At the Group level, revenues for the period increased 13% to GBP13.9m (2020 H1: GBP12.2m), reflecting the strength of trading in the UK&I. The substantial gains made to the gross margin over the last two years, resulting from the rebuild strategy and the focus on profitable sales have been largely retained. The gross margin in H1 2021 was broadly flat at 55.0% compared with H1 2020 but up 270 bps on the 52.3% reported in H1 2019, despite the existence of inflationary pressures since the second half of 2020, as previously highlighted. These inflationary pressures have been offset largely by the strength of the eve brand and a more premium product offering, allowing higher retail pricing to be passed through to customers without significant adverse effects on volumes.
Marketing contribution is an important metric for eve, representing the profit or loss after marketing costs but before central overheads, with 2020 being the first year in which this measure of profitability turned positive. In the first half of 2021 marketing contribution remained positive at GBP0.7m, but reduced year-on-year by GBP0.8m (2020 H1: GBP1.5m), as a result of the upfront marketing investment associated with the new French advertising campaign and the first half weighting of marketing spend in the UK&I. In total, marketing investment expensed in the first half increased year-on-year by GBP1.4m, reflecting a higher GBP0.6m in the UK and GBP0.8m in France. The impact of this investment flowed through into the higher EBITDA loss of GBP1.9m reported for the period (2020 H1: GBP0.8m), with the payback on this investment expected to start to flow through in the second half of the year and over 2022. Marketing contribution for the UK&I was broadly flat at GBP1.2m for the period, reflecting the first half weighting of marketing investment, which is expected to benefit the second half performance.
The operating cash outflow in the period was GBP3.1m. This reflects the EBITDA loss of GBP1.9m, GBP0.9m of one-off factors including the payment of VAT, previously deferred under the UK Government's Covid support measures, a planned increase in stock, in order to mitigate against any supply shortages and other working capital movements of some GBP0.3m.
At the Company's AGM in May 2021 Paul Pindar stepped down as Chairman of the Company, a position he had held since before the IPO and Mike Lloyd, COO of McCarthy & Stone and a former director of AA plc was appointed to the role. The board was also strengthened with the appointment of Masood Choudhry as a Non-Executive Director in February. Masood remains at the forefront of ecommerce, having held senior leadership positions in logistics at some of Europe's largest operators, and is currently Senior Vice President of Logistics at Zalando. Collectively these appointments provide the executive management team with fresh perspectives, direct access to a wealth of expertise and renewed energy.
Sleep is increasingly recognised as an essential element of wellness at a time when wellness has never been more important. There is 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 poll commissioned by eve and taken shortly after the start of the pandemic, as many as 48% of respondents said that they were kept up due to worry about Covid-19 and nearly one in four admitted that their quality of sleep was worse than ever. 'Sleep' has now overtaken both 'diet' and 'exercise' as the most searched for term on google (UK) across the 'wellbeing triad' of 'sleep', 'diet' and 'exercise', showing the increased awareness that consumers have of this vital component of wellbeing.
With the increasing understanding of the importance of sleep has come consumer change. Not only are consumers spending more on sleep wellness related products, they are also willing to spend more on the central element of a good night's sleep; the mattress. The strong sales performance of eve's premium hybrid mattress testifies to this point, generating some 30% of mattress sales by volume. Every customer that purchases an eve mattress is asked at 100 days whether they're sleeping better thanks to their eve, and more than 80% tell us they are. This is a strong piece of advocacy for the quality and effectiveness of our products.
Sleep is a huge market by value, which has evolved substantially since the start of the pandemic. Data from Euromonitor estimates that the European sleep market is worth approximately GBP26bn, with the Core Markets that eve is focused on (UK&I and France) being worth approximately GBP6bn. The advent of the first national lockdown from March 2020 and the consequent switch to working from home, coupled with a lack of leisure spending alternatives, drove a strong increase in industry wide demand for bedding and homewares products. Consumers en masse literally 'bedded down' for lockdown as they sought to renovate their homes and bedrooms. Data from Barclays UK Consumer Spending Reports show that retail spending in the Household category grew each and every month year-on-year through the second half of 2020 and this positive trend has continued throughout the first half of 2021.
The growth in spending has been online led, resulting in an acceleration of the trend to ecommerce. Recent data from the Office for National Statistics (ONS) shows that whilst the percentage contribution of non-food retail sales online has fallen back somewhat in recent months as lockdown restrictions eased and the high street re-opened, retail's online share remains substantially ahead of pre-pandemic levels. In June 2021 non-food online sales represented 23.1% of total non-food retail sales, which compares with 15.5% in December 2019, according to ONS data, with eve's own market research indicating that 50% of mattresses are now bought online in the UK. The management team at eve anticipate that this shift to online will be sustained.
Whilst the sector remains fragmented and highly competitive the competitive landscape across beds and mattresses has eased somewhat, with a number of online mattress providers choosing to retrench from the UK market, alongside a reduction in store based competition, both permanent and temporary as a result of the pandemic. There is also evidence to suggest that the mattress in a box brands are growing their share of the market with eve's market data indicating that some 15% of mattresses are now bought from 'direct to consumer' brands in the UK. Despite the level of ongoing competition in mattresses, there is no company that as yet has established itself as a wider brand operating in sleep wellness. eve's ambition is to achieve just this; to be seen as the go to brand for sleep wellness products, content and support across a range of categories and sales channels.
The foundations for growth
The focus of the last three years has been on delivering the rebuild strategy, with the central goal of placing the business on a more sustainable, long term financial footing. The improvement in the financial performance is clear to see with underlying EBITDA losses in 2020 reduced by 81% year- on-year and the cash burn over the same period cut from GBP10.1m in 2019 to a cash neutral position in 2020. Further improvements in the financial performance of the business have been secured in the first half of 2021, including top line growth and an increase in the gross profit, though other financial benefits are somewhat clouded by the timing of marketing investment, which is substantially higher in the first half of the year, reflecting an H1 weighting, with a lower spend planned for the second half.
The technology infrastructure, logistics and operations of the business have also been substantially upgraded and re-engineered during the rebuild strategy. The move to the Shopify ecommerce platform has increased stability of what is eve's largest revenue contributor, avoiding system crashes during peak trading periods, while also reducing the necessary tech headcount/cost previously required to maintain the old, proprietary platform.
The segmenting of manufacturing, logistics and distribution on geographic lines, between the UK&I and France has ensured minimal impact following Brexit, faster deliveries to customers and lower warehousing costs. Additionally, the re-engineered supply chains have demonstrated their increased resilience during the current period, and combined with the early decision to take on more stock, have resulted in continued availability of key product lines, with minimal impact from the widely publicised global supply chain issues holding back many industries. The improvements to infrastructure have also enabled the consolidation of orders, so that all items ordered can now be made in a single customer delivery. The superior customer experience which all of these improvements underpin, can be seen in the growth in customer numbers achieved in the UK&I in the period and the growth in the customer repeat rate.
With the resilience and the unit economics of the business much improved over the last three years, the focus is shifting from restructuring to growth in the more developed UK&I market. To achieve this eve is focused on extending its range of products that improve the length and quality of sleep including offering products which benefit and/or aid the pre-bed wind down routine.
(MORE TO FOLLOW) Dow Jones Newswires
September 23, 2021 02:00 ET (06:00 GMT)