 9.2 2018 9.2 2017 9.2 • 2018 – first UK furniture retailer to reach 100,000 Customer satisfaction score: Trustpilot reviews. Currently over 160,000 2019 77 2018 74 • Centralised customer support centre 2017 75 • Rolled out new mobile technology to improve customer experience: • Improved shopping experience • Enhanced delivery process • Smarter route optimisation • Shorter service wait times 16 16
Our stores Optimising the existing footprint Sales per square foot: 2019 £229 • Creating the right shopping experience 2018 £224 2017 £226 • New branded areas • Developed point of sale and pricing stands Furniture AOV: • Reinforcing value message 2019 £1,527 • 2018 £1,582 Driving increased conversion 2017 £1,575 • Focus on value end product mix – 3.5% reduction in AOV but maintained gross profit margin • FY19 sales per square foot up to £229 (FY18: £224) • Ongoing review of store network • New store opened in Kirkcaldy 17 17
Our products Driving quality and value through our product Turnover by country: selection UK (57.2%) • A market leading offer: Far East (38.7%) • Wide range of price points Europe (4.1%) • Becoming the ‘Home of Big Brands’ • Core ranges • Product exclusivity • Resilient and optimised supply chain: • All purchases in £ sterling • Key customer to suppliers • Far East products imported through UK suppliers • 95% made-to-order (no stock risk) 18 18
Our flooring offering Market share growth opportunity Flooring gross sales: • Further development of in-store experience 2019 £42.3m 2018 £42.8m • Restructuring of support functions 2017 £39.9m • All self employed fitters now accredited Flooring AOV: • In-house surveyors using new technology 2019 £686 2018 £679 2017 £629 • Our offering: • Large range with only a small footprint – over 120 ranges / 5,000 SKUs • First to market with innovative products • Market leading brands • Sample only operation – no stock costs, with a ‘Just in Time’ customer delivery system 19 19
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