DFS Furniture plc (DFS) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the DFS Furniture Plc Investor Presentation. [Operator Instructions] Before we begin, we would like to submit the following poll, and your participation, I'm sure, be warmly welcomed by the company. I'd now like to hand over to CEO, Tim Stacey. Good afternoon.

Good afternoon, everyone, and thank you for joining us. I've got a few slides to take you through. So I'll take you through some slides on the company, a bit of background, where are we on our strategy and what we've been up to in the last sort of 12 months, and how things are looking at the moment. And then I'll hand over to our CFO, Mike Schmidt, who's with us to take you through some of the latest financials. I imagine that will take 15, 20 minutes to go through all of that and then happy to going to any questions you may have. So if we take the slides along, a couple. So just to give you a bit of -- for those of you who may not know us that well, but just stand back and give you a bit of a company snapshot really. So our group was founded just over 50 years ago, 1969, by Lord Kirkham through 1 store and 1 workshop in Doncaster, and we've now grown to a business with over 5,800 colleagues. We're a fully integrated business in the sense that we have retail websites, marketing, et cetera, but also our own manufacturing, which we're very proud of in the U.K. and our own logistics delivery business as well. So fully integrated business focused primarily on sofas. So 96%, 97% of our business is all sofas. Our split in terms of gender, we've been working very hard on our male/female split, as you can see there. We work incredibly hard on engagements and our engagements service with our colleagues places in the top 10 of big companies. So, Sofology #2, DFS [indiscernible] at #7. And we have over 1,000 colleagues engaged and participating in our Save as you Earn scheme, so a well-engaged team. Looking at FY '22, so the middle pie chart there. So DFS is the well known, the biggest retailer in the industry accounts for about 79% of our revenues and Sofology is growing to just near to 21%. And we've -- in terms of presenting the most recent set of results, which is financial year '22, so that year ended June '22. We've sort of based that against the last thing comes clean year we have, which is pre-pandemic, so that's financial year 2019, so year ended June '19. And our revenue growth was strong at 20%. Our underlying profit growth of maybe 14.6%. And in the last calendar year, 12 months, we've returned nearly GBP 75 million to shareholders by way of special dividend, ordinary dividend and share buybacks. So incredibly cash generative business that you'll see as we go forward in the slides. And we've also grown our market share. So since pre-pandemic times, our share has now grown to nearly 36%, so a 3 percentage point increase since FY '19. And part of the reason we do that is our brands, and we have exclusive product on our shop floors and our website, catering for pretty much every type of customer that would be interested in Sofas. From the top end of Halo and you see that if you hopefully see in the top left corner there, Halo Luxe which is our top-end leather brand to achieve partnerships that we have with the likes of Joules and Country Living and House Beautiful and French Connection. Most recently, we've launched, for example, Sofables and Storeaway in DFS, which is catering for a more modern customer looking for storage, but also looking for a modular furniture. In Sofology, we've also launched a partnership with George Clarke, the well-known designer and TV presenter. So one of the key differentiators of our business is that we're selling product that you can't buy anywhere else, which is important to us. So that's a bit of a snapshot. Moving on to the next slide. We launched, on our corporate website, you'll see that at Capital Markets Day we had in the middle of March. And our vision is to lead furniture retailing in the digital age. And we recognize firmly we're in the digital age, and we invest a huge amount of time and money and thought into what that means for our business as we've gone forward. And from a digital perspective, the way we use data, the way we collect data and drive our business forward for growth and for efficiency is key, and how we express our strategies through what we call our pillars and platforms. So our retail pillars, our DFS retail brands, Sofology retail brand and Home we sell through both DFS and Sofology, so it's not a separate brand in its own right. It's just a retail channel. And underneath our platforms and these are -- these enablers to have scale in the market. So sourcing and manufacturing. We source from around the world with the biggest manufacturers in the world in the Far East in Europe and the U.K. From a technology and data platform, we work with world-class partners in terms of our web platforms and our data platforms. Our logistics platform is something we're very proud of where we have something called the Sofa Delivery Company, which is our own fleet of 7.5-ton, 3.5-ton vehicles, operating out nearly 30 distribution centers around the U.K. and Ireland, delivering 7 days a week to customers. And people and culture in the end, we're very, very focused on our colleagues, our development, our engagement and the culture that we build based on some core values. And wrapping around that is the ESG agenda, which, as the market leader, we see that as an opportunity to really differentiate and lead and innovate in this industry. Stepping back, one of the things that we've said, clearly, there's a lot of noise around the short term in the last sort of 4, 5 months, particularly the last couple of months. And one of the things we said at our recent annual results presentation a couple of weeks ago, which is to step back and just to think about the fact that we are a very strong and robust market leader and we believe we have the best customer proposition in terms of the brands I mentioned before, not just DFS and Sofology but all the partner brands we work with, and we are gaining share. We've got very strong platforms, which enable us to access, that's the scale benefits, and therefore, highest operating margins and cash generation. We've got a very proven and resilient business, including a strong balance sheet that Mike will touch on, puts a well-invested business. And we are investing for growth in the future despite the short-term headwinds. So we see opportunities for growth in the home sector and using our digital assets and data assets to drive further growth for the business. And in the end, we see short-term opportunities to gain share in the sector. DFS, when times have been tough, and I'll come on to this in a second, has always gained share as the market leader. We continue to invest. We've got the highest operating margin so we can weather the storms. Longer term, it underpins our financial ambitions that Mike will talk about. And in the end, from a shareholder point of view, we've been floated since 2015 with a very strong cash generation and returned GBP 200 million gross to shareholders over that period of time. Next slide. I talked about gaining share in tough environments. And this chart on the left, bar chart shows you the value -- the estimated value share of U.K. upholstery. So it's around about GBP 3.2 billion at this point in time to 2022. That's an estimate. And you can see how it oscillates from sort of 2009, '10 around GBP 3.2 billion, drops down a bit, and then it grows to the heady heights of GBP 3.3 billion, just pre-Brexit, has been fairly flat for 2017, '18, a big drop in 2020, obviously with COVID. So you can see the market, and we've looked at the CAGR of the market over the last sort of 10 years, and it's about 2-and-a-bit percent. So half of that is volume and half of that is value. And that's before all the inflationary pressures. So this gives you a sense of how the market has been reasonably stable over the last few years. But what you'll see is the blue line, and that's our market share. And the market share has grown over this period of time to now record levels at 36% value level. And part of that is to do with the exit of certain competitors back in the global financial crisis, the likes of Courts and Land of Leather. Acquisitions, we acquired Sofology back in 2017. And then some exits, most notably over COVID, where Harveys' demise and since then, we've seen continued structural change in the market where independent businesses have declined by nearly 4%, 5% according to ONS data through the challenging environment that we face. So as we stand today, the pie chart, the DFS Group, which is Sofology and DFS, primary at together, 36% value share. And then you can see on the other side, there's about 32% that's still in the independent sector, which is in structural decline. And then you've got competitors, A, B and C some of the traditional shared competitors, but also the likes of NEXT and M&S and John Lewis in there. So you can see we're 3x bigger than the nearest or 3.5x than the nearest competitor, which gives us tremendous scale advantage and opportunity in the next 12 months also to gain share. Next slide, please. So just a brief update on some of the strategic elements that we've touched on before. So next slide. This is the strategy I outlined earlier. And if you go to the first pillar, which is about DFS. So DFS is the most well-known and most profitable, biggest brand in the sector. And this -- over the last financial year, we've done a number of things, but the callouts would be around some new brand marketing that we've launched, which has driven real strong connection and positive shifts in the connection with the brand and it is how consumers feel about our brand, and we're now in the top 3 in terms of connected brands in the U.K. So this shift in tone of marketing is all about style and helping you find the right thing for you, the right sofa for you, and you'll see new adverts coming out in the next few weeks that drive that forward, but that's definitely driven brand closeness and moves us away from some of the promotional activity that I'm sure you've seen over many years where we've talked about half price on sale. So we're now becoming a much more a brand about style and products. Which then links the next piece where we continue to launch exclusive products that fit with consumers' lifestyles and their needs. So we've just launched a range called Storeaway in partnership with the largest furniture manufacturer in the world. We have taken all of their learnings from the best-selling ranges around the world. We applied that to the U.K. market, and it's been the best launch we've ever had. It's a top-end fabric and leather recliner with storage and USB and music. It's an amazing range in our stores and our websites. And then most recently launched the DFS Vegan range signed off by PETA, but a very applicable range to lots of young consumers coming through who value those attributes. In terms of our stores, we very much believe in the combination of stores and web for this sector. We know that 90% of transactions in our sector are influenced by customers coming into the store and sitting on the product, in the end, getting the right set is important, and it's a tactile nature product. And so what we've been doing is rolling out new formats to DFS. So upgrading all the stores, nearly 50 stores now have been done with a clear at least 5% like-for-like growth versus control an investment of about GBP 300,000, which pays back within 24 months. And maybe half of the estate has now been reformatted, modernized, more sofa base, improved lighting, much better visual merchandising, and we'll keep driving that forward as we continue to invest in our website. Finally, on the right-hand side, so we call the intelligent lending platform. And just for history, DFS and Sofology, the high penetration of interest-free credit transactions historically, nearly 2/3 of our business will be done through interest-free credit, a little bit less than that at the moment, given some of the cash balances that people have accumulated during COVID. But the Intelligent lending platform is a piece of proprietary technology we've developed that sits between our customers and our finance providers. And it helps us direct customers to the right finance provider, but it also helps reduce the transaction time in store by nearly 15 minutes, which is very important at busy times, Saturdays, Sundays, Bank Holidays, Mondays and it gives our colleagues more time to engage more customers, but it also gives customers a much better experience. It has a soft search credit facility as well. And it's an example, I guess, of how we're using technology to improve the customer experience, but also improve efficiency. Next slide. Sofology has a very distinct brand, which we acquired in 2017, when we found that -- when a new Sofology store opens right next to a DFS store, the cannibalization is very low between 5% and 7%. And therefore, we know it's very complementary in terms of acquiring new customers. It's been a successful growth story. And we're trying to drive distinctiveness through partnerships with well-known TV actress and film actress, Helena Bonham Carter. It's been incredibly successful in terms of creating that distinctive and unique style. As I mentioned before, we're investing in the product range and pushing higher and working with excellent partners like George Clarke, and one of the big opportunities for growth is new stores. And so we're now at 55 at the end of financial year '22. We opened 7 new stores in '22 at really good terms. And we're planning for a couple more this financial year and ultimately aiming for between 65 and 70 stores. Sofology also leverages our group platform, so Sofa Delivery Company, which does what it says on the tin, is now fully integrated. So previously, we had 2 separate networks at DFS and Sofology, we now have one, which allows us to deliver to customers 7 days a week, but also drives very good variable cost per order, so much greater postcode densities, which Sofology is benefiting from in terms of cost per order of delivery. Next slide. So on home, we're building the foundations for our home offer. We are very much focused on beds and mattresses, and we know that the market for beds and mattresses in the U.K. is about GBP 3 billion. and our aim is to get to about a 4% share of that over the coming years. We need to drive awareness, and we've been very much focused on digital advertising, but we have launched our first ever TV advert for non-sofas, the beds in DFS. And we're very focused on online. And so we've nearly doubled our online sales by developing our range and our website and our digital marketing. And that's our focus at this moment in time. In the background building our supply chain capability to be able to deliver this through our network. And so we consolidate the beds and the mattress is into one location and deliver one for customers, which is a good customer offer. What we see, this as a very exciting opportunity to increase our addressable market over the coming years. Just to touch on some of the platforms I mentioned earlier. So sourcing and manufacturing, we've been manufacturing, as I said, when Lord Kirkham first started back in 50 years ago, when we just refurbished -- in the middle of refurbishing our Doncaster factory where we have some other factories in the East Midlands. We are very much focused on optimizing our mix. So we have about 1/3 of our business is made in the U.K., 1/3 in Europe and 1/3 in the Far East. And we're always looking to work with partners to develop and optimize where is the best place to manufacture in terms of cost of goods and quality and style. But as the market leader in the U.K., we benefit from scale and so the best cost of goods, but also in terms of access to the best designs around the world. So a really strong platform, which we're leveraging despite the headwinds of freight rates and the dollar and raw material cost increases. On technology and data, something called IRIS, we've launched this year, which is basically integrated retail intelligent solutions. Integrates maybe 35 data sources, external internally, and it gives us a 360-degree view of our business. From attracting customers to engaging them, converting in-store or online, delivering and then from a customer service point of view at the end. So we use that data to develop new tools, such as Intelligent Lending Platform, to optimize our workforce, our colleagues in store to make sure we have the right colleagues at the right time, but also to make sure we have the range distribution right in all of our stores to make sure we are getting the right sales per square foot effectively. On logistics, it's been probably the most challenging year for logistics for 18 months. I actually think about 2.5 years since COVID started, and since then, we've really increased our space. We've increased in certain locations, put some new warehouses and new hubs we're able to offer our customers 7-day delivery with our new 4On/4Off shift pattern. What that means is our drivers and warehouse colleagues work for 4 days and they're off for 4 days. It's good from a work-life balance point of view, helps us attract and retain colleagues in logistics side of things. And I'm pleased to say that certainly, from an end-to-end supply chain point of view life has settled down quite considerably since probably February, March this year. So looking for calmer waters ahead there. Finally, in terms of people and culture, we've integrated all of the central teams in terms of finance, HR technology, and that drives our employee value proposition in terms of attractiveness to work as a place to work and in terms of how we pay people, how we look after people and the values that we have as a business. Turning to ESG. The final slide that I'll have here before I sum up. We have, as a Plc and a big company reported under the new TCFD requirements, but essentially making lots of progress in this area. And we have actually matched now our carbon footprint as a business, including all of the scopes 1, 2 and 3 for the last 4 years, that enables us to create a really strong foundation in which to create some science-based targets to get to our ambitions in the coming years. We have very strong on the social side of things because of our inclusion and well-being programs. And as you'd imagine, being Plc, we have very strong governance and have recently set up a responsible and sustainable business committee, which is to focus on some of the environmental and sustainability and challenges that our industry faces. And as a market we are determined to innovate in that space and try and move the agenda forward. So I think that's the kind of the background to the business. Before I hand over to Mike, I guess I'd just say, yes, there are absolutely short-term headwinds we can all see that in terms of consumer confidence and cost of living, et cetera. But what I do know is 3 things. One is our group is a clear market leader with an opportunity to leverage its scale. Secondly, that when times are tough historically, and we know in terms of playing to win that we do win market share and gains. So as we come through whatever this latest cycle is, we know we'll come out stronger. And thirdly, we stand by the medium-term financial ambitions that Mike is going to take you through because of our strength that we have and competitive advantages that we have that enable us to get there. So with that, I'll hand over to Mike to take you through some of the financials.

Thanks, Tim. I'm going to start with some context on the whole year we just reported. So overall, we saw the value of our revenues increasing by 20.1% versus the pre-pandemic comparator with 3 key factors behind this revenue growth. So firstly, very strong opening order bank entering the year, which was beneficial during the year. Secondly, we saw positive order intake volume growth relative to financial year 2019. So that's a growth in the number of transactions. And then thirdly, we also actually drove average order value growth as well through price increases that offset cost inflation coming through and also new premium product ranges introduced as Tim touched on things like the Storeaway range. So against the materially higher revenues. We also did see increased operating costs in the business, really caused by the macro environment and also by the volatile pattern of trading across quarters. With highs and lows of demand that may smooth manufacturing logistics flow quite difficult to achieve. Now as many retailers have said, this has been the most operationally challenging period that they can recall, and I think our leadership team is [ the difference ] in having that view. But actually, despite those challenges, our overall reported profit performance is positive relative to those pre-pandemic levels with an underlying profit before tax and brand amortization of GBP 60.3 million from continuing operations. So that's 14.6% higher than the pre-pandemic comparator. And we also do close the year with a strong and efficient financial position with net bank debt of GBP 90 million and leverage of around 1.1x our cash earnings. So this means we have over GBP 100 million of undrawn bank facilities available to us, which gives us full coverage for all of the bank's working capital balance. We carry as a business and we utilize to maintain capital efficiency, and it's around half the level of debt that we've traded with since the IPO. So with this resilient balance sheet and profitable performance. This has supported the declaration of our final dividend of 0.037p and also an extension to our ongoing current buyback program of GBP 10 million. So moving on to the next slide. These results once again demonstrate how we're delivering on the fundamental financial principles that we consistently target. Firstly, we believe that our business as a market leader, it's important to be driving sales growth and taking share as part of our value creation. So growth in revenue since pre-pandemic has been largely driven by a 3% growth in market share. And Sofology, this has been due to new store openings. In DFS, that's been driven by like-for-like gains, which has been aided by store refits as well. Moving on to underlying profit before tax. That's increased by 14.6%, as I've said, driven by the increased scale of the group. So that's the revenues dropping to increase profits. And looking beyond 2023, we do believe that an 8% profit margin is still achievable, driven by those higher volumes coming through and underpinned by the additional platform strategy that Tim has touched on. Thirdly, we do take some return on capital employed as a business to ensure that we're investing our resources wisely and we're achieving returns on our targeted high-teens percentage levels. And finally, on capital returns, we do have a history of returning funds to shareholders with approximately a gross GBP 200 million returned or declared since our IPO. And so we're continuing that trend with the announcement of the 0.037p final dividend on [indiscernible] full year results but also by extending the ongoing share buyback. The switch to our buyback for approximately GBP 10 million and otherwise, we would have sought to return as a larger final ordinary dividend is worth dwelling on a little bit. So through to our results announcement a fortnight ago the brief and spent just over GBP 21 million in share buybacks, which reduced the number of shares in issue by 5.8% and led to similar earnings per share accretion. The post-tax trading return on investment on those buybacks to date 11.9%. And based on reasonable medium-term projections that we have as a board, we estimated internal return, rate of return an IRR for the program of over 30%, which really emphasizes towards the highly attractive returns we believe are available to our shareholders. So while it's been an incredibly challenging year, we're pleased that we've grown our profits and revenues relative to pre-pandemic levels. And while the current environment is difficult with the risk of consumer demand weakness, we do believe that we're going to emerge stronger relative to others. So moving on to the next slide, building on that point. I thought it would be helpful to offer a reminder on the relatively flexible way our cost base will move with volumes. So 59% of our gross sales. So that's our VAT inclusive sales value is directly variable. So that's either product costs, finance subsidy, inbound freight costs or VAT. So that 59% will move directly with any changes in the top line of the business. Around a further 25% semi-variable % discretionary within our cost base. So in particular, sales commission in store, bonus and employee pay centrally, marketing spend and final-mile logistics, which we can flex our up or down the capacity of. And so that all means we're well placed to mitigate reductions in revenues in order to limit the impact on profitability. I also call out to the right-hand side of this page, a number of cost drivers that we receive questions on from investors commonly and then I believe we're well positioned for. However, stepping back from the detail there, the overall message that I highlight is that we do have a big opportunity from operating more efficiently following lower levels of COVID disruption, and we monitor and tightly manage the other moving cost base factors to make sure we're protecting our profit and protecting our customer proposition. And so despite the environment we do also have a solid outlook for financial year 2023, which is on the next slide. And our profit expectations for this year have been significantly influenced by sector volume declines as a result of the wider economic uncertainty we're currently seeing in the U.K. And we show here 3 scenarios on what that might mean, the uncertainty might mean for our business. We're showing different levels of sector-wide decline ranging between a 15% volume decline and a 5% volume decline. And it's always hard to extrapolate short-term sector trends into the future. But to be transparent, what we've seen so far in quarter 1 is definitely weaker volumes compared to pre-pandemic levels, which we regard as a pretty normal sort of base line level. Most recently, we've seen a reasonable recovery actually in sector volumes in September to date, probably towards or they're even potentially slightly above the high end of the range shown on this page, but July and August, however, were towards the low end of these scenarios. We do believe some of that July/August factor was -- factors driving that were transient, things like high levels of consumer uncertainty on domestic energy prices, the reopening, the restart of the holiday travel season and then the relatively hot weather we had all of those factors seem to be lifting and that might be linking into the better September performance, but we're always cautious about extrapolating potentially short-term demand patterns. And so we're really presenting these wide scenarios, wide range of scenarios, as our most important view of the range of outcomes that we do have this stage of the financial year. It is worth noting, however, that the worst we've ever seen in the market in recent years was back in the financial crisis of 2008, '09, where the market contracted by 12%. DFS actually outperformed significantly during that period, given the competitor exits that occurred back then and DFS' revenues actually stepped down by 4.5% in comparison to that 12% sector-wide decline. The other thing that is worth calling out here is that while we make sensible assumptions in coming off these scenarios around retail margin percentages staying similar in each scenario and taking advantage of sensible self-help levers that we can and are pulling across all of these scenarios, we see the businesses remaining operationally profitable, operationally cash generative and resilient ultimately. And so that brings us to the final slide just to sum up then. Although the short-term current trading conditions are challenging and do impact trading results as we've shown. As Tim has already stated, in times of market downturns, DFS as the market leader does emerge in a stronger position with greater market share, and we really expect this time to be no different. So our well underpinned medium-term ambition remains to grow revenues to GBP 1.4 billion by no later than 2027 financial year, depending on consumer environment. Secondly, we do expect greater profit margins with the higher revenues, leveraging our efficient platforms in order to deliver an 8% profit before tax margin in the medium term. And thirdly, we are confident on continued strong free cash generation underpinned by conversion of our profit before tax into post-tax cash flow at least 75%. So that was all I was going to say from the financial perspective. Tim, I don't know if there's anything else that you would add on as closing remarks or if we should move straight to Q&A.

Well, I think we should maybe [indiscernible] half an hour, so maybe if we move straight to Q&A, I'm sure.

[Operator Instructions] It might be an appropriate time Peter if I may, just to hand back to you. You'll see on that Q&A tab, you received a number of questions from investors this afternoon. If I could just ask you to read out those questions and direct them as appropriate to do so, and I'll pick up from you at the end.

Yes. Thanks, Mark. Okay, so the first question comes from Steve Kay. How do you see the split of in-store versus online sales moving forward?

Yes. So it's a good question. So we -- today, our -- the percentage of business that is completed online is about 23%, pretty similar across both brands a little bit higher in DFS a bit lower in Sofology but across the group it's about 23%. But what I would say is that half of those sales are influenced by an in-store activity. So customers coming into stores, sitting on the product and then going home and then completing online. So the actual pure play element of e-commerce is around about 11%, 12% for our business. And we've seen that grow by maybe 1-and-a-bit percentage points every year. Of course, COVID had a bit of an impact, but post COVID settled back now to this 22%, 23%. And I don't see a huge increase over the next few years, which kind of means our stores -- we talk about integrated retail, which is about how we have our stores and our website close together because in the end, as I said before, 90% of transactions for our business are influenced by that in-store experience to fit the tactile nature of it, and comfort is one of the main reasons why you do or you don't purchase a sofa. And for any of those who bought online directly, have a settlement and then the sofa arrives in your home, it's a pretty difficult thing to return. So I think hopefully that answers the question, Steve. I think gradual increase, but nothing dramatic from where we are today. And in the end, it's important to say we are the #1 player from online sofas by quite some way as well. Yes, I can read them, Peter, unless you want to read them out so that everybody hears them clearly.

Yes, will do so. Next question from David S. Given the inflationary pressures and your ambitions when the beds and mattresses market, would you look to build a brand organically or do it through acquisitions, a number of brands are struggling like [indiscernible] Sleep?

Yes. So we -- the way we're approaching the beds and mattress market is using some of the relationships that we already have to develop a unique upholstered bed frames. So Joules bed frames or French Connection, Grand Designs and then our own sort of in-house designs as well. So we're trying to create unique upholstered bed frames and broaden our range of beds. And from a mattress point of view, we have a great working partnership -- commercial partnership with Silent Night to offer good, better, best in the space of mattresses and everything you could want. So we are working with them, which is a win-win for both of us is negative working capital model. I think in terms of acquisitions and partnerships is something we look at, but they have to add something to the brand to what we're doing. So it's not the most immediate thing that we're looking at.

Okay. Next question is from John A. So could you talk about your share buyback policy? Reason being that I think you're a well-run company that's undervalued and the market overreacts due to the cyclical nature of the market. I just wondered whether you wanted to tactically step up repurchasing in time like these to increase shareholder value?

Should I take that one, too?

Yes.

Yes. So I mean, I think the first thing to say is that it's probably what every management team, particularly in retail saying at the moment is we agree that there's very strong returns available based on the share price today. However, we can't control where the share price sits ultimately. What we can do is control our direction of our capital allocation policy in response to the opportunities available to us. And so what we have done already -- what we aim to do is operate with an efficient but resilient balance sheet, which we believe is trading between 0.5x and 1x net debt to EBITDA, so that we're resilient and very strong financially to cope with a potentially cyclical market. But actually, secondly, within that, we do have the ability then to choose where we direct our capital returns. And so we did announce a GBP 25 million share buyback back in March, which we've seen very strong returns on as I mentioned in my opening remarks, 11.9% on a trading basis, but actually on a prospective basis based on where we think the earnings of business should be over time we see it's a 30% plus IRR. And so with those returns in mind, we did make a decision to move some of the payment that otherwise have been considered as part of our ordinary dividend into an enlarged share buyback -- buying back another GBP 10 million worth of shares. And I think although we do understand that a large percentage of our shareholder base, reasonable percentage of our shareholder base, does steady dividend income stream. We do believe that it's right for us to allocate capital to make sure that we're taking advantage of the opportunities and offer. And clearly, our shares at this point in time are a really attractive opportunity for growth.

Okay. The next question is from Sam E. So in terms of store opening, what's the planned rollout and what investment is required? What's your view on investing more in the business rather than share buybacks and special dividends to push the growth rates?

Yes. So our first priority in terms of capital investment is in the business, and we believe we've set out in our annual results that our ongoing capital investment in the business is around GBP 35 million to GBP 40 million of cash CapEx and then about GBP 10 million of lease CapEx. And we think that's the right amount based on maintaining our assets at the right level. So that's from a stores perspective, warehouses, trucks, et cetera, through to growth opportunities. And so we don't feel as though we're cash constrained in terms of investing in the business. We invest in what we think is the right amount to generate the right returns. In terms of stores, I think from a DFS point of view, across the U.K. and Ireland we're 118. And then what we're doing there is, as I mentioned previously, investing in the stores from a look and feel of format point of view and within our CapEx last year and also this year and probably in the remaining FY '24, we'll be investing in the region of GBP 300,000 a store on average to refurbish the stores and with that we believe we'll make them market-leading in terms of customer proposition. I don't necessarily -- there will be a few ins and outs of stores that will depend on conversations with landlords in the coming years. From a Sofology point of view, at the year-end, we have 55 stores. Our ambition is to get to somewhere between 65 and 70 over the next few years. So on average, we'll open 3, 4 stores a year in the right locations. We know exactly where to go because we also have all the data about how DFS trades in certain cities and certain parts. So it's just a question of finding the right opportunities. And so I think that's our first priority, investing in the business. The second around shareholder returns. We know our investor base is very strong. I've been [ an invester ] for a long time, value dividends, but also, as Mike alluded to earlier, where the share price is depressed as it is today and recognize that share buybacks is an efficient capital allocation decision. So hopefully, that answers the question, it's business first, and then we make sure that we've got -- we generate enough cash to give back to shareholders in the appropriate way. Okay, Peter?

Yes. So another question from Sam E. What do you know about Adriana S.A., a shareholder that now owns circa 8% of the company?

Yes. So Adriana are our largest supplier and have been for a while, supply about 30% of the group's sofas out of Poland, a limited company out of Poland. Long-term strategic and good relationship with them. And I think we've just decided to invest from their perspective, we're quite an important part of their business. So they have decided to invest from a security point of view, but also an investment point of view, I think they recognize and have set to us it's a vote of confidence in the value of the business, and I see the value, the share price as being this effect from what they believe the value of the business is. So we have a very good relationship with them. We keep this conversation very separate in terms of shareholder conversation and commercial conversation. And so we look forward to working with them going forward.

Okay. John A. asks what percentage of the market do you realistically think you can capture from your current position?

Yes. So our long-term ambition, a medium-term ambition is to get towards 40% value share organically. That will be achieved through 2 or 3 ways. One is new Sofology stores, as I mentioned, there's probably another 10 to go at, and we know the locations that we'd like to be in, and we know that it's very good new business for us and very low cannibalization with DFS. So that becomes a new market share opportunity between 1% and 2%. Secondly, we know that the online growth is definitely there from a double-digit growth point of view over the last sort of 5 or 6 years with DFS and then Sofology also performing well. So we know that continue to invest in online and broadening our offer from a sofa point of view is a good opportunity. And then thirdly, I think structurally, it's very challenging for the independent and smaller businesses in this climate to survive. And I think, unfortunately the ONS has looked at -- there's been about maybe 4%, 5% decline in those businesses in the last couple of years as a result of some of the cost of goods inflation and freight and challenges in the market. And I think that will give us a natural little shift that was in terms of market share. So I think we can get to 40% in the next few years, and that will be the plan.

Okay. This is the last question we have. So from John A. again. Could you discuss who are your key shareholders? How much of the share capital is owned by management? Could you address concerns that DFS could be a takeover target due to the depressed nature of the share price because of the market conditions?

Mike, do you want to take the first one in terms of the key shareholders?

Yes. So I think we've got a very high-quality shareholder base with a number of shareholders who invested either at the time of IPO or shortly thereafter. So they've been with us a number of years. And I think within that mix, there's a number that are publicly disclosed because of the size of our holdings which are sort of larger U.K. institutions, either with a income focus, a value growth focus or indeed some with an ESG focused. [indiscernible] of course, from that perspective as well and like what we're up to on that journey. And I think -- actually, I think, one of the recent trends is then that -- that's starting to reach the maximum size in terms of individual shareholding limit levels. And so that does mean that there's the opportunity for businesses such as Adriana to step in and to seek to acquire shares in the market at current levels. And so we've touched on Adriana as a key shareholder. And clearly, that's really an interesting addition and a useful positive and long-term focused addition within that sort of overall U.K. long-term focused mix.

In terms of shares owned by management, I don't have the percentage to hand Mike, but we can make an estimate. It would be very low single digits, I think.

Yes. Yes, there would be. I think the management team, where also professional executives have joined the business. Tim and myself have both bought shares at the time of the most recent capital raising at the time of the pandemic. We've also bought shares in the market since then. And then we also hold our stake through LTIP awards as part of our overall sort of pay packages as well.

I think it's declared in the remuneration, call in the annual results, certainly, Mike and I, but the quite a number of the management team will hold shares. I guess, the last piece is around the fiscal takeout. I mean all we can focus on is a, delivering our strategy and delivering the results. And we try and tell and explain the strategic story and what's happening in the market as best we can. And I think that's all I can focus on at this moment in time, and we have had a track record of delivering returns for shareholders and creating a fantastic business, we believe. So I can't really comment on being a takeover target. I thought you could say that about most retailers in the U.K. given the depressed nature of the evaluations, it's probably all I can say on that one.

That's great. If I may, Tim, Mike, just jump in, and thank you for addressing all the questions from investors that you have seen this afternoon. If any further questions do come through and make those available to you post today's meeting. Tim, Mike, I know investor feedback will be important to you and to the company, and I'll shortly redirect those investors on the call to give you their thoughts and expectations. But I guess before doing so, if I may, Tim, just ask you, just for a couple of closing comments to wrap up with, after which I'll send investors to give you the feedback.

Yes. Well, look, thank you for the opportunity to talk on this platform in this forum to you. Hopefully, you get a sense that we feel pretty positive about where our business is at. Obviously, there are many things in the world that we can't control, but the things we can. We feel very confident that we've got; a, a very strong market-leading position and a good market share of 36% with opportunity to grow; b, that we know that when times of tough customers and our business -- customers turn to us and our business does well relatively. And so we can grow our market share through that. But I think the most important thing is c, which is, our business is well set for the long term, and we do stand by the medium-term targets that we set out in our Capital Markets Day. We have lots of data points and evidence that says that is very achievable once we get through this short-term cycle and I guess, looking through the short term is always challenging. But that's what we do and try and focus on building a bigger, stronger and more resilient and fantastic business for our colleagues and stakeholders. And so that's how we see it, and we feel we've got more than enough levers, more enough things that for us to pull in order to navigate the short-term headwinds, but certainly see opportunities in the next 4, 5 years to get to the targets that we outlined there.

That's great, Tim, Mike, thank you once again for updating investors this afternoon. Can I please ask those on the call not to close the session as we now automatically redirect you for the opportunity to provide your feedback. You know that management team can better understand your views and expectations. Just want to take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team at DFS Furniture Plc. We'd like to thank you for attending today's presentation, and may wish you all a very pleasant afternoon.