### **DFS Furniture plc** Annual Report & Accounts 2024 ### *Creating value by bringing great design and comfort into every home* **Affordable | Sustainable | Responsible** ### HIGHLIGHTS In a very challenging trading environment the Group has made good operational progress and is well positioned to capitalise when the market recovers. ### **Financial headlines** Definitions and reconciliations of Alternative Performance Measures ('APMs') can be found on pages 19 and 20. Throughout this report, references to income statement measures including revenue, EBITDA², profit before tax, and underlying profit before tax and brand amortisation² are in respect of continuing operations only unless otherwise stated. ### Underlying profit before tax, excluding amortisation of brand names² £10.5m ### Group revenue £987.1m ### Underlying earnings per share ### (Loss)/profit before tax ### (Loss)/earnings per share ### Operational and strategic highlights - Execution of our Pillars and Platforms strategy consolidating our position as the clear market leader. - Addition of a new exclusive brand partnership with Ted Baker has contributed to DFS continuing to broaden its appeal. - Refresh of the Sofology customer proposition and pricing strategy to good effect. - Record NPS scores achieved, supported by various technology solutions to enhance the customer experience. - Cost to operate efficiency programme delivered £27.5m of in-year cost savings across operating costs and product cost of goods. ### Post purchase NPS3 92.8% ### Established customer NPS³ 28.3% ### 53 week period - 2. Refer to pages 19 and 20 for APM definitions. - 3 Net Promotor Scores for the DES brand. ### CONTENTS ### Strategic report - 1 Purpose driven approach - 2 At a glance - 3 Our fundamentals - 4 Chair's statement - 6 Chief Executive's report 9 Market overview - 11 Our customer journey - 12 Business model - 13 Our strategy - 14 Key performance indicators - 16 Financial review - 19 Alternative performance measures - 21 Risks and uncertainties - 29 Section 172 statement - 32 Responsibility and sustainability report ### **Governance report** - 52 Directors and officers - 54 Corporate governance report - 61 Audit and Risk Committee report - 65 Nomination Committee report - 67 Directors' Remuneration report - 88 Directors' report - 91 Statement of Directors' responsibilities in respect of the annual report and the financial statements - 92 Independent auditor's report ### Financial statements - 9 Consolidated income statement - 100 Consolidated statement of comprehensive income - 101 Consolidated balance sheet - 102 Consolidated statement of changes in equity - 103 Consolidated cash flow statement - 104 Notes to the consolidated financial statements - 135 Company balance sheet - 136 Company statement of changes in equity - 137 Notes to the Company financial statements ### Shareholder information - 140 Financial history - 141 Shareholder information ### **PURPOSE DRIVEN APPROACH** *Our Purpose is to bring great design and comfort into every home, in an affordable, responsible and sustainable manner. Our customers and our people are at the heart of everything we do, and our culture is rooted in our core values.* *Our vision is to lead furniture retailing in the digital age.* ### **O U R ST R AT EGY** DELIVERS... ### **AFFORDABLE... R E S P O N S I B L E . . . S U STA I N A B L E . . . LO N G -T E R M VA L U E C R E AT I O N FOR OUR...** ### **Our unparalleled scale** Provides valuable customer and market insight as well as economies of scale and national coverage ### **Our brands** Read more on **page 2.** **Logistics** ### **Our platforms** Read more on **page 13.** Read more on **page 35.** **Sourcing and manufacturing** **Technology and data** ### **Our exceptional people** **People and culture** ### **Our culture and values** Our culture and values run through everything we do. They guide our actions and create a sustainable and responsible business. Read more on **page 33.** ### **Responsibility and sustainability** Our business is built on the right ethical foundations to ensure that with our sofas people feel more comfortable – in every way. Read more on **page 32.** ### **Governance** The Board sets the Group's purpose, strategy and values to promote its long term sustainable success. Read more on **page 55.** ### **Our markets** DFS is the clear leader in the upholstered furniture market. We believe the 'integrated retail' business model allows us to adaptto fast-changing consumer shopping habits and positions us well for the future. Read more on **page 9.** ### **Risk management** The Group faces a number of risks and uncertainties in both its day to day business operations and strategic development. Effective mitigation ofthese risks is essential to enable us to meet the needs of our customers. Read more on **page 21.** ### **Business model** Our carefully considered business model continues to deliver on our objectives in challenging markets and creates value for all our stakeholders. Read more on **page 12.** **Customers** **Colleagues** **Communities** **Suppliers** **Environment** **Investors** ### **AT A G L A N C E** *We are the leading sofa retailing group in the UK – we operate across two retail brands, each appealing to different customer segments.* - DFS is the leading retailer of sofas in the UK with over 55 years' heritage. - Headquartered in Doncaster, it operates 115 showrooms in the UK and Republic of Ireland, and a leading web platform. - The brand is promotionally-ledwith broad-reaching advertising campaigns that drive brand recall and focus on comfort and value for money. - Its customers tend to have average national income and a high proportion are young families. - As one of the UK's most visible retail brands, DFS is often an anchortenant driving significantfootfall to destination retail parks. - DFS is the most commonly searched term online in the sector, ahead of even 'sofa', and its website received an average of 1.8 million unique visitors each month in the 12 months to June 2024. - The majority of sofa orders are fulfilled on a made-to-order basis. ## DFS Sofology DFS and Sofology ### FY24 brand revenue *£786.5m* In addition to DFS's own brand products, it also offers awide range of exclusive products created in collaboration with the UK's top home and lifestyle brands. ### FY24 number of showrooms *115* - Sofology is the third largest retailer of sofas in the UK. - Headquartered near Warrington, it trades through its growing national footprint of 58 showrooms and its website. - We see an opportunity to expand the showroom portfolio with a medium term target of 65-70 showrooms. - Its marketing approach focuses on emphasising product design and quality. - The use ofwell-known celebrities in itsTV and digital adverts has helped build its brand awareness and distinctiveness. - The brand appeals to a slightly more affluent than average customer. - The majority of sofa orders are fulfilled on a made-to-order basis. ### FY24 number of showrooms *58* ### FY24 brand revenue *£200.6m* ### Delivery vehicles *253* - Our Group-wide logistics platform is one of several key infrastructure components supporting our retail brands. - The Sofa Delivery Company plays an important role in achieving the Group's environmental targets in relation to emissions, waste and recycling. - It offers extended hours delivery to our customers seven days aweek, virtually all year round. # Strategic Report ### Contents - 4 Chair's statement - 6 Chief Executive's report - 9 Market overview - 11 Our customer journey - 12 Business model - 13 Our strategy - 14 Key performance indicators - 16 Financial rev - 19 Alternative performance measures - 21 Risks and uncertainties - 29 Section 172 statemer - 32 Responsibility and sustainability report ### **OUR FUNDAMENTALS** ### Delivering sustainable growth Our Group benefits from four fundamental advantages that provide our business model with resilience and position us well for the future. ### 1. Clear market leader With 36%¹ of the sofa retailing market, the DFS group is over three times the size of our nearest competitor. This market leadership enables significant economies of scale benefits. 1. GlobalData August 2024 ### 3. Sustainable business model We are committed to building a sustainable business model, both in terms of our impact on the environment and our long term success and resilience as a Group. Our scale and profitability has allowed us to invest for the long term throughout the economic cycle, leaving us with well-invested platforms relative to our competition. ### 2. Integrated retail business We believe our winning combination of digital and physical assets is the right long term approach for the sofa market. With our integrated platform, we're 'channel agnostic' and flexible to support customers however they want to shop. This is supported by our own dedicated manufacturing and supply chain operations. ### 4. Home market opportunity The UK beds and mattresses segment represents a sizeable medium term opportunity for the Group. We believe that our existing customer base, our interest free credit offer and our Group assets including sourcing, web and logistics platforms, marketing expertise and differentiated brand partnerships leave us well positioned to grow market share in this segment. ### Sustainable growth We believe the fundamental strengths of our business model described above leave the Group well positioned for medium-term growth in shareholder returns. High levels of free cash flow generation are a long-term feature of our business model. Read more on page 13. ## Building for the future This past year has seen continued and sustained improvements in the operational capabilities of the Group to a level that the business has not seen before. Building for the future, we have optimised our cost base and delivered improved levels of customer satisfaction. We believe that the outlook for DFS remains positive despite the extremely challenging global and domestic environment that we are operating in. As expected, our revenue performance has been impacted by the significant fall in market volumes year on year and on pre-pandemic levels. In addition, the business has had to absorb significantly higher costs due to high levels of international freight rates and continued elevated interest rates. We have responded well to these challenges by progressing with our cost action plan and achieving significant savings of £27.5m to underlying costs. The savings achieved to date demonstrate our ability to remain agile and reshape our operations in light of prevailing market conditions. The medium term prospects for the upholstered furniture market remains strong and we are confident that our market leading position and long term growth strategy will ensure the business is well positioned to take advantage of the market recovery. We view the recent acquisition of both ScS by the Italian company Poltronesofà and Anglia Home Furnishings, which trades as Fabb Furniture, by the Australian company Nick Scali as further evidence of confidence that in the medium to long term the UK market will see strong growth as the economy recovers and consumer confidence returns. The ability of our colleagues across the business to continue to innovate and to deliver in this challenging environment has been invaluable and my thanks on behalf of the Board go to all of them. ### Financial results Whilst overall our financial results are disappointing, we recognise they are an inevitable result of the market backdrop during the year being significantly more challenging than we expected before the year began. The focus of the Board and the Executive team has been between achieving the best possible short term results and ensuring that the business is still well positioned to take advantage of the inevitable market rebound. This has meant balancing our approach to costs and operational capability as well as to talent recruitment and retention, being very judicious with capex at the same time as ensuring that the business remains primed to respond to a better market, and it means balancing the need to retain cash in the business to invest for the future with the expectations of our shareholders Leverage at year end was 2.5x which remains above our stated target level, although ample liquidity headroom remains. Bringing the level down towards our target remains a key focus using the twin levers of absolute debt reduction and profit improvement. As detailed in the Financial review at page 18 we are pleased that the business has been able to work with its lenders to amend the terms of its debt facilities to provide sufficient flexibility and headroom going forward. ### **C H A I R 'S STAT E M E N T** CONTINUED ### **Strategic focus** Inevitably when performance is under pressure, hard choices have to be made on which strategic options to prioritise and this has meant that we have temporarily deprioritised our focus on growing our wider Home offering.The Board is determined to achieve the right balance between justifiable caution given the short term environment and the need to ensure that the business continues to invest and improve for the future. We have carried out a detailed review of our strategy during the year. We are confidentthat our pillars and platforms strategy remains the right long term strategy for the Group and we have continued to make good progress on our areas of focus. We continue to leverage ourtwo market-leading complementary brands, DFS and Sofology – they appealto different customer segments and allowus to target the majority of the market with creative direction managed by each brand team. Each brand curates its own ranges, supported by specialistin-house design teams. We continue to innovate in partnership with a small group of specialist suppliers and brands. Over the last 12 months we were excited to bring our new Cinesound™ range to market. This cinema sofa turns home entertainment into a 4D immersive experience, packedwith state-of-the-artfeatures – a 3Daudio system, vibration pads and powered head and foot rests. We continue to invest in our national network of showrooms across the UK and the Republic of Ireland and in our websites to ensure they continue to inspire our customers and provide a leading customer experience. During the period, we were proud to announce that we have entered into an exclusive agreement with Ted Baker. The range has been incredibly well received by our customers looking for that extra bit of luxury. As a business with our customers at its heart the ongoing evolution of our product range across both our brands is a critical component of what we do. I am proud of the progress that our teams have made working with our suppliers and brand partners such as Ted Baker and La-Z-Boy aswell aswith ourin-house factories to continue to improve our product proposition. We will continue to assess the pace and priorities of all our strategic objectives as market conditions evolve over the next 12 months. ### **Culture and purpose** We strongly believe that our colleagues and their contribution to our culture and values is what makes DFS great. Our colleagues across the Group have yet again played a pivotal role in the progress we continue to make and I would like to thank them for their continued outstanding contribution. It is important that the Board stays close to the views of our colleagues andDirectors devote significant time to activity thatlets them hear first-handwhat is on our people's minds. Visits to our showrooms, manufacturing sites, customer distribution centres and Group Support Centre, as well as attendance at our Voice Forums equip Directors to understand the practical implications of our plans and the challenges faced by our colleagues. ### **Environmental, social and governance ('ESG')** We continue to make excellent progress on our environmental goals, and we were delighted to be named a Climate Leader by the Financial Times earlier this year. This is a testament to our commitment to sustainable performance. In June 2024 we took the next step on our journey and submitted our plan for Net Zero for validation to the Science Based Targets initiative. ### **Board changes** At the end of July we gave our thanks to Loraine Martins who stepped down from the Board. Loraine has made a significant contribution to our People Strategy and has worked with the team to develop the Group's wider approach to equity, diversity and inclusion. In August we welcomed Bruce Marsh to the Board. Bruce is a seasoned retailer and is currently the Chief FinancialOfficer atCurrys plc.He brings expertise in retail, finance, financial markets, investors and governance and will provide fresh insight as to how the Company should address the ongoing challenges facing UK retailers. The approach to any appointment to the Board is on ensuring we have the right blend of skills for the current and likely future environment and that we have the right experience and tenure to deliver continuity and succession over time. ### **Governance and reporting** The Board generally meets eight times per year when we have a formal agenda and additional meetings are arranged as required for specific items or such matters are delegated to ad hoc committees and reported upon at subsequent meetings. More details of the Board's activities, and key decisions taken during the year are set out later in the Governance section of our Annual Report. I am pleased to say that we were compliant with the UK Corporate Governance Code (2018) ('the Governance Code') throughout the year, and the following pages set out further details. I invite you to consider that alongside the report on howtheDirectors have fulfilled their duties in accordance with section 172 of the Companies Act 2006. ### **Dividend** At the time of the interim results in March 2024 the Board declared an interim ordinary dividend of 1.1 pence per share (2023: 1.5 pence per share). Given the challenging trading conditions described above the Board concluded that it would not be appropriate to propose a final dividend. Whilstthis may be disappointing for some of our shareholders, we believe it is in the best long term interests of the Group. We continue to encourage all shareholders to attend our 'in person' annual general meeting, which will be held in Doncaster on 22 November 2024. This provides a great opportunity to hear from and speak with members of the Board and Group Leadership Team. ### **Looking ahead** I am proud of the Group's achievements in 2024 and remain confidentin the plans thatwe have forthe year ahead.Our clear strategy, greatteam, market-leading position, innovative products and the strength of our brands all bode well for the future. ### **STEVE JOHNSON** Chair of the Board 25 September 2024 ### Group revenue *£987.1m* Underlying profit before tax and brand amortisation1 *£10.5m* ### Loss before tax *£1.7m* 1. Referto pages 19 and 20 for APM definitions. ### CHIEF EXECUTIVE'S REPORT # Managing challenging conditions and positioning the business for future growth In financial year 2024 the Group has made good progress improving our gross profit margin rate and reducing our operating costs whilst achieving record NPS scores. This progress has been delivered against a backdrop of very challenging market conditions. ### Market update and financial overview Consumer demand fell significantly in the financial period driven by the cost of living crisis. The level of decline was beyond our initial expectations with overall demand levels reaching record lows. In addition supply chain disruption in the Red Sea that emerged in the second half of the period extended our made-to-order product lead times delaying the recognition of revenues. We took decisive action through the period as the scale of market decline, now over 20% below prepandemic levels in volume terms, became apparent. We accelerated a number of initiatives across our Cost to Operate efficiencies programme reducing our costs by £27.5m year on year. Despite these actions, the Group's profits were unfortunately impacted by the extent of the market decline and the supply chain disruption. Underlying profit before tax and brand amortisation reduced from £30.6m in our FY23 financial period to £10.5m in FY24 and reported profit before tax reduced from £30 fm to a loss of £1.7m. When formulating our cost-out action plans we have been resolute in protecting and improving our customer facing resources to continue to deliver good outcomes for our customers and record high post purchase and post delivery NPS scores were achieved. With our retail brands clearly positioned and operations now leaner and more effective than ever, the Group is in a strong position to capitalise when the market recovers and deliver strong returns for our shareholders. ### Progress on our three focus areas The Group has consolidated its position as the clear market leader having added 4ppts to our market share since 2020. We have improved our gross margins by 140 bps to 55.8% as we target our historical level of 58%. The growth has been supported by redistributing goods across our supplier base to optimise the cost and quality of production as well as from retail price increases in the final quarter of the prior year. ### **CHIEF EXECUTIVE'S REPORT** CONTINUED We have reduced operating costs across all areas of the business, be it by operating segment or expense type. This has been accomplished by undertaking a rigorous review and reappraisal of the cost base to ensure it is appropriate for both today's market environment and future, stronger market environments. This programme is ongoing with examples of cost reductions to date achieved via improved operating models, utilising AI, enhanced procurement activities, and utilising data/ MI to improve operational performance. The savings achieved in FY24will provide a further upliftinto the following year in addition to new initiatives that we have planned. I'm pleased with the progress we have made which has had the end customer impact core to decision-making to ensurewe do not hamper our ability to capture demand when the market recovers. ### **Strategic update** Our strategy is to profitably and sustainably growour core upholstery brands, DFS and Sofology, utilising all channels to create a seamless experience for our customers and to growour share ofthe £5bn nonupholstery Home market. This growth is supported by utilising and enhancing our enabling platforms; technology and data, logistics, sourcing and manufacturing, and people and culture. ### **Our pillars** TheDFS brand,which has a broad appeal offers a market-leading choice of products. Its trusted,friendly service and digital approach to connect our showroom, web and telesales channels enabling customers to shop their preferred way has continued to improve with post purchase NPS scores reaching record highs of 92.8%. We have successfully broadened DFS's appeal to a wider range of customers over time. This has been facilitated, for example, by the addition of exclusive brand partnerships and through adapting our marketing strategy to focus more on improved product showcasing supported by improved showroom formats. Our exclusive brand sales now account for over 41% of total sales. The most recent addition to our exclusive brand partnerships in the period was Ted Baker and the three ranges launched have performed very well. We continue to develop new ranges to add to our existing exclusive brands such as the new Carlisle French Connection range. All these factors have supported the brand in consolidating recent market share gains. I'm also pleased to announce that we have recently launched a new exclusive partnership with La-Z-Boywhichwill be a great addition to our existing brand partnerships. We adopt good governance practices to ensure our brands play to their relative strengths, targeting their customer segments accordingly to reduce the risk of cannibalising one another's sales. Our Sofology brand offers an inspiring and exciting range of well targeted products that bring quality, style and luxury within reach and targets a slightly older demographic than the DFS brand. Sofology over the year as a whole performed broadly in line with the wider market. Following a relatively tough start to the year we adapted the brand's retail pricing and introduced a number of new product ranges to provide an overall refresh to the Sofology proposition. These changes have had an almost instantaneous impact with the brand returning to order intake growth in the final quarter ofthe year. To further bolster the brand's potential we plan to commence a refurbishment programme of the Sofology showroom estate in calendar year 2025 to modernise some of the older sites within the portfolio. Thesewill be the firstrefurbishments carried out across the estate and we will adopt a test and learn approach to ensure we optimise the returns available. When we see a prolonged period of improving like for like performance and as our balance sheet strengthens we plan to continue our showroom roll out to grow the estate from the current 58 showrooms to 65-70 showrooms and have our target locations lined up. The Home market represents a great opportunity for the Group to expand its addressable market to thewider £5bnHome (non-upholstery) market, first targeting the £3bn beds and mattress sub segment.As announced in our half year update we have completed the development of supporting infrastructure including a drop ship solution and warehouse management system that provide the foundations for growth. We have also expanded some of our exclusive brand partnerships to include beds as well as upholstery. We have decided to temporarily pause further investment into marketing to drive sales and instead focus our investments into our core upholstery offerin this period ofweak market demand. Profitability in ourHome offer has however stepped up, increasing year on year due to improved gross margins and lower operating costs. We continue to see great potential for the Group to drive incremental profitswith limited furtherincremental investment as we target a 4% share in this market. ### **Our platforms** Our enabling platforms play a pivotal role in supporting the Group to deliver value. This is achieved through a number of means such as sourcing efficiently utilising the Group's scale, developing our market-leading delivery services and providing our highly motivated colleagues with data to drive insight and improved decision-making across the business. **Sourcing and manufacturing:** We are aiming to improve our gross margins to our long term historical pre-pandemic level of 58% following a reduction across 2021 and 2022. This reduction resulted from rising input costs, freight rates and Bank of England base rates thatwere notfully passed onwith a profit mark up. In addition, lower market volumes impacted the efficiency of our own and external manufacturing operations. We expect to deliver cost of goods savings through redistributing goods to optimise the cost and quality across our supplier base and in addition we expect further uplifts through reducing interest rates over time. We took the decision to close the smallest of our three manufacturing sites and one of ourtwowood mills in the first half ofthe financial period and redistributed production across the remainder of our supplier base. This resulted in cost savings that contributed to the 140 bps gross margin improvement in the period. These types of decisions are never straightforward and have significantimpacts on our colleagues and other stakeholders. Following a consultation with 215 colleagues, we were able to retain 44 colleagues including at our recently formed sewing hub and we supported the remaining workforce through a comprehensive outplacement support service. **Technology and data:** Our investments continue to centre heavily on utilising technology and data to improve the efficiency of our operations and the customer experience. We have recently undertaken the process of moving away from a number of legacy systems and implementing Google's contact centre AI platform in Sofology. This will help enable us to utilise AI in the future to further improve our customer service levels and optimise costs. To date we have automated the process to take customer payments over the phone as well as deliver a full self service customer delivery proposition. We see numerous opportunities ahead to reduce the number of customer contacts to enable our teams to focus on the more complex service situations. In the second half of the year we also successfully launched our proprietary Intelligent Lending Platform used in DFS, into Sofology. This has broadened the number of lending partners available to Sofology, increasing the probability of customers obtaining the credit that is right for them, reducing the time taken to deal with credit applications and reducing the cost to the Group of providing credit to customers. **Logistics:** Last year we completed the remaining integration activities to combine and rationalise the logistics assets from the DFS and Sofology brands. Nowthe SofaDeliveryCompany,which fulfils deliveries for both brands through utilising the same systems, distribution centre network, fleet andworkforce is performing very strongly with key performance indicators such as vehicle fill, labour productivity and delivery failure rates all improving. This has both driven down costs significantly and improved the customer experience with post delivery NPS scores reaching record highs. We believe that we have created a valuable asset and there are additional opportunities available to furtherrefine and improve performance. **People and culture:** Our colleagues are the Group's most important asset. Ensuring the Group is a great place to work that has an open, collaborative and inclusive culture where people can be their best is key to our future success. We are constantly looking to evolve and improve our colleague experience and we have been focusing over the last year on colleague development. We have launched a number of programmes to help our people thrive and grow, for example by running a management academy programme within the Sofa Delivery Company to upskill over 150 colleagues, launching a Group leadership academy programme with monthly workshops attended by over 300 aspiring leaders and via developing finance academy courses led by subject matter experts. To help ensure everyone feels ### **CHIEF EXECUTIVE'S REPORT** CONTINUED welcome we have established six colleague networks and partnered with Diversity in Retail, enabling us to collaboratewith other businesses and benefitfrom adopting best practices. We are constantly seeking to raise standards and I'm pleased to say we have achieved accreditation in the Inclusive Employers Standard. ### **Sustainability** In June this year we submitted our Net Zero strategy to the SBTi. We decided to shift our Net Zero target to before 2050, aligning with climate science and the UK government targets. I'm pleased to say that this year we have secured commitments from our manufacturing partners that cover 59% of our Scope 3 emissions to committo developing their own sciencebased Net Zero plans. Whilst making up a relatively low proportion of our total emissions I'm nevertheless proud that the consolidation of our delivery fleets,AIroute planning tools, and driver efficiency training, aswell as removing gas from ourretail estate has delivered a significant reduction in our Scope 1 emissions. We are already making great strides to ensure our business can make the most of the opportunities of a circular economy to deliver sustainable performance for the Group (see pages 32 to 51 for more details). ### **Conclusion and outlook** I want to sincerely thank all of our colleagues for their enthusiasm and continued commitment to delivering a great service to our customers in what has been a very challenging period for the Group given the market conditions. Despite the challenges that the business has seen, we are optimistic for the future and see signs that market growth could soon return. We expect recent improvements in housing transaction data and strengthening consumer balance sheets to lead to increased upholstery market demand across the FY25 financial year. In addition,thanks to the successwe have had growing our gross margin and improving our operational efficiency,we expectto deliver profits in line with market consensus1 , weighted to the second half. It is clear that the upholstery market has a long road to recovery given the 20% decline on pre-pandemic levels that we have seen. Despite the challenges we have faced,we remain confidentthatthe business is well positioned to capitalise on market recovery. Given our strong market leadership position, the operational leverage in the business, our well invested asset base and negative working capital cycle we expect to deliver strong returns for our shareholders. ### **TIM STACEY** Chief Executive Officer 25 September 2024 ### *We are the leading sofa retailer in the digital age* *The Group has consolidated its position as clear market leader in challenging conditions.* ### **Large potential customer base** The DFS Group has a specialist focus on the retail upholstered furniture segment. The UK upholstery furniture market was estimated by GlobalData to be valued at £3.1bn (incl.VAT) in the calendar year 2023. As a Group, we view the beds and mattresses segment as a key opportunity increasing our Total Addressable Market('TAM') by approximately £3bn. ### **Clear leader in the segment** The Group, through its DFS and Sofology and brands, is the clear leader in the upholstered furniture market, with 36%1 market share by value in FY23.This market remains highly fragmented and we see further opportunities to grow our market share. We see four broad categories of companies actively competing in the upholstered furniture retail market: specialist chains such as DFS, Sofology, ScS and Furniture Village; independents that are typically single store operations; predominantly online furniture retailers such as Wayfair; and larger general merchandise or homeware retailers such as Amazon, Argos, Dunelm, Ikea, John Lewis and Next. We believe the integration of digital and physical is the right long term approach to serve our customers. Ourwell-invested 'integrated retail' business model allows us to adaptto fast-changing consumer shopping habits, and positions us well for the future. Market conditions are currently challenging with the UK upholstery market seeing a reduction in volumes and reaching record lows in FY24. Historically, the Group has tended to gain market share during periods of market weakness as weaker multiples and independent chains have exited the market. For example, the Group's market share increased from c.19% to 24% during the 2008-2010 Global Financial Crisis impacted period and from 32% to 36% in the 2020 to 2023 Covid pandemic and cost of living crisis (GlobalData). Demand is supported by a seven-yearreplacement cycle and underpinned by demographic trends. We believe over shorter time frames the segment is principally driven by three key factors: consumer confidence, housing market activity and consumer credit availability, discussed below. In addition to these market drivers we do see from time to time some volatility in market demand levels caused by particularly hot or coldweather and significant public events. ### **MARKET OVERVIEW** CONTINUED *Market conditions are currently challenging with UK upholstery market demand levels at a record low driven by the cost of living crisis. Historically, the Group has been able to grow market share during economically challenging times.* ### **Key market drivers** ### **Consumer confidence** Levels of consumer spending, particularly for big ticket items, are influenced by general consumer confidence. UK consumer confidence, as measured by GfK, has weakened since 2016 amid uncertainty following the referendum vote to leave the European Union. In 2020, consumer confidence fellfurther due to economic and financial uncertainty around the pandemic, but recovered in 2021. Since then consumer confidence has been impacted by high inflation levels and elevated interest rates putting pressure on consumer budgets. In 2024 through to September there has been an improvementin confidence levels, albeitthe scores remain volatile month to month. ### **Housing market** Independent research conducted on our behalf suggests that c.20% of upholstery purchases are triggered by a house move. As the pandemic spread in spring 2020, government social distancing measures led to a sharp contraction in housing market activity, which subsequently bounced back in 2021 as a result of temporary government measures to reduce stamp duty payable on residential property purchases. Housing transactions since then have been impacted by higher Bank of England base rates and the cost of living crisis, howeverthe July 2024 YTDposition is in year on year growth following a recovery over the last four months. ### **Consumer credit** Upholstered furniture typically has relatively high unit prices and the availability of consumer credit can facilitate purchases and upselling. Consumer credit growth slowed since the EUreferendum,reflecting increased economic and political uncertainty. Through the pandemic, UK consumers reduced debt, as government restrictions reduced options for discretionary spending (e.g. foreign travel and leisure). Consumer unsecured lending has been in growth since 2022. ### (2.6) 3.1 (3.3) (8.8) (9.5) (12.7) (24.3) (14.5) (38.9) (29.3) (17.4) 2014 2015 2016 2018 2017 2019 2020 2021 2022 2023 2024 YTD ### 1. GfKUKConsumerConfidence average of individual month scores for each year. ### Consumer confidence¹ Housing transactions p.a. ('000s2 ^2. HMRC – number of residential property transaction completionswith a value over £40,000 fortheUK, seasonally adjusted. ### ) Net unsecured lending growth³ (%) 3. Monthly 12-month growth rate oftotal (excluding the Student Loans Company) sterling net consumer credit lending to individuals (in percent) seasonally adjusted. ### **OUR CUSTOMER JOURNEY** ### *The customer is at the heart of our Group journey* *1* **D E S I G N** **& INSPIRE** *2* **I N T E G R A T E D** **R E TA I L M O D E L** *3* **C U T T I N G E D G E TECHNOLOGY** *4* **M A N U FAC T U R I N G** *5* **SERVICE** *6* **I N N O V A T I V E DELIVERY OPTIONS** *7* **S O F A C O L L E C T I O N & RECYCLING** Through our innovative in-house design teams and with our buying expertise we remain at the forefront of home furnishing trends with each of our brands offering a distinct curated range. We inspire consumers to consider a purchase through memorable advertising, inspirational web content and the use of augmented reality technology. Sustainability is a key feature in our product designs as we strive to meet the expectations of our customers by being responsible, ethical and sustainable in our products. The combination of our well-invested websites, national showroom networks and call centres which are staffed by well-trained and highly motivated sales teams provide a market-leading integrated retail experience to our customers. Collectively across all our brands we have styles and price points that appeal to the majority of the market and we make our products more affordable through offering interest free credit. We focus on embracing and leveraging technology to maintain our position as the leading sofa retailer in the digital age and improve our operational efficiency. We are one of the largest manufacturers of upholstered furniture in the UK. Our factories collectively produce around 18% of all the furniture we sell. Aftercare is provided by highly skilled teams with the majority of after-sales issues being addressed in customers' homes by our own colleagues. The Sofa Delivery Company is our leading Group-wide supply chain platform. Through our own network of customer delivery centres and our own delivery fleet we carefully deliver our products to customers' homes and provide a comprehensive installation service. Getting rid of an old sofa responsibly and conveniently is a real issue for customers. Unless old sofas are passed on to family, friends or charity, many go into landfill. Our experienced specialist partner Clearabee will collect customers old sofas and take them to the nearest recycling centre where it will be broken down to its component parts to reuse, recycle or create new energy. % of customers who research online *81%* UK showrooms *173* Reduction in customer calls from enhanced delivery arranging experience *7%* Orders manufactured in own factories *18%* Service managers *220* Delivery vehicles *253* Sofas saved from landfill *56,800* ### **BUSINESS MODEL** ### *How we create value… How we deliver value…* ### **OUR ENABLERS** ### Customer ethos 'Think Customer' is our first value. By treating customers as we would our own family, we aim to deliver great service. ### Unparalleled scale We have a UK Group market share of c.36%1 over three times that of our nearest competitor. ### Complementary brands Our complementary brands appeal to different customer segments. ### Well-invested platform Modern, well-located showrooms and innovative apps and websites give customers the convenience to shop exactly how they want. Our own warehouses and delivery fleet use state-of-the-art software to help us operate efficiently. ### Made-to-order products The majority of the products we sell are made-to-order, enabling us to operate with negative working capital. ### Vertically integrated model We have end-to-end control of the customer journey from design all the way through to after-sales servicing. ### Exceptional people We have over 55 years of expertise and recruit, train and retain what we believe are the highest calibre people in the industry. ### **W H AT W E D O** ### Design and inspire Our design teams and experienced buyers curate attractive and distinct propositions across our unique brands that appeal to most tastes. Our marketing aims to reach our target markets across all broadcast and digital media, inspiring customers to consider a purchase. ### Retail Our websites and showrooms nationwide combine to create an increasingly seamless customer experience, allowing customers the opportunity to visualise, sit on and feel the product, while researching and then transacting in store, at home or on the move. ### Manufacture We manufacture around 18% of the Group's sofa orders in our own British factories, resulting in shorter lead times and greater oversight on sustainability. ### Deliver and install Our delivery network operates from customer distribution centres spread across the UK and Ireland using custom-built route-mapping technology to reduce lead times, lower emissions and optimise efficiency. ### Service Sometimes things go wrong and, if they do, we have our own teams of upholsterers that are on hand to visit customers in their homes and address any after-sales issues. ### **OUTCOMES** ### Sustain sector-leading operating margins Scale advantages across the value chain, from sourcing and shipping rates to maximising delivery and service fleet utilisation. ### Grow our market share We have a history of growing our market share over the long term in all economic climates. Our exclusive brands enable us to target the majority of the market and we have a clear opportunity to grow further. ### Maintain strong cash generation We aim to deliver high levels of free cash flow generation, enabling us to both invest for growth and return funds to shareholders. ### Continue to invest in the business We reward our staff fairly, maintain and enhance our existing assets and selectively invest in growth opportunities to optimise the returns for our shareholders. ### **VA L U E FO R STA K E H O L D E R S** **CUSTOMERS** *92.8%* DFS post purchase NPS ### **EMPLOYEES** *38%* employees > five years' service **SUPPLIERS** *33%* customer orders from British factories2 **SHAREHOLDERS** *£191m* net cash distributed since flotation3 **COMMUNITY** *£7.6m* raised since 2013 for BBC Children in Need through customer donations and fundraising initiatives - 1. GlobalData August 2024 report. Market share calendar year 2023. - 2. Includes third-party manufacturing and internal manufacturing. - 3. Dividends and share buybacks net of 2020 equity raise. ### **O U R ST R AT EGY** Our vision is to lead furniture retailing in the digital age, and we pursue this through our 'Pillars and Platforms' strategy which will unlock new categories of growth, whilst leveraging our proven and leading upholstery market made-to-order model advantages. The strategy of the business is made up of three pillars: our DFS brand, our Sofology brand and our expansion into the Home market. The growth of our three pillars will be enabled by our four Group platforms: sourcing and manufacturing, technology and data, people and culture and the Sofa Delivery Company logistics platforms. The strategy reflects the Group's expertise and scale and the ability to utilise our enabling platforms to improve operational efficiency and growth across our brand portfolio. We are committed to building a sustainable business model, both in terms of our impact on the environment and preserving our long term success as a Group. ### **R E TA I L** ### **Best experience** Biggest range and the critical 'sit test': *88%* of DFS customers visit a store before buying ### **Best in store service** *92.8%* DFS post purchase NPS ### **Best sales teams** *91%* people would recommend Sofology having purchased within a Sofology showroom ### **ESG** ### *Pillars* ### **DFS & HOME** ### **SOFOLOGY** *To further grow the showroom estate throughout the UK* ### **Focus** - Like-for-like sales growth - Roll out of showrooms on the route to targeted 65-70 locations when market recovers - Continued improvement of established customer NPS scores ### **Focus** – Range enhancements including successfully launching - new brand partnerships – Continued improvement of established customer - NPS scores **Customer proposition and service innovation** *New products and services to engage customers* – Invest to grow beds and mattress sales when core upholstery market demand recovers, leveraging the foundations already laid ### *Platforms* ### **T E C H N O L O G Y A N D DATA** *Using data and technology to unlock growth in our brands* ### **Focus** Development and enhancement of customer contact platforms, introducing AI to improve the customer experience ### **LOGISTICS** *Best in market two person delivery and installation* ### **Focus** Continue to optimise operational performance ### **S O U R C I N G A N D M A N U FAC T U R I N G** *Optimising our supplier portfolio* ### **Focus** Grow gross margin rate to 58% ### **P E O P L E A N D C U LT U R E** *Delivering fundamental cultural change* ### **Focus** Continue to develop our Employee Value Proposition (EVP) ensuring our external perception is appealing and matches our internal reality ### **D I G I TA L** ### **Best online brand strength** 'DFS' is searched for *1.8x* more than the term 'sofas' *81%* of showroom customers research online before coming in to a showroom ### **Best enhanced technology** The largest collection of augmented reality (AR) assets accessed through a web browser in the furniture category ### **Best ecommerce platform** Enhancement of the online experience through the use of AI ### KEY PERFORMANCE INDICATORS - FINANCIAL ### Gross sales1 ### £1,311.8m ### Description Gross sales represents the total amounts payable by external customers for goods and services supplied by the Group, including aftercare services (for which the Group acts as an agent), delivery charges and value added and other sales taxes ### Performance Decline in sales due to reduced levels of market demand. ### Key - \* 52 weeks pro forma. - \*\* 48 weeks reported. - 1. Refer to pages 19 and 20 for APM definitions. - 53 week period. - Results for the 52 weeks to 27 June 2021 have been represented to reflect the classification of operations in Spain and the Netherlands as discontinued in accordance with IFRS 5 Underlying profit/(loss) before tax excluding brand amortisation¹ ### £10.5m ### Description Profit before tax adjusted for non-underlying items and amortisation associated with acquired brands. ### Performance Decrease due to the lower level of gross sales ### Underlying return on capital employed1 10.8% ### Description Underlying return on capital employed ('underlying ROCE') is underlying post tax profits expressed as a percentage of the sum of property, plant and equipment, computer software, right of use assets and working capital. ### Performance Decrease driven by lower profit in the period. ### Banking leverage¹ 2.5X ### Description Refer to APMs on pages 19 and 20. ### Performance Increase driven by lower EBITDA and an increase in net debt, partly due to temporary working capital movements. ### Underlying free cash flow to equity holders1 (£10.0m) ### Description Underlying free cash flow to equity holders is the change in net bank debt for the period after adding back dividends, acquisition related consideration, share based transactions and non-underlying cash flows. ### Performance Reduction driven by transitory working capital inflows normalising as well as the lower relative profits in the period. Further working capital outflow in week 53 of FY24 due to additional rent and VAT payments made relative to 52 week periods. Excluding the working capital movement, FY24 free cash flowwas £7.5m (FY23: £29.4m) ### KEY PERFORMANCE INDICATORS - NON-FINANCIAL Net Promoter Score (%) -Post purchase customer satisfaction ### Description Average across all DFS stores based on post purchase customer satisfaction surveys. ### Performance Significant year on year increase to a record high level. ### Strategic links Net Promoter Score (%) -Established customer satisfaction ### Description Average across all DFS stores based on established customer satisfaction surveys (six months after order). ### Performance A second year of improvement since FY22 which was heavily impacted by pandemic related shipping disruption, HGV reliability and extended manufacturing lead times ### Strategic links ### Suppliers - Average days to pay 48.5 days ### Description Average number of days between receipt and payment of supplier invoices. ### Performance Increase from FY23 due to standardisation of key supplier ### Strategic links Suppliers -% paid on time ### Description Percentage of supplier invoices paid within agreed terms. ### Performance Increase from FY23 driven by continuous improvement within the operational teams. ### Strategic links ### Sofology UK stores 58 ### Description Number of Sofology stores trading at the end of the financial period. ### Performance Showroom openings temporarily paused until market demand recovers. ### Strategic links ### Key to strategic links Sourcing and manufacturing Technology and data Logistics People and culture ### **FINANCIAL REVIEW** ### *Focus on strengthening profits and cash flow* *The Group's financial performance in FY24 has been heavily impacted by the decline in market demand levels and in the second half by Red Sea related shipping disruption. This has required decisive actions to protect profitability and cash flow, whilst maintaining our position as the clear market leader.* We saw order intake decline by 1.8% for the year in challenging market conditions, with market order volumes down over 20% comparedwith the prepandemic period. After positive growth in our first quarter summer sale trading period, we saw customer footfall and order intake decline year on year through the second and third quarters, including the important winter sale trading period (January to mid-March).However,within this period we did record good positive order intake growth across our guaranteed Christmas delivery campaign, supported by increased customer choice on 7-10 day express delivery ranges. In the final quarter of the period, we were pleased to see order intake growth improve to +8.4% as we annualised weaker comparatives and following actions in Sofology to strengthen product ranging and pricing, and in DFS to reintroduce 4 years interest free credit at select times. ### **Basis of preparation** The reporting period covers 53 weeks to 30 June 2024 (FY24).As a resultofthe adverse impactfromRed Sea shipping delays in quarterfour,the net effectof the additionalweekon reported revenues in FY24 is relatively low(+c.£7myearon year) and the profitimpact is not significant.Consequently,otherthanorderintake growth metrics we have not included 52 week pro forma numbers for FY24. Yearon yearorderintake has been calculated by comparing the first 52weeksofthe 53 week financial period tothe 52week comparator period. ### **Revenue and gross sales** | £m | FY24 | FY23 | YoY | |--------------------------------------------------------------------------------------|--------------------------------------|--------------------------------------|-----------------------------| | Gross sales
DFS (incl. Dwell)
Sofology
Total gross sales
Digital sales % | 1,047.0
264.8
1,311.8
24.3% | 1,125.5
298.1
1,423.6
24.0% | (7.0%)
(11.2%)
(7.9%) | | Revenue | 987.1 | 1,088.9 | (9.3%) | | | | | | Total gross sales, which are recognised on delivery of orders to customers, decreased by 7.9% year on year to£1,311.8mwith both brands reporting a declineon prior year. The broader appeal of the DFS proposition supported a relatively better sales performance, whilst Sofology sales were more closely aligned with the market. Gross sales saw a higher rate of decline than order intake as a result of Red Sea disruption deferring £12m of deliveries into FY25 and the higher order bank at the start of the comparative period converting into sales. ### **FINANCIAL REVIEW** CONTINUED Digital sales mix increased slightly by 0.3ppts year on year to 24.3%. Our market research consistently indicates the majority of consumers utilise both channels in their shopping journey andwe have awell-invested asset base across both physical and digital sales channels enabling a seamless customer experience. Group revenue of £987.1m was 9.3% lowerthan the prior year(£1,088.9m).The rate of decline is greater than the gross sales reduction due to the higher cost of providing interest free credit. Interest free credit remains an important part of our overall customer value proposition. The increased cost is a result of higher Bank of England base interest rates and to a lesser extent an increase in the mix of sales made on credit, all partially offset by the impact of reducing our maximum every day interest free credit offerfrom 48 months to 36 months from March 2024. ### **Gross profit** Gross profit of £550.8m was £41.4m (7.0%) lower year on year, primarily due to the revenue shortfall. We delivered good further progress on gross margin rate in the year,whilst continuing to offer customers market-leading quality, choice and value.As a percentage of revenue, gross margin in the period was 55.8% (FY23: 54.4%), an increase of +140bps year on year(in addition to the 170bps increase in FY23). The margin improvement was supported by our decision to close our smallest manufacturing facility andwoodmill in the first half ofthe year,which enabled us to shift production volumes across our supplier base and reduce our cost of goods, contributing to an overall product margin improvement of c.£9.8m.This decision was disclosed as a post balance sheet event in our FY23 annualreport. In addition, average freight rates across the period were significantly lowerthan the prior yearwhich helped to partly offsetthe adverse impacts of higherinterest free credit costs and a lower USD rate applied to our Far East purchases. The net impact across these itemswas a netreduction to gross margin of c.£5.1m. Despite being lower year on year, freight costs were higherthanwe expected in the final quarter ofthe year as a result of Red Sea disruption related increases. The margin rate in the second half was below our expectations as we responded to the weak market conditions with additional promotional activity, together with the Red Sea related freight cost increases noted above. Whilst the near term freight market is expected to remain volatile and hard to forecast,we are confident that our scale and buying processes will enable us to continue to secure market-leading rates. We continue to see opportunities to grow gross margin rate, supported by further cost of goods efficiencies across our supply chains and as lower Bank of England rates reduce interest free credit costs (on an annualised basis a 1% change in base rates equates to £7m-£8m cost impact). We hedge our USD FX requirements with 90% of our expected USD spend currently hedged at a rate that is 4 cents favourable to the FY24 average rate paid. Every 1 cent movement in the USD rate equates to a c.£1.1m change in costs to the Group. ### **Selling, distribution and administration costs** Underlying selling, distribution and administration costs totalled £408.8m (2023: £434.8m),representing 31.2% of gross sales (2023: 30.5%). We continue to work hard to bring down our operating costs across the business, and we are making good progress towards the £50m operating efficiencies targetwe set atthe end of FY23. Whilstthis requires some difficult decisions, it has helped to protect profitability in the current period and sets the business up for stronger future returns. The £26.0m reduction in costs included £8.8m of volume related variable costs and £22.0m of savings frommore efficientoperatingmodels acrossour stores and online sales teams, logistics and manufacturing operations, customer service teams and across other central support functions. This includes the Sofa Delivery Company, where we are seeing strong improvements in customer and operational KPIs, at the same time as significantly lowering costs through a combination of productivity improvements, a reduction in thirdparty fulfilment partners and further consolidation of operational distribution centres. In addition, we reduced marketing by £3.8m in the period, principally through reducing our investment in driving the awareness of our Home ranges until market conditions recover. Inflationary costincreaseswere contained to c.£12.0m (3%), mainly relating towages.This increase was partly offset by £4.7m of cost avoidance and one-offsavings including rebates on historical business rates, and through not paying a financial performancerelated bonus to senior management and our central support teams. Looking forward,we are confidentwe have line of sight to additional cost efficiencies that can help us to offset future expected inflationary cost pressures. ### **Depreciation, amortisation, impairment and underlying net finance cost** Depreciation, amortisation and underlying interest charges have increased by £4.7m to £132.9m (2023: £128.2m). Underlying netinterestincreased by £7.0m to £41.1m (2023: £34.1m) as a result ofthe higher cost of debt servicing due to the higher average SONIA rates and a higher average net debt level through the period. Depreciation, amortisation and impairment costs reduced £2.3m. Lower depreciation charges and impairment on right of use assets arose as a result of the consolidation of our distribution centre network and associated lease exits in the prior period and renegotiating property leases approaching expiry to lower rent levels. ### **Non-underlying costs** | FY24 (£m) | Income
statement | Cash
outflow | |-----------------------------------------------------------------------------------------------|----------------------------|------------------------| | Restructuring costs
Land slippage costs
Release of lease guarantee
Refinancing costs | 6.5
3.1
(0.7)
1.9 | 4.1
0.2
–
0.8 | | Total | 10.8 | 5.1 | Non-underlying costs forthe yearwere £10.8m (2023: benefit of £0.5m), including £5.1m of cash outflows in the year. £6.5m of costswere incurred in relation to the restructuring of our manufacturing operations and central support functions in response to lower demand and to enable productivity improvements. This consists ofredundancy and termination costs totalling £4.1m, non-cashwrite-offlosses totalling £2.0m and other closure costs totalling £0.4m. £1.9m of costswere incurred upon refinancing our banking facilities in September 2023, with the majority ofthis cost covering thewrite offof unamortised issue costs.The cash outflows associatedwith these activities totalled £0.8m. £2.9mofnon-cashcosts and£0.2mof cashcosts relate to a provision made for expected remediation works required to an area ofland slippage identified at one of our remaining manufacturing sites. We expect the necessaryworks to be carried out and paid forin FY25. £0.7m of non-cash lease guarantee provision release associated with former subsidiary companies partly offsets the above costs. ### **Profits, tax and earnings per share** Reported loss before tax for the 53 week period to 30 June 2024was £1.7m (FY23: profit of £29.7m). Reported loss aftertax forthe periodwas £4.4m (FY23: profit of £26.2m). The tax charge recognised in the financial statements was £3.0m (FY23: £7.1m) despite there being a reported loss for the period. This is primarily due to disallowable depreciation on non-qualifying assets. The Group updates its Tax Strategy Statement each year, which is published on the Group's website, in compliance with its duty under the Finance Act 2016, which sets out details of the Group's attitude to tax planning and tax risk. Underlying profit before tax and brand amortisationwas £10.5m,which is £20.1m lowerthan the comparable period (FY23: £30.6m).This reflects record low market demand levels and higherinterest costs, partly offset by gross margin improvements and operating cost savings. Basic underlying earnings per share from continuing operationswas 1.5 pence (FY23: 9.6 pence). ### **FINANCIAL REVIEW** CONTINUED ### **Cash flow, net debt and lending facilities** Net bank debtin the period increased from £140.3m to £164.8m. | £m | FY24 | FY23 | |-----------------------------|---------|---------| | Underlying EBITDA | 142.0 | 157.4 | | Other* | 1.2 | 6.6 | | Capital expenditure | (21.6) | (34.9) | | Interest | (18.4) | (10.3) | | Tax | (3.0) | (0.7) | | Principal and interest paid | | | | on lease liabilities | (92.4) | (85.1) | | Working capital | (17.8) | (40.0) | | Underlying free cash flow | (10.0) | (7.0) | | Non-underlying items | (5.1) | (0.3) | | Free cash flow | (15.1) | (7.3) | | Shareholder returns | (9.4) | (43.0) | | Cash flow | (24.5) | (50.3) | | Closing net bank debt | (164.8) | (140.3) | | | | | \* Other includes discontinued operations, gains on disposal ofright of use assets, profit on disposal of fixed assets, FX revaluations and share based payments expense. Cash capital expenditure of £21.6m in the period reduced from £34.9m in FY23 and £25-£30m guided atthe start of FY24, as the business took a more disciplined approach to capital spend prioritisation in response to the more challenging market conditions and ourlower profit expectations.Approximately 50% was incurred on maintenance activities. Growth investment was predominantly incurred on technology investments to enhance the customer experience and support our operational efficiency. In addition, one new DFS showroom was opened in Greenwich and we refurbished one DFS showroom (59 showrooms completed overthe last five years). £9.8m of capital expenditure was also incurred on leased motor vehicle additions (FY23: £8.7m)which includes company cars and commercial vehicles. Cash interest paid increased £8.1m year on year and non-underlying cash costs of £5.1m were incurred due to the reasons provided above. Totalworking capital outflowin the periodwas £26m inclusive of additional rent payments included in the lease liabilities line. £13m ofthe outflowis due to additionalVAT(£5m) and rent(£8m) payments in this 53 week accounting period relative to 52 week periods.These outflowswillreverse in future periods. The remainingworking capital outflowis due to the lower level of trading activity in the period. We expect our negative working capital model to result in working capital cash inflowswhen market demand recovers. In September 2023 we successfully completed the refinancing of our debtfacilities, increasing the total amount available from £215m to £250m.The facilities comprise a £200m revolving creditfacilitywith a syndicate of banking partners which is in place until September 2027,with a further 16-month extension option, and £50m ofUS private placement noteswith redemption dates split equally between September 2028 and September 2030. The facility is subject to half yearly covenant tests of 3.0x maximum leverage net debt/EBITDA and 1.5x minimum fixed charge cover(both measured on an IAS 17 basis),whichwe have fully satisfied during FY24, ending the period with leverage of 2.5x1 and fixed charge cover of 1.57x. Whilst the Group expects to stay within the existing facility covenants, in September 2024 we agreed a widening of covenants with our lenders, which provides additional headroom in the event of unanticipated downside scenarios that result in a further decline in market volumes and lower EBITDA. The amended leverage covenant widens to 3.9x at H1 FY25 and 3.7x at FY25, before returning to 3.0x at H1 FY26.The amended fixed charge cover covenant widens to 1.3x atH1 FY25, 1.3x at FY25 and 1.4x at H1 FY26, before returning to 1.5x at FY26.The revised covenant agreement includes some limited restrictions on the payments of future dividends as detailed in the note opposite. ### **Dividends** The Board does not propose a final FY24 dividend.Our interim dividend of 1.1 pence per share was predicated on delivering a higherfull year underlying profitthan we achieved. Based on our dividend cover policy of 2.25x-2.75x underlying EPS,the interim dividend has already covered the implied full year total dividend. Furthermore, this is consistent with our current leverage position and our focus on reducing leverage and net debt overtime to our 0.5x-1.0x targetrange. ### **Outlook** After two challenging years of market and Group revenue declines, we see increasing reasons to be optimistic about a return to top line growth over the course of the year ahead. However, we are planning prudentlywith a focus on generating increased profits and free cash flowthrough improved commercial and operating performance, additional cost efficiencies and disciplined management of our working capital and capital expenditure. In the medium term as the market recovery accelerates,we are confident of generating strong returns for our shareholders. ### **JOHN FALLON** Chief Financial Officer 25 September 2024 - 1. Referto pages 19 and 20 for APM definitions. - 2. Covenant amendment dividend terms: - Amaximum£2.0m dividend may be declared in respect ofH1 FY25 performance (i.e. FY25 interim dividend) subjectto: - Leverage attheDecember 2024 assessment being less than 2.50x and fixed charge cover being greaterthan 1.50x; and - Forthe future two tests, leverage is forecastto be less than 2.50x and fixed charge coveris forecastto be greaterthan 1.60x (after dividend payments). Any subsequent dividends declared during the remainder of the covenant amendment period are subject to: - Leverage being less than 2.50x at the last test and is forecast (after the payment of such dividend) to remain below 2.50x at each of the next two tests; and - Fixed charge cover being greater than 1.60x at the last test and is forecast (after the payment of such dividend) to remain above 1.60x at each ofthe nexttwo financial covenanttests. Subject to lender consent we retain the right to revert to the previous covenant terms at any time. ### **A LT E R N AT I V E P E R F O R M A N C E M E A S U R E S** In reporting the Group's financial performance, the Directors make use of a number of alternative performance measures ('APMs') in addition to those defined or specified underUK-adopted International Financial Reporting Standards ('IFRS'). APMs are not IFRS measures, nor are they intended to be a substitute for IFRS measures. The Directors consider that these APMs provide useful additional information to support understanding of underlying trends and business performance. In particular, APMs enhance the comparability of information between reporting periods by adjusting for non-underlying items.APMs are therefore used by the Group's Directors and management for internal performance analysis, planning and incentive setting purposes in addition to external communication of the Group's financialresults. In order to facilitate understanding of the APMs used by the Group, and their relationship to reported IFRS measures, definitions and numericalreconciliations are set out below. Definitions ofAPMs may vary from business to business and accordingly the Group's APMs may not be directly comparable to similar APMs reported by other entities. ### **APM glossary and definitions** | APM | Definition | Rationale | |---------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Gross sales | Amounts payable by external customers for goods and services supplied by the
Group, including the cost of interest free credit and aftercare services (for which the
Group acts as an agent), delivery charges and value added and other sales taxes. | Key measure of overall sales performancewhich unlike IFRS revenue is not affected
by the extenttowhich customers take up the Group's interestfree credit offering. | | Brand contribution | Gross profitless selling and distribution costs, excluding property and administration
costs. | Measure of brand-controllable profit as it excludes shared Group costs. | | Adjusted EBITDA | Earnings before interest, taxation, depreciation and amortisation adjusted to exclude
impairments. | Acommonly used profit measure. | | Non-underlying items | Items that are material in size, unusual or non-recurring in naturewhich theDirectors
believe are not indicative of the Group's underlying performance. | Clear and separate identification of such items facilitates understanding of
underlying trading performance. | | Underlying EBITDA | Earnings before interest, taxation, depreciation and amortisation from continuing
operations, adjusted to exclude impairments and non-underlying items. | Profit measure reflecting underlying trading performance. | | Underlying profit before tax
and brand amortisation PBT(A) | Profit before tax from continuing operations adjusted for non-underlying items
and amortisation associated with the acquired brands of Sofology and Dwell. | Profit measurewidely used by investors and analysts. | | Underlying earnings per share | Post-tax earnings per share from continuing operations as adjusted for non
underlying items. | Exclusion of non-underlying items facilitates year on year comparisons ofthe key
investor measure of earnings per share. | | Net bank debt | Balance drawn down on interest-bearing loans,with unamortised issue costs added
back, less cash and cash equivalents (including bank overdrafts). | Measure of the Group's cash indebtedness which supports assessment of available
liquidity and cash flowgeneration in the reporting period. | | Cash EBITDA | Net cash from operating activities before tax, less movements on working capital
and provisions balances and payments made under lease obligations, adding back
non-underlying items before tax. | Measure ofthe non-underlying operating cash generation ofthe business,
normalised to reflecttiming differences inworking capital movements. | | Underlying free cash flow to equity holders | The change in net bank debt for the period after adding back dividends, acquisition
related consideration, shared based transactions and non-underlying cash flows. | Measure of the underlying cash return generated for shareholders in the period
and a key financialtargetfor ExecutiveDirectorremuneration. | | Leverage (gearing) | The ratio of period end net bank debt to cash EBITDA for the previous twelve months. | Key measure which indicates the relative level of borrowing to operating cash
generation, widely used by investors and analysts. | | Underlying return on capital employed
(underlying ROCE) | Underlying post-tax operating profitfrom continuing activities, expressed as a
percentage of the sum of: property, plant and equipment, computer software,
right of use assets and working capital. | Represents the post-tax return the Group achieves on the investmentit has made
in its business. | ### **A LT E R N AT I V E P E R F O R M A N C E M E A S U R E S** CONTINUED ### **Reconciliations to IFRS measures** | | | FY24 | FY23 | |----------------------------------------------------------------------------------------------------------------------------------|--------|--------------|----------------| | Adjusted EBITDA | Note | £m | £m | | Operating profitfrom continuing operations | 2 | 41.3 | 63.8 | | Depreciation | 3 | 77.8 | 80.5 | | Amortisation
Impairments | 3
3 | 13.7
0.3 | 11.6
2.0 | | Adjusted EBITDA from continuing operations | | 133.1 | 157.9 | | | | | | | Underlying EBITDA | Note | FY24
£m | FY23
£m | | | | | | | Adjusted EBITDA from continuing operations
Non-underlying operating items | 3 | 133.1
8.9 | 157.9
(0.5) | | Underlying EBITDA from continuing operations | | 142.0 | 157.4 | | | | FY24 | FY23 | | Underlying profit before tax and brand amortisation – PBT(A) | Note | £m | £m | | (Loss)/profit before tax from continuing operations | 2 | (1.7) | 29.7 | | Non-underlying items | 3 | 10.8 | (0.5) | | Amortisation of brand names | 10 | 1.4 | 1.4 | | Underlying profit before tax and brand amortisation | | 10.5 | 30.6 | | | | FY24 | FY23 | | Net bank debt | Note | £m | £m | | Interest bearing loans and borrowings | 18 | 187.4 | 165.8 | | Unamortised issue costs | 18 | 1.6 | 1.2 | | Cash and cash equivalents (including bank overdraft) | | (24.2) | (26.7) | | Net bank debt | | 164.8 | 140.3 | | | | FY24 | FY23 | | Movement in net bank debt | | £m | £m | | Closing net bank debt | | (164.8) | (140.3) | | Less: Opening net bank debt | | 140.3 | 90.0 | | Movement in net bank debt | | (24.5) | (50.3) | | | | FY24 | FY23 | | Underlying free cash flow to equity holders | Note | £m | £m | | Movement in net bank debt | | (24.5) | (50.3) | | Dividends | 21 | 9.4 | 12.1 | | Purchase of own shares
Non-underlying cash items included in cash flowstatement | | –
5.1 | 30.9
0.3 | | Underlying free cash flowto equity holders | | (10.0) | (7.0) | | Exclude: | | | | | Working capital outflow | | 17.8 | 40.0 | | Operating result from discontinued operations | 29 | (0.3) | (3.6) | | Underlying free cash flowto equity holders excluding operating result
from discontinued operations andworking capital outflow | | 7.5 | 29.4 | | | | | | | | | FY24 | FY23 | |-----------------------------------------------|------|--------|--------| | Leverage | Note | £m | £m | | Net bank debt (A) | | 164.8 | 140.3 | | Net cash from operating activities before tax | 26 | 118.9 | 122.4 | | Add back: | | | | | Pre-tax non-underlying items | | 10.5 | (4.3) | | Less: | | | | | Movement in trade and other receivables | 26 | 0.9 | (13.2) | | Movement in inventories | 26 | 3.2 | (8.6) | | Movement in trade and other payables | 26 | 15.9 | 55.8 | | Movement in provisions | 26 | (2.2) | 6.0 | | Payment of lease liabilities | | (67.6) | (61.6) | | Payment of interest on leases | | (24.8) | (23.5) | | Cash EBITDA (B) | | 54.8 | 73.0 | | Leverage (A/B) | | 3.0x | 1.9x | | IAS 17 bank covenant difference | | (0.5x) | – | | Bank leverage | | 2.5x | 1.9x | | | | | | FY24 cash EBITDAis materially differentfrom bank covenantIAS 17-based EBITDAdue toweek 53 cash flows. | Underlying return on capital employed from continuing operations | Note | FY24
£m | FY23
£m | |------------------------------------------------------------------------------|------|-------------|---------------| | | | | | | Operating profitfrom continuing operations
Non-underlying operating items | | 41.3
8.9 | 63.8
(0.5) | | Pre-tax return | | 50.2 | 63.3 | | Adjusted effective tax rate1 | | 25.0% | 22.6% | | Tax adjusted return (A) | | 37.7 | 49.0 | | Property, plant and equipment | 8 | 83.8 | 97.4 | | Right of use assets | 9 | 315.0 | 312.6 | | Computer software | 10 | 19.6 | 22.0 | | | | 418.4 | 432.0 | | Inventories | 14 | 59.0 | 55.8 | | Trade receivables | 15 | 6.7 | 7.7 | | Prepayments | 15 | 4.0 | 3.0 | | Accrued income | 15 | 0.1 | 0.1 | | Other receivables | 15 | 1.2 | 0.3 | | Payments received on account | 16 | (40.9) | (39.1) | | Trade payables | 16 | (100.4) | (97.6) | | Working capital | | (70.3) | (69.8) | | Total capital employed (B) | | 348.1 | 362.2 | | Underlying ROCE from continuing operations (A/B) | | 10.8% | 13.5% | ^1. Effective tax rate for FY24 has been adjusted to eliminate the disproportionate impact of disallowable depreciation on non-qualifying assets in the year. ### **R I S K S A N D U N C E RTA I N T I E S** *Taking risks is an inherent part of doing business. To manage that risk our Group Leadership Team supported by our Group Risk function has developed effective risk management processes to ensure good risk management is integrated into our business decision-making.* ### **Identification of risks** The Group continues to develop its risk management processes, fully integrating risk management into business decision-making.The Group RiskTeam supports the Group Leadership Team ('GLT') and the risk owners in identifying the risks and ensuring they have the relevant processes and controls in place to manage the risks effectively.The team works with the business units responsible for the ongoing identification, assessment and management oftheir existing and emerging risks. The output of these assessments is aggregated to compile an overall Group level view of risk, utilising both external risk management software and feeding into our internal dashboards to provide greater accessibility and awareness at senior levels. The team is committed to supporting the business in providing support and coaching to further strengthen risk culture within the Group. The Board has overall responsibility for the management ofrisk and the identification of principalrisks that may affecttheGroup's strategicobjectives andoversees the implementation of processes to manage these risks by the GLT and operational management. The Group risk register details the existing risks facing the Group, emerging risks arising and horizon risks to be considered and monitored.The Group has identified nine principal risks which are reviewed formally with the risk owners, the GLT and Board throughout the year. The graphic to the right details how responsibility for risk management is allocated across the Group. Each principal risk is owned by a member of the GLT, with strategic and operational risks being owned and managed by the senior management team. The Audit and Risk Committee, delegated by the Board, is responsible forthe reviewofthe effectiveness of the internal control framework. Management and mitigation of risk by the GLT is determined by a Group risk appetite agreed by the Board. The Group Governance and Risk Committee ('GRC') meets monthly to review changes in the regulatory/legal landscape and the Group's key risks and concerns. Further details of the work of the GRC are set out on page 55 of the Corporate Governance report. An example of this is the support the Risk team and the Health and Safety team have jointly provided to the Sofa Delivery Company leadership team which has resulted in risk management being embedded in all day to day operations, and every strategic change program. The crossworking ofthe differentfunctions has resulted in a more rounded and informed view of risks. ### **Evaluation of risks** The Directors have made a robust assessment of the principal and emerging risks and uncertainties facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. ### **Principal risks and mitigation** The Group's principal risks are discussed in the following pages, together with related mitigating activities. Other risks which are currently either not known to the Group, or are not considered material, could also impact the Group's reported performance or assets. The Group continuously considers and reviews the risks and if there are additional controls that could be implemented to reduce or better manage particular risks these will be considered in line with the Group's risk appetite. ### **Changes to principal risks in the year** As part of our risk management process the Group principal risks are regularly reviewed with the GLT and the Audit and Risk Committee. As a result of these reviews, although there are no additional risks the current risks have been updated to ensure they reflectthe risks the Group currently faces. The cyber risk has been expanded to include the risks associated with data, including accuracy and use. Due to changes in the internal leadership responsibilities it was agreed to focus the previous ESG risk clearly on the environment and sustainability, whilst the previous risk regarding lack of skilled workers has been expanded to become a people and culture risk to include social risks, community, culture, values and wellbeing. ### **Risk heat map** The impacts ofidentified risks are measured against predefined criteria in a number of areas – Financial, Operational, Health & Safety, Legal and Regulatory, and Technology – to establish a robust and objective assessment. The heat map illustrates the distribution ofidentified risks according to theirrelative likelihood of occurrence and the potential severity of their impact after taking into account mitigating activities, and shows the year on year movement in the risk assessment. ### **Principal risks** - Financial risk and liquidity **⁴** Supply chain and manufacturing resilience **7** People and culture - **²** Regulatory and compliance **⁵** Macroeconomic uncertainty **⁸** Consumer proposition - **³** Cyber security and data **⁶** Environmental and sustainability **9** Business change - and industry competition **1** 2024 **1** 2023 ### **Principal risk** ### **FINANCIAL RISK AND LIQUIDITY** **Strategic link Movement** ### **What is the risk?** Accuracy of reporting and adequate access to liquidity is key to delivering the strategy. Any impact on the Group's working capital requirements may result in insufficient headroom and an inability to access debt or equity financing which will directly affect the ability to enact the Group strategy. ### **Potential impact** - Failure to complywith banking covenants could lead to immediate cash flowand going concern issues. - Ifinsufficient headroom is maintained, liquidity challengeswill be encountered. - Macroeconomic environment and Company performance may lead to working capital swings, liquidity challenges and may impact ability to obtain financing. - Risk of facility maturity with no new facility in place. - Inaccurate financialreporting resulting in a failure to manage cash flowand pay our suppliers and providing insufficient fraud protection. ### **Mitigation** - Goodworking relationships maintainedwith all financial counterparties, ensuring that counterparties fairly understand our financial performance. Regularreviews of financing arrangements to ensure adequate funds in place and financing costs kept to a minimum. - Management of foreign exchange risk through the use of appropriate hedging arrangements in accordance with the Board approved treasury policy. ### **FY24 progress** – Anearterm widening ofthe Group's banking covenants has been agreed to reduce the risk of covenant noncompliance and therefore ensure continued availability of funds. ### **Principal risk** ### **R EG U L ATO RY A N D CO M P L I A N C E** ### **Strategic link Movement** ### **What is the risk?** We operate in an increasingly regulated environment and must comply with a wide range of laws, regulations, standards and guidance. Failure to comply with or to take appropriate steps to prevent a breach of these requirements could result in formal investigations or prosecutions, legal and/or financial penalties, reputational damage and loss of business. It is essential that as a Group we are aware and can fulfil all our obligations in the regions in which we operate, the UK and the Republic of Ireland. ### **Potential impact** - Changes in legislationwith significantretrospective orfuture economic effects could impact operating results. - Failure to meet our compliance obligations could negatively impactthe Group's reputation orresultin fines/penalties, reducing profitability. - Non-compliance could resultin potential civilor criminal liability fortheGroup's companies and/or seniormanagement. - The Group's reputation could be negatively impacted if it fails to support customers in the purchase of regulated products. ### **Mitigation** - Comprehensive training and monitoring programmes (including individual colleague NPS, internal audits and mystery shopping programme) are in place to ensure employees are appropriately skilled to deliver high levels of customer service and maintain regulatory compliance. - Management information provided to management teams to identify issues and take relevant action. - Strongworkingrelationshipswithourfinancialservicesandinsuranceproviderstoensureweworktogethertomeet regulations and support customers. - Rigorous oversight and escalation processes in place to maintain status oflimited permission to offer consumer finance granted by the FinancialConductAuthority. - Review of regulatory landscape and forthcoming changes to ensure timely, structured and sustainable planning and implementation. - Escalation of relevant matters to the Audit and Risk Committee for consideration. - Robust policies to ensure compliance with data protection requirements, including annual data protection training for all colleagues. - Regularreviewof pricing and coverlevels ofinsurance products offered to maintain and enhance the customer value proposition. - Robust sales principles and compliance frameworks across all brands. - Mandatory training programme for colleagues ensuring they have the correct level of knowledge and skill to support our customers in their sales journey. ### **FY24 progress** – The introduction of Consumer Duty has placed a higher focus on demonstrating good customer outcomes and all activities are under ongoing review to ensure we continue to deliver these. ### **Movement:** ### **Principal risk** ### **C Y B E R S EC U R I T Y A N D DATA** **Strategic link Movement** ### **What is the risk?** Our data and our IT systems enable us to fulfil our obligations to customers and manage our operations. Ensuring we both protect our data, and utilise it effectively is necessary to deliver our strategy. If a critical system, or our business data was not available, regardless of the cause, it could impact our operations, result in a loss of sales as well as incur regulatory penalties and reputational damage. ### **Potential impact** - Inability to access core operating systems (supply chain, customer delivery, call-handling, financialtransaction processing) could adversely impact customer experience and lead to increased costs or loss of revenue. - Loss of customer data could lead to a loss ofreputation and regulatory fines.Delays or errors in reporting on operational performance could result in increased costs or lost revenue. - Failuretoutilisedataeffectively,orinaccuratedatacouldresultinpoordecisionsbeingmadewhichimpacttheperformance and growth of the Group. ### **Mitigation** - Full IT security backup and business continuity procedures in place and regularly reviewed, tested and updated. - Technical security measures against data loss through a systems breach are regularly reviewed and updated, including by third-party experts,the results ofwhich are reported to the Board. - Third-party penetration testing is carried outroutinely to check the resilience ofthe Group's systems to cyber attack. - Mandatory cyber awareness programme for relevant colleagues. - Substantial ongoing investmentinwebsite development and digital marketing, complemented by third-party monitoring of both customer satisfaction with our digital services and the emergence of new online competitors. - IT systems are regularly reviewed and upgraded to ensure they continue to support the needs of the Group. - Ongoing reviewof datawithin the business to ensurewe can continue to make informed and effective decisions. ### **FY24 progress** - Continued to transform and educate our Human Firewall through improved user password strength and complexity, annual mandatory training along with a programme of phishing simulations. - Enterprise backup solution in place (with regular testing) across the whole of the estate (on premise and cloud) which manages, verifies and securely stores our backups offsitewhich provides immutability and enhanced controls against ransom-ware attacks. - Industry leading Manage, Detection, Response and SOC services from a Global enterprise company, increased scope of AI detection and response to include business communications systems. Vulnerability management tools have also been upgraded to an industry-leading solution to drive improved vulnerability remediation. - Annual pentest covered the widest scope to date, including such areas as web applications internally and externally delivered, physical security and remote access. ### **Principal risk** ### **S U P P LY C H A I N A N D M A N U FA C T U R I N G R E S I L I E N C E** ### **Strategic link Movement** ### **What is the risk?** We are reliant on external suppliers, worldwide to provide our finished products to customers or supply raw materials for our UK manufacturing sites. If that supply chain is affected by availability, labour shortages, transport details or failure of a key supplier, this could increase the costs to the business or impact our ability to fulfil customer orders. ### **Potential impact** - Failure to supply customer orders on time orto expected quality, could lead to loss ofrevenue and/or profits and adverse impacts on the reputation of the Group and its retail brands. - Inefficient production schedules due to raw materials supply, could resultin increased costs. - Increased lead times as a consequence of production details or transport disruption could result in loss of sales. ### **Mitigation** - Sales&Operations Planning function established to proactively manage the end-to-end supply chain across the Group. - Annual shipping contracts that set out fixed pricing and capacity availability are maintained in orderto manage uncertainty of prices and volumes in the container shipping industry, particularly in relation to deliveries from the Far East. - Long standing relationships backed by contracts with our key suppliers and the introduction of a stocked model with the brands. - Despite the challenges noted, the mitigating actions already in place has meant the situation has been well managed, supported by strong customer NPS scores. - The Group's supply chain from the Far East has been impacted by the Red Sea conflictresulting in cargo vessels routing around Africa adding circa two weeks onto transit times. - The shipping route around Africa reduced market capacity and there was a spike in general demand which resulted in the market rates volatility. - The Group was subject to some surcharges levied by our carrier partners which increased our freight costs versus forecast. - Customer lead times were extended to account for the longer transit times mitigating any customer impact but deliveries realised in the financial yearwere impacted. ### **Platforms:** ### **Movement:** ### **Principal risk** ### **M AC RO ECO N O M I C U N C E RTA I N T Y** **Strategic link Movement** ### **What is the risk?** Unexpected or difficult to forecast external factors have increasingly impacted the business environment which the Group operates in. These external factors have included the ongoing consequences of the pandemic, a cost of living crisis, high levels of wage inflation, the invasion in the Ukraine and the ongoing situation in the Middle East. High interest rates, increasing the cost of providing IFC and the cost of debt, and depressing the level of housing marketing. Looking forward there remains the potential for more global geopolitical and economic uncertainties. This can lead to unpredictable supply chains, trading performance and financial results, especially in a market for big ticket, discretionary spend items, all of which can then have a negative impact on performance. ### **Potential impact** - High inflation, interestrates and globalrecessionary pressures could resultin rising creditrisks and a continued fall in consumer demand. - Conflicts in other countries including theUkraine intensifies and/orwidens into other geographies leading to barriers to trade or rising costs. - Rising political and economic tensions between China and the west lead to barriers to trade or rising costs. - High interestrates could resultin unaffordably high costs of borrowing. - Higher oil prices may lead to higher fuel and energy prices. ### **Mitigation** To minimise the impact of macroeconomic uncertainty on the Group there is a clear focus on what we can control including: - Continuous review of product ranges to ensure they provide an attractive customer proposition at a variety of price points. - Range selection supported by detailed data analysis and customer choice enhanced through exclusive and strategic brand partnerships. - Regularreviews ofinterestfree credit offering to balance the costto the Groupwith the flexibility required by our customers. - Management of cost base in periods of lower income through reduced discretionary and variable spend. ### **FY24 progress** - The Group has amended its approach to interestfree creditreducing the standard offerto 3 years increasing itto 4 years to support peak sale periods and give customers flexibility in their purchase choices. - The Group has been focussed on reducing its cost base, and has implemented an operational efficiencies programme across all areas. ### **Principal risk** ### **E N V I RO N M E N TA L A N D S U STA I N A B I L I T Y** ### **Strategic link Movement** ### **What is the risk?** Failure to anticipate and address positively the strategic, regulatory impact our operations have on the environment would fall short of the expectations of our key stakeholders, including our customers, colleagues, investors and regulators which could lead to reputational damage and financial loss. An inability to anticipate and mitigate environmental risks could cause disruption in the availability and quality of raw materials such as leather and timber, affecting production capacity, product quality, and overall supply chain resilience, leading to a significant increase in costs. ### **Potential impact** - Financial penalties relating to disclosure requirements and legislation breaches. - Poor risk rating received by risk analysts devaluing the business impacting share price. - The product is unattractive to consumers resulting in loss of sales/revenue. - Climate impacts to operations or wider value chain, resulting in operational costs. - High capital expenditure requirements to transition costs to new technologies. - Reputational risk due to unethical practices within the value chain. ### **Mitigation** - Full transparency and traceability of higher risk material value chains with ongoing due diligence audits to mitigate risk. - Robust data monitoring and reporting, aligned to key reporting frameworks. - Carbon reduction plan developed with value chain engagement and support. - Ongoing consumer sentiment monitoring to identify risks and opportunities of product and commercial offering. - Strong governance in place on environmental strategy including audit and risk controls. - External audit and certification of suppliers of goods forresale and external assurance on reported carbon emissions. - Engaged wider value chain in Net Zero strategy, garnering support to submit to the SBTi. - Developed commercial models to ensure sustainable performance throughout transition to Net Zero. - Developed innovative solutions to manufacture low carbon product. - Achieved significantreductions in Scope 1 against FY19 baseline. - Created a new ESG Committee with senior leaders to ensure good governance of ESG risks and opportunities. ### **Movement:** ### **Principal risk** ### **P E O P L E A N D C U LT U R E** ### **Strategic link Movement** ### **What is the risk?** We aim to create an inclusive workplace with a positive contribution to the communities we serve as well as all our stakeholders, including our customers, colleagues, communities and suppliers, and creating a 'great place to work'. We need to ensure we have the right skills for today and the future. To do this effectively we need to ensure we live our values, creating a culture that continues to meet the expectations of our colleagues and stakeholders by responding to external pressures and working with everyone to develop an inclusive and diverse workplace. Failing to do this could impact business performance,the delivery of our purpose, our strategy and the long-term sustainability of our business. ### **Potential impact** - Failure to attract and retain high quality colleagues could negatively impact operational performance and customer service levels. - Excessivewage inflation could increase the Group's cost base,reducing profitability. ### **Mitigation** - Regularfunction specific remuneration benchmarking and business-wide annual salary reviews ensure colleague remuneration is competitive. - Significantresources and focus invested in building an inclusive and engaging culture. - Suite of additional benefits available to colleagues,with particular emphasis on colleaguewellbeing. - Internaltraining and development programmes developed in areaswhere skills shortages are identified. - A focus on training and developing colleagues within the Group to provide opportunities for colleagues to 'grow' and progress internally. - Regular engagement surveys and colleague-led network groups to understand the voice of colleagues and the culture within the Group. - A robust and proactive approach to health and safety to ensure a safe working environment for everyone. ### **FY24 progress** - Continualreviewof colleaguewellbeing offerresulting in alignment of benefits available to everyone. - Membership of Diversity in Retail, alongside Inclusive Employers, to strengthen our strategic approach and create peer to peer connections. - Executive sponsorship and governance to support our inclusion colleague network groups. ### **Principal risk** ### **CONSUMER PROPOSITION AND INDUSTRY COMPETITION** ### **What is the risk?** The reputation of, and value associated with, the Group's brands and product offering is central to the success of the business.Failuretomaintainawell-designed,highqualityproductrangethatispricedattractivelycouldcompromisethe success of the Group. ### **Potential impact** - Failure to predict changes in customer tastes or to respond to the impact of changes in the competitive environment could reduce the Group's revenues, and profitability. - Reputational damage resulting from customer complaints, falls in actual product quality or poor customer service could have a negative effect on the reputation of our brands, leading to loss ofrevenue and profits. - Competitors could improve their offering,reducing our market share. ### **Mitigation** - Continualreviewof products and services to ensure they suit customers' needs, are competitively priced, offer good value, meet the right quality and sustainability standards and are supported by excellent customer service. - In-house product design team and external design partners ensure productrange is attractive and innovative. - Internal manufacturing, close supplierrelationships and made-to-order model allows any quality issues to be addressed swiftly. - Use ofNPS, and incentivisation of colleagues on the basis ofNPS scores encourages customer-focused behaviours throughout the customer journey. - Frequent competitor analysis and mystery shopping at competitors' stores and online offerings. - Launch of DFS collaboration with Ted Baker as part of a focus to ensure our products are right for our customers. - Introduction of new ranges into Sofology to ensure our products meet our customers' expectations. - Both DFS and Sofology have focused on increased 'in stock' products to allow us to meet the demands of our customers for quick delivery times. ### **Platforms:** ### **Movement:** ### **Principal risk** ### **BUSINESS CHANGE** ### **Strategic link Movement** ### **What is the risk?** The Group undertakes a number of significant investment or business change projects that are key to successfully executing its strategy. Failure to successfully implement these changes could mean the business fails to deliver its strategy. ### **Potential impact** - The business change programme does not deliverthe identified changes required to supportthe business strategy. - Colleagues are resistant to change and cause operational challenge. - Internal resources are not informed and fail to support the initiative. - Failure to execute transformation projects successfully could reduce the Group's operational efficiency, erode the Group's marketleadership position and have a negative impact on financial performance. ### **Mitigation** - An executive member (the COO) has responsibility for transformation, overseeing a programme structure and a team of project managers dedicated to its execution. - Risk assessments completed for all critical workstreams and challenged through Board and Audit and Risk Committee discussions. - Experienced senior management engaged in the design and delivery of the integration and transformation plans providing regular updates to the Board. - Regular review of transformation programmes to ensure priorities and areas of focus are appropriate to support delivery of the Group's strategy. - BusinessChange team structure defined, seniorlead appointed and clear scope of accountabilities in place. - 'Operate for Less' workstream main focus, with clear line of sight across all operating costs, split into three main areas (People, Property, Other). - Significant costreductions/inflationary increase mitigations delivered in year via internal/process change, contract renegotiation and/or supplier partner change. - External SME partners in place to supportinitiatives as required, enabling a lower fixed headcountinternally. - Scoping commenced on remaining areas of Group integration opportunities to further enhance optimal commercial approach, create a consistent way of working and mitigate risk. ### **Viability reporting** In accordance with the UK Corporate Governance Code, the Directors have assessed the prospects ofthe Group over a period significantly longerthan 12 months from the date of approval ofthe financial statements. The period assessed was the three years from 30 June 2024 as in the opinion of the Directors this reflects the longest period overwhich the impact of key risks can be reasonably assessed within a big-ticketretail business given the potential volatility of the trading environment. ### **Approach** The Group established a 'base case' model of financial performance over the three year assessment period which reflected prudent expectations offuture customer demand and the execution of the Group's strategic plans. The Directors then made a robust consideration of the key risks and uncertainties that could impact the future performance of the Group and the achievement of its strategic objectives, as discussed on pages 21 to 27 of this Annual Report. The primary impacts of those risks which could significantly affectthe future viability ofthe Group are a decrease in customer orders, reducing revenue, and an increase in the Group's costs, including those resulting from the impacts of climate change on materials and suppliers,reducing profitability.The effect oflost revenue on profit before tax and cashwas applied to the base case model using an expected 'drop through' rate, based on expected gross margins and variability of costs. Cost increases were modelled on general and specific assumptions forinflation.The analysis considered a range of severe but plausible scenarios impacting revenue and margin, a significantreduction in customer spending, and impacts on profitability from inflationary cost pressures. For each scenario, sensitivity and stress-testing analysis was performed to model the impact on the Group's profitability and cash flows.The assessment considered howrisks could affectthe business now, and how they may develop in future. ### **Key assumptions** The base case forecast assumes a growth in the Group's market of 2% in FY25,from an already low base relative to pre-pandemic levels,followed by a slow recovery (mid single digit annual growth) in subsequent years.The base case also reflects a cautious assessment of the anticipated growth in the Group's market share driven by delivery of our strategic initiatives. Revenue is assumed in line with order intake, keeping order bank levels relatively consistent across the assessment period. Gross margin percentage for FY25 is expected to be ahead of FY24 through more effective sourcing and the annualised impact of price increases and freight rate reductions already implemented.Other costs reflect anticipated inflationary increases and benefits from specific cost saving initiatives.Capital expenditure is assumed to remain in line with planned investments and strategic initiatives. In sensitising the base case for lower revenue scenarios,the rate of drop through to profitis assumed to be consistent throughout the assessment period. The viability assessmentreflects the continued availability of the Group's debt facilities, comprising of a £200.0m revolving creditfacility maturing in September 2027 (with an option to extend £175.0m ofthe facility to January 2029) and £50.0m of fixed rate private placement debt notes, £25.0m maturing in September 2028 and £25.0m maturing in September 2030. ### **Results** The range of severe but plausible scenarios included a market decline of up to 7% in FY25 compared to the base case, and a sustained reduction in gross margin. These impacts were modelled individually and in certain combinations, in conjunction with a range of mitigating actions that could be taken to preserve the Group's profitability and cash flows.Mitigating actions included reductions in discretionary costs and capital expenditure and a reduction or pause in dividend payments. Reverse stress-testingwas also performed on the most severe scenarios. Whilst the Group expects to stay within its existing facility covenants, in September 2024 the Group agreed a widening of covenants with its lenders, which provides additional headroom in the event of unanticipated downside scenarios that result in a further decline in market volumes and lower EBITDA. The amended leverage covenant widens to 3.9x at H1 FY25 and 3.7x at FY25, before returning to 3.0x at H1 FY26.The amended fixed charge cover covenant widens to 1.3x atH1 FY25, 1.3x at FY25 and 1.4x at H1 FY26, before returning to 1.5x at FY26. This allows the Group to maintain both covenant compliance and sufficientliquidity in allthese scenarios. Based upon this assessment the Directors have a reasonable expectation that the Group and Company will be able to continue in operation and remain commercially viable over the three year period of assessment. ### SECTION 172 STATEMENT ### **Engaging with our stakeholders** This statement explains how the Board has embedded stakeholder considerations into its decision-making and, for each of the Company's key stakeholder groups. the key matters that the Board considered during the year. Throughout the year we have engaged with all of our stakeholder groups to understand the impact of the decisions we make The table below identifies where in the Annual Report. information on the issues, factors and stakeholders the Board has considered in respect of Section 172(1) Section 172(1) (a)-(f) How we engage Page numbers The likely Focus is on how we deliver on our purpose and culture and ensure we live up to our values. The Board reviewed the progress made Chief Executive's report 6-8 consequences against the Group's strategy and ensured - Look to ensure we balance the way we reward our people with how we provide a return on Our strategy 13 of any decision that both decisions taken and future plans investments to our shareholders Key performance 14-15 in the long term Focus on how we manage the Group's cost base given the current economic uncertainty. support the long-term success of the Group. indicators Non-Executive Directors receive stakeholder feedback and insights both through their direct access 16-19 Financial review to the Group's key stakeholders and through regular reports from the Group Leadership team. 21-28 Risks and uncertainties including updates on customer satisfaction metrics and employee Your Say survey results. Viability reporting 28 All Board members are available to meet with shareholders on request and several meetings including Responsibility and 32-51 with non-executive directors have taken place during the year. sustainability report As a standing agenda item the Board receives an update from the Investor Relations team including Corporate governance 54-60 shareholder feedback and meets with the Company's brokers. report - The Group Chief Executive's report at each Board meeting includes updates on key suppliers and Directors' remuneration 67-87 report - The Board has appointed the Responsible and Sustainable Business Committee to focus on climate risks and social inclusivity The interests of Our colleagues are at the heart of our business. During the year colleagues have taken part in our Voice forums held by members of the Board Chair's statement. 4-5 our colleagues The Board has ultimate responsibility for Our fundamentals 3 to raise any concerns or issues with them directly. ensuring that all of our colleagues are treated Regular virtual and in-person sessions are held with colleagues from all the brands to keep them Chief Executive's report 6-8 fairly and given the support they need to grow informed and gather their feedback. Our strategy 1.3 and develop their careers. We encourage open and honest discussions with our colleagues and undertake regular Your Say Key performance 14-15 surveys to understand how colleagues are feeling. indicators - We have six Colleague Resource Groups, known as our Inclusion Networks, to represent and Responsibility and 32-51 support colleagues. sustainability report to include holiday buy back scheme We have an independent whistleblowing helpline. development activity, and pay and reward initiatives. - We are focused on our Employee Value Proposition and have improved our benefits package - There are regular briefings on colleague engagement activities, retention rates, learning and Risks and uncertainties Corporate governance Directors' remuneration report report 21-28 54-60 67-87 ### SECTION 172 STATEMENT CONTINUED How we engage Where to find it Page numbers The need to We are committed to our purpose of bringing We talk to our customers to understand what they want for their homes and their families. Chair's statement 1-5 build strona great design and comfort to our customers - We are developing new sustainable products to reduce not only ours but our customers' and our Our fundamentals 3 beneficial in an affordable, responsible, and sustainable suppliers' carbon footprint. Business model 12 relationships manner. We work with our suppliers to develop We develop new product offerings working with suppliers and brand partners. Chief Executive's report 6-8 with our new innovative products and to reduce the We have the market leading financial services products (interest free credit ('IFC') and our product Market overview customers and 32-51 impact on the environment. insurance) available for our customers. Responsibility and suppliers. We seek feedback from our customers through NPS customer satisfaction surveys. sustainability report Monitoring our own manufacturing operations and our third-party suppliers to ensure quality and Corporate governance 54-60 safety standards are met report Directors' remuneration 67-87 report The impact of As a responsible business, the Group is We support national charities, including Children in Need and during the year The Sofa Delivery Chair's statement 4-5 the company's committed to acting in the best interests of Company established a national partnership with Andy's Man Club. In addition, the Group provided Our fundamentals 3 operations on our communities and in a sustainable manner £35,000 of our products to a range of good causes. Chief Executive's report 6-8 the community We are committed to working to lessen our Colleagues each have a volunteer day to support them working in the community – 201 days 13 Our strategy and the in FY24. impact on the environment and improve the Responsibility and 32-51 environment communities in which we operate. - We are focused on developing new sustainable products to reduce our carbon footprint. sustainability report Risks and uncertainties - In FY24 we refreshed our materiality assessment to support our ESG strategy, this is a crucial tool 21-28 Led by the Responsible and Sustainable to ensure that we consider all stakeholder perspectives in our strategic planning and decision-54-60 Corporate governance Business Committee the Group's ESG making. We interviewed or surveyed all stakeholder groups, leading to a significant shift in report strategy has clear targets that aim to integrate priorities towards social concerns. sustainability throughout all aspects of our In June we submitted our Net Zero strategy to the SBTi. business to minimise any adverse impact we might have on the environment. The desirability - We are transparent in our approach and publish our policies including our Group Code of Conduct Responsibility and To support good governance all of our 32-51 of the company colleagues receive mandatory training on on our corporate website. sustainability report maintaining a our Code of Conduct, Data Protection We have a clear Tax Strategy. Corporate governance 64-60 reputation for Modern Slavery, Cyber Security, Anti-Bribery - We rolled out our 'Consumer Duty' compliance programme to all employees in customer facing report high standards of & Corruption and IFC Consumer Duty. Our roles with a clear focus on vulnerable customers and how we meet their needs. Directors' remuneration 67-87 business conduct suppliers are bound by our Supplier Code of We continue to review our customers' journey to ensure we deliver the best customer report Practice for product quality, safety, employee rights and ethical business. We work with the - Changes to our IFC application process this year ensure we give customers the opportunity regulatory bodies which authorise and regulate to find the right payment option for them with the lender most suitable for their circumstances our business activities. with the benefit of reviewing their documentation at a time that suits them. The need to act The Board seeks to ensure investors receive A series of events is held throughout the financial year, including our in-person AGM. Chair's statement 4-5 fairly as between a fair and balanced return on their investment and presentations of our half-year and full-year results 12 Business model members of the The Group has continued to engage with our - The Board meets with investors and potential investors throughout the year. Corporate governance 54-60 company investors to ensure their views and interests Management have regular discussions with our lenders about our strategic priorities. report - The Chair of the Board ensures that investor considerations are sufficiently discussed during are considered when developing strategy. Board decision-making in meetings. ### **S EC T I O N 1 7 2 STAT E M E N T** CONTINUED **The chart below demonstrates the Board process in considering Section 172(1) in its decision-making.** ### *Board Information* ### *Board Strategic Discussion* ### *Board Decision* ### *Board Review* ### **S172 non-financial and sustainability information statement** The table below sets out where the information required to be disclosed under sections 414CA and 414CB of the Companies Act 2006 can be found in this Annual Report. | Reporting requirement | Relevant information | Policies and Standards | |---------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------| | The Company's
employees | Section 172 statement – Engaging our colleagues
– page 29 | – Diversity & Inclusivity Policy
– Equal Opportunities Policy | | | Responsibility and sustainability report – pages 32
to 51 | – Whistleblowing Policy
– Group Health and Safety Policy | | | Directors' remuneration report – pages 67 to 87 | | | Anti-corruption and
anti-bribery matters | Responsibility and sustainability report – page 50 | – Group Code of Conduct
– Anti-Bribery Policy
– Supplier Code of Practice
– Whistleblowing Policy | | Respect for
human rights | Responsibility and sustainability report – page 50 | – Anti-Slavery andHuman
Trafficking Policy
– Modern Slavery Statement Year | | Modern slavery | | ended 25 June 2023
– Data Privacy Policy
– Group Human Rights Policy | | Social matters | Responsibility and sustainability report –
pages 32 to 51 | – Tax Strategy
– Group Code of Conduct
– Group Communities and
Charitable Giving Policy | | Environmental
matters | Section 172 statement – Having regard to the
impact of the Company's operations on the
community and the environment – page 30 | – Environmental Policy
– Group Timber Policy
– Group Leather Policy | | | Responsibility and sustainability report –
pages 32 to 51 | – Group Water Policy
– Sustainable Sourcing Policy
– Biodiversity Policy | Copies of the Committees' terms of reference and our policies are available at . ### RESPONSIBILITY AND SUSTAINABILITY REPORT ### The past year has been one of progress, collaboration and reflection As always, customers have been at the heart of our business – in our core values, how we shape our operations and, an important part of how we measure our success. Their feedback helps define our priorities, both today and in the future. Alongside our Board, majority shareholders, suppliers, and colleagues, our customers were invited to give their views on the scale of impact of material topics to our Group, through our materiality assessment process. This approach helps us to consider all stakeholder views in our strategic planning and decision-making, and the outcome of the activity has enabled us to highlight key priorities to inform our ongoing ESG agenda. As such, we've adapted the governance around our commitments, forming a new ESG Committee with members from the GLT and senior management to work as a combined task force to address key issues. ensuring unwavering dedication and evolution towards our goals. We know that customers share our care and concern for our people, and are confident that our ongoing focus on fair wages, topics of inclusion and diversity, and the wellbeing of our colleagues respond well to this. Activities that have taken place this year demonstrate this commitment, and are reflected in our ongoing plans. We remain passionate about channelling our energy and resources into supporting our people, our communities. and our planet, despite the challenging economic climate, as we believe it is the right thing to do and delivers long term sustainable value ### Our people We've continued to invest in our people through apprenticeship schemes and learning and development. This year, we launched three new academies across the Group, from leadership in our logistics team, through to finance, with over 650 managers taking part in at least one course. Our ongoing commitment to the health and happiness of our people is demonstrated by our strong wellbeing offering, with revisions during this year including a new aligned approach to enable better access to healthcare for all our colleagues, through to the creation of communities via our colleague networks. Our inclusion and diversity ambitions are continuing to advance steadily. Accurate measurement of our impact relies on gathering baseline demographic data from our colleagues, and that will be a core focus for our teams over the next 12 months. This can only be achieved through effective engagement and education to ensure that colleagues trust the business with their sensitive information ### Our communities Support for our communities continued through our Group Giving Back commitment to raise or donate up to 1% of profit before tax each year. Our DFS partnership with BBC. Children in Need raised over £700,000 in donations, bringing the total raised since 2013 to £7.6m The Sofa Delivery Company launched a new affiliation with Andy's Man Club, focused on raising awareness ### RESPONSIBILITY AND SUSTAINABILITY REPORT CONTINUED of men's mental health and Sofology customers have donated over £41,000 to their charity partner, Home-Start UK, via the Pennies scheme, which will go towards its Cost of Living Crisis Appeal. In addition to the donation, we have pledged to gift sofas to vulnerable families and families in crisis throughout the UK. ### Our planet We were delighted to be awarded the title of Climate Leader by the Financial Times this year. This is reflected in our accomplishments, where we exceeded our original Scope 1 reduction target of 10%. And, with the overwhelming support we received from suppliers for our 'In This Together' engagement campaign, we were able to submit our Net Zero strategy to the SBTi in June this year. We are continually evolving our Net Zero strategy to adapt to new technologies and protocols. This year, we determined the scale of change and investment needed to meet our Net Zero ambition is not moving at the pace we anticipated, and we need more time. Therefore, we have redefined our ambition to reach Net Zero before 2050, aligned with the UK target, external factors, and climate science. Our intention for the year ahead is to continue the momentum on our ESG agenda. We are forging ahead with product innovation as we strive for circularity, and our Net Zero ambitions will see us continuing to push boundaries with carbon reductions across all scopes. We continue to make steady progress when it comes to building a more diverse representation across our workforce and are proud to empower our people to support our communities through volunteering and fundraising. Our commitment to leading by example across our industry stands firm, and our aspirations for an ethical, sustainable and better future for our community, our people, and our environment, will guide our journey into FY25. ### **ALISON HUTCHINSON** Chair of the Responsible and Sustainable Business Committee Senior Independent Non-Executive Director Highlights 83% of colleagues agree or strongly agree that "My manager is supportive of creating an environment where everyone is welcome" We achieved over 14% reduction in Scope 1 emissions compared to our FY19 baseline 138 graduates of our Driver School since launching last year ### Culture and Values Our values run through everything we do. They guide our actions to create a sustainable and responsible business. ### Think customer We treat them as we would our own family and keep them at the forefront of our minds because they are the heart of our Group. ### Be real We bring our whole selves to work and are confident to speak up. We accept each other for who we are and respect each other as part of our family. ### Aim high We play to win for the same team, focused on our shared family ambition. We are bold, brave and welcome challenge as a chance to innovate. Since 2013, DFS has raised £7.6m for charity partner BBC Children in Need 59% of our Scope 3 emissions have a supplier commitment to create their own science-based target by 2029 0,0 1,500 retail colleagues receiving training for our new customer journey experience frameworks ### RESPONSIBILITY AND SUSTAINABILITY REPORT CONTINUED ### Our ESG targets | Our Targets | | | Target date | Status | Progress | | |-------------|---------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|----------|--------------------------------|-------------------------| | | Sustainable sourcing
Page 40 | OEKO-TEX STeP certification for upholstery ranges for cotton, viscose and polyester | July 2022, 2023
& 2024 | × | Cotton
Viscose
Polyester | 89%
89%
73% | | | Sustainable sourcing
Page 40 | BCI certification is required on all cotton sources | July 2024 | × | FY24 37% | | | | Carbon reduction
Page 43 | 20% of Scope 3 emissions have a supplier commitment to develop their own Net Zero Roadmap and report on it by 2029. 59% of Scope 3 emissions are covered by commitment. | June 2024 | ✓ | FY24 | 59% | | | People
Page 37 | A minimum of 50% of store management will be female | December 2023 | × | FY24 Female | 32%:68%
Male | | | Sustainable sourcing
Page 39 | 90% sustainably sourced timber (certified FSC & PEFC) used in all products | December 2025 | ↑ | FY24 | 83% | | | Sustainable sourcing
Page 39 | All leather used on upholstery is sourced from supply chains with LWG certification | December 2024 | ↑ | FY24 | 76% | | | Sustainable sourcing
Page 40 | Zero polystyrene in product packaging | December 2024 | ↑ | FY24 | 93% | | | Carbon reduction
Page 42 | Reduce Scope $1\mathrm{CO_2}$ emissions | June 2025 | NEW | CY23 | 13.6 tCO ₂ e | | | Circularity
Page 40 | 20% of all new textiles contain recycled content | June 2027 | NEW | FY24 3 | 88% | | | | | | | | | Policy available human rights, timber etc) Bonus target CONTINUED ### *Looking after our colleagues* OUR PEOPLE KEY FIGURES Reduction in workplace related injuries so far this calendar year *22%* Percentage of colleagues agree or strongly agree with the statement 'I can bring my whole self to work' *80%* Completion rate Group-wide of our Everyone Welcome LMS module *87%* Our people are the heart of our business and our success stems from their happiness and wellbeing, both inside and outside of work. Our Everyone Welcome framework highlights the importance of building an inclusive workplace and illustrates how we approach wellbeing, learning and development to create opportunities for all. The outcome of our materiality assessment reiterates the importance of putting our people first, andwe know that topics of wellbeing, fair pay, and health and safety are as much of a priority to the customers considering our brand, as they are to us. We continue to ensure we keep our people at the centre of our strategic priorities with continuous improvement of the colleague experience. ### **Colleague wellbeing** We are committed to supporting our colleagues in leading healthy and fulfilling lives at every stage. Recognising the challenges that everyday life can present, we have developedacomprehensivewellbeingofferingdesigned to provide meaningful support during these times, underpinned by our strong, supportive culture. Our ongoing focus on mental health emphasises the importance of open communication and mutual support. In alignment with this, during Mental Health Week 2024,we revisited our Big GroupCheck-In initiative,which involved a leader-led social campaign encouraging colleagues to connect with their peers and extend acts of kindness. We encourage our leaders to demonstrate vulnerability and empathy, particularly in times of change and challenge.As line managers often serve as the first point of contact for colleagues in distress, we equip them with resources and training to effectively support their teams and direct them to appropriate resources. ### CONTINUED This year, we have further enhanced our wellbeing proposition with the following initiatives: - **Wealth Wise:** In partnership with Schroders Personal Wealth,we have introduced this financial wellbeing programme to address the impact of the cost of living crisis on our colleagues. - **Aligned health benefits:** We have standardised health benefits across the Group to ensure equitable access to healthcare, including a reduced contribution rate for health cashback plans. - **Menopause support:** Our continued partnership with Peppy offers specialised menopause support, which is also available to partners or loved ones of those directly affected. - **Mental health first aid:** We have increased our investmentin the training of mental health first aiders in collaboration with St John Ambulance, ensuring that more colleagues are available to provide support when needed. - **Employee assistance programme:** Our 24/7 employee assistance programme, operated by Health Assured, remains accessible, with ongoing communication efforts to ensure colleagues are aware of available resources. - **Andy's Man Club partnership:** We have launched an official partnershipwithAndy'sManClub,raising awareness of the importance of mental health and suicide prevention on International Men's Day. ### **Learning and development** Attracting and retaining skilled and diverse talent is essential to our success, driving creativity and innovation that propel our future growth. By investing in our colleagues, we empower them to reach their full potential, thereby contributing to our continuous improvement and progress. ### **DFS** This year, we focused on upskilling our Regional Managers, Branch General Managers, and Assistant Managers to ensure a consistent customer experience across our stores and online channels. Over 200 colleagues participated in face-to-faceworkshops, followed by a virtual workshop attended by more than 600 sales colleagues. ### **Sofology** At Sofology, we prioritised colleague growth by delivering face-to-face producttraining. Product specialists visited each of our 58 showrooms to conduct half-dayworkshops. Leaderswere then responsible for further developing 420 Sofologists through interactive regional workshops. ### **The Sofa Delivery Company** The Sofa Delivery Company launched the Management Academy programme for all first-line managers, employing a blended learning approach. Over 150 colleagues participated in face-to-face and virtual workshops aimed at enhancing management capabilities. The programme included modules on Inclusion, Recruitment and Wellbeing, totalling 5,250 learning hours. ### **Group Support Centre** Since the launch of the Group Leadership Academy programme in January 2024, 300 leaders have engaged in monthly workshops covering a wide range of topics, fromproductivity and efficiency tocommercial acumen. To build sector-specific skills,we introduced a new FinanceAcademy, offering colleagues access to online content and workshops led by subject matter experts. ### **Health and safety** Our ongoing strategy is focused on cultivating a proactive safety culture and mitigating risk across all levels of the organisation. Central to this strategy is continuous coaching and education, empowering colleagues with the knowledge and tools necessary to identify hazards and report potential risks. We are actively driving cultural change by promoting open communication and engagement, ensuring that safety is integrated into every aspect of our operations. Through regular safety audits, colleague feedback mechanisms, and innovative initiatives such as the Health & Safety league table within The Sofa Delivery Company, we are committed to making safety a shared responsibility and embedding it as a core organisational value. The Health, Safety and Environment ('HSE') team is now fully qualified toconduct noise assessments, ergonomic evaluations, and Fire Risk Assessments. This enhanced capability allows us to support colleagues more effectivelyandcost-efficiently,providinggreaterflexibility to respond swiftly to changes, thus safeguarding our people and ensuring business continuity. ### CONTINUED Our focus on continuous improvement has resulted in a sustained decrease inworkplace-related injuries,with a 22% reduction so far this calendar year compared to the same period in 2023. The HSE team continued to demonstrate excellence by being commended at the SHE Excellence Awards in FY24,receiving recognition in the Safer LogisticsAward category for ongoing risk improvements within the manufacturing transport yards. ### **Equity, diversity and inclusion** Enhancing diversity in leadership is pivotal to positively influencing our culture and fostering aworkplacewhere all individuals feel genuinely welcome, particularly those from underrepresented groups. We remain committed to ourlong-term goal ofreflecting the diversity ofthe customers we serve and the communities in which we operate.Our ongoing culturaltransformation efforts continue to advance, with a strong focus on equality, diversity, and inclusion. Colleagues are actively engaged in understanding their roles in this important journey. By leveraging data, we are able to identify areas requiring further attention while also celebrating the progress we have made. Progress made to date: - 80% of colleagues agree or strongly agree with the statement, "I can bring my whole self to work". - 83% of colleagues agree or strongly agree that "My manager is supportive of creating an environment where everyone is welcome". - Six active Colleague Networks. - Achieved Bronze accreditation in the Inclusive Employers Standard. - Year on yearincrease in colleagues disclosing their disabilities,reflecting strengthened psychological safety. - 32% female representation in showroom management across the Group. - 40% female representation in senior leadership roles. - 87% completion rate across the Group for our bespoke 'Everyone Welcome' cinematic adventure LMS module. - Face-to-face Inclusionworkshops delivered to over 500 colleagues. ### **Future Objectives** Our ongoing efforts to achieve gender balance in showroom management across both brands remain a priority. We are also committed to achieving an equal gender split in our senior leadership population and are developing initiatives to enhance ethnic diversity within this group. To facilitate change, we will introduce positive initiatives aimed at nurturing our future leaders, supported by a comprehensive review of our current policies and processes to ensure they are more inclusive and conducive to helping our people thrive. Our year on year objectives will be realistic, taking into account attrition rates, market challenges and the opportunities available. ### **Gender Mix by role** | Board | Male | | Female | | | |-----------------|-------|-----|--------|-----|--| | At 30 June 2024 | 3 | 43% | 4 | 57% | | | At 25 June 2023 | 3 | 43% | 4 | 57% | | | GLT* | Male | | Female | | | | At 30 June 2024 | 3 | 60% | 2 | 40% | | | At 25 June 2023 | 3 | 50% | 3 | 50% | | | Senior Leaders | Male | | Female | | | | At 30 June 2024 | 52 | 60% | 34 | 40% | | | At 25 June 2023 | 56 | 60% | 37 | 40% | | | Total | Male | | Female | | | | At 30 June 2024 | 3,048 | 64% | 1,682 | 36% | | | At 25 June 2023 | 3,435 | 65% | 1,853 | 35% | | ### *Supporting our communities* OUR COMMUNITIES KEY FIGURES Customers and colleagues raised for BBC Children in Need over *£700,000* Percentage of manufacturing partners having at least one on-site audit *100%* All senior leaders are required to complete modern slavery *training* We are proud of our unwavering commitment to supporting our communities and the active engagement of our colleagues in fulfilling our promises. ### **Giving Back programme** Launched in 2020, our Giving Back programme reflects our dedication to social responsibility. Through this initiative, we commit to raising and donating up to 1% of our profit before tax annually, offering each colleague one paid volunteering day, and donating up to 1% of our products (by volume) each year to charitable causes. DFS remains a proud partner of BBC Children in Need. In FY24, our customers contributed over £670,000, with our colleagues raising an additional £34,000, bringing the totalto just over £700,000. Since the inception of our partnership, the Group has raised over £7.6 million through the generous support of our customers.These funds provide crucial one-to-one support and specialist counselling for children and young people facing mental health challenges. In FY24, Sofology customers and colleagues donated over £41,000 through Pennies to supporttheir charity partner,Home-StartUK, particularly itsCost of Living Crisis Appeal. We extend our sincere thanks to all our customers for their generous contributions to these important causes and acknowledge the dedication of our colleagues in making a tangible difference. Beyond these financial contributions,the Group has donated over £35,000worth of products to vulnerable families and those in crisis across the UK, as well as to various local communities and charities. The SofaDeliveryCompany officially launched its partnershipwithAndy'sManClub during this financial year. To support this vital cause, we conducted dedicated team meetings with all 1,300 colleagues to introduce the charity's mission and discuss suicide prevention. Remarkable stories emerged during International Men's Day, as colleagues across the Group collaborated to raise awareness of the charity both within and outside the organisation. In July 2024, our colleagues raised over £5,000 forthe charity by supporting a team inThe 3 Peaks YorkshireChallenge. ### **Ethical supply chain** AtDFS Group, our culture and values are firmly rooted in doing what is right. We set clear expectations for behaviour that all our colleagues and suppliers are required to follow. We are committed to upholding human rights across our business and supply chain, with zero tolerance for any form of modern slavery. For further details, please refer to our Modern Slavery andHumanTrafficking Statement,which is available on our corporate website: [www.dfscorporate.co.uk/esg/](http://www.dfscorporate.co.uk/esg/modern-slavery-and-human-trafficking-statement) [modern-slavery-and-human-trafficking-statement](http://www.dfscorporate.co.uk/esg/modern-slavery-and-human-trafficking-statement). To support our colleagues in maintaining ethical standards and reporting concerns, we have implemented a clearwhistleblowing policy and a confidentialreporting hotline. As part of our commitment to managing the risk of modern slavery, all leaders and senior team members are required to complete mandatory training on identifying various forms of modern slavery and the appropriate reporting procedures. We also hold our value chain partners to the highest ethical standards. We are committed to ongoing assessments of modern slavery risks within our supply chain and will continue to take proactive steps to address these issues. All manufacturing partners within the Group are required to sign a Supplier Code of Practice, which outlines the framework for an annual on-site audit. This audit incorporates ethical criteria and due diligence measures to prevent modern slavery and forced labour. In 2024, 100% of the Group's suppliers underwent at least one on-site audit,with no instances of unethical practices identified.Additionally,we mandate that every supplier obtains SMETAcertification,which evaluates labour standards, health and safety, environmental performance, and ethics at the supplier site. For more information please see our Group Code of Conduct and DFS Code of Practice. [https://www.dfscorporate.co.uk/media/63456/Group-](https://www.dfscorporate.co.uk/media/63456/Group-Code-of-Conduct-revision.pdf)[Code-of-Conduct-revision.pdf](https://www.dfscorporate.co.uk/media/63456/Group-Code-of-Conduct-revision.pdf) [https://www.dfscorporate.co.uk/media/68866/DFS-](https://www.dfscorporate.co.uk/media/68866/DFS-Supplier-Code-of-Practice-_-V004-_-Live-.pdf)[Supplier-Code-of-Practice-\\_-V004-\\_-Live-.pdf](https://www.dfscorporate.co.uk/media/68866/DFS-Supplier-Code-of-Practice-_-V004-_-Live-.pdf) *"Our Group is a values driven business with people at the heart of everything we do."* ### *Protecting our planet* OUR PLANET KEY FIGURES Our total carbon footprint (Scope 1, 2 and 3) in FY24 was *216ktCO 2 e* Through our 'In This Together' campaign, we've secured a supplier commitment to develop a Net Zero Roadmap which covers *59%* of our Scope 3 emissions Percentage of our products made with certified timber *Over 80%* Our Sofa Cycle framework, launched in 2020, ensures we take a holistic view of our business's environmental impact and establishes an ambition to become a circular business. The framework encompasses not only our operational impacts but also those of our value chain and end-of-life of our product.Using a circular framework, we highlight the impact of design, sourcing, and manufacturing decisions on the end-of-life of our products, logistics, and consumer use. This ensures we engage our entire value chain in addressing the environmental impact throughout every aspect of a product's journey. ### **Sustainable sourcing Our commitment** We work closely with our manufacturing partners and value chain to ensure responsible and sustainable use of materials through transparency and traceability. We seek to support our suppliers by demonstrating best practices through our operations and manufacturing. ### **Our approach** Our Sustainable Sourcing Policy\*\* is structured around seven core principles: - Suppliers must act in an ethical manner. - Protect human rights. - Support our suppliers and partners. - Deliver value to our customers and shareholders. - Take responsibility for the impact on the environment. - Be fair and transparent with suppliers, including how information is used. - Champion sustainable innovation within the industry. We have a number of targets for core materials, including certification in key areas ofthe value chain based on activity impact. As a target date expires, the requirements move from ambition to expectation. This approach provides fair warning, leaving suppliers sufficienttime to consult and adapt. ### **Timber** **Progress:** ### **Leather** - \* DFS Furniture PLC incorporating DFS Trading Ltd T/A DFS and Sofology Ltd T/A Sofology FSC® License holder FSC-C192921. - \*\* [www.dfscorporate.co.uk/media/62843/DFSGroup-Sustainable-Sourcing-Policy-V1.pdf](http://www.dfscorporate.co.uk/media/62843/DFSGroup-Sustainable-Sourcing-Policy-V1.pdf) ### **Sustainable Sourcing** continued ### **Textiles** ### **Textiles** **Target:** ### **Recycled textiles** **Target:** ### **Bromide-free fire retardants** **Target:** ### **Packaging** **Target:** ### **Water** ### **Operational targets** ### **Waste** ### **Biodiversity** ### **216,000 tCO2e (FY23)** *54.6%* **Phase 1 Phase 2 Phase 3 Net Zero Suppliers evolve manufacturing methods to support circular design New circular retail models and products Fully circular products and Net Zero operations Remaining unabatable emissions o�set or removed Suppliers engage their value chains while reducing their emission Replace legacy technolgy with lower footprint alternatives Increase reuse and recycling in operations Suppliers set their own Net Zero targets Using sustainable materials Reducing our emissions in operations of our Scope 3 emissions (3.01 and 3.04) will have a supplier Net Zero roadmap TARGET – By 2028** *72%* **reduction in Scope 1 emissions TARGET – By 2033 N E T Z E RO PAT H WAY** Supplier activity Material changes Our operations ### **Carbon** ### **Carbon accounting** In accordance with SBTi and GHG Protocol accounting standards, we have shifted our carbon calculations from activity data supplied by our value chain to spend data audited by our audit partners, KPMG. This ensures accuracy and aligns with the methodology of our peers and value chain.However, industry-standard emission factors forfurniture used are lower than our own activity calculations (which we were unable to validate across the complete supply chain),resulting in a year-on-year drop in reported Scope 3 emissions. ### **Our Net Zero strategy** DFS Group definesNetZero as the absolute reduction of carbon emissions across all scopes by atleast 90% compared to baseline yearwith the offset orremoval ofthe remaining, unabatable emissions. In FY23we shared ourNetZero strategy, splitinto three phaseswith cleartimelines. While our approach has not varied significantly,we recognised the innovation and investment needed, is not in place to support the timeline we originally planned. As such, we have shifted our timeline to *before* 2050 by extending Phase 2 and 3 to work concurrently, collaborating with our value chain to develop plans to decarbonise. ### **PHASE 1 – FY24-30** Initially concentrating on our own operations,wewill adaptto lower-emission technologies throughout our estate and logistics infrastructure and introduce circular business models. We'll also engage our supply chain, support the development of their own Net Zero roadmaps, and specify lower-emission materials in our products. ### **PHASE 2 – FY30-40** We will encourage suppliers to reduce their emissions and engage their value chains inNetZero planning. Internally,we'll continue material changes and finalise lowcarbon technology for our delivery fleet. ### **PHASE 3 – FY30-50** **21,500 tCO2e (FY39/40)** We aim to ensure all suppliers design and manufacture for repair, reuse and recycling to support a circular business model. Innovation in logistics, materials, and manufacturing is crucial, andwe have clear short-term steps to achieve ourlong-term goals. ### **Creating a circular business model** Central to our Net Zero strategy is evolving DFS Group to a circular economy, ensuring products are designed, and manufactured for multiple lifecycles, extracting maximum use from the materials and enabling reuse,repurpose and recycling ofthose materials. In FY24, we launched a new Leadership Development programme in which senior leaders were tasked with developing circular commercial models to support our Net Zero ambition. Their proposed new commercial models are designed to prolong the lifecycle of our product and ensure its return to the Group for refresh, repair and resale, and will be developed further over the next 12 months. We also collaborated on research sprints with Imperial College, London,to develop newproduct designswith innovative material options, specifically designed to reduce the environmental impact of our product. All these concepts will require further testing and development to ensure viability and sustainable performance. ### **Scope 1 progress** In 2024, we continued our reduction strategy by removing gas across the estate and transferring company cars and service vehicles to electric or hybrid options. We also trialled 7.5 tonne electric vehicles, however have yetto find a suitable solution to introduce at scale across the Group. Our emissions rose in the second half ofthe financial year due to increased delivery volumes from our successful Winter Sale and Easter promotions, which diminished the Scope 1 reductions achieved in our calendar year. ### **Scope 2 progress** We continue to utilise renewable sources. Our year-on-yearmarket-based emissions have increased with the wider adoption of electric and hybrid company cars. Though charging at our operational sites or on company fuel cards is fully traceable to renewable sources, where we are unable to verify a source, we have assumed non-renewable energy forother EVcharging. DNV has externally assured our Scope 1 and 2 footprints.\*\* ### Scope 1 and 2 emissions Direct emissions – Scope 1 Indirect emissions – Scope 2 ### **Scope 1 and 2 emissions** The tables below show our energy use and associated greenhouse gas emissions in line with the UK government's Streamlined Energy and Carbon Reporting requirements. | | UK | Rest of the world
(ROI) | Total FY24
kWh | UK | Rest of the world
(ROI & NL) | Total FY23
kWh | % increase/
(decrease) | |--------------------------|--------------|----------------------------|-------------------|--------------|---------------------------------|-------------------|---------------------------| | Scope 1 | | | | | | | | | Diesel and Kerosene | 36,253,180.0 | 1,307,338.1 | 37,560,518.1 | 37,985,804.0 | 1,006,184.92 | 38,991,989.0 | (3.67) | | Natural gas | 17,013,423.0 | 415,090.0 | 17,428,513.0 | 18,302,302.0 | 415,074.00 | 18,717,376.0 | (6.89) | | Petrol | 4,237,034.8 | 66,217.9 | 4,303,252.7 | 5,539,165.4 | 3,797.52 | 5,542,962.9 | (22.37) | | Scope 2 | | | | | | | | | Electricity | 25,929,697.0 | 599,872.0 | 26,529,569.0 | 26,170,487.6 | 578,708.15 | 26,749,195.7 | (0.82) | | Electric vehicles* | 161,729.0 | 742.0 | 162,471.0 | 83,306.3 | 0.00 | 83,306.3 | 95.03 | | Total energy consumption | 47,341,883.8 | 1,081,921.9 | 48,423,805.7 | 50,095,261.2 | 997,579.7 | 90,084,829.9 | (46.25) | | | | | | | | | Absolute emissions (tCO2e) | | | | | |----------------------------------------|----------|----------------------------|---------------------|----------|------------------------------------|---------------------|----------------------------|--------|--------|--------|--------| | | UK | Rest of the
world (ROI) | Total FY24
tCO2e | UK | Rest of the
World (ROI
& NL) | Total FY23
tCO2e | % Increase/
(decrease) | FY22 | FY21 | FY20 | FY19 | | Scope 1 emissions
Scope 2 emissions | 14,029.8 | 411.2 | 14,441.0 | 14,961.2 | 329.7 | 15,290.8 | (5.6) | 16,215 | 18,058 | 17,462 | 16,873 | | Market based | 64.0 | 0.0 | 64.0 | 38.8 | 10.4 | 49.3 | 29.9 | 223 | 1,697 | 5,195 | 6,189 | | Location based | 5,369.0 | 160.0 | 5,529.0 | 5,531.4 | 122.0 | 5,653.4 | (2.2) | 5,828 | 5,797 | 5,195 | 6,189 | | Total Scope 1 and 2 | | | | | | | | | | | | | Market Based | 14,093.8 | 571.2 | 14,505.0 | 20,531 | 462 | 20,993.5 | (30.91) | 16,438 | 19,755 | 22,657 | 23,062 | ### **Emission intensity (tCO2e/£m gross sales)** | | | Emission intensity (tCO2e/£m gross sales) | | | | | | | | | | |----------------------------------------|-------------|-------------------------------------------|---------------------------|------------|------------|------------|------------|--|--|--|--| | | FY24 | FY23 | % Increase/
(decrease) | FY22 | FY21 | FY20 | FY19 | | | | | | Scope 1 emissions
Scope 2 emissions | 11.0 | 10.7 | 2.45 | 11.0 | 13.3 | 18.6 | 14.5 | | | | | | Market based
Location based | 0.05
4.2 | 0.07
4.0 | (33.08)
5.56 | 0.2
4.0 | 1.2
4.3 | 5.6
5.6 | 5.3
5.3 | | | | | | Gross sales (£m) | 1,311.8 | 1,423.6 | (7.85) | 1,474.6 | 1,359.4 | 935.0 | 1,165.0 | | | | | ^\* FY23 Electric vehicle energy consumption has been restated due to a calculation error. ^\*\* [www.dfscorporate.co.uk/media/64958/DFS-ARA-Assurance](http://www.dfscorporate.co.uk/media/64958/DFS-ARA-Assurance-statement.pdf)[statement.pdf](http://www.dfscorporate.co.uk/media/64958/DFS-ARA-Assurance-statement.pdf) ### **Scope 3 progress** Our value chains are a vital part of our business and contribute almost 93% of our Scope 3 emissions. Their support for our Net Zero journey and collaboration on our plan are critical to the success of our strategy. In FY23, an impact assessment of our manufacturing partners indicated only 40% had either set a Net Zero target or calculated their carbon footprint. To address this, we launched our 'In This Together' campaign, engaging our partners in our Net Zero journey. Our request to suppliers was to commit to delivering the following by May 2029: - Calculating their own full carbon footprint - Developing their own Net Zero strategy aligned to climate science - Publishing their plan and their progress against it This approach mirrors the 'supplier engagement' target set out by the SBTi. We hoped to secure commitments which would cover 20% (88 tCO2e)ofourFY23Scope3 emissions, thereby endorsing our plans to submit to the SBTi. Utilising our experiences to provide guidance and support, we encouraged suppliers on their own journeys. The campaign was successful, garnering commitments from manufacturing partners covering 49% of Scope 3 emissions and a further 10% from raw material suppliers and logistics partners. ### **Science Based Targets initiative (SBTi)** In June 24, we submitted our plan to the SBTi to reduce our carbon footprint by at least 54.6% on Scopes 1 and 2 by 2033 and Scope 3 by 90% or more before 2050. We hope to have the SBTi validate this plan very shortly. ### 2024 Scope 3 emissions by category – % of Scope 3 emissions | Scope 3 emissions* | | Absolute emissions (kt CO2e) | | | | | | | Emission intensity (kt CO2e/£m gross sales) | | | | | | |-------------------------------------------------|-------|------------------------------|-------------|-------|-------|-------|-------|-------|---------------------------------------------|-------------|-------|-------|-------|-------| | | | | % increase/ | | | | | | | % increase/ | | | | | | | FY24 | FY23 | (decrease) | FY22 | FY21 | FY20 | FY19 | FY24 | FY23 | (decrease) | FY22 | FY21 | FY20 | FY19 | | 3.01 – Purchased goods and services | 158.2 | 320.0 | (50.56) | 321.1 | 309.2 | 215.8 | 284.8 | 120.6 | 224.8 | (46.35) | 217.8 | 227.5 | 230.8 | 244.5 | | 3.02 – Capital goods | 2.2 | 3.7 | (40.41) | 17.4 | 15.1 | 10.3 | 8.2 | 1.7 | 2.6 | (35.33) | 11.8 | 11.1 | 11.0 | 7.0 | | 3.03 – Fuel and energy related activities | 4.7 | 5.2 | (9.21) | 4.0 | 4.2 | 4.0 | 3.9 | 3.6 | 3.6 | (1.47) | 2.7 | 3.1 | 4.3 | 3.3 | | 3.04 – Upstream transportation and distribution | 28.3 | 36.7 | (22.98) | 74.6 | 58.5 | 33.2 | 36.7 | 21.6 | 25.8 | (16.42) | 50.6 | 43.0 | 35.5 | 31.5 | | 3.05 – Waste generate in operation | 0.3 | 0.3 | 20.15 | 1.4 | 1.3 | 0.9 | 1.3 | 0.2 | 0.2 | 30.39 | 0.9 | 1.0 | 1.0 | 1.1 | | 3.06 – Business travel | 0.8 | 0.5 | 62.67 | 1.2 | 0.8 | 1.3 | 1.3 | 0.6 | 0.3 | 76.54 | 0.8 | 0.6 | 1.4 | 1.1 | | 3.07 – Employee commuting** | 6.9 | 7.6 | (9.21) | 4.7 | 4.1 | 4.5 | 5.4 | 5.3 | 5.3 | (0.85) | 3.2 | 3.0 | 4.8 | 4.6 | | 3.08 – Upstream leased assets | 0.0 | 0.6 | (100.00) | 4.0 | 3.2 | 3.1 | 2.5 | 0.0 | 0.4 | (100.00) | 2.7 | 2.4 | 3.3 | 2.1 | | 3.11 – Use of sold products** | 0.3 | 0.3 | – | 0.6 | 0.7 | 0.5 | 0.7 | 0.3 | 0.2 | 35.65 | 0.4 | 0.5 | 0.5 | 0.6 | | 3.12 – End of life treatment of sold products | 0.0 | 0.1 | (75.88) | 10.2 | 9.7 | 7.1 | 9.0 | 0.0 | 0.1 | (73.83) | 6.9 | 7.1 | 7.6 | 7.7 | | Total Scope 3 emission intensity | 201.7 | 375.0 | (46.20) | 439.2 | 406.8 | 280.7 | 353.8 | 153.9 | 263.3 | (41.60) | 297.8 | 299.3 | 300.2 | 303.5 | ^\* Where data is shared by supplier partners,which is difficultto verify, itis reported in good faith. All information provided represents end of financial year(FY24) figures unless otherwise stated. ^\*\* 3.07 – Employee commuting and 3.11 –Use of sold productswere recalculated for FY23 as an errorwas found in the source data. The figures stated above are the revised calculations. *The reporting period of this disclosure was the hottest year recorded since records began. Climate-related risks are continuously evolving, as are the transition risks and opportunities. DFS Group is committed to building a sustainable business model in terms of our impact on the environment and preserving our long-term success as a Group.* *As climate reporting continues to evolve along with the pressing nature of climate change issues, so does our performance and strategic reporting.* ### *TCFD Summary* ### **Our progress in FY24** - 1. Engaged suppliers in creating their own NetZero strategy aligned to science-based targets, securing commitments covering 59% of all Scope 3 emissions. - 2. Submitted our Net Zero strategy to Science Based Targets Initiative for validation in June 2024. - 3. Confirmed a 14% reduction of Scope 1 emissions against FY19 baseline. - 4. Introduced new policies for water and biodiversity and strengthened our deforestation requirements within our Sustainable Sourcing Policy. - 5. Completed an updated materiality assessment. - 6. Developed new commercial models to support our evolution to a circular business. ### **Areas of focus in FY25** - 1. Continue engaging and supporting our suppliers in developing their Net Zero strategy aligned to science based targets. - 2. Secure SBTi validation for our Net Zero strategy. - 3. Continue to integrate climate risk consideration into our business strategy and decision-making processes. - 4. Develop our reporting capabilities for TPT and ISSB. - 5. Continue to develop and test new commercial models to support circularity. ### **Compliance Statement** We have compliedwith the FinancialConductAuthority listing rule LR 9.8.6R by including climate-related financial disclosures consistentwith alltheTCFDrecommendations and the recommended disclosures. In preparing these disclosures, we have considered Section C and E of the TCFD Annex: Implementing the recommendations oftheTCFD.Note thatthis reportreflects the listing rules as atthe year end date. ### *Our approach* ### **Scenarios** We assessed our risk and opportunity exposure in two scenarios. ### **Low Carbon World scenario (1.5°C)** Alow-carbon scenario assumes the implementation of policies and technologies that support circular economies, material efficiency strategies, and the promotion of alternative fuels and technologies within a reasonable timeframe to limit global warming to below 1.5°C. As a result, global Net Zero CO2 emissions are expected to be achieved around 2050. ### **Hot House World scenario (4°C)** A hot house scenario assumes that policies and infrastructure tosupport sustainability are not effective. There is little to no adaptation ofresource and energyintensive behaviours. As a result, economies fail to transition to a low-carbonworld, and the physical impacts of climate change become increasingly severe. The following sources informed the assumptions in the scenario analysis: - **Intergovernmental Panel on Climate Change** - Shared Pathways scenarios of projected global changes are used to derive greenhouse gas ('GHG') emission scenarios associatedwith differentworlds and forecasts on physical climate implications of GHG concentrations. - **International Energy Agency scenarios** focus on the consequences of different energy policies and investment choices. The Net Zero 2050 scenario (1.5°C) explores what is needed to ensure global emissions reach Net Zero by 2050. - **NGFS (Network for Greening the Financial System) scenarios** – explore different assumptions for how climate policy, emissions, and temperatures evolve. The net zero 2050 limits global warming to 1.5°C through stringent climate policies and innovation, reaching global Net Zero CO2 emissions around 2050. The NGFS considers various scenarios, adding two additional scenarios in 2023: the Fragmented scenario, which considers divergent geopolitical approaches to climate change and the Low Demand scenario, in which enforceable legislative requirements are coupled with stringent carbon prices. We conducted a scenario analysis in 2022 with support from Willis Towers Watson and included geographic aspects of our value chain for manufacturing and core materials to enhance financial considerations. ### **Timeframes** Throughout our analysis,we have defined the time frames as follows: | Horizon | Years | Rationale | |---------|-------------|---------------------------| | Short | 1-3 years | Aligned with our business | | | | strategy and financial | | | | forecasting. | | Medium | 3-10 years | Aligned to the strategic | | | | plan timeframe. | | Long | 10-30 years | Aligned with our Net Zero | | | | ambition by 2050. | Through this exercise,we identified ten material climate risks and opportunities. Table 1 below summarises the transition risks and opportunities. ### **Net Zero strategy** DFS Group defines net zero as the absolute reduction of carbon emissions across all scopes by at least 90% compared to baseline yearwith the offset orremoval of the remaining, unabaltable emissions. Our Sofa Cycle Framework underpins our Net Zero ambition and will be delivered by evolving the business to a circular model. We aim to achieve this by mitigating the environmental impact of each aspect of the product lifecycle – from sustainable sourcing to end-of-life – by engaging our entire value chain in the journey. See page 41 for more details. Engaging with our suppliers directly on our Net Zero strategy and climate-related issues gives us the resilience to mitigate and adapt to climate change issues as they evolve. Table 1 on pages 46 to 48 details our response to the risks and opportunities identified in the scenario analysis exercise. ### **Risk management** In FY24,we updated our materiality assessment using the SASB framework and in-depth stakeholder engagement. The critical environmental topics for our business and stakeholders were material use, longevity, and circularity, followed by carbon emissions and plastic and packaging Waste. Further climate-related riskswere identified and assessed through the scenario analysis exercise in FY23. We involved various internal stakeholders in the process, and our wider value chain representatives were consulted on the outcome. We applied a percentage of profit before tax as a benchmark to considerthe materiality of the impact of climate change risks and opportunities. The exercise considered a shift in our stakeholders' values toward more sustainable products and services, existing and emerging regulatory requirements, and technology transition,reflected in the five risk types described in Table 1. ### **Risk management framework** Climate change is included in our principal risks (Environmental and sustainability risk – PR6). The CFO owns the risk and is supported by the Sustainability Director and risk managers, who are closely related to each specific risk identified.TheCFOis accountable for ensuring that the relevant controls and mitigation strategies are effective and in place,while the Board has oversight responsibility for principal risks. We continuously monitor the risk factors and the effectiveness ofthe controls assigned to the risk. Climate change is currently rated a medium risk, requiring a quarterly review of the controls and mitigation effectiveness. See page 49 for a detailed process on managing climate-related risks, including howthe decisions to mitigate, transfer, accept, or control the risks are taken. ### **Metrics and targets** The scenario analysis highlighted a number of metrics used to monitor our climate risks as described in Table 1 (column 'indicators'). We continuously quantify and measure those metrics internally. ### **Greenhouse gas measures** Engaging our suppliers in our Net Zero strategy is critical to our approach. This year, we used a new metric of 'Scope 3 emissions covered by a supplier commitment to develop a Net Zero strategy' to track the viability of our Net Zero strategy. The supplier engagement target was considered a performance metric and part of the bonus structure. See Director's Remuneration report page 81 for further details. Please note, our Scope 3 calculation methodology in FY24 shifted to spend-based calculations,to ensure consistency with our industry and suppliers as well as using verified datawhich is audited by a third party. We also use Scope 1 and 2 intensity metrics as our cross-industry metrics to track our progress in achieving our Net Zero ambition which are externally assured – see page 42. ### **Risk type: P** Policy and legal **T** Technology **M** Market **R** Reputation **Ph** Physical **Scenarios:** Transition risks – 1.5º Physical risks – 4º **Risk rating:** High Medium Low ### Table 1: Summary of our climate risks and opportunities ### **Short term risk and opportunities** **Risk/opportunities description** increasing production costs. **Our response** and textiles. ### **Risk M A N D A T E S A N D R E G U L A T I O N O N O U R P R O D U C T S** **Risk type P** **Indicator** Production cost. Regulatory pressure is applied to the materials used in the manufacturing of our products, leading to This includes the possibility of introducing carbon footprintlabelling, plastic taxes or bans on single-use plastics, and zero-net deforestation policies. Our Sustainable Sourcing Policy is regularly reviewed to keep current with our regulatory obligations. Furthermore, we set clear ambitions for our suppliers to continually improve upon the requirements to stay ahead of legislative changes such as increasing the volume of recycled content in our packaging We align our supplier contracts with the supplier requirements within the Sustainable Sourcing Policy. **Risk rating** **P R** **Risk type** **Risk** **Indicator** Direct operating cost. **Risk rating** Carbon pricing already exists in some of the jurisdictions where we operate. Under both scenarios, the pricing of GHG emissions is expected to increase, which could impact our direct operating costs. ### **Risk/opportunities description** **CARBON PRICING** ### **Our response** We continue to monitor developments in this area. ### **Risk** ### **C L I M AT E C H A N G E L I T I G AT I O N** ### **Risk type** **Indicator** Compliance cost/non-direct operating cost. **Risk rating** Brand value. ### **Risk/opportunities description** Investors, insurers, shareholders, and public interest organisations could bring climate-related litigation claims against DFS. Reasons for claims could include failure to adapt to climate change, greenwashing for overstating positive environmental impacts and understating risks, and insufficient disclosure on material financialrisks. ### **Our response** We continuously monitor the legislative landscape to ensure compliance with the relevant disclosure requirements. We are aware that the sustainability reporting landscape is fast-evolving. In FY25we intend to investin training for our Sustainability team and legal counsel in the new ISSB framework and other standards. ### **Risk** ### **BUILDING CODE REQUIREMENTS** ### **Risk type P** **Indicator** Maintenance cost/capex/opex. **Risk rating** **Risk/opportunities description** Increased maintenance costs are associated with upgrading stores, distribution centres, and manufacturing sites to adhere to stringent building codes and guidelines. ### **Our response** All landlords are required to comply with building code requirements. The majority of our tenancy agreements will be reviewed prior to the 2030 deadline ensuring we have the opportunity to factor compliance and opportunity costs into financial planning. **Risk type: P** Policy and legal **T** Technology **M** Market **R** Reputation **Ph** Physical **Scenarios:** Transition risks – 1.5º Physical risks – 4º **Risk rating:** High Medium Low ### Table 1: Summary of our climate risks and opportunities continued **Short term risk and opportunities** continued **Risk** ### **I N V E S T M E N T R I S K** | Risk type
R | Indicator
Cost of capital. | Risk rating | |----------------|-------------------------------|-------------| | | | | ### **Risk/opportunities description** Failure to meet publicly stated sustainability targets or failure to meet disclosure requirements poses a risk to our business as customers and investors increasingly expect high levels of sustainability performance from organisations. However, demonstrating a robust and deliverable strategy, potentially opens the opportunity to access lower cost capital, such as sustainability-linked loans. ### **Our response** We incentivise teams and leadership as part of the employee bonus scheme to meet the publicly stated targets which are derived from our sustainability strategic objectives. Though we have not met every target this year we believe our targets and submission to the SBTi demonstrate we are ambitious and setting sufficiently challenging objectives. ### **Medium to long term risk and opportunities** ### **Risk** **T R A N S I T I O N T O L O W E R E M I S S I O N T E C H N O L O G Y A N D M A I N T A I N I N G A CIRCULAR SYSTEM** | Risk type | |-----------| | T | ### **Indicator** Capex to increase energy efficiency . Capex to increase recycling capability. Capex/opex for transitioning to electric vehicle fleet. ### **Risk/opportunities description** Innovation, especially in technology will be essential to achieving our Net Zero ambition. The technology transition costs could include: - Energy infrastructure across our estate. - Switchingourlogisticsfleettolow-emissionvehicles. - Investing in technology to improve the lifecycle of products. ### **Our response** We have developed integrated strategic planning to ensure the introduction of low carbon technology within our property, manufacturing and logistics aligned to our Net Zero trajectory. This includes the anticipated replacement cycles for legacy infrastructure and lifecycles of vehicles and projected costs are builtinto the four year financial plan. ### **Risk** ### **I N C R E A S E D C O S T O F R A W M AT E R I A L S A N D P RO D U C TS** **Risk/opportunities description** to accommodate cost changes. materials and products. **Our response** **Risk rating** ### **Indicator** Production cost. As our suppliers bearthe effect of carbon pricing and other sustainability-driven impacts,they could pass on the cost to us, hence increasing our cost of raw Phased and adapted pricing and margin structure ### **Risk rating** ### **CONSUMER VALUE Indicator** Revenue. **Risk rating** **Risk type** **Risk** ### **Risk/opportunities description** **SHIFT IN CUSTOMER/** Customers have demonstrated they will align themselveswith brands thatreflecttheir values. Failure to meet these shifting values could cause customers to switch to alternative products or competitors. Growing awareness of climate issues and change in consumer priorities could provide an opportunity to widen our customer base, and increase revenues, profits and market share. ### **Our response** Customer satisfaction was ranked the top issue in our materiality assessment in 2024. We conduct regular consumer monitoring on appetite and attitudes toward sustainable brands and products as well as our ongoing performance metrics such as NPS. Additionally, we use customer research to validate our approach to circular models to ensure we are developing commercially viable solutions. ### **Risk type: P** Policy and legal **T** Technology **M** Market **R** Reputation **Ph** Physical **Scenarios:** Transition risks – 1.5º Physical risks – 4º **Risk rating:** High Medium Low Table 1: Summary of our climate risks and opportunities continued ### **Medium to long term risk and opportunities** **Risk** ### **CO ST O F C A P I TA L** | | Risk rating | |------------------|-------------| | Cost of capital. | | | | | | | Indicator | ### **Risk/opportunities description** As credit ratings begin to incorporate climate change considerations, there is a risk that the cost and availability of capital would increase/ decrease. ### **Our response** We support ESG inquiries and disclosures to third-party and creditrating agencies aswell as engaging shareholders. ### **Risk** ### **PHYSICAL RISK** ### **Risk/opportunities description** Damage or loss of value to our facilities due to climate hazards. Our scenario analysis considers heat stress, flooding, drought, fireweather, andwindstorms as climate hazards. ### **Our response** All our own facilities are located in the UK, which is not exposed to as many climate hazards as other countries. Therefore, the overall risk to our facility is considered low to moderate within the short to medium term horizon. Our own facilities including manufacturing and distribution are leased with an average of five years remaining,they are unlikely to see long term climate changes in 2050 unless renewed. ### **Risk** ### **S U P P LY C H A I N** ### **Risk/opportunities description** The climate hazards considered in our scenario analysis are: heat stress, flooding, drought, fire weather, and windstorm. Any of these hazards could cause disruption in our value chain and disrupt production and delivery. ### **Our response** Climate or geopolitical disruption of our supply chain is addressed in a similar approach. Our supplier facilities are spread across the UK, Europe, andAsia.Theoverallexposureofdrought,fire,weather and windstorm to our suppliers' facilities is moderate, whilsttheexposureoffloodingisconsideredveryhigh in Asia. We have addressed this with our key partners and have contingency plans in place. ### *Governance* See full corporate governance framework on page 55. The Board recognises the crucial role of addressing climate change risks and opportunities for the Group's long-termsuccess.We have established a clear governance framework for climate change and sustainability. The Board holds overall responsibility for monitoring our progress towards climate-related goals and targets, and has designated the RSC. The RSC meets at least three times per year to review and assess the Group's sustainability strategy, governance, and performance against targets, as well as review and approve policies related to our focus areas: our planet, our people, and our community. Climate change remains a central topic in RSC and Board meetings,reflecting its importance in our strategic plan. The Committee's terms of reference are available on the Company's website. In January 2024, the GLT completed a comprehensive materiality assessment.\* The Group Board were independently interviewed as key stakeholders on their views of the topics which were summarised and shared as part of the process. Upon completion, the materiality assessment was presented to the Board and used throughout the Strategy Days held in April 2024. Climate-related risk is monitored by theAudit and Risk Committee ('ARC') and the Board through regular meetings. The ARC also provides assurance on non-financial metrics. In FY24,they conducted an internal audit of environmental data control systems. The ESG Committee meets six times per year and reports to the GLT and RSC. Senior management forms part of these forums to ensure they are influencing and monitoring the progress ofthe climate change objectives. Responsibilities include updating the RSC on climate change and sustainability developments as well as driving the overall strategy of the business and managing its climate-related risks and opportunities. Managementis informed about climate-related matters both internally and externally: - Internally through regular updates from the ESG Committee and Sustainability team, who ensure governance, including risk management, strategy and implementation, and any financial implications are raised. - Externally through input from sustainability experts and groups, to ensure our sustainability strategy is relevant and abreast of the continually changing reporting and regulatory landscape. - Externally through collaboration with the industry bodies and non-profit organisations, such as FSC, Leather Working Group, Circular Change Council, Undaunted (formerly CCCI/Imperial College) and WWF to advocate for circularity, deforestation, and decarbonisation across industry. - \* See our Materiality Disclosure at [www.dfscorporate.co.uk/](http://www.dfscorporate.co.uk/media/69987/Materiality-Disclosure.pdf) [media/69987/Materiality-Disclosure.pdf](http://www.dfscorporate.co.uk/media/69987/Materiality-Disclosure.pdf) ### Governance framework ### *Ethical business* ### **Our commitment** We are committed to conducting all of our business in an honest and ethical manner, acting professionally, fairly and with integrity in all our business dealings and relationships. We implement effective systems to counter the risk of bribery and corruption. We apply our policies across all of our operations, and also require all of our suppliers to commit to apply the same or equivalent policies. The Group does not operate in any tax havens or use any tax avoidance schemes. OurAnti-Bribery Policy and ourTax Strategy are available on our website [https://www.dfscorporate.](https://www.dfscorporate.co.uk/governance/policies) [co.uk/governance/policies](https://www.dfscorporate.co.uk/governance/policies) and our key principles are stated below: ### **Bribery and corruption** The principle: We will not accept bribery or corruption, in any form orin any place, andwe do not offer, give or take a bribe or inappropriate payment, either directly or indirectly. What this means in practice: - Offering, giving,taking or promising things that may influence, or affect an organisation orindividual in order to gain business, or an advantage, is not allowed in any form. - Accepting or offering a bribe/kickback payment of any kind is prohibited; a bribe doesn't have to be successful to be corrupt. - We will never use our charity or sponsorship activities to gain an unfair advantage. - We expect all colleagues, partners and suppliers to report any breaches, or suspected bribes or corrupt behaviour. ### **Gifts and hospitality** The principle: Giving or accepting a gift or hospitality should only be done if it can be proved to be of small and modest value.They should neverinfluence the decisions we take. What this means in practice: - We don't offer or accept gifts or hospitality as part of contract negotiations or sales transactions. - Any gifts given or received are modest in value and recorded appropriately. ### **Business transactions and information** The principle: All business records, information and transactions must be recorded accurately and honestly. We're steadfast in our approach to preventing any kind of fraud, embezzlement, money laundering or other financial crime. What this means in practice: - We have robust controls in place to prevent and detect any form of fraud or money laundering. - The records of our business dealings and finances are accurate and well maintained. - Ifwe suspect any kind ofirregularity in our finances, they are reported straight away to the management team. - Timesheets and expenses that are submitted for payment are accurate and timely. ### **Data Privacy Policy and cyber security** The Group's operations depend upon the continued availability and integrity of its IT systems, including the security of customer and other data held by the Group, and risk of attacks is ever increasing. Cyber security and data has been identified as a principalrisk. See page 24 for further details on the procedures and system in place to mitigate the risks. The Group will take all steps necessary to comply with the principles as set out in the GDPR and DPA 2018 and have a formal Data Privacy Policy. ### **Human rights and modern slavery** The culture and ethos across DFS Group is about doing the right thing. We set clear standards for conduct, which we expect colleagues and suppliers to adhere to. We respect human rights in our business and our supply chain and do not tolerate modern slavery in any form as documented in our Modern Slavery and Human Trafficking Statement on our corporatewebsite: www. [dfscorporate.co.uk/esg/modern-slavery-and](http://www. dfscorporate.co.uk/esg/modern-slavery-and-human-trafficking-statement)[human-trafficking-statement](http://www. dfscorporate.co.uk/esg/modern-slavery-and-human-trafficking-statement) To assist our colleagues in doing the right thing and to raise any concerns or suspicions we have a clear whistleblowing policy and confidentialreporting hotline. As part of managing the risk of modern slavery, we have a supply chain compliance programme in place. Our training initiatives include: – An e-learning module on modern slaverywhich has been deployed to senior and middle managers across the Group. The training provides guidance on spotting the signs of differenttypes of modern slavery and how to report concerns. ### **Our commitment** We are committed to acting ethically and will continue to take steps to assess the risk of modern slavery taking place in our supply chain. To help achieve this we will: - Continue working with our tier 1 suppliers and manufacturers to ensure compliance with our policies in relation to human rights. - Continue to assess our training requirements to ensure thatthey are fitfor purpose and deliver training based on this assessment. - Address any gaps highlighted in the Ardea gap analysis report to strengthen our policies and procedures. - Strengthen our due diligence processes by undertaking risk mapping and identifying modern slavery risk through procurement. - Ensure that any new supplier commits to the Group's Supplier Code of Practice/SLA including SMETA (SEDEX Members Ethical Audits) certification. For more information please see our Group Code of Conduct and the Group's Supplier Code of Practice [https://www.dfscorporate.co.uk/media/46609/Group-](https://www.dfscorporate.co.uk/media/46609/Group-Code-of-Conduct.pdf)[Code-of-Conduct.pdf](https://www.dfscorporate.co.uk/media/46609/Group-Code-of-Conduct.pdf) [https://www.dfscorporate.co.uk/media/68866/DFS-](https://www.dfscorporate.co.uk/media/68866/DFS-Supplier-Code-of-Practice-_-V004-_-Live-.pdf)[Supplier-Code-of-Practice-\\_-V004-\\_-Live-.pdf](https://www.dfscorporate.co.uk/media/68866/DFS-Supplier-Code-of-Practice-_-V004-_-Live-.pdf) **Topic Definition** ^G **Labour conditions** ### **R E S P O N S I B I L I T Y A N D S U STA I N A B I L I T Y R E P O RT** CONTINUED ### **M AT E R I A L I T Y A S S E S S M E N T** A materiality assessment is required under TCFD regulations but is also a useful tool to ensure the business includes all stakeholder perspectives in strategic planning and decision-making. In FY24,we refreshed our assessment by interviewing or surveying all stakeholder groups.Of note,therewas a significant shiftin priorities to social priorities such as fair wages and diversity and equality over environmental concerns. For more information, please see our Materiality Disclosure at www.dfscorporate.co.uk/media/69987/Materiality-Disclosure.pdf. ### **Impact to DFS High Low High Importance to external stakeholders** A B D ^{E F} G H I K L N M C **Topic Definition** ^N **Water quality and drought** | A | Customer
satisfaction
and quality | Measurement used to determine howsatisfied
customers are with its products and services. | |---|-----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | B | Health, safety
and wellbeing | Programmes, guidelines and procedures to
protect the safety, welfare and health of any
person engaged in work or employment. | | C | Data security
and privacy | Protection of customer data and adhering to
current regulations such as GDPR to reduce the
risk and exposure to potential cyber attacks. | | D | Fair wages | An income earned during normal working
hours that meets the basic needs of workers
and their families, with some leftover for extra
expenses and savings. | | E | Equality and
diversity | Creating an inclusive environment where
everyone is welcome, ensuring employees
are treated respectfully and have equal
opportunities. | | F | Material use,
longevity and
circularity | Responsible use of resources by improving
the efficiency of materials in our products and
re-usewhere possiblewhile designing out
waste by keeping products and materials in
use for longer. | Labour conditions and workplace standards including human rights, fairwages and benefits, organised labour and freedom of association. ### ^H **Carbon emissions** GHG (Greenhouse Gas emissions) produced by the activities and operations and the movement of resources in the supply chain. ^I **Plastic packaging and waste** The efficiency and recyclability/reusability to limit waste created in operations. ^J **Energy consumption** Overall energy efficiency and access to alternative energy sources. ^K **Deforestation and biodiversity loss** Protection and restoration of the natural capital and biodiversity impacted by harvesting, farming and production of raw materials. ^L **Environment tax** Tax imposed on activities that have a negative impact on the environment, such as carbon emissions, pollution, or resource depletion (e.g., carbon tax and plastic tax). ^M **Air pollution** Operational and supply chain activities contributing to air pollution. protect quality. Water governance in operations (own and supply chain) to reduce consumption and ### **LOOKING AHEAD** As climate-related considerations become more centralto our business,we expectthem to become 'business as usual' in our strategy and financial planning. We are developing commercial solutions to provide business resilience during the transition and capitalise on the opportunities highlighted. Investments needed to transition and manage potential impactswill continue to be integrated in financial planning going forward. ### **TCFD CONSISTENCY INDEX** | Pillar | Recommended disclosures | Location within
this report | |-------------|--------------------------------------------------------------------------------|--------------------------------| | Governance | (a) Board oversight of climate-related risks and opportunities | Page 49 | | | (b) Role of managementin assessing and managing climate-related risks | Page 49 | | | and opportunities | | | Strategy | (a)Climate-related risks and opportunities | Page 45-48 | | | (b) Impact on the organisation's business, strategy and financial planning | Page 45-48 | | | (c) Resilience of strategy,taking into consideration different climate-related | Page 45 | | | scenarios, including a 2°C or lower scenario | | | Risk | (a) Processes foridentifying and assessing climate-related risks | Page 25 and 45 | | management | (b) Risk management process | Page 25 and 45 | | | (c) Integration into overall risk management | Page 25 and 45 | | Metrics and | (a)Metrics used to assess climate-related risks and opportunities in line | Page 42, 43 and 45 | | targets | with our strategy and risk management process | | | | (b) Scope 1, Scope 2 and Scope 3 greenhouse gas (GHG) emissions | Page 42 and 43 | | | See www.dfscorporate.co.uk/media/69984/Basis-For-Reporting-FY-24.pdf | | | | for our Basis for Reporting | | | | (c)Targets used to manage climate-related risks, opportunities and | Page 34, 41 and 45 | | | performance | | This Strategic Report was approved by the Board on 25 September 2024. On behalf of the Board. ### **TIM STACEY** Chief Executive Officer ### **J O H N F A L L O N** Chief Financial Officer # iovernance ### Contents 52 Directors and officers 54 Corporate governance report 61 Audit and Risk Committee Directors' Remuneration report 88 Directors' report 91 Statement of Directors' responsibilities in respect of the annual report and the financial statements 92 Independent auditor's report ### DIRECTORS AND OFFICERS **Experience:** Steve has over 25 years' experience in the retail Steve previously served as CEO of Focus Wickes DIY Group and Woolworths, as well as working with several other retailers. Prior to this Steve spent eight years at ASDA having started his Steve is an experienced Independent Non-Executive Director. Senior Independent Director of Lenta Limited until March 2022 Steve has significant retail and M&A experience. Most recently was on the Board of Big Yellow PLC until 2020 and was the he held the position of Executive Chairman at the Matalan - BA (Engineering) MEng (University of Cambridge) Group before stepping down in July 2022. sector, in both public and private equity businesses. Non-Executive Chair career with Bain & Company. Qualifications: Independent: - Yes **External appointments:** - No external appointments Date of joining DFS: December 2018 TIM STACEY **Chief Executive Officer** Date of joining DFS: July 2011 **Experience:** Tim has been with DFS for over ten years and has an in-depth knowledge of all aspects of the business. Prior to being appointed Group CEO in November 2018, Tim served as the Chief Operating Officer, he was responsible for the showrooms, supply chain and customer service in addition to online operations and international development. Tim has significant experience in digital retail having joined DFS as Director of Online and Business Development and having led the multi-channel transformation of DES. He was previously the Multi-Channel Director for Boots.com and Director for Online and Business Development for Alliance Boots. Tim also has significant experience in M&A, operations, customer services and marketing. ### Qualifications: - BA (Hons) Accounting and Finance (Nottingham Trent University) - Member of the Institute of Chartered Accountants in England and Wales ### **External appointments:** - No external appointments ### Independent: Not applicable JOHN FALLON **Chief Financial Officer** Date of joining DFS: November 2022 **Experience:** Prior to joining DFS, John spent more than 20 years at ASDA, most recently as Group CFO, and played a key role in the recent change of ownership. During his time at ASDA John has gained extensive retail experience across a broad range of roles, including Commercial Finance Director, Group Financial Controller and Internal Audit Director. ### Qualifications: - BA (Hons) in Accounting & Finance (Manchester Metropolitan University) - Member of the Charted Institute of Management Accountants ### **External appointments:** - No external appointments ### Independent: - Not applicable ### Committee membership key ### DIRECTORS AND OFFICERS CONTINUED **ALISON HUTCHINSON** CBF Non-Executive Director Senior Independent Date of joining DFS: May 2018 **Experience:** Alison has a background in both digital and retail financial services and was previously Group CEO of Kensington Group PLC Over the last 12 years Alison, as the CEO of The Pennies Foundation charity has worked with the retail industry to establish the fintech charity the Pennies Until March 2022 Alison was a Non-Executive Director of Liverpool Victoria Friendly Society Ltd. She previously held several senior management positions, including Marketing Director, at Barclaycard having started her career at IBM. In 2016 Alison received a CBF for her services. to the Economy and Charity. ### Qualifications: - B.Sc. Technology & Business Studies ### **External appointments:** - Chief Executive of The Pennies Foundation charity - Vice Chair and Senior Independent Non- - Executive Director of Yorkshire Building Society - Senior Independent Non-Executive Director of Foresight Group Holdings Limited ### Independent: - Yes GILL BARR Non-Executive Director Date of joining DFS: March 2023 growth and shareholder value. business development roles. - MRA London Business School Experience: Gill was a Non-Executive Director of Morgan Sindall from 2004 to 2012. PayPoint until it delisted in 2021. N Brown from 2017 to 2023 and Wincanton PLC until it was acquired in April 2024. She is an experienced Remuneration Committee Chair (Morgan Sindall, N Brown, and McCarthy & Stone), skilled at reflecting investor perspectives in remuneration plans that motivate Gill's executive career focus has been on strategy and customer centric business development. The Co-operative Group from 2011 to 2014 and was previously Marketing Director of John Lewis. She spent seven years at Kingfisher PLC where she held a variety of senior marketing and - B.Sc. Psychology (Aberdeen University) She was Group Marketing Director of from 2015 to 2024 McCarthy & Stone from 2019 Non-Executive Director Date of joining DFS: December 2018 Experience: Jo has been the Chief Executive Officer of Travelodge since May 2022, having since 2013 and has broad based finance experience in hospitality leisure and retail roles across a number of consumer-facing companies including Mothercare, Jessops, previously served as the Chief Financial Officer Prior to joining Travelodge, Jo held senior finance Ladbrokes PLC, Hilton Group plc and EMI Group. Date of joining DFS: August 2024 **Experience:** Bruce has been the Chief Financial Officer of Currys plc since July 2021. Prior to that. Bruce was UK Finance Director of Tesco for seven years where he was involved in the business turnaround and the acquisition of the wholesaler Previously he worked for seven years at Kingfisher, first as Group Strategy Director and then as Managing Director of Kingfisher Future Homes. Earlier in his career he held senior finance and general management positions within Dixons Retail plc and McDonalds. Date of joining DFS: August 2018 **Experience:** Liz is a qualified solicitor responsible for the corporate affairs of the Group and leads a team of specialists focused on Legal. Regulatory Compliance, Risk and Health & Safety. Previously she worked as a General Counsel and Company Secretary. Liz has held leadership roles at Poundworld, My Dentist, the Peel Airports Group, and KCOM Group PLC, having started her career with the Halifax (Strathclyde University) Qualifications: ### **External appointments:** - No external appointments ### Independent: - Yes ### Qualifications: - BA (Hons) Physics (University of Oxford) - Associate of the Institute of Chartered Accountants in England and Wales - ICAFW Business & Finance Professional ### **External appointments:** - Director and Chief Executive Officer of Thame and London Limited, the parent company of the Travelodge Group and for Travelodge Hotels Limited and Director of other subsidiary companies within the group ### Independent: - Yes ### Qualifications: - B.Sc. Operational Research (Lancaster University) - Member of the Institute of Chartered Accountants in England and Wales ### **External appointments:** - Chief Financial Officer of Currys PLC ### Qualifications: - LLB (Hons) in Law (Manchester Metropolitan l Jniversity) - Solicitor - Admitted by the Law Society in 1996 ### **External appointments:** - No external appointments ### Independent: - Yes ### Independent: - Not applicable Loraine Martins served as a Non-Executive Director throughout the year and resigned on 31 July 2024 ### Committee membership key Audit and Risk Committee member *framework demonstrated its resilience and supported effective decisionmaking, enabling the Board to respond quickly and to take decisions that create long-term sustainable value for the benefit of our shareholders and wider stakeholder groups."* Welcome to the Governance section of our 2024 Annual Report. AtDFS,we recognise the importance of effective corporate governance in supporting the long-term success and sustainability of our Company. This report details how the Board has ensured that the Group's activities are underpinned by high standards of corporate governance. In a challenging global and economic environment, our governance framework demonstrated its resilience and supported effective decision-making.This enabled the Board to respond quickly and to take decisions that create long-term sustainable value forthe benefit of our shareholders and wider stakeholder groups. Over the coming year we will continue full compliance with the UK Corporate Governance Code 2018 ('the Code') provisions and work to ensure compliance with the new UK Corporate Governance Code 2024. ### **Our Board in 2024** All our Directors served throughout the year. As you will have seen from my introductory statement on pages 4 and 5 there have been two changes to the Board since the year end. Loraine Martins stepped down from the Board in July, and in August we were pleased to welcome BruceMarsh to our Board as aNon-Executive Director. Bruce's biography can be found on page 53, demonstrating the wealth of retail experience he brings to the Group. During the year, we undertook an externally led evaluation of the Board and its Committees. The evaluation, which incorporated a detailed assessment of the views of the Directors and the Group Leadership Team ('GLT'), has provided the basis for the Board Action plan. More detail on this can be found on page 59 of this report. ### **ESG** Environmental, social and governance ('ESG') continues to be a key focus area for our stakeholders. We continue to make good progress against our targets, achieving most, but with some requiring more work. In June we submitted for validation to the Science Based Targets initiative detailing our route to Net Zero before 2050 aligning with the UK government target. We are already making great strides to ensure our business can make the most of the opportunities of a circular economy to deliver sustainable performance for the Group. Further information on all of our ESG initiatives can be found in our Responsibility and sustainability report on pages 32 to 51. ### **Our commitment to good governance.** I am pleased to say that we were compliant with the Code throughout the year, and the following pages set out further details. Full details of how the Directors have fulfilled their duties in accordancewith Section 172 of the Companies Act 2006 are contained in the Section 172 statement on pages 29 to 31. ### **2024 AGM** This year our AGM will be held on 22 November 2024 at 2.30pm at our Group Support Centre in Doncaster. The meeting arrangements and the resolutions can be found in the Notice of AGM available on our website: www.dfscorporate.co.uk. Finally, I want to thank my fellow directors for all of their work in supporting the GLT and our strategy for the future. We are confidentthatwe have the right strategy in place, supported by a robust governance framework. As the economy recovers this will enable us to deliver value for all of our stakeholders over the long term and allow us to respond with agility in the face of emerging challenges. ### **STEVE JOHNSON** ### Chairman 25 September 2024 ### **Governance at a glance** ### **Governance framework** Responsible for providing leadership to the Group's business, including setting the Group's purpose, strategy and values and promoting its long-term sustainable success. The Board has adopted a formal schedule of matters reserved for its approval. The terms of reference for each Committee are documented and agreed by the PLC Board. These terms of reference are reviewed annually and are available on our website www.dfscorporate.co.uk. ### **Audit and Risk Committee** Oversees financial reporting, internal controls, risk management, compliance and audit. See committee report on **pages 61 to 64** ### **Remuneration Committee** Oversees linking remuneration with strategy and determines the levels of remuneration. See committee report on **pages 67 to 87** ### **Nomination Committee** Oversees the composition of the Board and succession planning. See committee report on **pages 65 to 66** ### **Responsible and Sustainable Business Committee** Oversees the delivery of our ESG strategy. See committee report on **pages 32 to 51** A key element of our business success is having good corporate governance so,we have implemented effective frameworks and practices to ensure that high standards of governance, aswell as good values and behaviours, are consistently applied throughout the Group. ### **Role of the Chair and Chief Executive Officer** AsChair, Steve leads the Board, ensuring its effectiveness in all aspects ofits role.Tim,theCEO, is responsible for managing the operation ofthe Group to create value overthe long term.There are clear divisions of accountability and responsibility that have been agreed and documented by the Board. ### **Role of the Chair** Leading the Board and ensuring its effectiveness. Facilitating effective contributions ofNon-Executive Directors to the leadership of the Group. Ensuring that effective strategic planning forthe Group is undertaken. Ensuring effective communication between the Board and its investors; promoting a culture of openness and debate. Developing the Board Action plan. Ensuring the submission to the Board by the Chief ExecutiveOfficer of objectives, policies, and strategies for the Group, including the Group business plan and annual budget. ### **Role of the Chief Executive Officer** Leading the senior management in managing the performance of the Group. Planning and ensuring the effective execution ofthe Group's strategy. Ensuring the effective implementation ofthe Board's decisions. Maintaining an effective framework ofinternal controls and risk management. Leading the climate change and sustainability objectives of the Group. Leading and motivating, the GLT, focusing on talent acquisition and retention. Managing the Group's relations with all of its stakeholders, the public and the media. ### **Role of the Senior Independent Director ('SID')** Acting as a sounding board for the Chair. Meetingwith theNon-ExecutiveDirectors annually, without the Chair being present, and collating feedback on the Chair's performance as part of the annual Board evaluation process. Meeting with the Company's shareholders to consider matters where it may be inappropriate to have those discussions with the Chair and/or Executive Directors. ### **Role of the Company Secretary** Advising the Board and its Committees on corporate governance policies and procedure, and for the management of Board and Committee meetings. Managing the provision of timely, accurate and considered information. Advising the Board and representing the Company in legal matters. Ensuring that the Directors receive accurate, timely and clear information. ### **Diversity Compliance Statement** We confirm thattheCompany has metthe targets set outin LR 9.6.8R(9)(a)(i)-(iii) on board diversity. The table below sets out the range of gender and ethnicity as they relate to our Board, senior Board positions (CEO,CFO, SIDandChair) and executive management as at 30 June 2024. In linewith the Listing Rule definition, 'executive management' consists of the GLT. ### **Gender identity/sex of members of the Board and executive management 30 June 2024** | | Number
of Board
Directors | Percentage
of the Board | Number of senior
positions on the
Board (CEO, CFO,
SID and Chair) | Number in
executive
management1 | Percentage
of executive
management | |--------------------------------|---------------------------------|----------------------------|----------------------------------------------------------------------------|---------------------------------------|------------------------------------------| | Men | 3 | 43% | 3 | 3 | 62.5% | | Women | 4 | 57% | 1 | 2 | 37.5% | | Other categories | – | – | – | – | – | | Not specified/prefer notto say | – | – | – | – | – | 1. Executive Management excluding theChief Executive andChief Financial Officer ### **Ethnic background of members of the Board and executive management 30 June 2024** | | Number
of Board
Directors | Percentage
of the Board | Number of senior
positions on the
Board (CEO, CFO,
SID and Chair) | Number in
executive
management1 | Percentage
of executive
management | |-----------------------------------|---------------------------------|----------------------------|----------------------------------------------------------------------------|---------------------------------------|------------------------------------------| | White British or other White | 6 | 86% | 4 | 5 | 100% | | (including minority-white groups) | | | | | | | Mixed/Multiple | – | – | – | – | – | | Ethnic Groups | | | | | | | Asian/Asian British | – | – | – | – | – | | Black/African/Caribbean/ | 1 | 14% | – | – | – | | Black British | | | | | | | Other ethnic group, | – | – | – | – | – | | including Arab | | | | | | | Not specified/ | – | – | – | – | – | | prefer not to say | | | | | | | | | | | | | 1. Executive management excluding theChief Executive andChief Financial Officer. ### **Governance at a glance** ### **Board diversity** The Board Equity, Diversity and Inclusion Policy was updated in March 2024 to align with business best practice. ### **Governance at a glance** ### **Board skills and experience** The Board comprises Directors with a broad range of skills and experience. The chart below provides an overview of the experience around the Board table. The competencies highlighted in the matrix will be considered in relation to the appointment of any new Directors to the Board. The Directors considered the level of experience in each area identified as key to the success ofthe Group. ### **Appointment, election and re-election** The Board may appoint any person to be a Director, and any Director so appointed shall then be eligible for election by shareholders atthe nextAGM.Non-Executive Directors' appointments are for an initial period of three years. All Directors stand for annual re-election in compliancewith theCode.Neitherthe Chair nor anyNon-ExecutiveDirector have been in their position for more than nine years in accordance with the recommendations of the Code. ### **Independence** The Board reviews the independence ofitsNon-Executive Directors annually. The Board considers that the Chair was independent on appointment and that all oftheNon-ExecutiveDirectors are independent. The Company maintains clear records of the terms of service oftheChairman andNon-Executive Directors to ensure that they continue to meet the requirements oftheCode.TheNon-Executive Directors' appointment letters anticipate a minimum time commitment of two days per month, recognising that there is always the possibility of an additional time commitment and ad hoc matters arising from time to time, particularly when the Company is undergoing a period of increased activity. The Board considers that each oftheNon-ExecutiveDirectors have sufficient time to devote to their role and that each Director's contribution is importantto the long-term sustainable success of the Company. The Directors' biographies can be found on pages 52 and 53. ### Board tenure The length of time each of the Directors has served on the Board at the date of the report, is shown below. ### **Governance at a glance** | Name | | | Meetings attended Maximum meetings Independent | Responsibility and role during 23/24 | Date of appointment | | | |-------------------------|---------------------------------------------------------------------------------------------------------------------------------------|---|------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|--|--| | CHAIRMAN | | | | | | | | | Steve Johnson | 8 | 8 | | | 6 December 2018 | | | | | | | | EXECUTIVE DIRECTORS – At each Board meeting, the Board receives and discusses reports from each of the Executive Directors. | | | | | Tim Stacey CEO | 8 | 8 | – | Leading and managing Group performance and strategy to ensure the long-term profitable operation ofthe Group. | 1 November 2018 | | | | John Fallon CFO | 8 | 8 | – | Leading, managing, and maximising Group financial performance and investorrelations. | 14 November 2022 | | | | NON-EXECUTIVE DIRECTORS | | | | | | | | | | Alison Hutchinson (SID) 8
8 | | | Overseeing the implementation of the strategy and development of the Group whilst maintaining a system of internal | 1 May 2018 | | | | Jo Boydell | 8 | 8 | | control and risk management. BoardCommittee members also have further specific responsibilities in relation to reviewing
the integrity of financial information, dealingwith succession planning and Board diversity, and setting remuneration. | 6 December 2018 | | | | Loraine Martins | 8 | 8 | | | 28 June 2021 | | | | Gill Barr | 8 | 8 | | | 1 March 2023 | | | | STANDING ATTENDEES | | | | | | | | | Liz McDonald | 8 | | | Advising the Board on all legal, corporate governance and compliance issues. | 30 September 2018 | | | | (Company Secretary) | | | | | | | | | | | | | ATTENDED BY INVITATION – Members of the GLT are invited to attend Board meetings to present papers and discuss key matters. | | | | | Nick Smith | 2 | | | The GLTis led by theCEOand is responsible for executing strategy and the day-to-day management ofthe business. | | | | | Emma Dinnis | Their attendance at Board and Committee meetings assists the Directors in gaining a clearer insight into the Group's operations.
1 | | | | | | | | Alex Salden | 2 | | | This process also affords the team the opportunity to bring matters to the attention ofthe Board. | | | | | Russ Harte | 3 | | | | | | | | Committee meetings | Audit and Risk | Remuneration | Nomination | Responsible and Sustainable | |--------------------|----------------|--------------|------------|-----------------------------| | Committee | Committee | Committee | Committee | Business Committee* | | Steve Johnson | 3 | 4 | 2 | 3 | | Tim Stacey | 3 | 4 | 2 | 2 | | Alison Hutchinson | 3 | 4 | 2 | 3 | | John Fallon | 3 | 4 | 2 | 3 | | Jo Boydell | 3 | 4 | 2 | 3 | | Loraine Martins | 3 | 4 | 2 | 3 | | Gill Barr | 3 | 4 | 2 | 3 | | | | | | | - \* The Responsible and Sustainable Business Committee ('RSC') comprised Alison Hutchinson, Tim Stacey and Loraine Martins. - \*\* All Directors are invited to Audit and Risk Committee meetings and the Responsible and Sustainable Business Committee meetings, and theChair ofthe Board is invited to attend RemunerationCommittee meetings. TheChief Executive Officer andChief Financial Officer are invited to attend both the Remuneration andNominationCommittee meetingswhere appropriate to do so. ### **Board meeting attendance** The Board held eight scheduled meetings during the year, including a two day Strategy session held in April 2024 with additional ad hoc meetings held as required. Meetings took place at a number of operational locations to provide an opportunity to promote colleague engagement.During the yeartheChair and theNon-Executive Directors met on three occasionswithoutthe ExecutiveDirectors present, and theNon-ExecutiveDirectors met privately with the CEO twice. The Board has a full programme of Board meetings planned for the year ahead and intends to meet eight times, with additional meetings being held to review important trading periods or strategic matters, as required. All Directors have the right to have their concerns over, or opposition to, any Board decision noted in the minutes. All Directors have access to the Company Secretary and may take independent legal advice. ### **External appointments** The Executive Directors may accept outside appointments provided that such appointments do not impact their ability to perform their duties as Executive Directors of the Company. ### **How the Board operates** Agenda planning is undertaken in advance of every meeting to ensure there is appropriate allocation of time to strike the right balance between regular standing items, such as reports on currenttrading, financial performance and budgets, the strategic plan, and regulatory and health and safety matters. At the start of the year a schedule of Special Topics is agreed between the CEO and Chairman after a discussion with the wider Board. 'Deep dives' into these Special Topics are provided by members of the GLT throughout the year. These enable the Board to gain a deeper understanding of the strategic direction of the business, exchange views and robustly debate elements oftheCompany's performance, specific projects or areas of strategic significance. If aDirectoris unable to attend a meeting, they are consulted prior to the meeting and their views made known to the other Directors. All Board decisions are recorded and any Board decision made outside of a meeting is made by written resolution. The Board has a formal schedule of matters specifically reserved forits decision and approval, a copy ofwhich is available from the Company Secretary, Liz McDonald. ### **New Directors induction** All new Directors undergo a detailed, tailored induction programme including meetings with the Company's external advisors and with colleagues from across the Group to familiarise the Director with all operations, including those in showrooms, manufacturing sites, distribution centres and our Group Support Centre. When any new Director is appointed, they undergo an induction process as outlined below. | Understand
their duties | One-to-one meetingwith theCompany Secretary to understand the Governance issues
which apply to the business
One-to-one meetingswith the rest ofthe Board, including theChairman, ExecutiveDirectors
and otherNon-ExecutiveDirectors | | | | | |----------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--| | | Review previous Board and Committee papers, Committee terms of reference and investor
presentations etc | | | | | | | Meeting with External Advisors, including the auditors, brokers and external legal advisors | | | | | | | Review the corporate governance materials available on Diligent Boards – including Committee
terms of reference and the schedule of matters reserved to the Board | | | | | | Meet the | One-to-one meetingswith the members of GLTand thewiderworkforce | | | | | | colleagues | Presentations from key functions within the Group | | | | | | Visit the | Visiting operational locations including showrooms,factories, support offices and customer | | | | | | business | distribution centres and meeting with our colleagues from these areas | | | | | ### **Directors and their interests** The names oftheDirectors in office during the year,togetherwith theirrelevantinterests in the share capital of the Company at 26 June 2023 and 30 June 2024, and details of the Directors' share options are set out in the Directors' Remuneration Report on page 83. ### **Directors' indemnities and conflicts** As at the date of this report, indemnities are in force under which the Company has agreed to indemnify the Directors, to the extent permitted by law, in respect of losses arising out of, or in connection with, the execution of their duties, powers or responsibilities as Directors of the Company. The indemnities do not apply in situations where the relevant Director has been guilty of fraud or wilful misconduct. Under the authority granted to them in the Company's Articles of Association, the Board has considered carefully any situation declared by any Director pursuanttowhich they have or might have a conflict ofinterest and,where it considers it appropriate to do so, has authorised the continuation of that situation. In exercising their authority, the Directors have had regard to their statutory and other duties to the Company. The duties to avoid potential conflicts and to disclose such situations for authorisation by the Board are the personal responsibility of each Director. All Directors are required to ensure that they keep these duties under review and to inform the Company Secretary on an ongoing basis of any change in their respective positions. TheCompany maintains a related party registerto record any conflicts,which is updated annually.Additionally, the Group has purchasedDirectors' andOfficers' liability insurance. ### **UK Corporate Governance Code 2018** ### **Compliance statement** This Corporate Governance report incorporates reports from the Audit and Risk and Nomination Committees on pages 61 to 66 together with the Strategic report on pages 1 to 51, the Directors' Remuneration report on pages 67 to 87 and the Directors' report on pages 88 to 90. It explains how the Company has applied the relevant provisions and principles of the Code, the Companies (Miscellaneous Reporting) Regulations 2018 ('the Regulations') and the Financial Conduct Authority's Listing Rules and Disclosure and Transparency Rules during the year ended 30 June 2024. A copy of the Code is available on the Financial Reporting Council's website, www.frc.org.uk. The Board confirms that all other provisions oftheCodewere compliedwith throughoutthe entire year. ### **Board evaluation** The Board undertakes an annual evaluation of its activities and those of its committees. This year an externally led (tri-annual)reviewof Board effectivenesswas carried out by GouldConsulting. GouldConsulting carried out the previous Board evaluation in 2021. The appointment of Gould Consulting was considered helpful to maintain consistency of approach to help build on the work carried out over the previous three years. ### **Stages of our Board evaluation** | Stage 1 | Gould Consulting attended the March Board meeting to assess the Board dynamics | | | | |---------|---------------------------------------------------------------------------------------------|--|--|--| | Stage 2 | Formal online questionnaire provided by Gould Consulting and in person interviews with each | | | | | | Director and the Company Secretary to provide an in depth understanding of Board dynamics | | | | | | The SeniorIndependentDirector metwith the Executive andNon-ExecutiveDirectors in the | | | | | | absence of the Chair, in order to discuss the Chair's performance | | | | | Stage 3 | Gould Consulting's report was presented to the Board, who requested that the Company | | | | | | Secretary develop an action plan | | | | | | The Senior Independent Director fed back to the Chair | | | | | | Discussion around the key learnings | | | | | Stage 4 | The Board approved the action plan for FY25 | | | | ### **Results overview** GouldConsultingconcludedthattheBoardanditsCommitteeswereperformingwellandhadincreaseditseffectiveness overthelast year.Thecontinuityprovidedby longer-standingBoardmembersandthefreshthinkingfromnewer members had been particularly helpful. The report that was generated was considered at the Nomination Committee whenitmetinMay2024,includingtheChairdiscussingthestrengthsandareasofimprovementidentified.The view was theBoard, and itsCommittees, had performed effectively and had addressed those areas previously identified as requiring further attention. The review found that whilst Board dynamics remain strong, given the changes to the composition of the Board, renewed focus should be on developing the relationships between the Directors and how theBoardoperatescollectively.TheconclusionoverallwasthattheBoardisoperating effectively and that all Board members can contribute freely and play an active role in Board meetings. ### **Highlighted strengths** - The Boardwas feltto be balanced, collaborative and has developed an effectiveway ofworking together. - The quality of debate and challengewas considered to be more confident and insightfulthan three years ago. - Boardroom conversations were observed to be collegiate, constructive, and supportive. - Increased focus on ESG (via formation of the RSC). - The quality of reporting continues to improve, but more time needs to be spent on the longer term strategy. - Relationships between the Board and senior management are on thewhole positive butwould benefitfrom theNon-ExecutiveDirectors spending more time getting underthe skin ofthe organisation. - Each of the Directors were willing to engage fully in Board conversations. Any risk of 'group think' was low. ### **Board improvement plan for FY25** - Further enhance reporting of strategic initiatives. - Review the schedule of Special Topics to ensure a regular review of the key strategic initiatives. - Non-ExecutiveDirectors to spend more timewith managementin one to one sessions to ensure a deeper understanding of key areas of the business. - IncreaseNon-ExecutiveDirector attendance atVoice Forum sessions. - Elevated focus on Risk and InternalAudit,reconfiguring howthese two functions reportregularly into the Board. - Review how the Risk and Internal Audit teams can improve risk management and internal control processes. - Focus on Board succession planning to address the issue of Board members having similartenure profiles. The Boardwill continue to reviewits procedures, effectiveness, development and composition during the year ahead. The Chair will use the output of the Board evaluation to further develop the performance of the Board during the year ahead. ### **Shareholder engagement** The Board actively seeks and encourages engagement with major institutional shareholders and other stakeholders.TheChief ExecutiveOfficer andChief FinancialOfficerregularly meetwith analysts and institutional shareholders to keep them informed of significant developments and to develop an understanding oftheir views which are discussed with the Board. In addition to the extensive engagement carried out by the CEO and CFO, the Chairman and Senior Independent Non-ExecutiveDirectors make themselves available to shareholders so that any issues and concerns can be communicated to the Board. All Directors are available to meet with shareholders at their request. During the year Gill Barr, Chair of the Remuneration Committee met several major shareholders to seek their views on the new Remuneration policy. The Remuneration policy is designed to support strategy and promote the long term success of the Group. A summary of the new Remuneration Policy and the Remuneration strategy is contained in the Remuneration Committee report at pages 67 to 87. To maintain a clear understanding of market perceptions the Directors regularly review investor relations activity, comments by analysts, communication from major shareholders and advice from the Group's brokers. ### **Interaction with all shareholders** - Presentations offull-year and interim results to analysts and shareholders; available on the corporatewebsite. - TheAnnual Report detailing the Group's strategy, business model and performance overthe past financial year and plans for future growth. - The Annual General Meeting. All shareholders are encouraged to attend and put any questions to the Board. - The Company's corporate website (www.dfscorporate.co.uk), where investor information is regularly updated. ### **External auditor** Our external auditoris KPMG LLP and our engagement partneris GillHopwood-Bell. We continually assess the independence and expertise of KPMG LLP.Our non-audit services policy can be found on ourwebsite and further details are on page 110. ### **Internal audit** Further details relating to the Internal Audit function are contained within the Audit and Risk Committee report on pages 61 to 64. ### **DTR Disclosure** The disclosures required under DTR 7.2 of the Disclosure and Transparency Rules are contained in this report, and the Audit and Risk Committee and Nomination Committee reports, except for information required under DTR 7.2.6 which is contained in the Directors' Report on pages 88 to 90. Signed on behalf of the Board of Directors. ### **ELIZABETH MCDONALD** Group General Counsel and Company Secretary 25 September 2024 ### *"The primary responsibilities of the Committee remain the oversight of the Group's external financial reporting, oversight of internal controls and risk management activities, and ensuring the effectiveness of both the internal audit function and the external audit."* **JO BOYDELL** Chair of the Audit and Risk Committee Bio on **page 53** ### **AUDIT AND RISK COMMITTEE REPORT** *On behalf of the Board I am pleased to present this year's Audit and Risk Committee report.* This report is intended to provide shareholders with an insight into key areas considered by the Committee and an overview of how the Committee has discharged its responsibilities during the year. The Committee plays an important role in ensuring the integrity of financialreporting,the effectiveness ofthe internal control environment and the operation of our risk management processes. TheCommittee continues to ensure thatthe financial reporting is aligned with the latest requirements and guidance from regulators, that it is fair, balanced and understandable and that all matters disclosed and reported upon meet the needs of our stakeholders. While no significant newfinancialreporting matters arose in FY24, viability reporting and goodwill impairment assessments have continued to be important focus areas given the weak market growth, Red Sea disruption and other pressures on the macroeconomic environment. In addition we have continued to formalise and monitor our control environments across the business to strengthen our existing arrangements and to ensure we are well placed to meet the requirements of future changes to the Corporate Governance Code. At the start of the year the reporting lines for the Risk Management team and Internal Audit were amended to reflect updates to management's ownership and accountability for management of risk, and to provide clarity over the independence of the audit function. The Committee continues to conduct regular assessments ofthe quality and effectiveness ofthe internal and external audit processes and we have considered a variety of matters aligned with the Group's principal risks. I thank my fellow Committee members for their valuable contribution and support during the year, and I welcome any comments or questions from shareholders. ### **Composition** The members of the Committee are all independent Non-ExecutiveDirectorswho,together, have extensive commercial, financial and operational experience and skills relevant to the Group and are all independent in character and judgement and free from any relationship or circumstance which may, could or would be likely to, or appearto, affecttheirjudgement. The Committee continues to be chaired by Jo Boydell, who was appointed to the role in April 2019. The Board considers that, by virtue of her current and recent executive roles, details of which are set out on page 53, Jo has recent and relevant financial experience and the Company complies with the requirements of the Code in this respect. Other Committee members who served during the year are Alison Hutchinson, Loraine Martins and Gill Barr. Loraine Martins stepped down from the Committee on 31 July 2024 and we welcomed BruceMarsh as a newNon-Executive Director on 1 August 2024. Biographies ofthe IndependentNon-Executive Directors are included on pages 52 and 53 and a summary of their principal skills and experience is shown on page 57. Regular attendees at Committee meetings include theChair ofthe Board,Chief ExecutiveOfficer,Chief FinancialOfficer,Head ofInternalAudit,Head of Risk, Group Finance Director, Company Secretary and the external auditor. The Committee held three scheduled meetings in the year. Details of attendance at scheduled Committee meetings can be found on page 58. The Committee Chair also meets with the CFO, Group Finance Director, Head of Internal Audit, Head of Risk and external auditor prior to each Committee meeting and on an ad hoc basis. ### **AUDIT AND RISK COMMITTEE REPORT** CONTINUED ### **Performance evaluation** The evaluation of the performance of the Audit and Risk Committee was carried out as part of the wider reviewof Board effectiveness,further details ofwhich can be found in the Corporate Governance report on page 59.Therewere no significant concerns raised from this review and the Committee was deemed to be operating effectively. ### **Roles and responsibilities** The Audit and Risk Committee assists the Board in discharging its responsibilities with regard to the oversight of financialreporting, internal controls and risk management, and internal and external audit. ### **Financial reporting** The ultimate responsibility for reviewing and approving theAnnual Report andAccounts and the half-yearly reports remains with the Board. The Committee reviews the content of the Annual Report and Accounts and advises the Board on whether, taken as a whole, they are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group's and Company's position and performance, business model and strategy. This review includes an assessment of the adequacy of the disclosure with respect to going concern and viability reporting and due consideration to laws and regulations,theTask Force onClimate-related Financial Disclosures ('TCFD'), the provisions of the UK Corporate Governance Code and the requirements of the Listing Rules. In reviewing the Annual Report for the 53 weeks ended 30 June 2024, the Committee considered the balance of the Strategic report with respect to proportional focus on positive and negative results and events, adequate disclosure of risks and the consistency ofreporting of financial and other measures. The Committee also considered the extent and prominence of alternative performance measures presented. This additional review by the Audit and Risk Committee, supplemented by advice received from external advisors during the drafting process, assisted the Board in determining that the report was fair, balanced and understandable at the time that it was approved. The Committee also reviews the content of the Annual Report to ensure the impacts of climate related risks and opportunities are explained and that, taken as a whole, the Annual Report provides a coherent and connected view of climate reporting. Further detail on climate reporting is included in the Responsibility and sustainability report and also outlined in the Risks and uncertainties. ### **Significant items considered in relation to the financial statements** During the year the Committee reviewed items relating to going concern and viability, impairment, inventory, pensions and provisions. The Committee considered the significant matters belowin relation to the financial statements and how these were addressed. This included reviewing papers prepared by management detailing the basis of and rationale for the treatments adopted. The Committee also received reports from and held discussions with the external auditor to ensure that a robust level of challenge had been made to management's assessments and to confirm thatthere were no significant differences of opinion between management and auditors. ### **Area of Focus Action** Presentation of financial statements Pages 19 and 20 The Group uses Alternative Performance Measures (APM's) and includes additional disclosures, including reconciliations to statutory measures. The Committee considers it important to consider statutory measures and the APMs when reviewing these financial statements. In particular, items excluded from underlying results were reviewed by theCommittee and itis satisfied that the presentation of these items is clear and that there is adequate disclosure ofthese material non-recurring items.The net non-underlying charge forthe yearwas £10.8m and the most significantitems relate to fees for the Group's refinancing activities, costs related to closure of the Group's Berkeley Magna factory and woodmill site, and provision for estimated costs to make good land slippage damage at one of the Group's sites. ### Going concern and viability reporting Page 28 In addition to the going concern statement, the Group is required to make an assessment of its longer term viability. This requires the application of a number of judgements and estimates, particularly given the continuing macroeconomic uncertainty. The Committee, along with the Group's external auditor, has reviewed management's assessment of the financial liquidity prospects ofthe Group forthe three years from 30 June 2024, being a reasonable period for the assessment of key risks for a retail business given continuing political and economic uncertainties. This review included challenging the base case assumptions and reviewing the downside scenarios and stress tests. The Committee reviewed and challenged management's assessment of expected compliance with the banking covenants and the extension of terms agreed with the banks and concluded that the going concern assumption remains appropriate and that the Board is able to make the viability statement on page 28 of the Strategic Report. ### Impairment of goodwill and other intangible assets Note 10 to the consolidated financial statements As a result of business acquisitions, the Group has recognised significant balances for goodwill. Goodwill must be tested annually for impairment; other intangible assets are tested when there are indicators that they may be impaired. The assessment of potential impairment requires a number of judgements and estimates to be made in determining the relevantfuture cash flows and the discount rate to be applied. The Committee reviewed and challenged the approach taken by management to impairment testing, and assessed the reasonableness of the underlying assumptions and financialforecasts used.The Committee considered the appropriateness of the conclusions reached, and also reviewed the external auditor's report and discussed their observations and findings in this area. The Committee will continue to review the carrying value of intangible assets at least annually, or in the event of any significant changes to the structure or circumstances of the Group. ### **AUDIT AND RISK COMMITTEE REPORT** CONTINUED **Area of Focus Action** The ultimate parent company of the Group, DFS Furniture plc, holds a significant value of investments in subsidiary companies in the Group. The carrying value of these investments and related intragroup borrowings is supported by the estimated value in use of the underlying trading entities. Assessment of the estimated value in use requires a number of judgements and estimates to be applied. Parent company investments Note 2 to the Company financial statements The Committee reviewed management's assessment of the recoverability of the parent company investments, including the underlying judgements and estimates, and considered the consistency of these with the assessment of the impairment of intangible assets as noted above. The Committee considered the appropriateness of the conclusions reached, and also reviewed the external auditor's report and discussed their observations and findings in this area. The Committee will continue to review the carrying value of the parent company investments at least annually, or in the event of any significant changes to the structure or circumstances of the Group. In addition to existing requirements, the Committee monitors and considers future corporate reporting developments in order to develop the Group's approach to meet any new requirements. During the year the Group has continued to monitor developments and to work towards anticipated requirements on UK corporate governance reform and thiswill be an ongoing area offocus for FY25. ### **Internal control and risk management** Alongside our risk management processes, key components of the Group's internal controls environment include: - Clearly defined lines of accountability via a Group delegation of authority and underlying business area delegations. - The Group's Code of Conduct and suite of policies, setting the floor of minimum commitments for our business conduct. These commitments are linked to the Group's principal risks and uncertainties and ensure we act in line with relevant legal and regulatory requirements, as well as industry standards and stakeholder expectations. - Procedures, operating standards and colleague training for each of our business and key functional areas as appropriate, to support the management of key risks and establishing ways of working within the Board's approved risk appetite. These cover areas ranging from financialreporting, corporate compliance, information security, interest free - credit compliance, modern slavery, anti-bribery and ethical sourcing. - Relevant business areas and functions own these underlying components of our internal controls environment, and are responsible for ensuring control processes and activities are maintained and operate effectively. - Functional assurance activity also takes place across the business to target key risk areas, overseen by relevant business experts or specialist functional teams, including our Financial Controls, Cyber Security and Financial Conduct Authority Compliance teams. The GLT conducts a quarterly risk review and a Governance, Risk and Compliance Committee comprising senior management meets monthly to review changes in the regulatory/legal landscape, with key points forming the basis of the Audit and Risk Committee discussion. The risk team regularly assesses and highlights new and emerging risks, changes in rating of principal risks and developments on risk management to the GLT. The framework of internal controls is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss, or fraud. In respect ofthe Group's financialreporting,the Finance department is responsible for preparing the Group financial statements using awell-established process and ensuring that accounting policies are in accordance with International Financial Reporting Standards.All financial information published by the Group is subject to the approval of the Audit and Risk Committee and the Board. There have been no failings in the operation of the Group's internal controls during the financial year underreviewthat have materially affected the Group's control over financialreporting.TheCommittee has maintained oversight of key processes and controls developmentin the Group.During FY24 significant progress has been made on inventory processes and valuation and the Committee received regular updates to support appropriate action. As highlighted in the previous annual report, to further formalise alignment to the existing corporate governance requirements, and to ensure we meet upcoming changes to the corporate governance code, a project to enhance the structure, monitoring and reporting of the Group Internal Controls over Financial Reporting commenced during the year, and will align with a wider internal controls project designed to formalise, enhance and monitor the control environment underpinning future disclosures on material controls. This project gives us a structured framework to document, enhance and remediate control gaps that although are not significantto the financial statements are an opportunity to mature our control environment. The Group's goal remains a thorough and orderly approach to compliance. The Board, with advice from the Audit and Risk Committee, is satisfied that an effective system of internal controls and risk management is in place which enables the Group to identify, evaluate and manage key risks and which accords with the guidance published by the FRC. These processes have been in place since the start ofthe financial year and up to the date of approval ofthe accounts. Further details of specific materialrisks and uncertainties facing the business can be found on pages 21 to 28. ### **Oversight of Internal Audit** The Committee considers the resources and plans of the Internal Audit function at each meeting. The role of Internal Audit, its reporting line and key responsibilities are contained within an Internal Audit Charter which is approved annually by the Committee, and was last approved at the July 2024 meeting. Historically the in-house InternalAuditfunction has provided detailed coverage of the operations of the retail and distribution operations of the business, highlighting trends and significantissues to management through operational audits, which has covered the majority of sites on a two-year cycle.The in-house auditteam is supplemented by specialist assurance providers to give coverage on other areas including cyber risk and IT. Following a change in reporting line and separation from the Risk Managementfunction during FY24, internal audit undertook an additional seriesofrisk-based audits under a plan of work approved by the Committee, to provide greater coverage across key risk areas. A detailed assurance mapping exercise was commenced during the yearto supportthis risk-based planning, and the Committee considers the work of Internal Audit alongside a variety of other assurance sources including internal and externally sourced reviews and the use of specialists as required. Aproportion ofthe in-house InternalAuditresource is retained to allow the function to respond to changing business needs or emerging issues which sit outside the agreed audit plan. All work of Internal Audit, in-house and externally sourced, planned or otherwise, is summarised and reported to the Audit and Risk Committee. Summarised reporting of internal audit results is provided to the Governance, Risk and Compliance Committee on a monthly basis and also at each Audit and Risk Committee meeting. In addition, the status of all agreed management actions arising from internal audit work is monitored and reported to the Committee, eitherthrough the performanceof detailed follow-up reviews for operational audits, or by tracking, reporting and following up individual actions from other audits. ### **AUDIT AND RISK COMMITTEE REPORT** CONTINUED The status of management actions is shared with the GLT monthly, prior to presentation to the Committee. Common themes emerging from internal audit work are also fed back to operational leadership teams to support controls and process improvements. ### **Oversight of external audit** ### **Assessment of effectiveness and quality of the external audit process** The Audit and Risk Committee oversees the relationship with the external auditor and considers the re-appointment ofthe Group's auditor, before making a recommendation to the Board to be put to shareholders. As part ofthis responsibility to assess the effectiveness of the external auditors, the Committee approved the audit plan forthe financialreporting period of 53weeks ending 30 June 24 and reviewed the auditor's findings and management representation letters. In addition to consideration of the audit process, responses to questions from the Committee and the audit findings reported to theCommittee, a structured feedback exercise was again undertaken during the year. This exercise collated feedback on a wide range offactors from Non-ExecutiveDirectors, senior managers and relevant colleagues from the Finance, Internal Audit and Risk, Legal and Compliance teams.The results ofthis feedback identified strengths in the audit scoping, governance, quality control and judgement. Relative opportunities remain in communication and fees, although progress was achieved since FY23.These results supported the Committee in its conclusion that KPMG LLP continues to be effective, objective and independentin its role as external auditor. ### **Appointment of the external auditor** The Group's external auditorswere re-appointed in FY22 following a tender process as detailed in previous annual reports. Under current UK corporate governance requirements the external audit provision will be subject to another tender no more than ten years later, ahead ofthe start ofthe FY32 audit. The Committee has recommended to the Board the reappointment of KPMG LLP as auditor for the FY25 audit. ### **Independence and objectivity** The external auditor is required periodically to assess whether, in its professional opinion, it is independent and those views are shared with the Audit and Risk Committee. The Committee has authority to take independent advice as it deems appropriate in order to resolve issues on auditor independence. No such advice has been required to date. There are no contractual obligations in place that restrict the choice of statutory auditor. In line with regulation, the previous external Audit Partnerrotated offthe audit atthe end ofthe FY23 audit.TheCommitteewelcomed GillHopwood-Bell as the newexternal audit partnerfor FY24. ### **Non-audit services and fees** The Committee regularly reviews the Group's policy on non-audit services,which governs the provision of nonaudit services provided by the auditor and, in summary, categorises the types of non-audit services as: - **Prohibited** services that have the potential to impair or appear to impair the independence of their audit role; - **Permissible (subject to approval limits)** services which primarily relate to work that is outside the required scope of the statutory audit, but is consistent with the role of the external statutory auditor; and - **Services to be considered on a case-by-case basis** – all other services of an advisory or other nature that do not compromise the independence of the external auditor. In any event, within each of the Group's legal entities, the cumulative total of non-auditfees paid to the external auditorswithin each financial year must not exceed 70% of the average audit fee for the last three financial years.The above policy has been adhered to throughoutthe financial year, duringwhich the only non-audit services provided by the Group's external auditor were an interim review, which is closely related to the audit and is permissible assurance work under the policy. The audit and interim review fees for the year in respect ofthe Group and its subsidiarieswere £0.8m. ### **Whistleblowing** The Group is committed to the highest standards of openness, honesty, integrity and accountability and, as a result, has a whistleblowing policy in place. This policy is intended to make employees or third parties aware that they should report any serious concerns or suspicions about any wrongdoing or malpractice on the part of any employee of the Group. The process is confidential and reports can be made anonymously and without fear of being treated unfairly after making a report. Examples include fraud, breakdown in internal controls, misleading customers, bribery, modern slavery, dishonesty, money laundering, corruption and breaches of data protection or health and safety. During FY24 the Group has continued to report and analyse whistleblowing incidents, including outcomes of investigations, trends and highlights are reviewed at the monthly Group Governance, Risk and Compliance Committee and shared with the Audit and Risk Committee. During the year,therewere 24 (FY23: 29)reports received through the whistleblowing process, all of which were fully addressed in accordance with the policy. ### **Fraud risk** The Committee considered the fraud risk assessment report from Internal Audit and noted that no frauds have been identified during the yearthatwould have a material impact on the Group's financialresults. The responsibilities of the Directors and external auditor are set out on pages 91 and 98. As set out in the Directors' report, the Directors consider the Group's business to be a going concern. The Group's viability statement can be found on page 28. ### **JO BOYDELL** Chair of the Audit and Risk Committee 25 September 2024 The primary focus this year has been on; reviewing the talent across the Group to ensure that both the Board and the Group Leadership Team has the necessary skills, experience, and diversity of thinking to support the strategy of the Group going forward, the appointment of an additionalNon-ExecutiveDirector and on the tri-annual external Board Evaluation. Appointments to the Board, as with other positions within the Group, are made on merit according to the balance of skills, experience, diversity, and inclusion offered by prospective candidates.TheCommittee adopts a formal and transparent procedure for the appointment of new Directors to the Board. ### **Non-Executive Director appointment** Bruce Marsh joined the Board in August 2024 as a newIndependentNon-ExecutiveDirector, bringing significant additionalretail and finance expertise. Following the decision by Loraine Martins to step down from herrole as aNon-ExecutiveDirector,the Committee is currently reviewing how we continue to ensure that the colleague voice is heard at Board level. Adecision on the role ofDesignatedNon-Executive ### **Key activities during FY24** - Continuing to assess the composition of the Board to ensure it remains well placed to discharge its responsibilities - Conducting the search for and the appointment of a new Non-Executive Director - Reviewing the pipeline of talent within the Group Leadership Team and assessing their development needs - Conducting the external Board evaluation by Gould Consulting - Reviewing the Board Equity, Diversity & Inclusion Policy in May 2024 Director for workforce engagement will be announced in due course. New Board members are always welcomed into the business through a comprehensive induction, coordinated by the Company Secretary. ### **Composition** The Code recommends that the majority of the NominationCommittee consists ofNon-Executive Directors, independent in character and judgement and free from any relationship or circumstance which may, could orwould be likely to, or appearto, affecttheir judgement. Each oftheNon-ExecutiveDirectors is a member of the Nomination Committee. The Board considers that each oftheNon-ExecutiveDirectors are independent. The Chair was independent upon appointment and as such, the Company complies with the Code. The Committee's terms of reference are available on the Company's corporate website at www.dfscorporate.co.uk. Although only members of the Committee have the right to attend Committee meetings,theChief ExecutiveOfficer and theChief FinancialOfficer are invited to attend meetingswhere appropriate. The Nomination Committee will meet as often as it deems necessary but, in accordance with its terms of reference, at least twice a year. ### **Principal duties** The purpose of the Committee is: (i) to assist the Board by keeping the composition of the Board under review; (ii) to make recommendations within agreed terms of reference (to the Board) on the appointment of Executive andNon-ExecutiveDirectors ensuring the Board is sufficiently diverse and has the correct blend of skills, knowledge and experience required to support the Company; (iii) to oversee the succession plans for the Board and senior management; and (iv) to ensure that there are processes in place to secure a diverse pipeline of potential candidates for succession to key management positions and to the Board. The Nomination Committee regularly updates a matrix of the skills brought to the Board by all Directors; both Executive andNon-Executive.Details ofthe skills and experience of the Directors are shown on page 57. ### **N O M I N AT I O N CO M M I T T E E R E P O RT** CONTINUED ### **'Everyone Welcome'** DFS is a Group that lives its values and is committed to having a diverse and inclusive workforce and culture throughout the organisation. Our objective of driving the benefits of a diverse Board, senior management team and wider workforce is underpinned by our Board Equity Diversity & Inclusion Policy, which can be viewed on our corporate website. The Board and GLT believe a diverse and inclusive workforce and a culture where everyone is welcome, is crucial to the long-term success ofthe Group. I can reportthatwe currently have three female Directors out of our Board of seven directors. The biographies of the Board of Directors can be found at page 52 and 53 of the report. The Committee takes an active interest in the quality and development of talent and capabilities of the GLT ensuring that appropriate opportunities are in place to develop high-performing individuals across Group. This year 12 of our senior leaders undertook our 12 month long Leader Development programme. The programme was developed with a range of external partners to develop an in-depth understanding of culture, corporate governance leadership and key strategic challenges and opportunities. The team were challenged to develop a new approach to improving the sustainability of our products and how we can meet the challenge of Net Zero. Having joined the cohort for a session on corporate governance and the role of aNon-ExecutiveDirector, Iwas impressed by the commitment and enthusiasm of everyone involved. ### **Board evaluation** As required by the Code, the Board undertakes an annual evaluation of its activities and those of its Committees. This year facilitated by Gould Consulting, the Board conducted an externally led review of its effectiveness. BetweenMarch andMay 2024, a three-stage processwas followed.More information on the process and outcomes is detailed on page 59 of this Corporate Governance report. The performance of the Nomination Committee was reviewed as part of the evaluation process, and I am pleased to report that the evaluation concluded that the Committee continues to operate effectively. ### **What we will do in 2025** - Continue to assess the Board skills and composition of the Board. - Look to further strengthen the Board through the appointment of an additionalNon-Executive Director to ensure that we have the right blend of skills for the current environment and that we have the right experience and tenure to deliver continuity and succession in the fullness of time. - Conduct an internally led review of the Board's performance with greater focus on the risk and control environment as we prepare for the new UK Corporate Governance Code 2024. - Review the frequency of meetings and terms of reference of the Committee. - Review the Group Leadership Team succession planning and talent management strategy ### **STEVE JOHNSON** Chair of the Nomination Committee 25 September 2024 ### *Committee report for the financial year ended 30 June 2024.* ### **Contents of this report** - 67 Part A: Annual statement by the Remuneration Committee Chair - 70 Part B: Remuneration at a glance - 71 Part C: Our remuneration philosophy and workforce reward - 73 Part D: Remuneration policy - 81 Part E: Annual Report on Remuneration ### **Committee members during FY24** - Gill Barr (Chair) - Alison Hutchinson - Jo Boydell - Loraine Martins ### **Key activities during FY24** - Review of the Directors' Remuneration Policy and the introduction of the new DFS Group Share Plan - Consultation with shareholders in relation to the Directors' Remuneration Policy - Determining outturns for incentives in respect of FY24, taking into consideration the experience of key stakeholders over the period - Assessing the competitiveness of executive director and executive committee remuneration arrangements - Setting performance targets for the FY25 annual bonus and performance underpins for the FY25 DFS Group Share Plan awards - Consideration of market trends and governance updates - Review of Committee's terms of reference - Consideration of pay and conditions across the wider workforce ### **Part A: Annual statement by the Remuneration Committee Chair** The Remuneration Report provides a comprehensive overview of our remuneration framework (including the rationale behind the changes to the Directors' Remuneration Policy), its implementation and its alignment with the business strategy. ### **Remuneration in context** Against a backdrop of very challenging market conditions, this past year has seen continued and sustained improvements in the capabilities of the Group, evidenced by the fact that we have maintained our market leading position whilst improving gross margin rate and delivering high levels of customer conversion and satisfaction. However, with market demand levels falling to record lows, continuing supply chain disruption in the Red Sea and the business having to absorb significantly higher costs as a result of high levels of international freight rates and continued elevated interest rates, this has inevitably resulted in disappointing financialresults. Given these challenges, the Board concluded that it would not be in the best long term interests of the Group and our shareholders to propose a final dividend. The business has responded to these challenges by taking decisive action to accelerate a number of cost cutting initiatives while being resolute in protecting and improving our customer facing resources to deliver good outcomes for our customers. The medium term prospects for upholstered furniture remain strong andwe are confidentthatthe ourleading market position and strategy will ensure that the business is well positioned to take advantage of the market rebound. The Remuneration Committee carefully considered the experiences of all key stakeholders, as well as overall Group performance, when making decisions on executive remuneration. We have outlined below the key drivers of our decisions. ### **Remuneration Policy Review** Our existing remuneration policy was approved by shareholders at the 2021 AGM. In line with the normal three-year cycle,wewill be seeking shareholder approval for a new remuneration policy (as set out on pages 73 to 80) at the 2024 AGM. During the year, the Committee conducted a thorough review of our remuneration framework to ensure it continues to be aligned to our strategy. As part of this review, we consulted extensively with our major shareholders (who together hold around 90% of the Issued Share Capital) and the main shareholder representative bodies (IA, ISS and Glass Lewis). Following this review, and taking into account feedback received from our shareholders, the primary change being proposed is to introduce a restricted share scheme – the DFS Group Share Plan ("DSP") to replace the current performance based LTIP as ourlong-term incentive plan. Further details around this change are outlined below. ### **Introduction of the DSP** As highlighted previously, DFS continues to operate in a very challenging market, facing high levels of cost inflation alongside significantincreases in interestrates, which places demand in the UK upholstery market under significant pressure and creates a volatile market environment. Against this backdrop, it is critical that we can effectively incentivise our seniorleaders to make the bestlong-term decisions thatwill successfully deliver DFS' strategy. This requires them to be able to have the flexibility to respond in an agileway to the dynamic economic context and the Committee considers that the current LTIP,where targets are fixed forthree years, limits the degree of flexibility required in this rapidly changing environment. The current market dynamics also make it difficultto set sufficiently robust and motivationalthree-yeartargets for a performance based LTIP. The Remuneration Committee considers that in the current markettheDSP is more effective than a performance based long-term incentive plan for the following key reasons: - TheDSP is a more flexible reward framework. The Committee believes that restricted shares will encourage managementto make the bestlongterm decisions for the business while allowing for agility of decision making, enabling management to quickly respond to the ever-changing macroeconomic and consumer environments. - We believe in the principle that our Executive Directors should be directly aligned with our shareholders. The DSP provides a simple and transparent reward framework which can support the creation of significantlong-term equity ownership and through this, alignment with the shareholder experience. - DSP awards will support the Executive Directors in building a long-term shareholding in the business, which supports retention and motivation of key executives in a challenging talent market. - We already use restricted shares as a form of long term-rewardwithin the business, and therefore adopting the DSP for our Executive Directors will deliver alignment across the Group. In developing the new remuneration policy, the Committee carefully considered the purpose of each element of the remuneration package in incentivising our Executive Directors to deliver on the DFS strategy and to provide sustainable shareholder returns. The Committee believes that introducing the DSP alongside our current Annual Bonus, which drives short term performance againstDFS' key financial and strategic objectives each year, and shareholding guidelines is the best combination to incentivise our Executive Directors to make the right decisions for the business that will ultimately lead to shareholder value creation. ### **DSP – design parameters** The proposed DSP is fully aligned with established best practice guidance in the UK listed market, as summarised below: – Maximum awards under the DSP are based on a "haircut" of 50% from current LTIP award levels, resulting in maximum awards of 87.5% of salary for theCEOand 70% of salary fortheCFO. For FY25we will be further discounting the DSP awards granted to 80% of salary for the CEO and 65% of salary fortheCFOto reflectthe shareholder experience during the year. Further details are provided below. - Awards are earned over a vesting period of three years,followed by a two-year post-vesting holding period. - Awards are subject to robust underpins that are focused on ensuring that DFS continues to deliver on its strategy, maintains robust governance and provides an appropriate safeguard for our shareholders, in line with guidance and best practice. The underpins for FY25 awards are as follows: - Performance against DFS' key strategic priorities being at an appropriate level, including those related to our sustainability objectives over the vesting period. - Whether there is a material weakness in the underlying financial health or sustainability of the business. Factors such as (but not limited to) revenue, underlying profit,free cash flowand ROCE would be considered. - Whether there has been a materially serious reputational event which could have been reasonably foreseen. At the end of the vesting period the Committee will consider whether or not the underpin has been met. If it is judged that the underpins have not been met, then the Committee will determine what level of scale back to the level of vesting would be appropriate. In direct response to investor feedback, the Committee has developed an internal dashboard to support the Committee in its assessment of the underpins. This dashboard will allow the Committee to assess how the Company and individuals have performed against a set of key financial and non-financial metrics across the vesting period, further supporting a holistic assessment of performance and adding additional robustness to the process. Detail around the assessment of the underpins will be provided in the relevant Directors' Remuneration Report at the time of vesting. The views of our shareholders are important to the Committee and we were pleased that on consultation, the majority of our shareholders were supportive of our proposals and understood the rationale behind the proposed introduction of the DSP for DFS at the current time. We thank our shareholders for the time they took to provide their feedback, which helped shape the final proposals. ### **Pay outcomes in FY24** ### **Group performance summary** - Reflecting challenging macroeconomic conditions, Group loss before tax from continuing operations forthe yearwas £1.7m (FY23: profit of £29.7m) - Group Revenue from continuing operations for FY24 of £987.1m (FY23: £1,088.9m) - Delivery of £27.5m of operating costreductions, growing our full year gross margin rate by +140bps year on year - Achieved record high post purchase and post delivery customer NPS scores. ### **Annual Bonus in FY24** The bonus for FY24was based 50% on profit before tax, 20% on cash flow, 10% on environmentaltargets, 10% on social targets and 10% on customer NPS. Despite strong performance againstthe non-financial measures, threshold PBT was not achieved and therefore no bonuses were payable to the Executive Directors. ### **LTIP vesting in respect of FY24** The 2021 LTIP award was based 50% on Adjusted EPS, 15% on relative TSR growth against the FTSE 250 Index (excluding investment trusts) and 35% on the FTSE 350 General Retailers Index. Adjusted EPS was 1.5p versus a threshold level of 24.8p and so this element did not vest. The relative TSR performance against both peer groups was also below the threshold and therefore the 2021 LTIP award lapsed in full. The Committee considered that a nil outcome of the annual bonus and LTIP outcome was appropriate in light of overarching business performance and the broader experience of shareholders and therefore no discretion was exercised in relation to these awards. ### **Implementation for FY25** ### **Base salary for FY25** The base salaries for Executive Directors were increased by 2%, effective 1 July 2024, in linewith the average increase applied to the majority of our wider workforce. ### **Annual Bonus for FY25** The bonus opportunity for the Chief Executive Officerwillremain at 120% of salary and fortheChief FinanceOfficer 110% of salary.The FY24 bonuswill therefore continue to have a 70% weighting on financial measures (50% Profit BeforeTax and 20% Cash Flow) and a 30% weighting on strategic non-financial measures. In recognition of the strategic priorities for the Group over the next year, 15% of the bonus will be based on the delivery of 'Business Critical' objectives, which are linked to the leadership team's successful delivery of specific projects and objectives aiming to facilitate the Group's transformation and enhance its market positioning, financial health, employee engagement and operational effectiveness.The strategic non-financial measureswilltherefore be based on 5% environment, 15% business critical objectives and 10% customer. ### **DFS Group Share Plan awards for FY25** Subject to shareholder approval at the 2024 AGM, the intention is to grant awards under the new DFS Group share Plan to theCEOandCFOfor FY25.As noted above, the intention is to grant reduced awards of 80% of salary and 65% of salary to the CEO and CFO respectively. This represents a c.55% reduction from the original LTIP award level. The Committee determined that it was appropriate to make this further reduction to align with the shareholder experience, taking into accountthewithdrawal ofthe final dividend for FY24. In line with the new remuneration policy, the award will vest after three years subject to the achievement of robust underpins, as outlined above.Atwo-year post vesting holding period will also apply. The intention is that awards will revert to their normal award levels of 87.5% and 70% of base salary for the CEOandCFOfor FY26. ### **Our colleagues** Our colleagues are vital to the success of the Group. I am grateful for all the passion, commitment and hard work shown by all our colleagues across the Group, which is fundamental to our ability to deliver fantastic products and service to our customers. The Committee continues to be mindful of the wider colleague experience, which is a key consideration in determining the approach to take for our Executive Directors, including as part of the review of the directors' remuneration policy. A summary of our remuneration philosophy and principles that applies across the Group is set out on page 71. ### **Resolutions proposed at the 2024 AGM** The new remuneration policy will be presented to shareholders for a binding vote, while the Annual Report on Remuneration will be presented for an advisory vote at the 2024 AGM. In addition, the new DFS Group Share Plan rules will be presented to shareholders for approval. I hope that our shareholders will continue to support the decisions we have made. ### **GILL BARR** Chair of the Remuneration Committee 25 September 2024 ### **Part B: Remuneration at a glance** ### **Implementation of Remuneration Policy in FY24 Implementation of Remuneration Policy in FY25** ### **Base Salary** Tim Stacey received: £496k John Fallon received: £397k ### **Pension and benefits** - Pension aligned to wider workforce rate at 4% of salary - Taxable benefits remain unchanged from prior year and include a company car and private medical insurance (including cover for spouses and dependents) ### **Base Salary** Tim Stacey: £510,000 (increase of 2%) John Fallon: £405,050 (increase of 2%) Salary increases in line with the majority of the wider workforce ### **Pension and benefits** - Pension aligned to wider workforce rate at 4% of salary - No change to taxable benefits ### **Annual Bonus** **Total bonus payout (% of maximum) Tim Stacey: 0% John Fallon: 0%** | Performance measure | Weighting | Outcome (% of max) | |-------------------------|-----------|-------------------------| | Group profit before tax | 50% | 0% | | Group free cash flow | 20% | 0% | | Environmental | 10% | 100% | | Social (Inclusion) | 10% | 96% | | Customer | 10% | 100% | | | Total | 0% | | | | Profit underpin not met | Payment ofthe FY24 bonuswas subjectto achievement of a threshold Group PBT,whichwas not met. No annual bonus was therefore paid. ### **2021 Long-Term Incentive Plan** **Total LTIP payout (% of maximum) Tim Stacey: 0% John Fallon: N/A** | Performance
measure | Weighting | Outcome
(% of max) | |--------------------------|-----------|-----------------------| | EPS | 50% | 0% | | TSR (FTSE 250) | 15% | 0% | | TSR (FTSE
350 General | 35% | 0% | | Retailers) | | | **Total 0%** | Total | £523k | £422k | |------------------|------------|--------------| | LTIP | – | – | | Annual bonus | – | – | | other | | | | benefits and | | | | Pension, | £27k | £25k | | Salary | £496k | £397k | | Element of pay | Tim Stacey | John Fallon | | John Fallon
0 | | £422k
523 | | Tim Stacey
0 | | £523k
523 | | Single figures | | | ### **Annual Bonus** | Performance measure* | Weighting | |--------------------------|-----------| | Group profit before tax | 50% | | Group free cash flow | 20% | | Business critical | 15% | | Established customer NPS | 10% | | Environmental | 5% | \* Targets are deemed commercially sensitive and will be disclosed retrospectively ### **Bonus opportunity (% of salary) Tim Stacey: 120% John Fallon: 110%** ### **Key structural features** - 25% of any bonus earned will be deferred into shares for two years - Committee retains discretion to adjust bonus outcomes to reflect underlying performance of business - Malus and clawback provisions apply ### **DFS Group Share Plan** **FY25 DSP opportunity (% of salary) Tim Stacey: 80% John Fallon: 65%** ### **Underpins for 2024 DSP** - 1. Performance against DFS' key strategic priorities being at an appropriate level, including those related to our sustainability objectives over the vesting period. - 2. Whether there is a material weakness in the underlying financial health or sustainability of the business. Factors such as, but not limited to, revenue, underlying profit,free cash flowand ROCE would be considered. - 3. Whether there has been a materially serious reputational event which could have been reasonably foreseen. Details on the Committee's assessment of the underpins will be disclosed in the relevant DRR at the time of vesting. To support the Committee's assessment of the underpins, an internal dashboard has been developed to provide a clear framework covering key financial and non-financial measures related to the underpins for the 2024 DSP award. ### **Key structural features** - Shares vesting under the DSP will be subject to a two year holding period - Committee retains discretion to adjust DSP outcomes to reflect underlying performance of the business as well as the experience of shareholders and other stakeholders - Malus and clawback provisions apply ### **Part C: Our remuneration philosophy and workforce reward** ### **Our remuneration philosophy and principles** Our Group values (pictured below) underpin our pay and recognition policies across the organisation and the remuneration principles which are supported in our Directors' remuneration policy. We believe that our ability to deliver fantastic products and service to our customers comes from the passion and commitment shown by all our people across all parts of the Group. It is hence imperative that we attract, retain and develop the best people, who do what they love, and in return for them to be rewarded fairly. Further detail on how these principles shape our employee value proposition is provided to the right. ### **DFS Values** ### **Remuneration principles 'Your Deal' proposition** ### DIRECTORS' REMUNERATION REPORT CONTINUED ### **Remuneration framework** Our reward framework aims to foster alignment across the group and is informed by our remuneration philosophy and values outlined on the previous page. | Element of reward | Base salary | Pension and Benefits | Annual bonus and recognition awards | DFS Group Share Plan and SAYE | |----------------------------------------------------------------------------------------|-----------------------------------|-------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Group Leadership Team (5 colleagues) Heads of divisions and functions (86 colleagues) | Set at market competitive levels. | Comprehensive benefits offering aligned to market practice. | Based on a combination of financial and non-financial objectives, aiming to reward and incentivise strategic delivery and strong individual performance. | Participation in the DFS Group Share Plan offered to our top leadership and key talent, aligning their interests with those of our shareholders in the long term. | | Managers (109 colleagues) All employees (4,522 colleagues) | | Average employer pension contribution is 4% of salary. | Colleagues in operational areas across the Group (in retail showrooms, manufacturing sites and in the Sofa Delivery Company) have access to variable pay and bonuses based on a combination of individual and team performance. | All employees in the UK may participate in the Group's Sharesave plan which offers employees the chance to become 'owners' of the Group. | | | | | | | ### Spotlight on inclusivity and diversity We remain committed to our longer-term ambition to become representative of the customers we serve and the communities we live and work in. We continue to make progress within our cultural transformation work, building a workplace where everyone feels truly welcome. The conversation around equality, diversity and inclusion is strong, and colleagues are truly engaged in understanding the part they play. On an organisational level, we are addressing the gender pay gap and preparing to report similarly in both the areas of Disability and Ethnicity, with a focus on gathering sensitive colleague information to enable us to provide necessary data and insights. To further our work in all these areas, we: - Undertake regular colleague surveys to understand how people are feeling, with specific research done via our 364 Women's network to discover how our female colleagues feel about working for us. - Have a task team focused on revising our Recruitment Policy and training our Hiring Managers to remove any bias from the process and ensure fair consideration of candidates from underrepresented groups. - Use attrition rates to calculate opportunity, have set longer term targets to achieve a 50/50 gender representation in showroom management. - Have partnered with Diversity in Retail to offer women and people from ethnic minority backgrounds places on external development programmes. - Built strong and effective governance around our Inclusion Steering Committee and Colleague Networks to drive action and momentum ### Gender pay gap reporting In line with UK legislation, we published our Gender Pay Gap Report for 2023, demonstrating further progress overall across the Group, and the report is available online at dfscorporate.co.uk. We are confident that we pay our colleagues equally for equivalent roles, regardless of gender. However, the majority male representation in our leadership population results in a remaining gender pay gap that we continue to address. Our analysis for 2023 shows Group level reductions in both the mean and median gender pay gap figures. The mean gender pay gap was 4.1%, a fall of a further 2.7% against last year's figure; the median figure was 4.4%, falling 0.7% in comparison to the 2022 analysis. This reflects the work done to increase female representation in leadership. As a Group, our workforce is 35% female, largely due to our manufacturing and logistics populations which systemically attracts a male audience due to the nature of the roles. However, we have made significant improvements in female management in these business areas, with a conscious effort made to promote and develop women internally, and to shortlist more women for consideration when recruiting. Our ongoing Diversity and Inclusion agenda places focus on building a workplace where women can thrive, with initiatives such as policy reviews, leadership development programmes and activities that help us to progress with a more modern and inclusive culture. Further information on our plans can be found within our Gender Pay Report on page 37. ### **Part D: Remuneration policy** The following section sets out the 2024 directors' remuneration policy ("2024 Policy") which is to be subject to a binding shareholder vote attheAGMinNovember 2024.The 2024 Policywilltake effectfrom the date of approval and is intended to apply for up to three years from the date of approval. The 2024 Policy has been prepared in accordancewith Schedule 8 to the Large andMedium-sizedCompanies and Groups (Accounts and Reports) Regulations 2008 as amended in 2013, the provisions of the current Code and the Listing Rules. ### **Remuneration Principles** As outlined in the Remuneration Committee Chair's statement, during the year the Committee undertook a detailed review of the directors' remuneration policy, including remuneration principles. The Committee concluded that the Group's remuneration principles remain appropriate, and that the revised 2024 Policy continues to be in line with these principles. The remuneration principles are set out below: - Attract, motivate and retain Executives and senior management in order to deliver the Group's strategic goals and business outputs. - Encourage and support a high-performance sales and service culture ensuring good customer outcomes. - Reward delivery of the Group's business plan and key strategic goals. - Adhere to the principles of good corporate governance and appropriate risk management. - Align employees with the interests of shareholders and other external stakeholders and encourage widespread equity ownership amongst the Group. ### **Overview of key changes** The primary change proposed under the 2024 Policy is the introduction of restricted shares under the DFS Group Share Plan ("DSP") to replace the existing LTIP. The context in which the changes have been made and associated rationale are set out in the Remuneration Committee Chair's letter on pages 67 to 69. Other minor changes have been made to improve the operation of the 2024 Policy, to increase clarity and to align with market practice. ### **Executive remuneration policy table** | Element | Purpose | Operation | Maximum
Opportunity | Performance measures/
assessment and
recovery provisions | |-------------|--------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------| | Base salary | To provide competitive
fixed remuneration
that will attract and
retain key employees
and reflect their | Salaries are normally
reviewed annually, and any
change will generally take
effect from 1 April. | Increases as a percentage
of salary are generally
consistent with the range
awarded across the Group. | A broad assessment of
individual and business
performance is used as
part of the salary review. | | | experience and
position in the Group | When determining the
salary of the Executives,
the Committee takes into
consideration:
– the performance of
the individual Executive
Director;
– the individual Executive
Director's experience
and responsibilities
as well as progression
within the role;
– pay and conditions
throughout the Group,
including the level of
salary increases awarded
to other employees; and
– the levels of base salary
for similar positions
with comparable status,
responsibility and skills,
in organisations of
broadly similar size and
complexity. | Increases in salary above
this level may be made in
certain circumstances,
such as a change in
responsibility, a significant
increase in the role's scale
or the Group's size and
complexity or if there is a
material misalignment to
market practice. Where
increases are awarded
above the range across the
Group, the Committee will
provide an explanation in
the relevant Annual Report
on Remuneration.
Individuals who are recruited
or promoted to the Board
may have their salaries set
deliberately below market
levels initially. In such cases,
subsequent increases in
salary may be higher than
the general increase for
employees until the target
positioning is achieved. | No recovery provisions
apply. | | Element | Purpose | Operation | Maximum
Opportunity | Performance measures/
assessment and
recovery provisions | |----------|----------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------| | Benefits | To provide competitive
benefits to attract
and retain high calibre
employees. | Reviewed periodically to
ensure benefits remain
market competitive.
Benefits currently include
but are not limited to:
– Car, car allowance and
fuel allowance;
– Life insurance;
– Directors' & Officers'
liability insurance;
– Private medical
insurance (including
cover for spouses and
dependents);
– Professional
subscriptions;
– Critical illness cover; and
– Staff discounts.
Other minor benefits may
be provided from time to
time, including seasonal
gifts.
The Company may settle
any tax incurred on benefits
provided or expenses
reimbursed.
Where an Executive
Director is required to
relocate to perform their
role, appropriate one-off
or ongoing benefits may
be provided (e.g. housing,
schooling etc). | Benefit values vary
year-on-year depending
on premiums and the
maximum potential value
is the cost of the provision
of these benefits. | No performance or
recovery provisions apply. | | Element | Purpose | Operation | Maximum
Opportunity | assessment and
recovery provisions | |---------|-------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------| | Pension | To provide a
competitive Company
contribution that
enables effective
retirement planning. | Pension is provided by
way of a contribution to a
personal pension scheme
and/or cash allowance in lieu
of pension benefits. | Pension contributions for
Executive Directors are
aligned to the pension
provision available for the
wider workforce, which is
currently 4% of base salary.
Where pension contribution
is taken as a salary
supplement the amount
will normally be reduced by
the associated Employer's
National Insurance
contribution such that there
is no cost to the Company
from this alternative. | No performance or
recovery provisions apply. | Performance measures/ | Element | Purpose | Operation | Maximum
Opportunity | Performance measures/
assessment and
recovery provisions | Element | Purpose | Operation | Maximum
Opportunity | Performance measures/
assessment and
recovery provisions | |---------|---------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | Annual bonus Incentivises the
achievement of
annual objectives
which support the
Group's short-term
performance goals. | Bonuses are normally
determined following the
year end.
Normally, 25% of any bonus
earned is deferred into
Company shares for two
years under the Deferred
Bonus Plan, with the
balance paid in cash.
The Committee may
award dividend equivalents,
ordinarily paid in shares, on
deferred shares that vest. | The maximum Annual
Bonus opportunity in
respect of a financial year is
120% of salary.
Normally, no payment will
be made for threshold
performance and up to
65% of maximum will be
paid for achievement of
on-target performance for
the financial performance
measures.
Other vesting schedules
may be applied for non
financial targets. | The performance period
is normally one financial
year,with pay-outs
determined by the
Committee following
the year end, based on
achievement against
targets which would
normally include a range
offinancial and non
financial targets.
Performance measures
will be selected by the
Committee annually and
may include financial,
strategic and personal
objectives. Financial
targets will normally
account for no less than
50% of the weighting.
The Committee will
normally determine the
performance targets
and measurement
weightings annually to
ensure that they support
the business strategy
and objectives for the
relevant year.
At the end of the year,
the Committee reviews
the appropriateness of
the formulaic outcome
and retains the discretion
to adjust the outcome if
considered appropriate
taking into account
factors including, but not
limited to, the underlying
performance of the
business and shareholder
and stakeholder
experience.
Malus and clawback
provisions apply to
Annual Bonus awards
at the discretion of the | DFS Group
Share Plan | The DFS Group
Share Plan ("DSP")
provides a simple
long-term incentive
that incentivises
Executive Directors
to deliver sustainable
long-term returns to
shareholders, execute
theCompany's long
term strategy, retain
key individuals and
align their interests
with shareholders. | Under the DSP the
Committee may award
annual grants of restricted
share awards in the form
of nil-cost options or
conditional shares or in
such other form that the
Committee determines has
a similar economic effect.
DSP awards under the plan
will ordinarily vest three
years from the date of grant
of the award, subject to
performance underpins.
Atwo-year holding period
will normally apply following
the three-year vesting
period for DSP awards
granted to the Executive
Directors. Upon vesting,
sufficient shares can be sold
to pay tax.
Participants may be entitled
to dividend equivalents,
ordinarily paid in shares,
representing the dividends
paid on DSP awards that
have vested. | The Committee will
determine the grant level
each year.
The maximum value of
award that may normally
be granted in respect of a
financial year is 87.5% of
base salary. | The performance
underpins that apply to
the DSP may be based
around a combination of
key financial, strategic and
sustainability measures.
Performance underpins
will be set taking into
account the business
strategy and to ensure
failure is not rewarded.
Performance against the
underpins will normally be
assessed over the three
year vesting period.
If the Company does not
meet one or more of the
performance underpins
at the date of vesting,
then the Committee
would consider whether
it was appropriate to
scale back the number
of shares that vest under
the award.
At the end of the
vesting period, the
Committee reviews the
appropriateness of the
vesting outcome and
retains the discretion to
adjust the outcome if
considered appropriate
taking into account
factors including, but not
limited to, the underlying
performance of the
business and shareholder
and stakeholder
experience.
In accordance with the
rules of the DSP, malus
and clawback provisions
apply at the discretion
of the Committee. See
notes below table for
further details. | details. | Element | Purpose | Operation | Maximum
Opportunity | Performance measures/
assessment and
recovery provisions | |---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------| | Minimum
shareholding
guidelines | To ensure that
Executive Directors'
interests are aligned
with those of
shareholders over a
longer time horizon. | Executive Directors are
expected to build or
maintain (as relevant) a
minimum shareholding of
200% of base salary in the
Company.
Executive Directors are not
required to purchase shares | Not applicable. | No performance
measures or recovery
provisions apply. | | | | to satisfy this requirement.
Executive Directors are
normally expected to
maintain a shareholding
equivalentto the in
employment shareholding
requirement immediately
prior to departure (or the
actual share- and award
holding on departure, if
lower) for two years following
ceasing to be an Executive
Director. The Committee
has the discretion to
operate the shareholding
policy flexibly, including
waiving requirements in
certain circumstances
(e.g. compassionate
circumstances). | | | | All-employee
incentives | Encourages all
employees to become
shareholders and
thereby align interests
with shareholders. | Eligible employees may
participate in the SAYE and
Share Incentive Plan or local
country equivalents.
Executive Directors are
entitled to participate
on the same terms as all
employees.
In the event DFS were
to introduce another
all employee plan, the
Committee retains the
discretion to allow Executive
Directors to participate on
the same basis as other
employees. | Maximum participation
levels would be in line with
those for other staff and
where relevant, are set
in line with relevant UK
legislation or other relevant
legislation. | Not applicable. | ### **NOTES TO THE REMUNERATION POLICY TABLE** ### **Pre-existing remuneration arrangements** TheCommittee reserves the rightto make any remuneration payments and payments forloss of office (including exercising any discretions available to it in connection with such payments) notwithstanding that they are not in line with the 2024 Policy set out above where the terms of the payment were agreed: (i) Before the 2024 Policy set out above came into effect, provided thatthe terms ofthe paymentwere consistentwith the shareholder approved directors' remuneration policy in force at the time they were agreed; or (ii) At a time where the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the Company. ### **Decision making process** As outlined in the Remuneration Committee Chair's statement, during the year, the Committee undertook a thorough review of the directors' remuneration policy and its implementation, to ensure it continues to incentivise the execution of strategy and the delivery of sustainable long-term shareholder value. In setting the 2024 Policy, the Committee followed a robust process, which included engagement and consultation with investors and proxy advisers regarding the content of the 2024 Policy, taking into account the needs of the business, alongside evolving market and best practice. The Committee considered input from both management and our independent advisers while ensuring that conflicts ofinterestwere appropriately managed. ### **Performance measures and targets** When selecting performance measures and underpins, as relevant, for our incentive plans, our primary reference is the business strategy and Key Performance Indicators. We also consider market practice both in our sector and general industry. We seek to choose measures that create balanced incentives and that promote sustained, responsible growth and motivate the right behaviours. The annual bonus plan targets are set primarily in reference to the latest business plan and budget. We also take into consideration market and economic forecasts, analyst consensus and practice in our sector and general industry.Our annual bonus plan targets are set at a challenging levelwhich reflectthe scale and the challenge implicitin our financial budgets. We seek to ensure that pay-outlevels are commensuratewith overall group and individual performance. The performance underpins forthe FY25DSP awardswere chosen to ensureDFS continues to deliver on its strategy, maintains robust governance and provides an appropriate safeguard for our shareholders, in line with guidance and best practice. Performance measures and underpins for annual bonus and DSP awards respectively are generally disclosed in advance in the annual report. Annual bonus targets and outcomes will be disclosed in the annual report for the following year. The Committee's assessment of performance against the DSP underpins will be set out in the annual report at the time of vesting. ### **Discretion** The Committee has discretion in several areas of the 2024 Policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In line with common market practice, the Committee retains the discretion as to the operation and administration of these incentive plans, including with respect to: - who participates; - the timing of grant and/or payment; - the size of an award and/or payment (within the plan limits approved by shareholders); - the manner in which awards are settled; - discretion to adjust the performance conditions and/or underpins/targets applying to an incentive and/or set different measures and alterweightings forincentives if events occur(e.g. material divestment of a Group business or changes to accounting standards) which cause the Committee to determine that an adjustment or amendment is appropriate so that the conditions achieve their original purpose; and - discretion relating to the measurement of performance in certain circumstances (e.g. a variation of share capital, change of control, special dividend, distribution or any other corporate eventwhich may affectthe current orfuture value of an award); determination of a good leaver(in addition to any specified categories)for incentive plan purposes, based on the plan rules and the appropriate treatment under the plan rules. All discretions available under share plan rules will be available under this 2024 Policy, except where explicitly limited under this 2024 Policy. In the event of a temporary base salary reduction, the Committee retains the discretion to apply the limits in the 2024 Policy table relating to pension, Annual Bonus and share incentives to the base salary prior to any such reduction. Where such temporary base salary or fee reductions are made, the Committee reserves the ability (either in part or in full) to reimburse at a later date taking into account all factors deemed relevant (e.g. underlying financial health ofthe Group). ### **Malus and clawback** Malus and clawback provisions apply to all variable incentive schemes, including the annual bonus and DSP. Malus may apply before the determination of the bonus, before the vesting of any deferred component under the bonus and before the vesting of any LTIP or DSP award. Clawback may apply up until three years after the date of any cash bonus payment and up until three years after the date of vesting of the LTIP and DSP awards. Malus and clawback will continue to apply following cessation of employment. Circumstances where malus and/or clawback could apply include, but are not limited to: - material underperformance by the Participant; - material brand and/or reputational damage to the Company or business unit; - material misstatement oftheCompany's accounts or financialresults; - gross misconduct by the Participant (as determined by the Board); - fraud; - an event, act or omission that the Board determines constitutes, or is reasonably anticipated to result in, corporate failure; - the Board determining that: - any financialresults or other measures of performance usedwithin the Board's assessment of performance were misstated, misleading or incorrect; or - an error was made in determining the extent to which an Award Vested; - a failure of risk management; or - any other reason as determined by the Committee. ### **Illustrations of application of policy** The charts below seek to demonstrate how pay varies with performance for the Executive Directors based on the 2024 Policy. The charts show an estimate of the remuneration that could be received by Executives Directors under the 2024 Policy set out in this report. Each of the bars is broken down to show how the total under each scenario is made up of fixed elements ofremuneration,the annual bonus and theDSP. ### **Remuneration scenarios** Assumptions used in determining the level of pay-out under given scenarios are as follows: | Element | Minimum | On-target | Maximum | Maximum plus 50% share
price growth | |------------------|---------------------------------|-----------------|----------------------|----------------------------------------| | Base pay (fixed) | CEO: £510,000 | | | | | | CFO: £405,050 | | | | | Pension (fixed) | 4% of salary | | | | | Benefits (fixed) | Estimated based on FY24 figures | | | | | Annual bonus | Nil | 50% of maximum | CEO: 120% of salary | 100% of maximum | | | | | CFO: 110% of salary | | | DSP | Nil | 100% of maximum | CEO: 87.5% of salary | 100% of maximum | | | | | CFO: 70% of salary | plus 50% share price | | | | | | growth | ### **Approach to Recruitment and Promotions** The Committee aims to pay no more than is necessary to attract appropriately skilled and experienced individuals. The ongoing remuneration package for any new Executive Director would normally be in line with that set out in the 2024 Policy table. For a new Executive Director who is an internal appointment, the Company may also continue to honour contractual commitments made prior to appointment to the Board even if those commitments are otherwise inconsistent with the directors'remuneration policy in forcewhen the commitments are satisfied.Any relevantincentive plan participation may either continue its original terms or the performance targets and/or measures may be amended to reflectthe individual's newrole, as theCommittee considers appropriate. | Element | Description | |---------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Base salary and benefits | – The salary level will be set taking into account a number of factors including market
factors, the individual's experience and responsibilities, the individual's previous
salary and remuneration package, the salary policy for the wider Group, the salary
for the previous incumbent and for existing Executive Directors.
– This may mean that the Executive Director is recruited on a salary below the
market rate with a view that it would be increased (potentially by above workforce
level increases) over a number of years, subject to performance.
– Benefits may be provided in linewithDFS' benefits policy as set outin the
executive remuneration policy table. | | Pension | – An Executive Director will be able to receive either a contribution to a personal
pension scheme and/or cash allowance in lieu of pension benefits in linewith
DFS' policy as set out in the executive remuneration policy table. | | Annual bonus | – An Executive Director will be eligible to participate in the Annual Bonus as set out
in the executive remuneration policy table. | | DSP | – An Executive Director will be eligible to participate in the DSP as set out in the
executive remuneration policy table. | | Maximum variable
remuneration | – TheCommittee has discretion to offer any otherremuneration component or
awardwhich itfeels is appropriate taking into accountthe specific circumstances
of the recruitment, subject to the limit on variable remuneration set out below.
– The maximum normal annual variable remuneration level (excluding any awards
granted as compensation for forfeited remuneration) for an Executive Director is
207.5% of salary (i.e., in line with the aggregate of the Annual Bonus and DSP limit) | | Share buy-outs/
replacement awards | – Where an individual forfeits outstanding variable pay opportunities or contractual
rights, or forfeits the opportunity to earn a bonus, at a previous employer as a
result of appointment,theCommittee may offer compensatory payments or
awards, in such form as the Committee considers appropriate, taking into account
all relevant factors including the form of awards, expected value and vesting
timeframe of forfeited opportunities.
– When determining any such buy-out,the guiding principlewould be that awards
would generally be on a like-for-like basis unless this is considered by the
Committee not to be practical or appropriate.
– To facilitate any buy-out awards outlined above, in the event ofrecruitment,the
Committee may grant awards to a new Executive Director relying on the exemption
in the Listing Rules which allows for the grant of awards to facilitate, in unusual
circumstances, the recruitment of an Executive Director without seeking prior
shareholder approval or under any other appropriate Company incentive plan. | ### **Executive Director Service Contracts** When setting notice periods, the Committee has regard to market practice and corporate governance best practice. The table below summarises the service contracts for our Executive Directors. | | Date of contract | Notice period | |-------------|------------------|----------------------------------------------| | Tim Stacey | 24 May 2022 | 12 months (Executive) or 12 months (Company) | | John Fallon | 14 November 2022 | 12 months (Executive) or 12 months (Company) | All service contracts are available for viewing attheCompany's registered office and attheAGM.The Executive Directors may accept outside appointments subject to approval of the Board and provided that such appointments do not in any way prejudice their ability to perform their duties as Executive Directors of the Company. The Executive Directors concerned may retain fees paid for these services. ### **Payments for Loss of Office** When determining any loss of office paymentfor a departing directortheCommitteewill seek to minimise cost to theCompanywhilst complyingwith the contractualterms and seeking to reflectthe circumstances in place at the time. The Committee reserves the right to make additional payments where such payments are made in good faith in discharge of an existing legal obligation (or by way of damages for breach of such an obligation) or by way of settlement or compromise of any claim arising in connectionwith the termination of an ExecutiveDirector's office or employment.TheCommittee may also provide benefits in connectionwith orfor a reasonable period post termination, for example relocation costs for a director who had relocated for the role or outplacement support. Executives may receive base salary, pension contribution and benefits forthe duration oftheir contractual notice period, or may receive a payment in respect of these amounts in lieu of notice, except for certain circumstances such as termination for gross misconduct. ExecutiveDirectors may attheCommittee's discretion be eligible for an annual bonus forthe financial year of cessation. Any annual bonus awarded would normally be based on performance during the year as determined by theCommittee and pro-rated.Any annual bonus awardedwill normally be deferred in linewith the approach set out in the executive remuneration policy table, however, the Committee retains discretion to disapply the deferral and pay the annual bonus in cash. For good leavers (in accordancewith the definition in the plan rules), outstandingDeferred Bonus Plan awards will generally continue and vest atthe normal date.Awardswould normally vestin full but may be pro-rated atthe Committee's discretion. If a participant ceases employment for any other reason, their awards will lapse in full on the date of such cessation. For good leavers (in accordancewith the definition in the plan rules), outstanding LTIP andDSP awardswill generally continue and vest at the normal vesting date, subject to the Committee's assessment of performance against the underpins,with awards pro-rated.However,theCommittee retains discretion to allowvesting on cessation and to not pro-rate awards fortime ifit considers the circumstanceswarrantthis action. If a participant ceases employment for any other reason, awards will lapse in full on the date of cessation. Unless otherwise determined by theCommittee and exceptin the event ofthe participant's death, any applicable post-vesting holding period will continue to apply post cessation of employment. In a change of control unless otherwise determined by the Board, outstanding Deferred Bonus Plan awards, LTIP awards and DSP awards will vest. Unless otherwise determined by the Board, LTIP and DSP awards vesting will be subject to an assessment of achievement of the performance against the relevant performance conditions/ underpins todate and subjecttotime pro-rating.However,theCommittee retains discretion tonot pro-rate awards for time or consider performance conditions/underpins if it considers the circumstances warrant this action. ### **Consideration of Employee Remuneration and Shareholders** ### **Consideration of shareholder views** The Committee takes the views of the shareholders seriously and these views are considered in shaping the 2024 Policy and practice. Shareholder views are considered when evaluating and setting remuneration strategy and the Committee welcomes an open dialogue with its shareholders on all aspects of remuneration. The Committee consulted its major shareholders (who together hold around 90% of the Issued Share Capital) and the main shareholder representative bodies (IA, ISS and Glass Lewis) on the proposed 2024 Policy for which we are seeking shareholder approval at the 2024 AGM. The Committee will continue to maintain an open and constructive dialogue with its major shareholders and the representative bodies and where appropriate, will always seek to consult with them where appropriate. ### **Consideration of employee views and employment conditions elsewhere in the Group** In setting the 2024 Policy for directors, the pay and conditions of other employees of the Group are taken into account, including any base salary increases awarded. The Committee is provided with data on the remuneration structure for management level tiers below the Executive Directors and uses this information to ensure consistency and fairness of approach throughout the Company. Formal consultation on the remuneration of Executive Directors is not undertaken with employees. However, currently a survey on employee engagement is undertaken annually and includes discussion on parts of the Group's remuneration approach and theDesignatedNon-ExecutiveDirector has discussed ExecutiveDirector Remuneration with the Group wide Employee Voice Forum. ThePolicy described above applies specifically toExecutiveDirectorsoftheCompany.TheCommittee believes that the structure of management and employee reward should be linked to the Group's strategy and performance. ### **Non-Executive Director Remuneration Policy Table** The Chair and the Executive Directors of the Board are responsible for setting the remuneration of the Non-ExecutiveDirectors, otherthan theChairwhose remuneration is determined by theCommittee and recommended to the Board. The table belowsets outthe key elements ofthe remuneration policy forNon-ExecutiveDirectors: ### **Purpose** – To provide competitive fixed remuneration thatwill attract and retain key employees and reflecttheir experience and position in the Group ### **Operation** - Fee levels are reviewed at appropriate intervals considering independent advice, the time commitment required ofNon-ExecutiveDirectors and fees paid at other companies of comparable size and complexity. - The fees paid to theChair and the fees ofthe otherNon-ExecutiveDirectors aim to be competitivewith other fully listed companies which the Committee (in the case of the Chair) and the Board (in respect of the Non-ExecutiveDirectors) considerto be of equivalent size and complexity. - Non-ExecutiveDirectors may receive a base fee and additionalfees to reflect additional Board responsibilities such as for the role of Senior Independent Director or membership and/or Chairmanship of certain committees and may also receive additional fees in respect of additional time commitments incurred. - Non-ExecutiveDirectors also receive reimbursement ofreasonable expenses (and any tax thereon) incurred undertaking their duties and or Company business. - Non-ExecutiveDirectors do notreceive any variable remuneration element. - Non-ExecutiveDirectors are entitled to staffdiscount on Group merchandise on the same basis as other employees and may also receive seasonal gifts and other benefits if considered appropriate and theCompany may settle tax on benefits provided. ### **Maximum opportunity** - Any increase inNon-ExecutiveDirectorfees may be above the level awarded to other employees, given thatthey may be reviewed periodically and may need to reflect any changes to time commitments or responsibilities. - TheCompanywill pay reasonable expenses incurred by theChairman andNon-ExecutiveDirectors. ### **Performance measures/assessment and recovery provisions** – Non-ExecutiveDirectorfees are not performance related. TheCompany's policywhen setting fees forthe appointment of newNon-ExecutiveDirectors is to apply the policy which applies to currentNon-ExecutiveDirectors. Non-ExecutiveDirectorfeeswill be kept underreviewand to the extentthere are any increases to fees thesewill generally be in linewith those awarded to thewiderworkforce. Fees forthe non-ExecutiveDirectors are paid via payroll and are subjectto PAYE. ### **Letters of appointment** TheNon-ExecutiveDirectors do not have service contracts but are appointed underletters of appointmentwhich provide for a reviewafter an initialthree-yearterm and are terminable by eithertheNon-ExecutiveDirector orthe Companywith three month's priorwritten notice. EachNon-ExecutiveDirectoris subjectto annualre-election at the Company's AGM. The table belowsets outthe dates that eachNon-ExecutiveDirector seeking election/re-election atthe 2024 AGMwas first appointed as a GroupDirector. | | Date of appointment | |-------------------|---------------------| | Alison Hutchinson | 1 May 2018 | | Jo Boydell | 6 December 2018 | | Steve Johnson | 6 December 2018 | | Gill Barr | 1 March 2023 | | Bruce Marsh | 1 August 2024 | ### **Part E: Annual Report on Remuneration for the Financial Year ended 30 June 2024 Single total figure of remuneration for Executive Directors – audited** The remuneration of Executive Directors showing the breakdown between components, with comparative figures forthe prior financial year, is shown below. Figures provided have been calculated in accordancewith the Regulations. | Name | Year | Base
salary
£'000 | Taxable
Benefits
£'000 | Bonus
£'000 | LTIP
£'000 | Pension
£'000 | Other1
£'000 | Total
Fixed
£'000 | Total
Variable
£'000 | Total
£'000 | |-------------|------|-------------------------|------------------------------|----------------|---------------|------------------|-----------------|-------------------------|----------------------------|----------------| | Tim Stacey | 2024 | 496 | 10 | – | – | 17 | – | 523 | – | 523 | | | 2023 | 453 | 11 | 170 | – | 30 | 1 | 495 | 170 | 665 | | John Fallon | 2024 | 397 | 5 | – | – | 14 | 6 | 422 | – | 422 | | | 2023 | 240 | – | 80 | – | 8 | 38 | 286 | 80 | 366 | 1. Other benefits for Tim Stacey in FY23 represented a fuel card payment. For John Fallon,the FY24 amountrepresented a car allowance supplement, and the FY23 amountrepresented a paymentwhichwas the equivalent of 26 days of employment at his previous employer(£27,000)whichwas agreed as part of his joining arrangements, and a car allowance supplement of £11,000. ### **Taxable benefits** Taxable benefits comprise car, private medical insurance (including coverfor spouses and dependents),relevant professional subscriptions, seasonal gifts and reimbursement of home telephone line and telephone expenses – the value ofwhich has been included in theTaxable Benefits column. ### **Pension** Pension contributions for Executive Directors are aligned to the pension provision for the wider workforce, which is currently 4% of base salary. Where pension contribution is taken as a salary supplement the amount is reduced by the associated Employer's National Insurance contribution such that there is no cost to the company from this alternative. ### **Annual Bonus outturn for FY24 – Audited** As disclosed in last year's report,the FY24 bonuswas based 70% on financial measures (50% Profit before tax, 20% FreeCash Flow) and 30% on Strategic non-financial 'ESC' measures (Environmental 10%, Social – Inclusion 10%,Customer –AverageNPS 10%). Payment ofthe FY24 bonuswas subjectto the achievement of a threshold Group PBT, which was not met. As a result, no bonus was awarded to Tim Stacey or John Fallon. No discretion was exercised in respect of the bonus outcome. ### **Performance against objectives** | Performance measure | Weighting | Threshold (0%) | Target | Maximum
(100%) | Actual | Outcome
(% of max) | |-----------------------------------------------------------------------------|-----------|------------------------------------------------------------------------------------|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------|-----------------|-----------------------| | Group underlying profit
before tax and brand
amortisation | 50% | £27.2m | £32.0m | £36.8m | £10.5m | 0% | | Group free cash flow | 20% | £16.0m | £18.8m | | £21.6m (£10.0m) | 0% | | Environmental – supplier
commitments to achieve
Net Zero by June 2029 | | 10% Commitments
from suppliers
covering 15%
of total Scope 3
emissions | Commitments
from suppliers
covering 20%
of total Scope 3
emissions | Commitments
from suppliers
covering 25%
of total Scope 3
emissions | 59% | 100% | | Performance measure | Weighting | Threshold (0%) | Target | Maximum
(100%) | Actual | Outcome
(% of max) | |---------------------------|-----------|----------------|--------|-------------------|--------|-----------------------| | Social (inclusion) – | 5% | 75% | 80% | 85% | 83% | 92% | | Engagement score: | | | | | | | | I can bring my whole self | | | | | | | | to work | | | | | | | | Social (inclusion) – | 5% | 76% | 81% | 86% | 86% | 100% | | Engagement score: | | | | | | | | My manager is supportive | | | | | | | | of creating a place where | | | | | | | | everyone is welcome | | | | | | | | Customer – Average | 5% | 23 | 24 | 25 | 26.5 | 100% | | Established Net Promoter | | | | | | | | Score (DFS) | | | | | | | | Customer – Average | 5% | 11 | 12 | 13 | 29.0 | 100% | | Established Net Promoter | | | | | | | | Score (Sofology) | | | | | | | | Bonus outcome | | | | Tim Stacey | | 0% | | (% maximum) | | | | John Fallon | | 0% | ### **LTIP awards vesting in relation to performance in FY24 – audited** The 2021 award was granted on 11 October 2021 and was assessed against the performance targets at the end of FY24.The 2021 LTIP awardwas based 50% on EPS and 50% based onTSR (compared to both the FTSE 250 and FTSE 350 General Retailers). The performance targets for these measures were not met and therefore this award will lapse. | LTIP award | Performance
conditions | Weighting
(% award) | Detail | Threshold
performance | Stretch
performance | Max
performance | Actual
performance | Vesting
% | |------------|---------------------------|------------------------|-------------------------------------------|--------------------------|------------------------|---------------------|-----------------------|--------------| | 2021 LTIP | EPS | 50% | Reported
underlying
EPS | 24.8p | 26.1p | 28.7p | 1.5p | 0% | | | TSR | | 15% TSR (FTSE
250 Index) | Index | – | Index +
10% p.a. | Below
Index | 0% | | | | 35% | TSR
(FTSE 350
General
Retailers) | Index | – | Index +
10% p.a. | Below
Index | 0% | | | Total vesting | | | | | | | 0% | For threshold performance 20% of awards vest. For maximum performance 100% of awards vest. For stretch performance on the EPS performance condition, 60% of awards vest.Vesting is on a straight-line basis between these points. The final level of vesting ofthese awardswas 0%.No discretionwas exercised in respect of award vesting levels. ### **Scheme interests awarded in FY24 (2023 awards) – audited** Details of LTIP awards andDeferred BonusAwards granted during FY24 are set outin the table below.TheDeferred BonusAwards related to the annual bonus earned in respect of FY23. | Director | Scheme | Type of award | Number of shares
awarded | Value of award at
date of grant(£) | Value of award as
% of salary | |-------------------|-----------------------|-----------------|-----------------------------|---------------------------------------|----------------------------------| | CEO – Tim Stacey | LTIP1 | Nil cost option | 860,120 | 877,322 | 175% | | | Deferred Bonus Award2 | Nil cost option | 41,606 | 42,022 | 8% | | CFO – John Fallon | LTIP1 | Nil cost option | 546,486 | 557,416 | 140% | | | Deferred Bonus Award2 | Nil cost option | 19,538 | 19,733 | 5% | - 1. The number of shares grantedwas based on a share price of £1.02. Thiswas the average ofthe closing share price on the three days prior to the date of grant (16 October 2023). The award will vest, subject to the achievement of performance conditions which are set out belowand assessed overthe period ofthree financial years endingwith FY26, on 20 October 2026. - 2. Grant of deferred shares in relation to the FY23 bonus. The number of shares grantedwas based on a share price of £1.02 (whichwas the closing share price on the day immediately prior to the grant on 20 October 2023). ### **Performance conditions for FY24 (2023 award) LTIP** The performance conditions for the 2023 LTIP award are set out below. Vesting for performance between the targets is calculated on a straight-line basis. ### **Adjusted EPS (45%)** ### **Percentage of this portion of the Award vesting** | Nil | 20% | 60% | 100% | |-----------------|-------|-------|---------------| | Less than 17.9p | 19.2p | 22.2p | 26.7p or more | ### **Relative TSR (45%)** ### **Percentage of this portion of the Award vesting** | Weighting | Nil | 20% | 100% | |----------------------------------------------------|-------------------|-----------------|-----------------| | 13.5% (FTSE 250 Index Excluding Investment Trusts) | Below FTSE 250 | Equal to | 10% p.a. above | | | Index | FTSE 250 Index | the FTSE 250 | | | | | Index | | 31.5% (FTSE 350 General Retailers Index) | Below FTSE 350 | Equal to FTSE | 10% p.a. | | | General Retailers | 350 General | above the | | | Index | Retailers Index | FTSE 350 | | | | | General | | | | | Retailers Index | ### **ESG (10%)** ### **Percentage of this portion of the Award vesting** | Weighting | Nil | 20% | 100% | |---------------------------------------------------------------|---------------|-----|-----------| | 5% (Scope 1 Carbon intensity reduction, aligned to the | More than 7.5 | 7.5 | 7 or less | | NetZero Roadmap – intensity per £m Gross Sales) | | | | | 5% (Reduction in use of virgin content in plastic packaging – | Less than 30% | 30% | 50% | | supplier engagement) | | | | ### **SAYE awards – audited** NoDirectorswere granted SAYE options during FY24. ### **Dilution** The Company monitors the levels of share grants and the impact of these on the ongoing requirement for shares. In accordance with guidelines set out by the Investment Association ('IA') the Company can issue a maximum of 10% ofits issued share capital in a rolling 10-year period to employees under all its share plans. ### **Payment to past directors – audited** There were no payments to past Directors. ### **Payment for loss of office – audited** Therewere no paymentforloss of office. ### **Single figure remuneration table for Non-Executive Directors – audited** The remuneration ofNon-ExecutiveDirectors showing the breakdown between components,with comparative figures forthe prior year, is shown below. Figures provided have been calculated in accordancewith the Regulations. | Director | | Fees | Other | Total | |-------------------|------|------|-------|-------| | Gill Barr1 | 2024 | 66 | – | 66 | | | 2023 | 21 | – | 21 | | Alison Hutchinson | 2024 | 77 | – | 77 | | | 2023 | 74 | – | 74 | | Jo Boydell | 2024 | 66 | – | 66 | | | 2023 | 64 | – | 64 | | Steve Johnson2 | 2024 | 202 | – | 202 | | | 2023 | 148 | – | 148 | | Loraine Martins | 2024 | 56 | – | 46 | | | 2023 | 54 | – | 54 | | | | | | | - 1. Gill Barr was appointed to the Board on 1 March 2023. - 2. Steve Johnson was appointed as Chair of the Board on 4 November 2022. ### **Non-Executive Director fees in FY25** Non-ExecutiveDirectors'fees, including theChairfee,were increased by 2% in July 2024which is in linewith the averagebasesalary increaseforthewiderworkforce.Thefeestructureandlevels applyingfor FY25aresetoutbelow: | Chair fee | £205,500 | |----------------------------------------------------------------------------------------------|----------| | Senior Independent Director and Chair of the Responsibility and Sustainability Committee fee | £77,840 | | Chair of Audit/Remuneration Committee fee | £67,120 | | BasicNon-ExecutiveDirectorfee | £57,120 | ### **Shareholding and other interests at 30 June 2024 – audited** Directors' share interests and, where applicable, achievement of shareholding requirements are set out below. In order that their interests are aligned with those of shareholders, ExecutiveDirectors are expected to build up and maintain (as relevant) a personal shareholdingwhich for FY24was equalto 200% oftheir base salary in theCompany over a five-year period from appointment. Shares no longer subject to performance conditions (e.g. deferred bonus awards, LTIP shares within the holding period and DSP awards) will count towards the requirement on a net of tax basis. | Director | Number of
beneficially owned
shares1 | Number of shares
under the Deferred
Bonus Plan | % of
salary held | Shareholding
requirement met | Subject to
conditions | Not subject
to conditions | Vested but
unexercised | Unvested
SAYE awards | Total at
30 June 2024 | |-------------------|--------------------------------------------|------------------------------------------------------|---------------------|---------------------------------|--------------------------|------------------------------|---------------------------|-------------------------|--------------------------| | Tim Stacey | 684,173 | 101,817 | 160% | No | 1,593,566 | – | – | – | 2,379,556 | | John Fallon | 72,383 | 19,538 | 22% | No | 895,175 | – | – | – | 987,096 | | Steve Johnson | 70,666 | – | – | – | – | – | – | – | 70,666 | | Gill Barr | 15,557 | – | – | – | – | – | – | – | 15,557 | | Jo Boydell | 21,926 | – | – | – | – | – | – | – | 21,926 | | Alison Hutchinson | 69,833 | – | – | – | – | – | – | – | 69,833 | | Loraine Martins | 16,911 | – | – | – | – | – | – | – | 16,911 | | Total | 951,449 | 121,355 | – | – | 2,488,741 | – | – | – | 3,561,545 | ^1. Beneficial interests include shares held directly orindirectly by connected persons. At 20 September 2024 there had been no movement in Directors' shareholdings and share interests from 30 June 2024. ### **Outstanding share awards** The following share awards remain outstanding as at 30 June 2024 for the Executive Directors: | Director | Type of award | | Date of grant Number of awards | Award vested | Awards lapsed | Outstanding
awards | Market price on
date of grant1 | Normal
vesting date | |-------------|---------------|----------|--------------------------------|--------------|---------------|-----------------------|-----------------------------------|------------------------| | Tim Stacey | 2021 LTIP | 11/10/21 | 251,908 | – | 251,908 | – | £2.62 | 11/10/24 | | | 2021 LTIP | 12/11/21 | 39,169 | – | 39,169 | – | £2.81 | 12/11/24 | | | 2022 LTIP2 | 12/10/22 | 733,446 | – | – | 733,446 | £1.08 | 12/10/25 | | | 2023 LTIP | 16/10/23 | 860,120 | – | – | 860,120 | £1.02 | 16/10/26 | | | 2021 DBP | 21/10/21 | 31,911 | – | – | 31,911 | £2.69 | 21/10/24 | | | 2021 DBP | 20/12/21 | 28,300 | – | – | 28,300 | £2.69 | 21/12/24 | | | 2023 DBP | 20/10/23 | 41,606 | – | – | 41,606 | £1.02 | 20/10/26 | | John Fallon | 2022 LTIP2 | 14/12/22 | 348,689 | – | – | 348,689 | £1.48 | 12/10/25 | | | 2023 LTIP | 16/10/23 | 546,486 | – | – | 546,486 | £1.02 | 16/10/26 | | | 2023 DBP | 20/10/23 | 19,538 | – | – | 19,538 | £1.02 | 20/10/26 | ^1. The share price for calculation is the average of the closing share price on the three days prior to the grant for any LTIP awards, and the closing share price on the day prior to the grant for any DBP awards. ^2. The performance conditions applicable to the 2022 LTIP awards are set out on page 92 of the 2023 Annual Report. ### **Total Shareholder Return** The chartillustrates the Group'sTotal Shareholder Return performance againstthe FTSE 250 Index since 5March 2015,the date ofIPO,to the end of FY24 (30 June 2024). This peer group represents the Company's key market for investment capital. ### **Chief Executive's Remuneration For the Last Ten Years** The table belowindicates the total single figure ofremuneration fortheCEOsince IPO, alongwith the annual bonus payout and LTIP vesting level as a percentage ofthe maximum opportunity. | | FY24 | FY23 | FY22 | FY21 | FY20 | FY19 | | FY18 | FY17 | FY16 | FY15 | |-------------------------|------------|------------|------------|------------|------------|-------------|-----------|-----------|-----------|-----------|-----------| | CEO | Tim Stacey | Tim Stacey | Tim Stacey | Tim Stacey | Tim Stacey | Tim Stacey1 | Ian Filby | Ian Filby | Ian Filby | Ian Filby | Ian Filby | | Single Figure (£'000) | 523 | 665 | 496 | 1,999 | 5683 | 464 | 374 | 673 | 666 | 804 | 790 | | Annual Bonus (% of max) | 0% | 31.1% | 0% | 100% | 0%2 | 26.2% | 32.2% | 36% | 37.5% | 71.9% | 85.2% | | LTIP vesting (% of max) | 0% | 0% | 0% | 100% | 0% | 28.6% | 28.6% | 0% | 0% | n/a | n/a | - 1. Tim Stacey became CEO and Executive Director on 1 November 2018. - 2. TheCommittee applied downward discretion to override the formulaic outcome ofthe FY20 annual bonus to zero. - 3. Tim Stacey's single figure for FY20 includes an award undertheDFS Restricted Share Planwhichwas made to theCEO priorto his appointment as an ExecutiveDirector. The award had a value of £97.7k and vested on 16 November 2019. ### **Percentage change in the Directors' remuneration** The table below compares the percentage increase in Directors' pay with the wider employee population. The Company considers DFS employees other than those whose remuneration includes piecework or commission, and excluding the Executive Directors, to be an appropriate comparator group. | | | | FY19 – FY20 | | | FY20 – FY21 | | | FY21 – FY22 | | | FY22 – FY23 | | | FY23– FY24 | | |-----------------|-----------------|------|-----------------|-----------------|------|-----------------|-----------------|------|-----------------|-----------------|------|-----------------|-----------------|-------|-----------------|------------------| | Annual % change | | Base | salary Benefits | Annual
bonus | Base | salary Benefits | Annual
bonus | Base | salary Benefits | Annual
bonus | Base | salary Benefits | Annual
bonus | Base | salary Benefits | Annual
bonus1 | | CEO | Tim Stacey | 2% | | 41% -100% | 10% | -6% | 100% | 3% | | -82% -100% | 0% | 61% | 100% | 10.3% | | -9% -100% | | CFO | John Fallon | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 4.5% | | n/a -100% | | Non-Executive | Gill Barr | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | Directors | Alison | 17% | n/a | n/a | 2% | n/a | n/a | 3% | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | | Hutchinson | | | | | | | | | | | | | | | | | | Jo Boydell | 81% | n/a | n/a | 2% | n/a | n/a | 3% | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | | Steve Johnson | 79% | n/a | n/a | 2% | n/a | n/a | 3% | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | | Jane Bednall | n/a | n/a | n/a | 2% | n/a | n/a | 3% | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | | Loraine Martins | n/a | n/a | n/a | n/a | n/a | n/a | 3% | n/a | n/a | 0% | n/a | n/a | 4.5% | n/a | n/a | | Employee pay | | 0% | n/a | n/a | 2% | n/a | n/a | 3% | | n/a -100% | 0% | n/a | 100% | 5.0% | n/a | -66% | In linewith the regulations,this analysis is extended up to a five year period.Notes on the percentage change in remuneration for previous years are provided in prior years' annual reports. 1. Annual bonuswas paid to thewider employee population for FY24. ### **Relative Importance of spend on pay** The table below sets out the overall spend on pay for all employees compared with the returns distributed to shareholders. | Significant distributions | FY24 | FY23 | % change | |--------------------------------------------------------------|---------|---------|----------| | Employee remuneration | £200.0m | £202.5m | -1% | | Distributions to shareholders (dividends and share buybacks) | £9.4m | £43.0m | -78% | The above figures are taken from notes 4, 21 and 22 to the financial statements. ### **CEO pay ratio** This is the fifth yearthatwe have disclosed the Group'sCEOpay ratio. As in prior years, the Company has adopted Option B: Gender Pay Gap data, as this approach was considered to remain appropriate due to data availability and to allow consistency with prior year comparison. The Committee will continue to determine the most appropriate methodology (Option A, B or C) to be used each year, by considering the robustness of the calculation methodology as well as the availability of data and operational time constraints. The relevant employees at each quartile for each yearwere identified inApril (2024 and 2023) using our Gender Pay Gap data.The pay and benefits data forthe relevant 25th, 50th and 75th percentile employees is taken from the 12-month period ending in June 2023 (financial year FY23) and June 2024 (financial year FY24). The pay and benefits figure includes: - all earnings paid through the payroll, e.g. salary, bonus, long term incentives - the value of the employer pension contributions - any othertaxable benefits, e.g. private medical, company car etc - no elements of paywere omitted and therewas no departure from the single figure methodology. Pay and benefits forthe relevant employees have been calculated on a full-time equivalent basis and therewas no reliance on estimates. The lower quartile, median and upper quartile employeeswere identified from the gender pay gap datawhere the hourly pay for employeeswas ranked.Asample of 10 employees' pay and benefits either side ofthe initially identified employeeswas reviewed to ensure thatthe appropriate representative employees are selected. The table belowcompares the single total figure ofremuneration fortheCEOwith that of employeeswho are paid at the 25th, 50th and 75th percentile of the employee population. ### **CEO Pay Ratio Data** | Year | Method | 25th percentile | 50th percentile | 75th percentile | |------------------------|----------|-----------------|-----------------|-----------------| | 2024 | Option B | 22:1 | 16:1 | 12:1 | | 2023 | Option B | 27:1 | 18:1 | 18:1 | | 2022 | Option B | 20:1 | 15:1 | 12:1 | | 2021 | Option B | 76:1 | 66:1 | 61:1 | | 2020 | Option B | 24:1 | 20:1 | 16:1 | | 2024 | | 25th percentile | 50th percentile | 75th percentile | | Salary | | £23,319 | £32,130 | £37,148 | | Total pay and benefits | | £24,097 | £33,559 | £42,368 | The year-on-year change in pay ratio reflects the incentive outturns fortheCEOin 2024 being lowerthan the incentive outturns in 2023. In line with the regulations, this analysis will be extended up to ten years in the future. The Committee considers pay ratios as one of many reference points when considering remuneration. Throughout DFS, pay is positioned to be fair and market competitive in the context of the relevant talent market for each role. ### **Internal and external support for the Committee** The Chairman, the CEO and the CFO attend meetings at the invitation of the committee but are not present when their own remuneration is being discussed. The Company Secretary acts as Secretary to the Committee. The Committee is supported by the Group People Director, Finance and Company Secretarial functions. Willis Towers Watson was retained as advisers to the Committee to 10 November 2023. During the year, theCommittee undertook a competitive tender process and appointedDeloitte LLP as its adviser, effective 11 November 2023. Deloitte LLP is a founding member of the Remuneration Consultants Group and a signatory to the Code of Conduct for Remuneration Consultants. The Committee is comfortable that Deloitte LLP provides objective and independentremuneration advice and has noconflictsofinterestwith theGroup thatmay impairits independence. TheCommittee is satisfied thattheDeloitte engagementteam which provide remuneration advice to the Committee do not have connections with DFS Furniture plc or its Directors that may impair their independence. TheCommittee reviewed the potentialfor conflicts ofinterest and judged thattherewere appropriate safeguards against such conflicts. The total fees paid to Willis Towers Watson in respect of services to the Committee during the year amounted to £42,650.Totalfees payable toDeloitte LLP in respect of services to theCommittee during the year amounted to £104,950.Deloitte LLP also provided tax and financial advisory services in the period. ### **UK Corporate Governance Code: Provision 40** When determining the Executive Directors' Remuneration Policy and practices, the Committee considered the following factors as set out in the Code: | Clarity | The Committee seeks to maintain an open dialogue with shareholders in order to
communicate our approach to remuneration. | |-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | As part of the Remuneration Policy review, the Committee consulted its major
shareholders (who together hold around 90% of the Issued Share Capital). | | | Our Policy is set out in a transparent manner and we are committed to simple and concise
disclosure of our Remuneration Policy and practices. | | Simplicity | Our remuneration arrangements aim to be simple in nature, with our Policy retaining
transparency, alignment with strategy and simplicity to aid in understanding by participants. | | Risk | The Committee seeks to structure our incentive arrangements in a manner that does not
encourage inappropriate risk taking, with a strong focus on the long term success and
sustainability of the business. | | | Discretion can be applied to the vesting outcomes of the Annual Bonus, LTIP and DSP
to reflectCompany and/orindividual performance. | | | Structural features of our Policy such as the deferral of any annual bonus paid, the post
vesting holding period under the LTIP and DSP, and our shareholding requirement
(including post-cessation shareholding requirements) provide a clearlink to thewider
shareholder experience. | | | Malus and clawback provisions apply to the Annual Bonus, LTIP and DSP, to allow for
adjustment in the event of risk management failures. | | Predictability | Our Remuneration Policy contains details of the maximum opportunity levels under the
Annual Bonus and DSP, with actual outcomes dependent on performance against the
predetermined measures and targets applying to the Annual Bonus, and the underpins
as applicable to the DSP. | | | The remuneration outcomes underthe different performance scenarios (on-target and
maximum) are clearly set out alongside an estimate of potential maximum outcome if the
share price increased by 50%. See Charts on page 77. | | Proportionality | The remuneration policy is designed to create a strong link between our strategy and
performance. | | | Our holding periods and bonus deferral, alongside the Committee's ability to apply
discretion to incentive outcomes ensures an appropriate alignment between incentive | outcomes and long term Company performance. **Alignment to culture** Ourincentive plans are alignedwith our strategic focus on long-term sustainable of our remuneration policy. executive pay. performance.Ourfocus on values and behaviours has been reflected in the design The Committee is mindful of the pay and conditions of our workforce when considering ### **Statement of voting** The table below sets out the outcome of the advisory vote on the resolution for approval of the Annual report on remuneration at the 2023 AGM and the binding vote on the resolution for approval of the Directors' Remuneration Policy at the 2021 AGM: | Resolution | Votes For | % | Votes Against | % | Total votes | % of issued
capital voted | Votes
withheld | |--------------------------------------------|-------------|--------|-------------------|--------|-------------|------------------------------|-------------------| | Annual report on
remuneration
(2023) | 150,434,822 | | 70.50% 62,961,819 | 29.50% | 213,396,641 | 91.14% | 1,800 | | Remuneration Policy
(2021) | 232,954,298 | 98.12% | 4,469,570 | 1.88% | 237,423,868 | 91.89% | 274 | At the AGM held on 10 November 2023, Resolution 3 seeking approval for the Directors' Remuneration Report was supported by a clear majority of shareholders with 70.50% of votes cast in favour and 29.50% of votes cast against, resulting in less than 80% support overall. In advance of the meeting, the Chair of Remuneration Committee and other members of the Board, communicated with holders of 80% of our shares and offered them an opportunity to engage ahead oftheAGM. The Committee acknowledges that whilst the majority of shareholders were supportive of the Directors' Remuneration Report, a small number of shareholders were not supportive of the resolution due to the increase in the CEO's base salary by an amount greater than the workforce average increase. While the Committee is aware of and recognises sensitivities around salary increases, we believe the adjustment was in the interests of DFS and its shareholders and was necessary to motivate and retain the CEO, who is critical to delivering DFS' transformational agenda. Following the 2023 AGM, the Committee commenced a review of its remuneration strategy in preparation for putting a Remuneration Policy to shareholders at the forthcoming AGM in November. As part of this the Committee Chair consulted extensively with shareholders and the main proxy bodies and incorporated feedback received into the final proposals. ### **GILL BARR** ### Chair of the Remuneration Committee 25 September 2024 ### **DIRECTORS' REPORT** *The Directors' Report includes information required to be disclosed under the Companies Act 2006 ('the Act'), the UK Corporate Governance Code ('the Code'), the Financial Conduct Authority's Listing Rules ('Listing Rules') and the Disclosure and Transparency Rules ('DTRs').* DFS Furniture PLC ('the Company') is the holding company of the DFS Group of companies ('the Group'). The Company has no overseas subsidiaries but operates branches in the Republic of Ireland. The Directors present their Annual Report and audited financial statements forthe 53weeks ended 30 June 2024, in accordance with section 415 of the Companies Act 2006. Both the Strategic report and the Directors' report have been drawn up and presented in accordance with and in reliance upon applicable English company law, and the liabilities of the Directors in connection with those reports shall be subject to the limitations and restrictions provided by such law. The Strategic report and this Directors' report together with sections of the Corporate governance report incorporated by reference, together form the Management report for the purpose of DTR 4.1.8R. The Directors' report fulfils the requirements ofthe corporate governance statement for the purposes of DTR 7.2.3R. The relevant sections of the Annual Report: | Disclosure | Page | |-----------------------------------|------| | Audit and Risk Committee report | 61 | | Colleague Engagement | 35 | | Conclusion and Outlook | 8 | | Corporate governance report | 54 | | Directors' interests | 83 | | Directors' remuneration report | 67 | | Executive Share Plans | 81 | | Health, Safety & Wellbeing | 36 | | Human rights and Modern Slavery | 50 | | Inclusivity and Diversity | 37 | | Independent auditors' report | 92 | | Internal Controls/Risk Management | 21 | | Nomination Committee report | 65 | | Our Communities & Charities | 38 | | Section 172 statement | 29 | | Task Force on Climate Related | 44 | | Financial Disclosures | | ### **Directors** The membership of the Board and biographical details of the Directors are provided on pages 52 and 53. Details ofDirectors' beneficial and non-beneficial interests in the shares of the Company are shown on page 83. | Director | Position | year ended
30 June 2024 | |-----------------|--------------------------------------|----------------------------| | Steve Johnson1 | Chair | Served | | | | throughout | | | | the year | | Tim Stacey | Chief Executive | Served | | | Officer | throughout | | | | the year | | John Fallon | Chief Financial | Served | | | Officer | throughout | | | | the year | | | Alison Hutchinson Senior Independent | Served | | | Non-Executive | throughout | | | Director | the year | | Gill Barr | IndependentNon | Served | | | Executive Director | throughout | | | | the year | | Jo Boydell | IndependentNon | Served | | | Executive Director | throughout | | | | the year | | Loraine Martins | IndependentNon | Served | | | Executive Director | throughout | | | | the year. | | | | Resigned | | | | 31 July 2024 | | Bruce Marsh1 | IndependentNon | Appointed | | | Executive Director | 1 August 2024 | ^1. Bruce Marsh was appointed to the Board of Directors post year end ### **Board** Service in the All of the Directors are appointed or replaced in accordance with the Company's Articles of Association (the 'Articles'), the Act and the Code. The Board is permitted to appoint newdirectors to fill a vacancy. Any director appointed by the Board must stand for election at the following annual general meeting, in compliance with the Code. All directors submit themselves forre-election on an annual basis. The Executive Directors serve under rolling contracts, details of which are set out on page 79 of the Directors' remuneration report.TheNon-ExecutiveDirectors are appointed under letters of appointment, for an initial three-yearterm which may be extended by mutual agreement and are terminable by eithertheNon-Executive Director or the Company with three month's prior written notice or six months' notice from either party in the case oftheChair. EachNon-Executive Directoris subjectto annualre-election atthe Company's AGM. The table below sets out the dates that each Non-ExecutiveDirector seeking election/re-election atthe 2024AGMwas first appointed. | Non- ExecutiveDirector | Date of appointment | |------------------------|---------------------| | Alison Hutchinson | 1 May 2018 | | Jo Boydell | 6 December 2018 | | Steve Johnson | 6 December 2018 | | Gill Barr | 1 March 2023 | | Bruce Marsh | 1 August 2024 | The Directors' service contracts and the letters of appointment are available for inspection by shareholders attheCompany's registered office and will be available for inspection at the Company's AGM. Following recommendations from the Nomination Committee, the Board considers that all Directors continue to be effective, committed to theirroles and able to devote sufficienttime to discharge their responsibilities. ### **DIRECTORS' REPORT** CONTINUED All of the directors proposed by the Board for election orre-election are being unanimously recommended for their skills, experience and the contribution they bring to Board deliberations. During the year, no director had any material interestin any contract of significance to the Group's business. Their interests in the shares of the Company, including those of any connected persons, are outlined in the Directors' Remuneration Report on page 83. The Board exercise all the powers of the Company subject to the Articles, the Act and shareholder resolutions. A formal schedule of matters reserved for the Board has been approved by the Board. ### **Directors' responsibilities** The directors'responsibilities forthe financial statements contained within this Annual Report and Accounts and the directors' confirmations as required under DTR 4.1.12 are set out on page 91. ### **Directors' indemnities and insurance** TheCompanyhasmadequalifyingthird-party indemnity provisions (asdefinedintheAct)forthebenefitofits directors during the year; these provisions remain in force at the date of this Directors' Report. In accordance with the Articles, and to the extent permitted by law, the Company may indemnify its directors out of its own funds to cover liabilities incurred as a result of their office.TheGroupholdsdirectors'andofficers' liability insurance cover for any claim brought against directors orofficers forallegedwrongfulacts inconnectionwith their positions, to the point where any culpability for wrongdoing is established. The insurance provided does not extend to claims arising from fraud or dishonesty. ### **Annual General Meeting ('AGM')** The Company's next AGM will take place on 22 November 2024 at the DFS Group Support Centre, 1 Rockingham Way, Redhouse Interchange, Adwick-le-Street,Doncaster,DN6 7NAat 2.30pm.The Annual Report and Accounts and Notice of the AGM, including the resolutions to be proposed, will be sent to shareholders at least 21 clear days prior to the date of the meeting. Shareholders are invited to submit questions prior to the meeting by emailing the Company Secretary Liz McDonald liz.mcdonald@dfs.co.uk. ### **Shareholder and voting rights** All members who hold ordinary shares are entitled to attend and vote at the AGM. Voting on all resolutions at the 2024 AGM will be by way of a poll. On a poll, every member present in person or by proxy has one vote for every ordinary share held or represented. The Notice ofMeeting specifies the deadlines for exercising voting rights. To encourage shareholders to participate in the AGMprocess,theCompany offers electronic proxy voting through the CREST service and all resolutions will be proposed and voted on at the meeting on an individual basis by shareholders or their proxies. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and voting rights. There are no restrictions on the transfer of ordinary shares in the Company other than certain restrictions imposed by laws and regulations (such as insider trading laws and market requirements relating to closed periods) and requirements of internal rules and procedures whereby directors and certain employees of the Company require prior approval to deal in the Company's securities. The Company's Articles may only be amended by a special resolution at a General Meeting. ### **Dividends** On 19March 2024 the Board announced its FY24 interim results and an interim dividend of 1.1p The Board has not proposed a final dividend forthe year ended 30 June 2024.Details ofthe final and interim dividends for the year are included in the below table. | 1.1p interim dividend | (FY23: 1.5 per share) | |------------------------|------------------------| | 0.0p proposed | (FY23: 3.0p per share) | | final dividend | | | Total dividend of 1.1p | (FY23: 4.5p per share) | | per share for FY24 | | ### **Substantial Shareholders** As at 18 September 2024, the Company has been notified ofthe following holdings of voting rights in its shares under DTR Rule 5. The information provided belowwas correct atthe date of notification.These holdings are likely to have changed since the Company was notified; however, notification of any change is not required untilthe next notifiable threshold is crossed. | Investor | Number of
Ordinary
Shares | %
voting
rights | Date of
notification | |--------------------|---------------------------------|-----------------------|-------------------------| | J O Hambro Capital | 23,348,196 | 9.97 | 6 Aug | | Management | | | 2024 | | Limited | | | | | Adriana S.A. | 21,960,922 | 9.02 | 15 Sep | | | | | 2022 | | Cobas Asset | 14,048,830 | 6.00 | 21 Jun | | Management | | | 2024 | | Janus Henderson | 13,579,229 | 5.80 | 9 Dec | | Group plc | | | 2022 | | Aviva Investors | 14,723,644 | 6.29 | 1 Dec | | | | | 2023 | | Abrdn plc | 12,184,099 | 5.20 | 2 Nov | | | | | 2023 | | | | | | ### **Takeover directive information** Following the implementation of the European Directive on Takeover Bids by certain provisions of the Companies Act 2006, the Company is required to disclose certain additional information in the Directors' Report. This information is set out below: ### **Capital Structure** The Company has only one class of shares, being Ordinary Shares of £0.10 pence each.The shares of the Company have been traded on the main market of the London Stock Exchange throughout the 53 weeks ended 30 June 2024. The Company has an issued share capital of 236,000,000 ordinary shares of £0.10p each (2023: 240,678,120).The voting rights of the Company's shares are identical, with each share carrying the right to one vote. Holders of Ordinary Shares of the Company are entitled to participate in authorised dividends and to receive notice and to attend and speak at general meetings. On 30 June 2024, the Company held 1,855,580 Ordinary Shares in treasury (2023: 6,533,700). As at 18 September 2024 the Company held 1,855,580 shares in Treasury and therefore the total number of ordinary shares with voting rights in the Company is 234,144,420. Details of the movements in issued share capital during the year are provided in note 22 to the Group financial statements. Under the Company's Share Dealing code, senior executives may be restricted as to when they can trade in the Company's shares. The Directors are not aware of any agreements between holders of the Company's shares that may result in the restriction of the transfer of securities or on voting rights. No shareholder holds securities carrying any special rights or control over the Company's share capital. Details of employee share schemes are provided in note 25 to the Group financial statements. As at 30 June 2024, the EBT held 3,456,074 shares. ### **Information required by Listing Rule 9.8.4R** Details oflong-term incentive schemes as required by Listing Rule 9.4.3R are located in the Directors' Remuneration Report on pages 67 to 87. There is no further information required to be disclosed under Listing Rule 9.8.4R. ### **Authority to purchase own shares** At the AGM on 10 November 2023, the Company was authorised to purchase a maximum of 10% of the Company's issued share capital. This authority will expire at the close of the next AGM on 22 November 2024 unless revoked, varied, or renewed prior to that meeting.. The Company will seek the usual renewal of this authority to purchase its own shares at the AGM in November 2024 ### **Authority to allot shares** At the AGM on 10 November 2023, the Company was granted a general authority by its shareholders to allot shares up to an aggregate nominal amount of £7,804,814 (or up to £15,609,628 in connectionwith an offer byway of a rights issue).TheCompany did not allot any further shares during the year. (2023: nil). The Company will seek the usual renewal of this authority at the AGM 2024. ### **Change of control** All of the Company's share incentive scheme rules, contain provisions, which may cause options and awards granted under these schemes to vest and become exercisable in the event of a change of control. The Company is not a party to any significant agreements which take effect, alter, orterminate, solely upon the ### **DIRECTORS' REPORT** CONTINUED event of a change of control in the Company following a takeover bid. However, in the event of a change of control of the Company, the Company is obliged to give written notice to its lenders. Each individual lender then has the right to give written notice to the Company to demand early repayment of its outstanding loans to that lender and to cancel that lender's commitments in full. There are no agreements between the Company and its Directors or employees providing for additional compensation forloss of office or employment (whether through resignation, redundancy or otherwise) that occurs because of a takeover bid. ### **Significant agreements** The Company does not have any contractual or other relationships with any single party which are essential to the business of the Group and, therefore, no such relationships have been disclosed. ### **Colleague involvement – Everyone's Welcome** The DFS Group strategy is "Everyone's Welcome". It is embedded in the Group values that all colleagues are able to be themselves at work, whatever their background, preferences or views. The Group has a communication programme in place to provide colleagues with information on matters of concern to them. This includes regular updates from the Group Leadership team via the Workplace system and regular meetings with line managers. There is a colleague Voice forum in place in UK & Republic of Ireland. The Voice forum forms the basis of the colleague listening network and enables colleague feedback to be received effectively and consistently across the Group. The Voice forums make valuable contributions to business development programmes and provide input on a wide range of business and people topics. Whilst our approach is designed around all colleagues, from all backgrounds, all levels and all business areas, we have particular focus on the experience and representation of women and colleagues from ethnic minority backgrounds. Details of colleagues' involvement in the Group's share plans are disclosed in the Remuneration Report on pages 67 to 87. ### **Employment of disabled people** In the event that colleagues need adjustments to be made to support their employment then every effortwill be made to do so.The Group is committed to providing equal opportunities in recruitment, training, development and promotion. We encourage applications from individuals with all forms of disabilities. All efforts are made to retain disabled colleagues in our employment, including making any reasonable adjustments to their roles. Every endeavour is made to find suitable alternative employment and to retrain and support the career development of any employee who becomes disabled whilst serving the Group. ### **Research and development** Research and innovation remain key to our product offering, enabling the development of better products for our customer base. Further details are provided in the Chair's statement on page 5. ### **Donations** The Group does not make donations to political organisations or independent election candidates. ### **Public Policy** We do not take part in any direct lobbying or public policy activity. ### **Treasury and risk management** TheCompany's approach to treasury and financialrisk management, including its use of hedging instruments, is explained in the Risks and Uncertainties section on page 23 and note 24 to the annual financial statements. ### **Independent auditors** In accordance with section 489 of the Companies Act 2006,("the Act") the Audit and Risk Committee has recommended that a resolution is to be proposed at the AGM for the reappointment of KPMG LLP as auditor ofthe Group.TheDirectorswho held office atthe date ofthis report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each such Director has taken the reasonable steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of the information. The confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Act. ### **Subsequent events** Between 30 June and the date of this report Loraine Martins stepped down from the Board of Directors and on 1 August 2024 Bruce Marsh was appointed to the Board of Directors. Whilst the Group expects to stay within its existing borrowing facility covenants, in September 2024 the Group agreed a widening of covenants with its lenders, which provides additional headroom in the event of unanticipated downside scenarios that result in a further decline in market volumes and lower EBITDA. Further details are provided in the Financial review on page 18. ### **Information on greenhouse gas emissions** The information on greenhouse gas emissions that the Company is required to disclose is set out in the Responsibility and Sustainability Report on pages 42 to 43. This information is incorporated into this Directors' report by reference and is deemed to form part of this Directors' report. ### **Disclaimer** This Directors' report, Strategic report and the financial statements contain certain forward-looking statementswith respectto the financial condition, results, operations, and business of DFS Furniture plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed orimplied by these forward-looking statements and forecasts. Nothing in this Directors' report or the Strategic report orin the financial statements should be construed as a profitforecast.This document also contains nonfinancial information and data. While reasonable steps have been taken to ensure that this is correct, it has not been externally audited or verified unless specifically stated in this document. ### **Going concern** In adopting the going concern basis for preparing the financial statements,the directors have considered the business activities as set out on pages 1 to 51, the financial position ofthe Group, its cash flows, liquidity position and borrowing facilities as set out in the Financial Review on pages 16 to 18, the Group's financialrisk management objectives and exposures to liquidity and financialrisks as set outin note 24 to the financial statements, aswell as the Group's risks and uncertainties as set out on pages 21 to 28. Based on the Group's cash flowforecasts,the Board expects the Group to have adequate resources to continue in operation, meet its liabilities as they fall due,retain sufficient available cash and not breach the covenant applicable to its borrowing facilities for the foreseeable future, being a period of at least 12 months from the approval ofthe financial statements. The Board therefore considers it appropriate for the Group to adopt the going concern basis in preparing its financial statements.At 18 September 2024, £63.0m of the revolving credit facility remained undrawn, in addition to cash in hand, at bank of £5.7m. ### **Long term viability statement** The directors have assessed the prospects of the Company over a three-year period to June 2027.This has taken into account the business model, strategic aims, risk appetite, and principal risks and uncertainties, alongwith theCompany's current financial position. Based on this assessment, the directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall dueoverthe three-year period underreview. Seeour approach to assessing long term viability on page 28. The Directors' report was approved by the Board of Directors on 25 September 2024 and signed on its behalf by: ### **ELIZABETH MCDONALD** Group General Counsel & Company Secretary 25 September 2024 ### **S T A T E M E N T O F D I R E C T O R S ' R E S P O N S I B I L I T I E S I N R E S P E C T O F T H E A N N U A L R E P O R T A N D T H E F I N A N C I A L STAT E M E N TS** The directors are responsible for preparing the Annual Report and the Group and parentCompany financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare Group and parentCompany financial statements for each financial year.Underthatlawthey are required to prepare the Group financial statements in accordance withUK-adopted international accounting standards and applicable law and have elected to prepare the parentCompany financial statements in accordance with UK accounting standards and applicable law, including FRS 101 Reduced Disclosure Framework. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair viewofthe state of affairs ofthe Group and parentCompany and ofthe Group's profit or loss for that period. In preparing each of the Group and parentCompany financial statements,the directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable, relevant, reliable and prudent; - forthe Group financial statements, statewhether they have been prepared in accordance with UK-adopted international accounting standards; - forthe parentCompany financial statements, state whether applicable UK accounting standards have been followed, subject to any material departures disclosed and explained in the parent Company financial statements; - assess the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and - use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. The directors are responsible for keeping adequate accounting records that are sufficientto showand explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position ofthe parentCompany and enable them to ensure thatits financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations. The directors are responsible for the maintenance and integrity ofthe corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differfrom legislation in other jurisdictions. In accordance with Disclosure Guidance and Transparency Rule ("DTR") 4.1.16R,the financial statementswillform part ofthe annual financialreport prepared under DTR 4.1.17R and 4.1.18R. The auditor's report on these financial statements provides no assurance overwhetherthe annual financialreport has been prepared in accordance with those requirements. ### **Responsibility statement of the directors in respect of the annual financial report** We confirm thatto the best of our knowledge: - the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit orloss ofthe company and the undertakings included in the consolidation taken as a whole; and - the strategic report/directors' report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy. ### **TIM STACEY** Chief Executive Officer ### **JOHN FALLON** Chief Financial Officer ### **I N D E P E N D E N T A U D I T O R ' S R E P O R T** ### *TO THE MEMBERS OF DFS FURNITURE PLC* ### **1. Our opinion is unmodified** We have audited the financial statements of DFS Furniture plc ("the Company'') for the period ended 30 June 2024 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Changes in Equity, Consolidated Cash Flow Statement, the Company Balance Sheet, Company Statement of Changes in Equity, and the related notes, including the accounting policies in Note 1 to both the Group and parent Company financial statements ### **In our opinion:** - the financial statements give a true and fair view of the state of the Group's and of the parent Company's affairs as at 30 June 2024 and of the Group's loss for the period then ended; - the Group financial statements have been properly prepared in accordancewithUK-adopted international accounting standards; - the parentCompany financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101 Reduced Disclosure Framework; and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. ### **Basis for opinion** We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion. Our audit opinion is consistent with our report to the Audit and Risk Committee. Wewere first appointed as auditor by the directors on 27 April 2010, prior to the Company becoming a public interest entity. The period of total uninterrupted engagementis forthe 10 financial periods ended 30 June 2024 as a public interest entity and 14 financial periods in total. We have fulfilled our ethical responsibilities under, and we remain independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed public interest entities.No non-audit services prohibited by that standard were provided. ### Overview | Materiality: | £2.5m (2023: £2.5m) | | | | |-------------------|---------------------------------------------------------------|---------|--|--| | group financial | 0.25% of Group revenue | | | | | statements as | (2023: 3.8% of profit before | | | | | a whole | tax from continuing operations | | | | | | normalised to exclude non | | | | | | underlying items and averaged | | | | | | over a period of three years) | | | | | Coverage | 100% of Group revenue (2023: | | | | | | 98% of Group profit before tax | | | | | | from continuing operations
excluding non-underlying items) | | | | | | | | | | | Key audit matters | | vs 2023 | | | | Recurring risks | Going Concern | | | | | | Impairment of | | | | | | Goodwil | | | | | | Recoverability of | | | | | | parent company's | | | | | | investment in | | | | | | subsidiaries and | | | | | | amounts due from | | | | | | group companies | | | | ### **2. Key audit matters: our assessment of risks of material misstatement** Key audit matters are those matters that, in our professional judgement,were of most significance in the audit ofthe financial statements and include the most significant assessed risks of material misstatement(whether or not due to fraud) identified by us, including thosewhich had the greatest effect on:the overall audit strategy;the allocation ofresources in the audit; and directing the efforts ofthe engagementteam. We summarise belowthe key audit matters,which are unchanged from 2023, in decreasing order of audit significance, in arriving at our audit opinion above,togetherwith our key audit procedures to address those matters and, as required for public interest entities, ourresults from those procedures.These matterswere addressed, and ourresults are based on procedures undertaken, in the context of, and solely forthe purpose of, our audit ofthe financial statements as awhole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters. ### **Going Concern Disclosure Quality:** Refer to page 22 (Principle Risks), page 28 (Viability Reporting), page 62 (Audit and Risk Committee Report), page 90 (Director's report) and page 104 (accounting policies). ### **The risk Our response** The financial statements explain howthe Board has formed a judgement that it is appropriate to adopt the going concern basis of preparation for the Group and parent Company. The judgement is based on evaluation of the inherent risks to the Group's and the parent Company's business model and how those risks might affectthe Group's and parentCompany's financialresources or ability to continue to operate over a period of at least a year from the date of the approval ofthe financial statements. The risks mostlikely to adversely affectthe Group's and parentCompany's available financialresources and metrics relevant to debt covenants over this period are: - The current geopolitical and macro-economic climate impacting the demand for the Group's products, including reduced customer demand for furniture, current UK housing market status, increases in the cost ofliving and rising inflation. - The recent Red Sea related shipping disruption and increased freight costs**.** The risk for our audit was whether or not those risks were such that they amounted to a material uncertainty that may have cast significant doubt about the ability to continue as a going concern. Had there been a material uncertainty, then the fact would have been required to be disclosed. We consideredwhetherthese risks could plausibly affectthe liquidity or covenant compliance in the going concern period by assessing the directors' sensitivities overthe level of available financialresources and covenantthresholds indicated by the Group's financialforecasts taking account of severe, but plausible, adverse effects that could arise from these risks individually and collectively. ### Our procedures included: - **Funding assessment:** We assessed the committed level of finance, and its expiry through inspection of financing documentation,to determine the level of finance available to the Group and its associated covenants; - **Covenant compliance:** We considered covenant compliance both in the financial period,through validation ofthe period end covenant certificate, and in the going concern forecast period taking into accountthe extension of covenants granted by the lenders in linewith the viability reporting on page 28; - **Historical comparisons:** We compared historicalforecastresults against actual cash flows achieved in the previous and current financial periods in order to assess the directors' track record of forecast accuracy; - **Benchmarking assumptions:** We benchmarked the key assumptions, including bookings growth, freight costs and cost saving initiatives behind the cash flowforecasts to third party evidence, including analystreports and market datawhere available; - **Sensitivity analysis:** We considered the sensitivities overthe level of available financialresources, including associated covenant compliance, indicated by the Group's financialforecasts taking account ofreasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively, considering additional beneficial contractual arrangements made subsequent to the year end. This included evaluating the Directors' plausible downside scenarios, a combination of those scenarios and stress tests following the covenant extension; - **Evaluation of directors' intent:** We evaluated the achievability of the actions the directors consider they would take to improve the position should the risks materialise, including reductions in non-essential capital expenditure and reductions in dividends by taking into account the extent to which the directors can control the timing and outcome of these; and - **Assessing transparency:** We consideredwhetherthe going concern disclosure in note 1 to the consolidated financial statements and note 1 to the parentCompany financial statements gives a full and accurate description ofthe directors' assessment of going concern, including the identified risks, dependencies, and related sensitivities through our specific entity understanding and industry and market analysis. ### **Our results** – We found the going concern disclosure in note 1 to the consolidated financial statements and note 1 to the parentCompany financial statements without any material uncertainty to be acceptable (2023: acceptable). ### **The risk Our response** ### **Impairment of Goodwill Forecast-based assessment:** (£508.3 million; 2023: £508.3 million) Refer to page 62 (Audit and Risk Committee Report), page 106 (accounting policy) and pages 119 and 120 (financial disclosures). There is a risk that the business may not meet expected growth projections in order to support the carrying value of goodwill held relating to the DFS Trading and Sofology cash generating units ('CGUs'). This risk has increased in the period in light ofthe current economic climate and financial performance of the Group. Goodwill is significant and atrisk ofirrecoverability due to continuing weak demand in the furniture retail market. The directors considered the recoverability of the goodwill balance through a value in use calculation that had underlying assumptions of varying sensitivities. The estimated recoverable amount is subjective due to the inherent uncertainty involved in forecasting and discounting future cash flows. The effect ofthese matters is that, as part of our risk assessment, we determined that the value in use of DFS Trading and Sofology CGUs have a high degree of estimation uncertainty, with a potential range of reasonable outcomes greater than our materiality forthe financial statements as a whole, and possibly many times that amount. In conducting our final auditwork,we concluded that reasonably possible changes to the value in use of the Sofology CGU would not be expected to result in a material impairment.The financial statements (note 10) disclose the sensitivity estimated by the Group for the DFS Trading CGU. We performed the tests below rather than seeking to rely on any of the Group's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. Our procedures included: - **Historical comparisons:** We compared the previous forecasts for each CGU against actual outcomes to assess the historical reliability of the Group's forecasting; - **Benchmarking assumptions:** We compared each CGU's trading forecasts against current trading performance and anticipated growth in the furniture retail sector, comparing to industry analyst reports and our own internal economic outlook analysis, and applied our knowledge ofthe Group and retail sectorin investigating any significant deviations in orderto challenge assumptions included in the forecasts; - **Sensitivity analysis:** We performed sensitivity analysis on individual key assumptions and in combined scenarios over order intake, profitmargins,terminal growth rate and discountfactorinordertoassess the levelof sensitivityofthe value in use tothese assumptions; - **Our sector experience:** We assessed and challenged the discount rate by obtaining the inputs used in the discount rate calculations, benchmarking against our own expectations, and comparing the overall rate to an expected range based on our own benchmarks; - **Comparing valuations:** We compared the sum ofthe discounted cash flows for allCGUs to the Group's market capitalisation, adjusted for debt and surplus assets,to assess the reasonableness ofthose cashflows and the reasonableness ofthe carrying value ofthose CGUs; and - **Assessing transparency:** We considered the adequacy of the Group's disclosures about the sensitivity of the outcome of the impairment assessmentto changes in key assumptions, and specifically the sensitivity estimated by the Group fortheDFSTradingCGU, assessingwhetherthey reflected the risks inherentin the recoverable amount of goodwill. ### **Our results** – We found the Group's conclusion that there is no impairment of goodwill to be acceptable (2023 result: acceptable). considered to be the area that had the greatest effect on our overall parentCompany audit. ### **Recoverability of parent Company's** ### **Low risk, high value:** The carrying amount of the parent Company's investments in subsidiaries and the amounts due from group companies balance represents 46% (2023: 48%) and 54% (2023: 52%) of the parent Company's total assets respectively. Their recoverability is not at a high risk of significant misstatement or subjectto significantjudgement. However, due to their materiality in the context of the parentCompany financial statements,this is ### **The risk Our response** We performed the tests below rather than seeking to rely on any of the Company's controls because the nature of the balance is such that we would expect to obtain audit evidence primarily through the detailed procedures described. ### Our procedures included: - **Tests of detail:** We compared the carrying amount of 100% of investments with the relevant subsidiaries' draft balance sheet to identify whether their net assets, being an approximation of their minimum recoverable amount, were in excess of their carrying amount and assessedwhetherthose subsidiaries have historically been profit-making; - We compared the debt adjusted market capitalisation to the investment and intra-group receivables balance to assess impairment indicators. - We assessed 100% of the total amounts due from group companies balance to identify, with reference to the relevant debtors' draft balance sheet, whether they have a positive net asset value and therefore coverage of the debt owed, as well as assessing whether those debtor companies have historically been profit-making; - **Assessing subsidiary audits:**Considering the results of ourwork on all scoped in subsidiaries' profits and net assets,we assessed the liquidity of the assets and therefore the ability of the subsidiary to fund the repayment of the amount due from group companies. ### **Our results** – We found the Company's conclusion that there is no impairment of the investments in subsidiaries and the amounts due from group companies to be acceptable (2023: acceptable). ### **receivables from other group companies** Parent Company's investment **investment in subsidiaries and** in subsidiaries: £237.8 million; (2023 £254.5 million) Amounts due from group companies: £275.0 million; (2023 £275.0 million) Refer to page 63 (Audit and Risk Committee Report), page 137 (accounting policy) and page 138 (financial disclosures). ### **3. Our application of materiality and an overview of the scope of our audit** Materiality forthe Group financial statements as a wholewas set at £2.5m (2023: £2.5m), determinedwith reference to a benchmark of Group revenue of which it represents 0.25%. The benchmark in the previous year was Group profit before tax from continuing operations normalised to exclude non-underlying items ("PBTCO") and averaged over a period of three years of which it represented 3.8%. We selected Group revenue as the benchmark in the current period because of the current pressure on PBTCO, driven by the challenging macro-economic environment.The Group's strategic transformation programme is aimed at adapting to this newenvironment andworkingtowards improvingprofits. Materiality forthe parentCompany financial statements as awholewas set at £1.6m(2023: £1.6m), determined with reference to a benchmark of Company total assets, of which it represents 0.3% (2023: 0.3%). In line with our audit methodology, our procedures on individual account balances and disclosures were performed to a lower threshold, performance materiality, so as to reduce to an acceptable level the risk that individually immaterial misstatements in individual account balances add up to a material amount across the financial statements as awhole. Performance materiality for the group was set at 65% (2023: 75%) of materiality forthe financial statements as awhole,which equates to £1.62m (2023: £1.88m). We applied this percentage in our determination of performance materiality based on the level ofidentified misstatements and control deficiencies during the prior period as well as the level of turnover of senior management and key financialreporting personnel. Performance materiality for the parent company was set at 75% (2023: 75%) of materiality forthe financial statements as awhole,which equates to £1.2m (2023: £1.2m).We applied this percentage inour determination of performance materiality because we did not identify any factors indicating an elevated level of risk. We agreed to report to the Audit and Risk Committee any corrected or uncorrected identified misstatements exceeding £0.125m (2023: £0.125m), in addition to otheridentified misstatements thatwarranted reporting on qualitative grounds. Of the Group's 9 (2023: 9) reporting components, we subjected 4 (2023: 4) to full scope audits for group purposes. We conducted reviews of financial information (including enquiry) at a further 5 (2023: 5) non-significant components as,while thesewere notindividually financially significantto the group, we considered the impact of these in aggregate. The components within the scope of our work accounted for the percentages illustrated opposite. Thework on all scoped-in components (2023: all scoped-in components),including the audit ofthe parent company, was performed by the Group team. The Group team set the component materialities, which ranged from £1.0m to £2.0m (2023: £0.7m to £2.0m), having regard to the mix of size and risk profile of the Group across the components. The remaining 1% (2023: 2%) of Group loss before tax (2023:profit before tax) and 9% (2023: 9%) oftotal Group assets is represented by 5 (2023: 5) reporting components, none of which individually represented more than 5% (2023: 4%) of any of total Group revenue, Group loss before tax (2023:profit before tax) or Group total assets. For the residual components, we performed analysis at an aggregated group level to re-examine our assessmentthattherewere no significantrisks of material misstatementwithin these. The scope of the audit work performed was predominately substantive as we placed limited reliance upontheGroup's internal controlover financialreporting. ### **4. Going concern** The directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or the parent Company or to cease their operations, and as they have concluded that the Group's and the parentCompany's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt overtheir ability to continue as a going concern for at least 12 months from the date of approval ofthe financial statements ("the going concern period"). An explanation of how we evaluated management's assessment of going concern is set out in the related key audit matter in section 2 of this report. ### **Normalised Group profit before tax** £9.1m (2023: £29.2m) **Group materiality** £2.5m (2022: £2.5m) - Full scope for group audit purposes 2024 - Full scope for group audit purposes 2023 - Residual components Our conclusions based on this work: - we consider that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate; - we have notidentified, and concurwith the directors' assessment that there is not, a material uncertainty related to events or conditions that, individually or collectively, may cast significant doubt on the Group's or parent Company's ability to continue as a going concern for the going concern period; - we have nothing material to add or draw attention to in relation to the directors' statement in note 1 to the consolidated financial statements and note 1 to the parentCompany's financial statements on the use of the going concern basis of accounting with no material uncertainties that may cast significant doubt over the Group and parent Company's use of that basis for the going concern period. We found the Group going concern disclosures in note 1 of the consolidated financial statements and note 1 to the parentCompany's financial statements to be acceptable; and - the related statement under the Listing Rules set out on page 90 is materially consistent with the financial statements and our audit knowledge. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the above conclusions are not a guarantee that the Group or the parent Company will continue in operation. ### **5. Fraud and breaches of laws and regulations – ability to detect** ### **Identifying and responding to risks of material misstatement due to fraud** To identify risks of material misstatement due to fraud ("fraud risks") we assessed events or conditions that could indicate an incentive or pressure to commit fraud or provide an opportunity to commit fraud. Our risk assessment procedures included: – Enquiring of Directors, the Audit and Risk Committee, Internal Audit, general counsel and Company Secretary as to the Group's high-level policies and procedures to prevent and detect fraud, including the internal audit function, and the Group's channel - for "whistleblowing", as well as whether they have knowledge of any actual, suspected or alleged fraud. - Reading Board of Directors, Audit and Risk Committee, Responsible and Sustainable Business Committee, Remuneration Committee and Nomination Committee minutes. - Considering the Long Term Incentive Plan, Deferred Bonus Scheme, Restricted Share Plan and Save As You Earn remuneration incentive schemes and performance targets for management. - Using analytical procedures to identify any unusual or unexpected relationships. - Consultation with our own forensic professionals regarding the identified fraud risk and the design of the audit procedures planned in response to these. This involved the forensic professionals attending the Risk Assessment and Planning Discussion and discussion between the engagement partner, engagement quality control reviewer and the forensic professional. We communicated identified fraud risks throughout the audit team and remained alert to any indications of fraud throughout the audit. As required by auditing standards, and taking into account possible pressures to meet profittargets and our overall knowledge of the control environment, we perform procedures to address the risk of management override of controls, in particular the risk that Group and component management may be in a position to make inappropriate accounting entries and the risk of bias in accounting estimates such as impairment and provisions assumptions. On this audit we do not believe there is a fraud risk related to revenue recognition because there is little opportunity to fraudulently misstate revenue based on the high volume of low value transactions. Furthermore,there is not sufficientincentive or motivation to create a fraud risk in relation to cash sales as the level of cash paid at stores is immaterial. We did not identify any additional fraud risks. In determining the audit procedures we took into account the results of our evaluation and testing of the operating effectiveness of some ofthe Group-wide fraud risk management controls set out on page 63 within the Audit and Risk Committee report. We also performed procedures including: - Identifying journal entries to test for all full scope components based on risk criteria and comparing the identified entries to supporting documentation. These included unusual postings to revenue; unusual cash journals; manual journal entries posted by userswith less than five postings in the period; manual entries posted in period thirteen; unusual postings to borrowings; postings made by orreferencing specific employees. - Assessing whether the judgements made in making accounting estimates are indicative of a potential bias. ### **Identifying and responding to risks of material misstatement due to non-compliance with laws and regulations** We identified areas oflaws and regulations that could reasonably be expected to have a material effect on the financial statements from our general commercial and sector experience, through discussion with the directors and other management (as required by auditing standards), and from inspection of the Group's regulatory and legal correspondence and discussed with the directors and other management the policies and procedures regarding compliance with laws and regulations. As the Group is regulated, our assessment of risks involved gaining an understanding of the control environment including the entity's procedures for complying with regulatory requirements, in particular the current regulatory focus on Consumer Duty with regards to the provision ofinterest-free credit and product aftercare insurance. We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughoutthe audit. The potential effect ofthese laws and regulations on the financial statements varies considerably. Firstly, the Group is subject to laws and regulations that directly affectthe financial statements including financialreporting legislation (including related companies legislation), distributable profits legislation and taxation legislation and we assessed the extent of compliance with these laws and regulations as part of our procedureson the related financial statementitems. Secondly, the Group is subject to many other laws and regulationswhere the consequences of noncompliance could have a material effect on amounts or disclosures in the financial statements,forinstance throughtheimpositionof finesorlitigation.Weidentified the following areas as those most likely to have such an effect: health and safety, data protection laws, antibribery, employment law, pension regulations, regulatory capital and liquidity and certain aspects of company legislation recognising the financial and regulated nature of the Group's activities and its legal form. Auditing standards limit the required audit procedures to identify non-compliancewith these laws and regulations to enquiry of the directors and other management and inspection of regulatory and legal correspondence, if any. Therefore, if a breach of operational regulations is not disclosed to us or evident from relevant correspondence, an audit will not detect that breach. ### **Context of the ability of the audit to detect fraud or breaches of law or regulation** Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example,the furtherremoved non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higherrisk of non-detection offraud, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. Our audit procedures are designed to detect material misstatement. We are not responsible for preventing non-compliance orfraud and cannot be expected to detect non-compliancewith all laws and regulations. ### **6. We have nothing to report on the other information in the Annual Report** The directors are responsible for the other information presented in the Annual Report together with the financial statements.Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether, based on our financial statements auditwork,the information therein is materially misstated or inconsistent with the financial statements or our audit knowledge. Based solely on thatworkwe have notidentified material misstatements in the other information. ### **Strategic report and directors' report** Based solely on our work on the other information: - we have notidentified material misstatements in the strategic report and the directors' report; - in our opinion the information given in those reports forthe financial yearis consistentwith the financial statements; and - in our opinion those reports have been prepared in accordance with the Companies Act 2006. ### **Directors' remuneration report** In our opinion the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. ### **Disclosures of emerging and principal risks and longer-term viability** We are required to perform procedures to identify whether there is a material inconsistency between the directors' disclosures in respect of emerging and principal risks and the viability statement, and the financial statements and our audit knowledge. Based on those procedures, we have nothing material to add or draw attention to in relation to: - the directors' confirmationwithin theViability Reporting on page 28 that they have carried out a robust assessment of the emerging and principal risks facing the Group, including those that would threaten its business model, future performance, solvency and liquidity; - the Risks and Uncertainties disclosures describing these risks and howemerging risks are identified, and explaining how they are being managed and mitigated; and – the directors' explanation in the Viability Reporting of how they have assessed the prospects of the Group, over what period they have done so and why they considered that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We are also required to review the Viability Reporting, set out on page 28 under the Listing Rules. Based on the above procedures, we have concluded that the above disclosures are materially consistent with the financial statements and our audit knowledge. Our work is limited to assessing these matters in the context of only the knowledge acquired during our financial statements audit.Aswe cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of anything to report on these statements is not a guarantee as to the Group's and parentCompany's longer-term viability. ### **Corporate governance disclosures** We are required to perform procedures to identify whether there is a material inconsistency between the directors' corporate governance disclosures and the financial statements and our audit knowledge. Based on those procedures, we have concluded that each of the following is materially consistent with the financial statements and our audit knowledge: - the directors' statement that they consider that the annualreport and financial statements taken as a whole is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy; - the section of the annual report describing the work of the Audit and Risk Committee, including the significantissues thattheAudit andRiskCommittee considered in relation to the financial statements, and how these issues were addressed; and – the section of the annual report that describes the reviewofthe effectiveness ofthe Group's risk management and internal control systems. We are required to review the part of the Corporate Governance Statement relating to the Group's compliance with the provisions of the UK Corporate GovernanceCode specified by the Listing Rules for our review. We have nothing to report in this respect. ### **7. We have nothing to report on the other matters on which we are required to report by exception** Under the Companies Act 2006, we are required to report to you if, in our opinion: - adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or - the parentCompany financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns; or - certain disclosures of directors' remuneration specified by laware not made; or - we have not received all the information and explanations we require for our audit. We have nothing to report in these respects. ### **8. Respective responsibilities Directors' responsibilities** As explained more fully in their statement set out on page 91, the directors are responsible for: the preparationofthe financial statements including being satisfied thatthey give a true and fair view; such internal control as they determine is necessary to enable the preparationof financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group and parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so. ### **Auditor's responsibilities** Our objectives are to obtain reasonable assurance aboutwhetherthe financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthe financial statements. A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/ auditorsresponsibilities. TheCompany is required to include these financial statements in an annual financialreport prepared under Disclosure Guidance and Transparency Rule 4.1.17R and 4.1.18R. This auditor's report provides no assurance overwhetherthe annual financialreport has been prepared in accordance with those requirements. ### **9. The purpose of our audit work and to whom we owe our responsibilities** This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed. ### **GILL HOPWOOD-BELL** (Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory Auditor Chartered Accountants 1 St Peter's Square Manchester M2 3AE 25 September 2024 # *99***DFS Furniture plc** Annual Report & Accounts 2024 *Financial Statements* # *Statements Financial* ### **Contents** - 99 Consolidated - 100 Consolidated statement - 102 Consolidated statement of changes in equity - 103 Consolidated - 104 Notes to the consolidated - 135 Company balance sheet - 136 Company statement of changes in equity - 137 Notes to the Company ### **CO N S O L I DAT E D I N CO M E STAT E M E N T** *F O R 5 3 W E E K S E N D E D 3 0 J U N E 2 0 2 4* *(52 WEEKS ENDED 25 JUNE 2023)* | | | 53 weeks to 30 June 2024 | | | 52 weeks to 25 June 2023 | | | |-----------------------------------------------------------------------------------------------|------|--------------------------|----------------------|----------------|--------------------------|----------------------|--------------| | | Note | Underlying
£m | Non-underlying
£m | Total
£m | Underlying
£m | Non-underlying
£m | Total
£m | | Gross sales1 | 1, 2 | 1,311.8 | – | 1,311.8 | 1,423.6 | – | 1,423.6 | | Revenue | 2 | 987.1 | – | 987.1 | 1,088.9 | – | 1,088.9 | | Cost of sales | | (436.3) | – | (436.3) | (496.7) | – | (496.7) | | Gross profit | | 550.8 | – | 550.8 | 592.2 | – | 592.2 | | Selling and distribution costs | | (342.9) | – | (342.9) | (364.6) | – | (364.6) | | Administrative expenses | | (65.9) | (8.9) | (74.8) | (70.2) | 0.5 | (69.7) | | Operating profit/(loss) before depreciation, amortisation and impairment | 3 | 142.0 | (8.9) | 133.1 | 157.4 | 0.5 | 157.9 | | Depreciation | | (77.8) | – | (77.8) | (80.5) | – | (80.5) | | Amortisation | | (13.7) | – | (13.7) | (11.6) | – | (11.6) | | Impairment | | (0.3) | – | (0.3) | (2.0) | – | (2.0) | | Operating profit/(loss) | 2, 3 | 50.2 | (8.9) | 41.3 | 63.3 | 0.5 | 63.8 | | Finance income | 5 | 0.4 | – | 0.4 | 0.2 | – | 0.2 | | Finance expenses | 5 | (41.5) | (1.9) | (43.4) | (34.3) | – | (34.3) | | Profit/(loss) before tax | | 9.1 | (10.8) | (1.7) | 29.2 | 0.5 | 29.7 | | Taxation | 6 | (5.7) | 2.7 | (3.0) | (6.6) | (0.1) | (6.7) | | Profit/(loss) for the period from continuing operations | | 3.4 | (8.1) | (4.7) | 22.6 | 0.4 | 23.0 | | Profit/(loss)forthe period from discontinued operations | 29 | – | 0.3 | 0.3 | (0.3) | 3.5 | 3.2 | | Profit/(loss) for the period | | 3.4 | (7.8) | (4.4) | 22.3 | 3.9 | 26.2 | | Earnings per share
Basic
– from continuing operations
– from discontinued operations | 7 | 1.5p
– | (3.5)p
0.1p | (2.0)p
0.1p | 9.6p
(0.2)p | 0.2p
1.5p | 9.8p
1.3p | | Total | | 1.5p | (3.4)p | (1.9)p | 9.4p | 1.7p | 11.1p | | | | | | | | | | | | | | | | | | | | Diluted | 7 | | | | | | | | – from continuing operations
– from discontinued operations | | 1.5p
– | (3.5)p
0.1p | (2.0)p
0.1p | 9.5p
(0.2)p | 0.2p
1.5p | 9.7p
1.3p | | Total | | 1.5p | (3.4)p | (1.9)p | 9.3p | 1.7p | 11.0p | | | | | | | | | | ^1. Referto pages 19 and 20 for APM definitions. ### **CO N S O L I DAT E D STAT E M E N T O F CO M P R E H E N S I V E I N CO M E** *F O R 5 3 W E E K S E N D E D 3 0 J U N E 2 0 2 4* *(52 WEEKS ENDED 25 JUNE 2023)* | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | (Loss)/profit for the period | (4.4) | 26.2 | | Other comprehensive income
Items that are or may be reclassified subsequently to profit orloss:
Effective portion of changes in fair value of cash flowhedges
Net change in fair value of cash flowhedges reclassified to profit orloss
Recognised in cost of sales
Income tax on items that are or may be reclassified subsequently to profit orloss | 5.1
(1.3)
(1.3) | (8.7)
(13.7)
5.9 | | Other comprehensive income for the period, net of income tax | 2.5 | (16.5) | | Total comprehensive income for the period | (1.9) | 9.7 | | Total comprehensive income for the period attributable to owners of the parent
– from continuing operations
– from discontinued operations | (2.2)
0.3 | 6.5
3.2 | | | (1.9) | 9.7 | ### **CO N S O L I DAT E D BA L A N C E S H E E T** *AT 3 0 J U N E 2 0 2 4 ( 2 5 J U N E 2 0 2 3 )* | Note
£m
£m
Non-current assets
Property, plant and equipment
8
83.8
97.4
Right of use assets
8, 9
315.0
312.6
Intangible assets
10
532.9
536.7
Deferred tax assets
13
10.8
15.5
942.5
962.2
Current assets
Inventories
14
59.0
55.8
Other financial assets
12
0.1
0.7
Trade and other receivables
15
12.0
11.1
Current tax assets
6.1
2.7
Cash and cash equivalents (excluding bank overdrafts)
26.8
26.7
104.0
97.0
Total assets
1,046.5
1,059.2
Current liabilities
Bank overdraft
(2.6)
–
Trade payables and other liabilities
16
(209.3)
(224.9)
Lease liabilities
9
(75.1)
(84.1)
Provisions
20
(9.7)
(6.2)
Other financial liabilities
17
(1.2)
(6.7)
(297.9)
(321.9)
Non-current liabilities
Interest bearing loans and borrowings
18
(187.4)
(165.8)
Lease liabilities
9
(326.6)
(327.3)
Provisions
20
(5.6)
(6.9)
Other financial liabilities
17
–
(0.2)
(519.6)
(500.2)
Total liabilities
(817.5)
(822.1)
Net assets
229.0
237.1
Equity attributable to owners of the Company
Share capital
22
23.6
24.1
Share premium
22
40.4
40.4
Merger reserve
22
18.6
18.6
Capital redemption reserve
22
360.1
359.6
Treasury shares
22
(2.9)
(10.1)
Employee BenefitTrust shares
22
(5.9)
(6.6)
Cash flowhedging reserve
22
(1.1)
(4.9)
Retained earnings
(203.8)
(184.0)
Total equity
229.0
237.1 | | 30 June 2024 | 25 June 2023 | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|--------------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | These financial statementswere approved by the board of directors on 25 September 2024 and were signed on its behalf by: ### **TIM STACEY** Chief Executive Officer ### **JOHN FALLON** Chief Financial Officer Company registered number: 07236769 ### **CO N S O L I DAT E D STAT E M E N T O F C H A N G E S I N EQ U I T Y** | | | | | Capital redemption | | Employee Benefit | Cash flowhedging | | | |-----------------------------------------|---------------|---------------|----------------|--------------------|-----------------|------------------|------------------|-------------------|--------------| | | Share capital | Share premium | Merger reserve | reserve | Treasury shares | Trust shares | reserve | Retained earnings | Total equity | | Balance at 26 June 2022 | £m
25.9 | £m
40.4 | £m
18.6 | £m
357.8 | £m
(4.9) | £m
(6.9) | £m
17.5 | £m
(179.5) | £m
268.9 | | Profitforthe year | – | – | – | – | – | – | – | 26.2 | 26.2 | | Other comprehensive income/(expense) | – | – | – | – | – | – | (22.4) | 5.9 | (16.5) | | Total comprehensive income for the year | – | – | – | – | – | – | (22.4) | 32.1 | 9.7 | | Dividends | – | – | – | – | – | – | – | (12.1) | (12.1) | | Purchase of own shares | – | – | – | – | (30.9) | – | – | – | (30.9) | | Employee BenefitTrust shares issued | – | – | – | – | – | 0.3 | – | (0.3) | – | | Settlement of share based payments | – | – | – | – | – | – | – | (0.3) | (0.3) | | Share based payments | – | – | – | – | – | – | – | 1.8 | 1.8 | | Cancellation of treasury shares | (1.8) | – | – | 1.8 | 25.7 | – | – | (25.7) | – | | Balance at 25 June 2023 | 24.1 | 40.4 | 18.6 | 359.6 | (10.1) | (6.6) | (4.9) | (184.0) | 237.1 | | Profitforthe year | – | – | – | – | – | – | – | (4.4) | (4.4) | | Other comprehensive income/(expense) | – | – | – | – | – | – | 3.8 | (1.3) | 2.5 | | Total comprehensive income for the year | – | – | – | – | – | – | 3.8 | (5.7) | (1.9) | | Dividends | – | – | – | – | – | – | – | (9.4) | (9.4) | | Employee BenefitTrust shares issued | – | – | – | – | – | 0.7 | – | (0.7) | – | | Share based payments | – | – | – | – | – | – | – | 3.2 | 3.2 | | Cancellation of treasury shares | (0.5) | – | – | 0.5 | 7.2 | – | – | (7.2) | – | | Balance at 30 June 2024 | 23.6 | 40.4 | 18.6 | 360.1 | (2.9) | (5.9) | (1.1) | (203.8) | 229.0 | ### **CO N S O L I DAT E D C A S H F LO W STAT E M E N T** *F O R 5 3 W E E K S E N D E D 3 0 J U N E 2 0 2 4* *(52 WEEKS ENDED 25 JUNE 2023)* | | Note | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-----------------------------------------------------------------------|------|-----------------------------------|-----------------------------------| | Net cash from operating activities | 26 | 115.9 | 121.7 | | Investing activities | | | | | Proceeds from sale of property, plant and equipment | | 1.4 | 1.3 | | Interest received | | 0.4 | 0.2 | | Acquisition of property, plant and equipment | 8 | (11.6) | (20.4) | | Acquisition of other intangible assets | 10 | (10.0) | (14.5) | | Net cash used in investing activities | | (19.8) | (33.4) | | Financing activities | | | | | Interest paid | | (18.8) | (10.5) | | Interest paid on lease liabilities | 9 | (24.8) | (23.5) | | Payment of lease liabilities | 9 | (67.6) | (61.6) | | Net (repayment)/drawdown of senior revolving credit facility | 27 | (28.0) | 72.0 | | Drawdown of senior secured notes | 27 | 50.0 | – | | Purchase of treasury shares | | – | (30.9) | | Ordinary dividends paid | | (9.4) | (12.1) | | Net cash used in financing activities | | (98.6) | (66.6) | | Net (decrease)/increase in cash and cash equivalents | 27 | (2.5) | 21.7 | | Cash and cash equivalents at beginning of period | 27 | 26.7 | 5.0 | | Cash and cash equivalents (including bank overdraft) at end of period | 27 | 24.2 | 26.7 | *AT 3 0 J U N E 2 0 2 4* ### **1 Accounting policies** DFS Furniture plc ('the Company') is a company incorporated and domiciled in England, in the United Kingdom (Company number: 07236769). The address ofthe registered office is 1 Rockingham Way, Redhouse Interchange,Adwick-Le-Street,Doncaster, South Yorkshire,DN6 7NA. The consolidated financial statements consolidate those of the Company and its subsidiaries (together referred to as 'the Group'). The parent company financial statements presentinformation aboutthe Company as a separate entity and not about its group. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these consolidated financial statements. Judgements made by the directors, in the application of these accounting policies that have a material effect on the financial statements and estimateswith a significantrisk of material adjustment in the next year are discussed in note 1.20. ### **1.1 Basis of preparation** The consolidated financial statements have been prepared and approved by the directors in accordance with international accounting standards in accordance withUK-adopted international accounting standards ('UK-adopted IFRS').The financial statements are prepared on the historical cost basis except for certain financial instruments and share based payment charges which are measured at their fair value. The financial statements are forthe 53weeks to 30 June 2024 (last year 52 weeks to 25 June 2023). The Company has elected to prepare its parent company financial statements in accordancewith Financial Reporting Standard 101 Reduced Disclosure Framework ('FRS 101'); these are presented on pages 135 to 139. ### Going concern The financial statements are prepared on a going concern basis, which the directors believe to be appropriate for the following reasons. TheCompany heads a groupwhich has a £200.0m revolving credit facility with a consortium of lending banks maturing in September 2027 with a further 16 month extension option for £175.0m ofthe facility, and £50.0m of private placement debt, £25.0m of which matures in September 2028 and £25.0m in September 2030.At 18 September 2024, £63.0m of the revolving credit facility remained undrawn, in addition to cash in hand, at bank of £5.7m. Covenants applicable to both the revolving credit facility and the private placement debt are: 3.0x net debt/ EBITDAand 1.5x fixed charge cover, and are assessed on a six-monthly basis at June andDecember. Recent discussions with the consortium of lending banks have resulted in a modification to the covenants to 3.9x net debt/EBITDAand 1.3x fixed charge coverforthe half yearly assessment atH1 FY25, 3.7x and 1.3x forthe FY25 year end assessment,with leverage returning to 3.0x and fixed charge increasing to 1.4x forthe H1 FY26 assessment. TheDirectors have prepared cash flowforecasts and performed a going concern assessment for the Group covering a period of at least twelve months from the date of approval ofthese financial statements (the 'going concern assessment period'), which indicate that the Group will be in compliance with the agreed covenants. These forecasts include a number of assumptions in relation to: market size (assumed to growby 2% in FY25,from an already lowbase relative to pre-pandemic levels) and the resulting orderintake volumes forthe Group; inflationary impacts on gross margin and other costs; sector-wide manufacturing and supply chain capacities; and achievement of cost savings in line with the Group's strategic plans. The Directors have also prepared severe but plausible downside sensitivity scenarios which cover the same going concern assessment period as the base case.These scenarios include significantly reduced customer spending, impacts on gross margin and other costs from inflationary cost pressures, and a combination of these scenarios. The Directors have also performed reverse stress testing analysis to confirm that circumstances resulting in a covenant breach were beyond those considered plausible. As part of this analysis, the Directors have considered mitigating actions within the Group's control which could reduce the impact of these severe but plausible downside scenarios. These mitigating actions include reducing discretionary operating expenditure, a pause on expansionary capital investment, a reduction or pause in dividend payments, and other measures to protect cash balances.These forecast cash flows, considering the ability and intention of the Directors to implement mitigating actions should they need to, indicate thatthere remains sufficient headroom in the forecast period for the Group to operate within the committed facilities and to comply with all relevant revised banking covenants during the going concern assessment period. The Directors have considered all of the factors noted above, including the inherent uncertainty in forecasting the impact of the current economic and political environment, and are confidentthatthe Group has adequate resources to continue to meet all liabilities as and when they fall due for at least twelve months from the date of approval ofthese financial statements. Accordingly,the financial statements are prepared on a going concern basis. ### **1.2 Basis of consolidation** The consolidated financial statements incorporate the financial statements oftheCompany and entities controlled by the Company (its subsidiaries). Control exists when the Group is exposed to or has rights to variable returns from its investment with the investee and has the ability to affectthose returns through its power over the investee. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the date that control commences until the date that control ceases. The acquisition method is used to account for the acquisition of subsidiaries.All intra-group transactions, balances, income and expenses are eliminated on consolidation. ### **1.3 Climate change** As noted in the Responsibility and sustainability report the Group is committed to addressing climate-related risks and is focused on reducing its environmental impact. The potential impact of climate change has been considered in the preparation ofthese financial statements, including in the carrying values of goodwill and tangible assets,the measurement of financial instruments, and in relation to the Group's going concern and viability assessments. No material impact was noted on the consolidated financial statements in relation to climate change. The potential impact will continue to be assessed on an ongoing basis. ### **1.4 Gross sales and revenue** Revenue is measured at the fair value of the consideration receivable by the Group for the provision of goods to external customers, being the total amount payable by the customer ('gross sales') less: value added and other sales taxes, the costs of obtaining interest free credit on behalf of customers and the amounts payable to third parties relating to products for which the Group acts as an agent. For products where the Group acts as an agent, the amount recognised in revenue is the net fee receivable by the Group. Many of the Group's customers choose to take advantage ofthe interest-free creditthatthe Group makes available. This credit is provided by external finance houses,who pay the Group the gross sales value of the customer order on delivery, less a fee for taking responsibility for payment collection and bearing the full credit risk for any future default by the customer. The fee due to the finance house varies depending on the amount borrowed by the customer, the length of the repayment term and the applicable SONIA rate at the time of the transaction. In calculating reported revenue in accordance with IFRS the Group is required to deduct these fees from the value of the customer order. Reported revenue will therefore vary depending on the proportion of customers who choose to take up the interest free credit offer,the average duration ofthe interestfree loan period and the prevailing interest rates. *AT 3 0 J U N E 2 0 2 4* For the purposes of managing its business the Group focuses on gross sales,which is defined as the total amount payable by customers, inclusive of VAT and other sales taxes and prior to any accounting adjustments forinterest-free creditfees or aftercare product costs. The directors believe gross sales is a more transparent measure of the activity levels and performance of its stores and online channels as it is not affected by customer preferences on payment options. Accordingly gross sales is presented in this annual report in addition to statutory revenue, with a reconciliation between the two measures provided in note 2 to the financial statements. Both gross sales and revenue are stated net of returns and sales allowances, and are recognised when goods have been delivered to the customer, the revenue and costs in respect of the transaction can be measured reliably and collectability is reasonably assured. Receipt of goods by the customer represents the completion of the Group's performance obligation under the sales contract and payment is received prior to or immediately after delivery. Expected future costs of satisfying the Group's obligations under long-term product guarantees offered to customers are determined at the time of the sale, provided for separately (note 20) and charged to cost of sales. ### **1.5 Government grants** Government grants are recognised where there is reasonable assurance that the Group will comply with all attached conditions and that the grant will be received. When the grant relates to an expense item, it is recognised as a deduction from the related expense within the period it becomes receivable. ### **1.6 Expenses** ### Non-underlying items Items that arematerial in size, unusualor non-recurring in nature are disclosed separately in the income statement in order to provide an indication of the Group's underlying business performance. The principal itemswhichmay be included as non-underlying are: - significant profit orloss on the disposal of noncurrent assets; - significantimpairment charges; - significant non-recurring tax charges or credits; - costs associatedwith significant corporate, financial or operating restructuring, including acquisitions; and - initial costs of establishing operations in new geographical territories. Material finance income or expenses associatedwith significant changes in the Group's borrowings are disclosed separately as non-underlying items below operating profit. ### Royalty payments Royalties payable to brand partners on sales of branded products are charged to cost of sales when the related product is delivered to the customer. ### Finance income and expenses Finance expenses comprise interest payable, finance charges on lease liabilities recognised in profit orloss using the effective interest method and unwinding of the discount on provisions and other liabilities measured at present value. Finance income comprises interest receivable on funds invested, dividend income, and net foreign exchange gains and losses. Interest income and interest payable is recognised in profit orloss as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the Group's right to receive payments is established. ### **1.7 Employee benefits** ### Defined contribution plans Payments to defined contribution pension plans are recognised as an expense in the income statement as they fall due. ### Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. ### Share based payments The fair value of equity settled share based payments is recognised as an expense over the vesting period of the related awards, with a corresponding increase in equity. Fair values are calculated using option pricing models appropriate to the terms and conditions of the awards. The amount charged as an expense is regularly reviewed and adjusted toreflectthe achievementof service and non-market based performance conditions. ### **1.8 Taxation** Tax on the profit orloss forthe period comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financialreporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for:the initialrecognition of goodwill; the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nortaxable profit orloss, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. At interim reporting periods the tax charge is calculated in accordancewith IAS 34, adjusted for material nontaxable items. Deferred tax assets are recognised on deductible temporary differences only to the extentthatitis probable thatfuture taxable profitswill be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefitwill be realised. ### **1.9 Foreign currency** Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling atthat date. Foreign exchange differences arising on translation are recognised in the income statement exceptfor effective differences arising on qualifying cash flowhedges,which are recognised directly in other comprehensive income. ### **1.10 Business combinations** Business combinations are accounted for by applying the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Goodwill is initially measured at cost, being the excess of the acquisition cost over the Group's interest in the assets and liabilities recognised. When the excess is negative, a bargain purchase gain is recognised immediately in profit orloss. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, itis notremeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profitorloss. ### Acquisitions prior to 31 July 2011 (date of transition to IFRSs) IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The Group and Company elected not to restate business combinations that took place prior to 31 July 2011. In respect of acquisitions prior to transition, goodwill is included at 31 July 2011 on the basis of its deemed cost, which represents the amount recorded under UK GAAP which was broadly comparable save that goodwill was amortised. On transition, amortisation of goodwill ceased as required by IFRS 1. *AT 3 0 J U N E 2 0 2 4* ### **1.11 Property, plant and equipment** Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Where parts of an item of property, plant and equipment have different useful lives,they are accounted for as separate items of property, plant and equipment. Depreciation is charged to the income statement on a straight-line basis overthe estimated useful life of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: – buildings 50 years – plant and equipment 3 to 10 years – motor vehicles 4 years – leasehold improvements the period of the lease, or useful life if shorter Depreciation methods, useful lives and residual values are reviewed at each balance sheet date. ### **1.12 Leases** At the inception of a contract, the Group assesses whether a contract is, or contains, a lease under IFRS 16. A contract is, or contains, a lease if the contract conveys the rightto controlthe use of an identified asset for a period of time in exchange for consideration. ### Lease liability – initial recognition The Group recognises right of use assets and lease liabilities at the lease commencement date. The lease liabilities are recognised at the present value of future lease payments discounted at the incremental borrowing rate applicable to the lease. Lease payments included in the measurement of the lease liability comprise the following: - fixed payments, including in-substance fixed payments; and - amounts expected to be payable under a residual value guarantee. ### Lease liability – subsequent measurement The lease liability is subsequently increased by the interest cost arising from the unwind of the discount, and decreased by the cash lease payments made. ### Lease liability – remeasurement The lease liability is remeasured if: - there is a change in either the lease term or the assessment of an option to purchase the underlying asset. In these circumstances, the lease liability is remeasured using a revised discount rate; or - there is a change in the amounts expected to be payable under a residual guarantee or if there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments. In these circumstances, the discount rate remains unchanged, unless the change in lease payments results from a change in floating interestrates. In both scenarios, the carrying value of the right of use asset will generally be adjusted by the amount of the remeasurement of the lease liability, to the extent that the right of use asset will be reduced to nil, with any further adjustment required from the remeasurement being recorded in profit orloss. From time to time, a lease may expire without a new lease being agreed. In such circumstances, if the Group has not served or received notice under the terms of the lease, it may continue to occupy the store whilst a new lease is agreed, referred to as a 'holdover arrangement'. Most of the store portfolio is protected by the Landlord and Tenant Act (1954), under which, as tenant, the Group has an automatic right to a new lease subjectto certain specific grounds underwhich the landlord can cancel. In a holdover arrangement, the lease typically continues on a rolling basis on the same financialterms as the previous lease until newterms are formally agreed. The Group accounts for holdover arrangements as a modification to the expired lease, assuming a lease extension of a period equivalent to the average length of time that, in the Group's experience, leases enter a holdover arrangement for, with no change to lease payments. ### Right of use asset – initial recognition IFRS 16 defines a rightof use asset as an assetwhich represents a lessee's right to use an underlying asset for the lease term. Generally, right of use assets are initially measured at an amount equal to the lease liability. ### Right of use asset – subsequent measurement Right of use assets are subsequently measured at initial carrying value: - less any accumulated depreciation and any accumulated impairments losses; and - adjusted for any remeasurement of the lease liability. The right of use asset is subsequently depreciated on a straight line basis from the commencement date to the end of the lease term. In addition, the right of use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. ### Practical expedients and exemptions used The Group has opted to apply the following practical expedients and exemptions: - use of a single discount rate to a portfolio of leases with reasonably similar characteristics; and - recognising lease payments on short term (less than 12 months) leases and low value leases as an expense. ### **1.13 Intangible assets and goodwill** ### Goodwill Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment. ### Other intangible assets Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred. Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and accumulated impairment losses. Implementation costs associated with software and cloud computing arrangements are only capitalised where they relate to an identifiable asset underthe control ofthe Group. ### Amortisation Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives ofintangible assets unless such lives are indefinite. Intangible assetswith an indefinite useful life and goodwill are systematically tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. Estimated useful lives are as follows: – computer software and website costs 3 years – acquired brand names 10 to 20 years ### **1.14 Inventories** Inventories are stated at the lower of cost and net realisable value and include goods in transit where ownership of the goods transfers upon shipment. The cost of finished goods manufactured by the Group includes direct materials, direct labour and appropriate overhead expenditure. ### **1.15 Impairment** The carrying amounts of the Group's tangible and intangible assets other than goodwill are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time, orwhen an indicator ofimpairmentis identified. An impairment loss is recognised if the carrying amount of an asset exceeds its estimated recoverable amount. Impairmentlosses are recognised in profit orloss. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. *AT 3 0 J U N E 2 0 2 4* ### **1.16 Provisions** A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and itis probable that an outflowof economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate thatreflects risks specific to the liability. Details of provisions recognised are in note 20 and the related significant estimates and judgements in note 1.20. ### **1.17 Non-derivative financial instruments** Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. ### Trade and other receivables Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less allowances for expected credit losses. ### Trade and other payables Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method. ### Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits and restricted cash of £0.3m (2023: £0.6m). Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. ### Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequentto initialrecognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. ### **1.18 Derivative financial instruments and hedging** ### Derivative financial instruments Derivative financial instruments are recognised atfair value. The gain or loss on remeasurement to fair value is recognised immediately in profitorloss.However,where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see below). ### Cash flow hedges On adoption of IFRS 9, the Group made the election to continue to apply the hedge accounting requirements of IAS 39 to all of its hedging relationships. Therefore, where a derivative financial instrumentis designated as a hedge ofthe variability in cash flows of a highly probable forecasttransaction,the effective part of any gain orloss on the derivative financial instrument is recognised in other comprehensive income and presentedwithin the hedging reserve.Any ineffective portion of the hedge is recognised immediately in the income statement. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss remains in the hedging reserve and is reclassified into profit or loss in the same period or periods during which the asset acquired orliability assumed affects profit orloss. For other cash flowhedges the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods duringwhich the hedged forecasttransaction affects profit orloss. When a hedging instrument expires or is sold, terminated or exercised, or the Group revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. ### **1.19 Profit or loss from discontinued operations** A discontinued operation is a component of the Group that either has been disposed of, abandoned, or is classified as held for sale.Adiscontinued operation represents a separate major line of the business or geographical area of operation. Profit orloss from discontinued operations comprises the post-tax profit orloss of discontinued operations and the post-tax gain orloss recognised on the measurement to fair value less costs to sell of the disposal group(s) constituting the discontinued operation (see also note 29). When an operation is classified as a discontinued operation, the comparative Consolidated Income Statement is restated as if the operation had been discontinued from the start of the comparative period. ### **1.20 Significant areas of estimation and judgement** In the application of the Group's accounting policies, the Directors are required to make judgements, estimates and assumptions that affectthe valueofreported assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience andotherrelevantfactors, butmay differ fromactualresults.The following significant areaof judgementor estimation arose in the current financial statements: ### Goodwill impairment Goodwill is tested annually for impairment by comparing its carrying value to a calculation of the value in use ofthe relevant cash-generating units.This exercise requires estimates to be made of future cash flows arising from each cash-generating unit and the appropriate discount rate to apply. Further details of the key assumptions underlying the calculation are provided in note 10.TheDirectors are satisfied that no impairment exists at 30 June 2024, however a reasonably possible change in the estimates used in the assessment could result in the recognition of an impairment within the next twelve months. The following are other areas of important estimates and judgements relating to material balances in the Group's financial statements, butwhich do not meet the IFRS-defined criteria of a significant estimate: ### Going concern In making the assessment of going concern for the Group and the Company, the Directors consider a number of assumptions and estimates relating to the future performance of the Group, as detailed in note 1.1 ofthe consolidated financial statements and note 1 oftheCompany financial statements.TheDirectors are satisfied that no severe but plausible change in these estimates would result in a change in the going concern assessment of the Group or the Company and therefore itis not considered a significant estimate as at 30 June 2024. ### Customer guarantees The Group maintains a provision for its obligations underlong term product guarantees offered to its customers. In determining the value of this provision estimates are made of the number of future claims that will be received and the cost of satisfying those claims. Further details are provided in note 20. The Directors are satisfied that no reasonably possible change in these estimateswould resultin a material difference to the value of the provision and therefore it is not considered a significant estimate as at 30 June 2024. ### Net realisable value of inventories As detailed in note 14, the Group makes estimates of applicable selling prices to determine the net realisable value ofinventories.TheDirectors are satisfied that no reasonably possible change in these estimates would resultin a material difference to the value ofthe provision and therefore itis not considered a significant estimate as at 30 June 2024. ### **1.21 New accounting standards** There are no new standards, amendments to existing standards orinterpretations that are effective forthe firsttime in the period ended 30 June 2024 that have a material impact on the Group's results. Anumber of new, but not yet effective, standards, amendments to existing standards, and interpretations have been published by the IASB. None of these have been adopted early and therefore have not been applied by the Group in these financial statements. ### *AT 3 0 J U N E 2 0 2 4* ### **2 Segmental Analysis** The Group's operating segments under IFRS 8 have been determined based on management accounts reports reviewed by the Group Leadership Team. Segment performance is assessed based upon brand contribution. Brand contribution is defined as underlying EBITDA (being earnings before interest, tax, depreciation, amortisation, impairments and non-underlying items) excluding property costs and central administration costs. The Group reviews and manages the performance of its operations on a retail brand basis, and the identified reportable segments and the nature of their business activities are as follows: DFS: the retailing of upholstered furniture and related products through DFS and Dwell branded stores and websites. Sofology: the retailing of upholstered furniture and related products through Sofology branded stores and website. Other segments comprises the manufacture of upholstered furniture and the supply of contract logistics. ### **Segment revenue and profit – continuing operations** | | | External gross sales | | Inter-segment sales | Total gross sales | | |----------------|--------------|----------------------|--------------|---------------------|-------------------|--------------| | | 53 weeks to | 52 weeks to | 53 weeks to | 52 weeks to | 53 weeks to | 52 weeks to | | | 30 June 2024 | 25 June 2023 | 30 June 2024 | 25 June 2023 | 30 June 2024 | 25 June 2023 | | | £m | £m | £m | £m | £m | £m | | DFS | 1,047.0 | 1,125.5 | – | – | 1,047.0 | 1,125.5 | | Sofology | 264.8 | 298.1 | – | – | 264.8 | 298.1 | | Other segments | – | – | 198.2 | 215.6 | 198.2 | 215.6 | | Eliminations | – | – | (198.2) | (215.6) | (198.2) | (215.6) | | Gross sales | 1,311.8 | 1,423.6 | – | – | 1,311.8 | 1,423.6 | | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | Total segments gross sales
Less: value added and other sales taxes
Less: costs of interest free credit and aftercare products | 1,311.8
(207.3)
(117.4) | 1,423.6
(226.2)
(108.5) | | Revenue | 987.1 | 1,088.9 | | Of which:
Furniture sales
Commission on sales of aftercare products | 935.1
52.0 | 1,033.3
55.6 | | Revenue | 987.1 | 1,088.9 | ### **53 weeks to 30 June 2024 – continuing operations** | | DFS | Sofology | Other
Segments | Eliminations | Total | |---------------------------------------------------------------------------------------------|------------------------|-----------------------|-----------------------|-----------------------|---------------------------| | Revenue
Cost of sales | £m
786.5
(376.0) | £m
200.6
(90.5) | £m
198.2
(56.1) | £m
(198.2)
86.3 | £m
987.1
(436.3) | | Gross profit
Selling & distribution costs (excluding property costs) | 410.5
(224.3) | 110.1
(58.8) | 142.1
(114.1) | (111.9)
81.3 | 550.8
(315.9) | | Brand contribution (segment profit)
Property costs
Underlying administrative expenses | 186.2 | 51.3 | 28.0 | (30.6) | 234.9
(27.0)
(65.9) | | Underlying EBITDA | | | | | 142.0 | *AT 3 0 J U N E 2 0 2 4* ### **2 Segmental Analysis** continued **52 weeks to 25 June 2023 – continuing operations** | | Other | | | | | |---------------------------------------------------------------------------------------------|---------|----------|----------|--------------|---------------------------| | | DFS | Sofology | Segments | Eliminations | Total | | | £m | £m | £m | £m | £m | | Revenue | 858.5 | 230.4 | 215.6 | (215.6) | 1,088.9 | | Cost of sales | (424.8) | (106.8) | (61.6) | 96.5 | (496.7) | | Gross profit | 433.7 | 123.6 | 154.0 | (119.1) | 592.2 | | Selling & distribution costs (excluding property costs) | (229.0) | (64.5) | (129.3) | 88.4 | (334.4) | | Brand contribution (segment profit)
Property costs
Underlying administrative expenses | 204.7 | 59.1 | 24.7 | (30.7) | 257.8
(30.2)
(70.2) | | Underlying EBITDA | | | | | 157.4 | | | Note | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |--------------------------------------------|------|-----------------------------------|-----------------------------------| | Underlying EBITDA | | 142.0 | 157.4 | | Non-underlying items | 3 | (8.9) | 0.5 | | Depreciation, amortisation and impairments | | (91.8) | (94.1) | | Operating profit | | 41.3 | 63.8 | | Finance income | | 0.4 | 0.2 | | Finance expenses | | (41.5) | (34.3) | | Non-underlying financing costs | 5 | (1.9) | – | | (Loss)/profit before tax | | (1.7) | 29.7 | A geographical analysis of revenue is presented below: | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |---------------------------------------|-----------------------------------|-----------------------------------| | United Kingdom
Republic of Ireland | 967.4
19.7 | 1,067.7
21.2 | | Total revenue | 987.1 | 1,088.9 | | | | Additions to non-current assets | | Depreciation, amortisation and impairment | |----------------|-----------------------------------|-----------------------------------|-----------------------------------|-------------------------------------------| | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | | DFS | 35.5 | 42.7 | 67.5 | 70.1 | | Sofology | 12.2 | 11.4 | 18.0 | 17.6 | | Other segments | 7.9 | 6.0 | 6.3 | 6.4 | | Total Group | 55.6 | 60.1 | 91.8 | 94.1 | Additions to non-current assets include both tangible and intangible non-current assets. *AT 3 0 J U N E 2 0 2 4* ### **3 Operating profit – continuing operations** **Group operating profit is stated after charging/(crediting):** | 53 weeks to
30 June 2024 | 52 weeks to
25 June 2023 | |------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------| | £m
Net foreign exchange losses
0.8 | £m
1.6 | | Depreciation on tangible assets (including depreciation on right of use assets)
77.8
Amortisation of intangible assets
13.7 | 80.5
11.6 | | Impairments
0.3
Net gain on disposal of property, plant and equipment
–
Net gain on disposal of right of use assets
(0.6) | 2.0
(0.8)
(1.2) | | Cost of inventories recognised as an expense
435.9
Write down of inventories to net realisable value
0.3 | 509.1
2.0 | | Other costs of sales
0.1
Release of provisions (note 20)
(3.4) | (14.4)
(0.9) | | Government grants received (business rates relief)
–
Operating lease rentals
– | (0.2)
0.2 | ### **Non-underlying items** | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |---------------------------------------------------------|-----------------------------------|-----------------------------------| | Restructuring costs | 6.5 | – | | Land slippage costs
Release of lease guarantee costs | 3.1
(0.7) | –
(0.5) | | | 8.9 | (0.5) | The release of the lease guarantee provision relates to the property provisions detailed in note 20. ### **Auditor's remuneration** | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | Audit ofthese financial statements
Audit ofthe financial statements of Group subsidiaries
Amounts receivable by the Company's auditor and its associates in respect of: | 0.3
0.5 | 0.3
0.5 | | All other services | 0.1 | 0.1 | | | 0.9 | 0.9 | During the period, an amount of £51,400was receivable by theCompany's auditorin respect ofthe reviewofthe Group's interim financial statements (2023: £49,500) and £nil in respect of other auditrelated assurance services (2023: £35,000). *AT 3 0 J U N E 2 0 2 4* ### **4 Staff numbers and costs – continuing operations** The average number of persons employed by the Group during the period, analysed by category, was as follows: | | Number of employees | | |-----------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | | 53 weeks to
30 June 2024 | 52 weeks to
25 June 2023 | | Production
Warehouse and transport
Sales and administration | 881
1,341
2,871 | 1,016
1,356
3,167 | | | 5,093 | 5,539 | | The aggregate payroll costs of these persons were as follows: | | | | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | | Wages and salaries
Social security costs
Other pension costs | 173.5
16.8
6.5 | 177.4
17.5
5.8 | | Share based payment expense (equity settled) | 196.8
3.2 | 200.7
1.8 | | | 200.0 | 202.5 | | Aggregate remuneration payable to directors in respect of qualifying services was as follows: | | | | | 53 weeks to
30 June 2024 | 52 weeks to
25 June 2023 | Twodirectors accrued retirement benefits under pension schemes in the period (2023:three).Allofthe directors' pension contributionswere todefined contribution schemes. Emoluments **1.4** 1.6 Pension contributions **–** – Gain on exercise of share options **–** – **£m** *AT 3 0 J U N E 2 0 2 4* ### **5 Finance income and expense** | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------|-----------------------------------------| | Finance income | | | | Interest income on bank deposits | 0.4 | 0.2 | | Total finance income | 0.4 | 0.2 | | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | | Finance expense
Interest payable on senior revolving credit facility
Interest payable on senior secured notes
Bank fees
Unwind of discount on provisions
Interest on lease liabilities | (12.6)
(3.5)
(0.4)
(0.2)
(24.8) | (10.4)
–
(0.4)
(0.1)
(23.4) | | Total underlying finance expense | (41.5) | (34.3) | | Non-underlying items: | | | | Refinancing costs | (1.9) | – | | Total finance expense | (43.4) | (34.3) | Non-underlying finance costs of £1.9m relate to the refinancing ofthe Group's creditfacilities in September 2023.This includes thewrite offof unamortised underwriting fees associated with the old revolving credit facility and professional fees incurred in relation to the arrangement of the new revolving credit facility and senior secured loan notes. ### **6 Taxation** **Recognised in the income statement** | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |--------------------------------------------------|-----------------------------------|-----------------------------------| | Current tax | | | | Current period
Adjustments for prior years | 2.4
(2.8) | 5.7
0.1 | | Current tax (credit)/expense | (0.4) | 5.8 | | Deferred tax | | | | Origination and reversal oftemporary differences | (0.5) | 2.4 | | Deferred tax rate change | – | 0.4 | | Adjustments for prior years | 3.9 | (1.5) | | Deferred tax expense | 3.4 | 1.3 | | Total tax expense in income statement | 3.0 | 7.1 | | Total tax expense in income statement | | | | – from continuing operations | 3.0 | 6.7 | | – from discontinued operations | – | 0.4 | | | 3.0 | 7.1 | *AT 3 0 J U N E 2 0 2 4* ### **6 Taxation** continued **Reconciliation of effective tax rate** | 53 weeks to | 52 weeks to | |-----------------------------------------------------------------------------------------------------------|--------------------| | 30 June 2024
£m | 25 June 2023
£m | | Profit before tax forthe period from continuing and discontinued operations
(1.4) | 33.3 | | Tax using the UK corporation tax rate of 25% (2023: 20.5%)
(0.4) | 6.9 | | Non-deductible expenses
1.9 | 2.3 | | Tax exempt revenues
–
Effect oftax rates in foreign jurisdictions
(0.1) | (1.0)
(0.4) | | Recognition of previously unrecognised tax losses
0.1 | – | | Adjustments in respect of share options
0.4 | 0.3 | | Adjustment in respect of prior years
1.1
Impact of change in tax rate on deferred tax balances
– | (1.4)
0.4 | | Total tax expense
3.0 | 7.1 | The FinanceAct 2021,whichwas substantively enacted inMay 2021, included provisions to increase the rate ofUK corporation tax from 19% to 25% with effectfrom 1April 2023 resulting in the 2023 tax rate of 20.5%. Deferred taxation is measured attax rates that are expected to apply in the periods inwhich temporary timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted at the balance sheet date. Accordingly, a tax rate of 25% has been applied when calculating deferred tax assets and liabilities at 30 June 2024 (25% at 25 June 2023). ### **Income tax recognised in other comprehensive income** | | 53 weeks to | 52 weeks to | |---------------------------------------------------------------------------|--------------|--------------| | | 30 June 2024 | 25 June 2023 | | | £m | £m | | Effective portion of changes in fair value of cash flowhedges | (0.2) | (1.8) | | Net change in fair value of cash flowhedges reclassified to profit orloss | 1.5 | (3.0) | | Impact of change in tax rate on deferred tax balances | – | (1.1) | | | 1.3 | (5.9) | The Group is monitoring developments in relation to theOrganisation for EconomicCo-operation andDevelopment(OECD)/G20 Base Erosion and Profit Shifting (BEPS) project('PillarTwo modelrules').The first accounting period forwhich these ruleswill apply to the Group is the period ending 29 June 2025.The Group may be required to pay a top up tax in theUK on profits earned in jurisdictionswhere the effective rate oftax is less than 15%. Profits arising in the Republic ofIreland are taxed at 12.5%, so an additional 2.5% taxwould be payable on these profits.As such, any top up tax payable underthe PillarTwo modelrules is not expected to have a material impact on the Group's overall income tax charge. *AT 3 0 J U N E 2 0 2 4* ### **7 Earnings per share** ### **Statutory earnings per share** Basic earnings per share is calculated by dividing the net profit orloss forthe financial period attributable to ordinary equity holders ofthe parent company by theweighted average number of ordinary shares outstanding during the period.Theweighted average number of shares reflects the movements in share capital detailed in note 22 and the impact of movements in treasury shares held by theCompany.Changes in theCompany's capital structurewith no corresponding change in resources are reflected as if they had occurred at the beginning of the earliest period presented. Diluted earnings per share is calculated using the same net profit orloss forthe financial period attributable to ordinary equity holders ofthe parent company, butincreasing theweighted average number of ordinary shares by the dilutive effect of potential ordinary shares. Potential ordinary shares arise from employee share based payment arrangements (note 25). Where share based payments are subject to performance conditions, they are included as potential ordinary shares to the extent that the performance conditions have been met at the reporting date. Details of share based payment vesting conditions are provided in the Director's Remuneration Report. | | 53 weeks to | 52 weeks to | |-----------------------------------------------------------------------------------------------------------------------------------|-----------------------|--------------------------| | | 30 June 2024
pence | 25 June 2023
pence | | Basic earnings/(loss) per share | | | | – from continuing operations | (2.0) | 9.8 | | – from discontinued operations | 0.1 | 1.3 | | Total basic earnings/(loss) per share | (1.9) | 11.1 | | Diluted earnings/(loss) per share | | | | – from continuing operations
– from discontinued operations | (2.0)
0.1 | 9.7
1.3 | | Total diluted earnings/(loss) per share | (1.9) | 11.0 | | | 53 weeks to | 52 weeks to | | | 30 June 2024
£m | 25 June 2023
£m | | (Loss)/profitforthe period attributable to equity holders ofthe parent company | | | | – from continuing operations
– from discontinued operations | (4.7)
0.3 | 23.0
3.1 | | | (4.4) | 26.1 | | | 53 weeks to | 52 weeks to | | | 30 June 2024
No. | 25 June 2023
No. | | Weighted average number of shares in issue for basic earnings per share
Dilutive effect of employee share based payment awards | 230,566,306
– | 235,470,857
1,783,365 | | Weighted average number of shares in issue for diluted earnings per share | 230,566,306 | 237,254,222 | Where a loss has been recorded,the potential ordinary shareswould be anti-dilutive, and therefore in this situation theweighted average number of shares used does not include the dilutive effect of share based payment awards. *AT 3 0 J U N E 2 0 2 4* ### **7 Earnings per share** continued ### **Underlying earnings per share** Underlying basic earnings per share and underlying diluted earnings per share are calculated by dividing the profitforthe period attributable to ordinary equity holders ofthe parent company, as adjusted to exclude the effect of non-underlying items, by the applicableweighted average numbers of ordinary shares. | | 53 weeks to | 52 weeks to | |-----------------------------------------------------------------------------------------------------------------------------------|-----------------------------|-----------------------------| | | 30 June 2024
£m | 25 June 2023
£m | | Continuing operations | | | | (Loss)/profitforthe period attributable to equity holders ofthe parent company
Non-underlying (profit)/loss aftertax | (4.7)
8.1 | 23.0
(0.4) | | Underlying profitforthe period attributable to equity holders ofthe parent company from continuing operations | 3.4 | 22.6 | | | 53 weeks to | 52 weeks to | | | 30 June 2024
£m | 25 June 2023
£m | | Discontinued operations | | | | Profit/(loss)forthe period attributable to equity holders ofthe parent company
Non-underlying (profit)/loss aftertax | 0.3
(0.3) | 3.1
(3.5) | | Underlying loss for the period attributable to equity holders of the parent company from discontinued operations | – | (0.4) | | | | | | | 53 weeks to
30 June 2024 | 52 weeks to
25 June 2023 | | | No. | No. | | Weighted average number of shares in issue for basic earnings per share
Dilutive effect of employee share based payment awards | 230,566,306
452,561 | 235,470,857
1,783,365 | | Weighted average number of shares in issue for diluted earnings per share | 231,018,867 | 237,254,222 | | | 3 weeks to | 52 weeks to | | | 30 June 2024
pence | 25 June 2023
pence | | Underlying basic earnings/(loss) per share | | | | – from continuing operations
– from discontinued operations | 1.5
– | 9.6
(0.2) | | Total underlying basic earnings per share | 1.5 | 9.4 | | | | | | Underlying diluted earnings/(loss) per share
– from continuing operations | 1.5 | 9.5 | | – from discontinued operations | – | (0.2) | | Total underlying diluted earnings per share | 1.5 | 9.3 | *AT 3 0 J U N E 2 0 2 4* ### **8 Property, plant and equipment** | | Land and | Plant and | Motor | Right of use | | |------------------------------------|-----------------|-----------------|----------------|----------------|----------------| | | buildings
£m | equipment
£m | vehicles
£m | assets
£m | Total
£m | | Cost
Balance at 26 June 2022 | 21.9 | 182.5 | 8.7 | 510.2 | 723.3 | | Reclassifications | (8.3) | 49.3 | 8.8 | 8.3 | 58.1 | | Additions | 0.1 | 20.4 | 0.1 | 25.0 | 45.6 | | Remeasurements
Disposals | –
(0.2) | –
(15.7) | –
(5.1) | 7.0
(26.1) | 7.0
(47.1) | | Balance at 25 June 2023 | 13.5 | 236.5 | 12.5 | 524.4 | 786.9 | | Additions | 1.4 | 10.2 | – | 30.7 | 42.3 | | Remeasurements
Disposals | –
(0.5) | –
(23.2) | –
(5.4) | 29.8
(11.1) | 29.8
(40.2) | | Balance at 30 June 2024 | 14.4 | 223.5 | 7.1 | 573.8 | 818.8 | | Depreciation and impairments | | | | | | | Balance at 26 June 2022 | 2.1 | 97.7 | 7.4 | 172.2 | 279.4 | | Reclassifications | (1.7) | 49.3 | 8.8 | 1.7 | 58.1 | | Depreciation charge for the period | 0.4 | 20.9 | 0.8 | 58.4 | 80.5 | | Impairments | – | – | – | 2.0 | 2.0 | | Disposals | (0.2) | (15.3) | (5.1) | (22.5) | (43.1) | | Balance at 25 June 2023 | 0.6 | 152.6 | 11.9 | 211.8 | 376.9 | | Depreciation charge for the period | 1.9 | 19.6 | 0.5 | 55.8 | 77.8 | | Impairments | – | – | – | 0.3 | 0.3 | | Disposals | (0.1) | (20.4) | (5.4) | (9.1) | (35.0) | | Balance at 30 June 2024 | 2.4 | 151.8 | 7.0 | 258.8 | 420.0 | | Net book value | | | | | | | At 26 June 2022 | 19.8 | 84.8 | 1.3 | 338.0 | 443.9 | | At 25 June 2023 | 12.9 | 83.9 | 0.6 | 312.6 | 410.0 | | At 30 June 2024 | 12.0 | 71.7 | 0.1 | 315.0 | 398.8 | At 30 June 2024 the Group had contracted capital commitments of £7.9m (2023: £9.1m)forwhich no provision has been made in the financial statements. Plant and equipment includes leasehold improvements. *AT 3 0 J U N E 2 0 2 4* ### **9 Leases** **Right of use assets** | | Property
£m | Vehicles
£m | Equipment
£m | Total
£m | |--------------------------------------|----------------|----------------|-----------------|--------------| | Cost | | | | | | At 26 June 2022 | 485.7 | 22.6 | 1.9 | 510.2 | | Reclassifications | 8.3 | – | – | 8.3 | | Additions | 16.3 | 8.7 | – | 25.0 | | Remeasurements | 7.0 | – | – | 7.0 | | Disposals | (24.0) | (2.1) | – | (26.1) | | At 25 June 2023 | 493.3 | 29.2 | 1.9 | 524.4 | | Additions | 20.9 | 9.8 | – | 30.7 | | Remeasurements | 29.8 | – | – | 29.8 | | Disposals | (8.8) | (2.3) | – | (11.1) | | At 30 June 2024 | 535.2 | 36.7 | 1.9 | 573.8 | | | | | | | | Depreciation and impairment | | | | | | At 26 June 2022
Reclassifications | 161.2
1.7 | 9.6
– | 1.4
– | 172.2
1.7 | | Depreciation charge for the period | 53.7 | 4.5 | 0.2 | 58.4 | | Disposals | (20.5) | (2.0) | – | (22.5) | | Impairments | 2.0 | – | – | 2.0 | | At 25 June 2023 | 198.1 | 12.1 | 1.6 | 211.8 | | Depreciation charge for the period | 50.1 | 5.6 | 0.1 | 55.8 | | Disposals | (7.3) | (1.8) | – | (9.1) | | Impairments | 0.3 | – | – | 0.3 | | At 30 June 2024 | 241.2 | 15.9 | 1.7 | 258.8 | | | | | | | | Net book value
At 26 June 2022 | 324.5 | 13.0 | 0.5 | 338.0 | | At 25 June 2023 | 295.2 | 17.1 | 0.3 | 312.6 | | At 30 June 2024 | 294.0 | 20.8 | 0.2 | 315.0 | Amounts recognised in the consolidated balance sheet: | | 30 June 2024
£m | 25 June 2023
£m | |------------------------------|--------------------|--------------------| | Current lease liabilities | 75.1 | 84.1 | | Non-currentlease liabilities | 326.6 | 327.3 | For more information on the maturity of the Group's lease liabilities, see note 24. *AT 3 0 J U N E 2 0 2 4* ### **9 Leases** continued Amounts recognised in the consolidated income statement: | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | Interest on lease liabilities
Variable lease payments not included in the measurement of lease liabilities
Income from subleasing right of use assets
Expenses relating to short term leases and low value leases | (24.8)
(0.3)
0.3
– | (23.5)
(0.3)
0.4
(0.3) | | Amounts recognised in the consolidated cash flowstatement: | | | | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | | Total cash outflowforlease liabilities | 92.4 | 85.1 | | Non-cancellable shortterm lease rentals are payable as follows: | | | | | 30 June 2024
£m | 25 June 2023
£m | | Less than one year | – | 0.6 | The Group has entered into short term leases in respect of warehouses and equipment. At 30 June 2024,future rentals receivable under non-cancellable leaseswhere the Group is the lessorwere £1.8m (2023: £2.4m). *AT 3 0 J U N E 2 0 2 4* ### **10 Intangible assets** | | Computer
software | | | | |------------------------------------|----------------------|-------------|----------|-------| | | | Brand names | Goodwill | Total | | | £m | £m | £m | £m | | Cost | | | | | | Balance at 26 June 2022 | 55.3 | 14.8 | 509.3 | 579.4 | | Reclassification | 0.9 | – | – | 0.9 | | Additions | 14.5 | – | – | 14.5 | | Disposals | (0.1) | – | – | (0.1) | | Balance at 25 June 2023 | 70.6 | 14.8 | 509.3 | 594.7 | | Additions | 10.0 | – | – | 10.0 | | Disposals | (0.2) | – | – | (0.2) | | Balance at 30 June 2024 | 80.4 | 14.8 | 509.3 | 604.5 | | Amortisation and impairments | | | | | | Balance at 26 June 2022 | 37.6 | 7.0 | 1.0 | 45.6 | | Reclassification | 0.9 | – | – | 0.9 | | Amortisation charge for the period | 10.2 | 1.4 | – | 11.6 | | Disposals | (0.1) | – | – | (0.1) | | Balance at 25 June 2023 | 48.6 | 8.4 | 1.0 | 58.0 | | Amortisation charge for the period | 12.3 | 1.4 | – | 13.7 | | Disposals | (0.1) | – | – | (0.1) | | Balance at 30 June 2024 | 60.8 | 9.8 | 1.0 | 71.6 | | | | | | | | Net book value
At 26 June 2022 | 17.7 | 7.8 | 508.3 | 533.8 | | At 25 June 2023 | 22.0 | 6.4 | 508.3 | 536.7 | | At 30 June 2024 | 19.6 | 5.0 | 508.3 | 532.9 | ### **Goodwill** The carrying amount of goodwill is allocated to the following cash generating units: | | Goodwill | | |-----------------------------------------|--------------------|--------------------| | | 30 June 2024
£m | 25 June 2023
£m | | DFS Trading Limited
Sofology Limited | 479.9
28.4 | 479.9
28.4 | | | 508.3 | 508.3 | Goodwill is tested annually for impairment on the basis of value in use. The key assumptions underlying the calculations are those regarding expected future sales volumes, changes in selling prices and direct costs and the discount rate applied. The inputs applied in respect of these key assumptions are based on management experience and external inputs in relation to market outlook. Cash flowforecasts are prepared from the latest financialresults and internal budgets forthe nextfour years,which take into account external macroeconomic indicators as well as internal growth expectations for each cash generating unit. Selling prices and related costs are based on past practice and expected future changes in the market. The base case forecast assumes market growth of 2% in FY25,followed by continued lowsingle digit annual growth in subsequent years.The base case also reflects a cautious assessment of the anticipated growth in the Group's market share driven by delivery of our strategic initiatives. Revenue is assumed in line with order intake, keeping order bank levels relatively consistent across the assessment period. ### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AT 30 JUNE 2024 ### 10 Intangible assets continued Gross margin percentage for FY25 is expected to be ahead of FY24 through more effective sourcing and the annualised impact of price increases already implemented. Other costs reflect anticipated inflationary increases and benefits from specific cost saving initiatives. Capital expenditure is assumed to remain in line with planned investments and strategic initiatives. A terminal value was then calculated on the basis of the four year plan and an estimated long-term growth rate for the UK upholstery furniture sector of 2.0% (2023: 2.0%). These cash flow forecasts were then discounted at pre-tax discount rates of 14.0% to 15.1% (2023: 13.3% to 14.6%). The discount rates are estimated based on the Group's weighted average cost of capital (derived from market indices of risk-free rates, market risk premia, peer group analysis and the Group's own borrowing costs), risk adjusted for an individual unit's circumstances. The Group incurs certain overhead costs in respect of support services provided centrally to the CGUs. Such support services include Finance, Human Resources, Legal, IT and central management support in respect of stewardship and governance. These overhead costs have been allocated to the CGUs using relative CGU EBITDA as a proxy for the time spent in supporting the CGU. For DFS and Sofology, the value in use calculations showed a significant headroom between the calculated value in use and the carrying value of goodwill in the financial statements. A number of sensitivities were then applied to the base case model to assess whether any reasonably possible changes in assumptions could cause an impairment that would be material to these consolidated financial statements. This analysis applied a number of challenging scenarios, including possible shortfalls in revenue or gross margin compared to plan, a decrease in the long term growth rate of the UK upholstery market and changes in applicable discount rates. On the basis of this analysis the Directors concluded that a reasonably possible change in these assumptions would not lead to an impairment being recognised. Further analysis was then applied to consider simultaneous shortfalls in revenue and in gross margin compared to plan at the reasonably possible levels outlined above. The outcome of this simultaneous shortfall scenario was that in the event of these reasonably possible scenarios occurring simultaneously, an impairment to the DFS Trading Limited goodwill would result. Under the base case, recoverable amount exceeds carrying value by £159.8m. If order intake were to fall 4.0% below expectation, and gross margin were to fall 0.8% points below expectation, an impairment of £44.7m would occur. No reasonably possible scenarios result in an impairment of the Sofology Limited goodwill. ### 11 Investments in subsidiaries The following companies are incorporated in England & Wales, with the exception of Coin Retail Limited (Jersey) which is incorporated in Jersey. They are all wholly owned by the Group and have been consolidated in these financial statements. Principal activity | Diamond Holdco 2 Limited ¹ | Intermediate holding company | |-----------------------------------------------------|------------------------------| | Diamond Holdco 7 Limited ¹ | Intermediate holding company | | DFS Furniture Holdings plc ¹ | Intermediate holding company | | DFS Furniture Company Limited ¹ | Intermediate holding company | | DFS Trading Limited ¹ | Furniture retailer | | Sofology Limited ³ | Furniture retailer | | Sofaworks Limited ¹ | Dormant | | Haydock Furniture Limited ³ | Dormant | | The Sofa Delivery Company Limited ¹ | Contract logistics | | The Sofa Manufacturing Company Limited ¹ | Dormant | | The Sofa Servicing Company Limited ¹ | Dormant | | Coin Retail Limited (Jersey) ² | Intermediate holding company | | Coin Furniture Limited ¹ | Furniture retailer | | DFS Spain Limited ¹ | Furniture retailer | | | | ### Registered offices - 1 Rockingham Way, Redhouse Interchange, Adwick-le-Street, Doncaster DN6 7NA - 2 26 New Street, St Helier, Jersey, JE2 3RA - 3 Ashton Road, Golborne, Warrington, WA3 3UL Coin Furniture Limited (Company number 08586227) and DFS Spain Limited (Company number 09668511) are exempt from the requirement of the Companies Act relating to the audit of individual financial statements by virtue of s479A of the Companies Act 2006. DFS Furniture plc will guarantee the debts and liabilities of these entities in accordance with Section 479C of the Companies Act 2006. *AT 3 0 J U N E 2 0 2 4* ### **12 Other financial assets** | | 30 June 2024
£m | 25 June 2023
£m | |---------------------------------------|--------------------|--------------------| | Current
Foreign exchange contracts | 0.1 | 0.7 | Foreign exchange contracts comprise forward contracts which are used to hedge exchange risk arising from the Group's overseas purchases (note 24). ### **13 Deferred tax** Deferred tax assets and liabilities are attributable to the following: | 30 June 2024 | 25 June 2023 | |---------------------------------------------------|--------------| | £m | £m | | Fixed assettiming differences
1.8 | 4.4 | | IFRS 16
7.8 | 7.8 | | Remeasurement of derivatives to fair value
0.3 | 3.0 | | Brand names
(1.1) | (1.5) | | Share based payments
0.5 | 0.7 | | Othertemporary differences
1.5 | 1.1 | | Net tax assets
10.8 | 15.5 | The deferred tax movement in the period is as follows: | | 53 weeks to | 52 weeks to | |-----------------------------------------------------|--------------|--------------| | | 30 June 2024 | 25 June 2023 | | | £m | £m | | At start of period | 15.5 | 10.8 | | (Charged)/credited to the income statement: | | | | Fixed assettiming differences | (2.6) | 0.8 | | Unwind of IFRS 16 transition impact | (1.4) | (2.8) | | Tax losses carried forward | – | (0.4) | | Brand names | 0.4 | 0.4 | | Share based payments | (0.2) | – | | Derivatives | – | 1.5 | | Othertemporary differences | 0.4 | (0.7) | | Recognised in the statement of comprehensive income | (1.3) | 5.9 | | At end of period | 10.8 | 15.5 | Deferred tax assets on losses of £4.7m (2023: £4.7m) have not been recognised as they relate to tax losses carried forward that arose in a jurisdiction inwhich the Group no longer trades, so are not anticipated to be utilised. *AT 3 0 J U N E 2 0 2 4* ### **14 Inventories** | | 30 June 2024
£m | 25 June 2023
£m | |----------------------------------------------------------------------|--------------------|--------------------| | Raw materials and consumables
Finished goods and goods for resale | 6.7
62.8 | 8.9
62.8 | | Write-down to netrealisable value | 69.5
(10.5) | 71.7
(15.9) | | | 59.0 | 55.8 | In applying its accounting policy forinventory,the Group identifies those itemswhere there is a risk that netrealisable value does not exceed cost, due to eitherthe age or condition of the item. An estimate of the net realisable value of such items is made based on the sale of similar items in the past, taking into account expected future opportunities for sale, and their carrying value reduced by an appropriate provision. ### **15 Trade and other receivables** | | 30 June 2024 | 25 June 2023 | |-------------------|--------------|--------------| | | £m | £m | | Trade receivables | 6.7 | 7.7 | | Prepayments | 4.0 | 3.0 | | Accrued income | 0.1 | 0.1 | | Other receivables | 1.2 | 0.3 | | | 12.0 | 11.1 | No interest is charged on trade receivables; the Group bears no credit risk in respect of amounts due from retail customers under interest free credit arrangements. The Group has assessed the expected credit loss as very low and therefore has made no provision for impairment. Prepayments and accrued income do not include impaired assets. ### **16 Trade payables and other liabilities** | 30 June 2024 | £m | 25 June 2023
£m | |-----------------------------------------------------------------|----|--------------------| | Current | | | | Payments received on account
40.9 | | 39.1 | | Trade payables
100.4 | | 97.6 | | Other creditors including other tax and social security
26.1 | | 34.7 | | Accruals
41.9 | | 53.5 | | 209.3 | | 224.9 | Payments on accountrepresent contractliabilities underIFRS 15,whichwill be realised through revenue in the subsequent financial year.Trade payables do not bearinterest and are paid within agreed credit terms. For more information on lease liabilities, see note 1.12. *AT 3 0 J U N E 2 0 2 4* ### **17 Other financial liabilities** | | 30 June 2024
£m | 25 June 2023
£m | |-------------------------------------------|--------------------|--------------------| | Non-current
Foreign exchange contracts | – | 0.2 | | Current
Foreign exchange contracts | 1.2 | 6.7 | Foreign exchange contracts comprise forward contracts which are used to hedge exchange risk arising from the Group's overseas purchases (note 24). ### **18 Other interest-bearing loans and borrowings** This note provides information aboutthe contractualterms ofthe Group's interest-bearing loans and borrowings,which are measured at amortised cost. For more information about the Group's exposure to interest rate and foreign currency risk, see note 24. | | 30 June 2024
£m | 25 June 2023
£m | |----------------------------------|--------------------|--------------------| | Senior revolving credit facility | 139.0 | 167.0 | | Senior secured notes | 50.0 | – | | Unamortised issue costs | (1.6) | (1.2) | | | 187.4 | 165.8 | The Group has a £200.0m revolving creditfacility and £50.0m of senior secured notes. The revolving credit facility bears interest at a rate of credit spread adjusted SONIA plus 3.10% and is repayable in September 2027 with the option of a 16 month extension subjectto mutual agreementwith the consortium oflending banks.The revolving creditfacility is secured on a first priority basiswith fixed and floating charges over substantially all of the assets of the Group. The senior secured notes comprise two tranches: £25.0m maturing in September 2028 and £25.0m maturing in September 2030. For more information on the maturity of the Group's lease liabilities, see note 24. ### **19 Employee benefits** ### **Defined contribution pension plans** The Group operates a number of defined contribution pension plans underwhich contributions by the employees and the Group are administered by trustees in funds separate from the Group's assets. The costs of these schemes are charged to the income statement as they become payable under the rules of the scheme. The total pension cost ofthe Group forthe periodwas £6.5m (2023: £5.8m). *AT 3 0 J U N E 2 0 2 4* ### **20 Provisions** | | Guarantee
provision
£m | Property
provisions
£m | Other
provisions
£m | Total
£m | |---------------------------------------|------------------------------|------------------------------|---------------------------|-------------| | Balance at 25 June 2023 | 7.5 | 4.6 | 1.0 | 13.1 | | Provisions made during the period | 7.3 | 4.0 | 0.5 | 11.8 | | Provisions used during the period | (5.3) | (0.3) | (0.3) | (5.9) | | Provisions released during the period | (2.6) | (0.8) | (0.3) | (3.7) | | Balance at 30 June 2024 | 6.9 | 7.5 | 0.9 | 15.3 | | Current | 5.8 | 3.3 | 0.6 | 9.7 | | Non-current | 1.1 | 4.2 | 0.3 | 5.6 | | | 6.9 | 7.5 | 0.9 | 15.3 | The Group offers a long-term guarantee on its upholstery products and in accordancewith accounting standards a provision is maintained forthe expected future cost of fulfilling these guarantees on productswhich have been delivered before the reporting date. In calculating this provision the key areas of estimation are the number offuture claims, average cost per claim and the expected period over which claims will arise (nearly all claims arise within two years of delivery). The Group has considered the sensitivity of the calculation to these key areas of estimation, and determined that a 10% change in either the average cost per claim or the number of expected future calls would change the value ofthe calculated provision by £0.5m.The directors have therefore concluded thatreasonably possible variations in estimatewould notresultin a material difference. Property provisions relate to potential obligations underlease guarantees offered to former subsidiary companies,the majority ofwhich expire in 2025, andwear and tear costs for Group properties based on anticipated lease expiries and renewals,whichwill predominantly be utilised more than five years from the reporting date, and a provision forthe best estimate ofthe costs ofrectification of an area ofland slippage at one ofthe Group's manufacturing facilities. Other provisions relate to payment of refunds to customers for payment protection insurance policies and other regulatory costs. *AT 3 0 J U N E 2 0 2 4* ### **21 Dividends** The following dividends were recognised and paid during the period: | | Pence per
ordinary share | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |------------------------------------|-----------------------------|-----------------------------------|-----------------------------------| | Final dividend for FY22 | 3.7p | – | 8.6 | | Interim ordinary dividend for FY23 | 1.5p | – | 3.5 | | Final dividend for FY23 | 3.0p | 6.9 | – | | Interim ordinary dividend for FY24 | 1.1p | 2.5 | – | | | | 9.4 | 12.1 | TheDirectors do notrecommend the payment of a final dividend in respect ofthe financial period ended 30 June 2024. ### **22 Capital and reserves** ### **Share capital** 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. | Ordinary shares of £0.10 each | Number of shares
'000 | Ordinary shares
£m | |-------------------------------------------------------------------------------------------------------------------|--------------------------|-----------------------| | Allotted, called up and fully paid
Atthe start ofthe financial period
Cancelled during the financial period | 240,678
(4,678) | 24.1
(0.5) | | Atthe end ofthe financial period | 236,000 | 23.6 | On 3 May 2024 4,678,120 ordinary shares which had been held in treasury were cancelled. ### **Share premium** The share premium account represents the surplus of consideration received for issued ordinary share capital over its nominal value. This arose on the issue of ordinary shares on 11 March 2015. ### **Merger reserve** The merger reserve arose on the issue of shares in the Company in exchange for minority interests in the issued share capital of a subsidiary company on 10 March 2015. ### **Capital redemption reserve** The capital redemption reserve represents the par value of cancelled treasury shares. ### **Treasury shares** Where the Company purchases the Company's equity share capital into treasury (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. 4,678,120 treasury shares (2023: 17,958,600) were cancelled on 3 May 2024. None of the Company's own ordinary shares (2023: nil) were used to satisfy employee share based payment awards during the year. At 30 June 2024 the company had 1,855,580 ordinary shares held in treasury (2023: 6,533,700). ### **Employee Benefit Trust shares** The Employee BenefitTrust holds ordinary shareswhich are issued forthe purpose of satisfying future employee share based payments awards and is consolidated into the Group financial statements. During the period ended 30 June 2024 theCompany used 412,104 shares fromthe EmployeeBenefitTrusttosatisfy employee share based payments awards (2023: 172,800). At 30 June 2024 the Employee BenefitTrust held 3,456,074 oftheCompany's ordinary shares (2023: 3,686,178). *AT 3 0 J U N E 2 0 2 4* ### **23 Financial instruments: categories and fair value¹** | | 30 June 2024
£m | 25 June 2023
£m | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------|---------------------------------------| | Financial assets
Derivatives in designated hedging relationships
Loans and receivables
Cash | 0.1
7.9
26.8 | 0.7
8.0
26.7 | | Financial liabilities
Derivatives in designated hedging relationships
Senior revolving credit facility
Senior secured notes
Bank overdraft
Finance lease obligations | (1.2)
(137.4)
(50.0)
(2.6)
(401.7) | (6.9)
(165.8)
–
–
(412.2) | All derivatives are categorised as Level 2 underthe requirements ofIFRS 7 as they are valued using techniques based significantly on observed market data. The Directors have reviewed for expected credit losses and consider the amount of any such losses to be immaterial. 1. TheDirectors considerthatthe fair values of each category ofthe Group's financial instruments are materially the same as their carrying values. *AT 3 0 J U N E 2 0 2 4* ### **24 Financial instruments: risk management** The objectives, policies and processes governing the treasury activities of the Group are reviewed and approved by the Board. The Group's documented treasury policy includes details of authorised counterparties, instrument types and transaction limits and principles for the management of liquidity, interest and foreign exchange risks. As part ofits strategy forthe management ofthese risks the Group uses derivative financial instruments.The Group does not enterinto ortrade financial instruments, including derivative financial instruments,for speculative purposes. ### **Liquidity risk** The Group manages its cash and borrowing requirements to ensure thatit has sufficientliquid resources to meetits obligations as they fall duewhile making efficient use ofthe Group's financialresources. The table belowshows the maturity analysis ofthe undiscounted remaining contractual cash flows (including interest) ofthe Group's financial liabilities: | 30 June 2024 | Less than 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total | |----------------------------------|------------------|--------------|--------------|--------------|---------| | | £m | £m | £m | £m | £m | | Trade and other payables | 142.3 | – | – | – | 142.3 | | Lease liabilities | 80.9 | 78.3 | 180.0 | 141.5 | 480.7 | | Senior revolving credit facility | 11.6 | 11.6 | 152.7 | – | 175.9 | | Senior secured notes | 4.3 | 4.3 | 36.1 | 27.6 | 72.3 | | Other liabilities | 11.7 | 2.1 | 0.7 | 0.8 | 15.3 | | | 250.8 | 96.3 | 369.5 | 169.9 | 886.5 | | Derivatives: net settled | – | – | – | – | – | | Derivatives: gross settled | – | – | – | – | – | | Cash in flows | (105.6) | (10.3) | – | – | (115.9) | | Cash out flows | 109.2 | 8.1 | – | – | 117.3 | | Total cash flows | 254.4 | 94.1 | 369.5 | 169.9 | 887.9 | | 25 June 2023 | Less than 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total | | | £m | £m | £m | £m | £m | | Trade and other payables | 151.1 | – | – | – | 151.1 | | Lease liabilities | 77.2 | 74.2 | 179.1 | 156.0 | 486.5 | | Senior revolving credit facility | 13.0 | 13.0 | 173.2 | – | 199.2 | | Other liabilities | 6.2 | 2.7 | 1.6 | 2.6 | 13.1 | | | 247.5 | 89.9 | 353.9 | 158.6 | 849.9 | | Derivatives: net settled | – | – | – | – | – | | Derivatives: gross settled | – | – | – | – | – | | Cash in flows | (119.1) | (12.0) | – | – | (131.1) | | Cash out flows | 128.2 | 9.8 | – | – | 138.0 | | Total cash flows | 256.6 | 87.7 | 353.9 | 158.6 | 856.8 | ### **Interest rate risk management** The Group's operating profitis affected by the cost of providing interestfree creditto its customers.This costis in turn impacted by interbank lending rates, including SONIA. While the relationship is not wholly direct, an increase in SONIA of one percentage point would reduce the Group's reported revenue by 0.7%. The Group is also exposed to interestrate risk on its seniorrevolving creditfacility,which bears interest at a floating rate of credit spread adjusted SONIAplus a margin (3.10% at 30 June 2024); no related interest rate hedging was in place as at 30 June 2024. Based on drawn amounts under the facility at that date, an increase of one percentage point in SONIAwould increase the Group's annual interest cost by £1.4m. *AT 3 0 J U N E 2 0 2 4* ### **24 Financial instruments: risk management** continued ### **Foreign exchange risk management** The Group is exposed to the risks of exchange rate fluctuations on the purchase of products denominated in foreign currencies.Currency requirements are assessed by analysis of historic purchasing patterns by month, adjusted as appropriate to take into account current trading expectations. The Group's treasury policy allows for the use of forward foreign exchange contracts to hedge the exchange rate risk arising from these anticipated future purchases up to 24 months in advance. These contracts are designated as cash flowhedges. The table below summarises the forward foreign exchange contracts outstanding at the period end: | | | 30 June 2024 | | 25 June 2023 | |--------------------------------------------------------------|-----------------------|------------------|-----------------------|------------------| | | Notional amount
£m | Fair value
£m | Notional amount
£m | Fair value
£m | | Derivatives in designated hedging relationships
US Dollar | 117.3 | (1.2) | 137.9 | (6.2) | The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: | | | Assets | | Liabilities | |-----------|--------------|--------------|--------------|--------------| | | 30 June 2024 | 25 June 2023 | 30 June 2024 | 25 June 2023 | | | £m | £m | £m | £m | | US Dollar | 14.5 | 12.9 | (18.5) | (18.8) | | Euro | 5.8 | 3.0 | (1.4) | (0.2) | ### **Foreign currency sensitivity analysis** The Group's primary foreign currency exposures are toUSDollars and the Euro.The table belowillustrates the hypothetical sensitivity ofthe Group's reported profit and closing equity to a 10% weakening of these currencies against Sterling, assuming all other variables were unchanged. The sensitivity rate of 10% represents the directors' assessment of a reasonably possible change, based on historic volatility. The analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates.The analysis assumes that exchange rate fluctuations on currency derivatives thatform part of an effective cash flowhedge relationship affectthe cash flowhedging reserve in equity. Positive figures represent an increase in profit or equity. | | Income statement | | Equity | | |-----------|------------------|--------------|--------------|--------------| | | 53 weeks to | 52 weeks to | 53 weeks to | 52 weeks to | | | 30 June 2024 | 25 June 2023 | 30 June 2024 | 25 June 2023 | | | £m | £m | £m | £m | | US Dollar | 0.4 | 0.6 | (11.6) | (13.2) | | Euro | (0.4) | (0.3) | – | – | A10% strengthening ofthe above currencies againstthe Sterling atthe period endwould have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant. IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group's risk management objectives and strategy and to apply a qualitative and forward-looking approach to assessing hedge effectiveness.The Group determines the existence of an economic relationship between the hedging instrument and the hedged item based on the currency, amount and timing oftheirrespective cash flows.The Group assesseswhetherthe derivative designated in each hedging relationship is expected to be and, has been, effective in offsetting cash flows ofthe hedged item using the hypothetical derivative method. *AT 3 0 J U N E 2 0 2 4* ### **24 Financial instruments: risk management** continued In these hedge relationships,the main sources ofineffectiveness are: - the effect of counterparties and the Group's own creditrisk on the fair value ofthe forward foreign exchange contracts,which is notreflected in the change in the fair value ofthe hedged cash flows attributable to the change in exchange rates; and - changes in the timing of the hedged transactions. ### **Financial risk management** Creditrisk is the risk of financial loss to the Group if a customer or counterparty to a financial instrumentfails to meetits contractual obligations, and arises principally from the Group's investment securities. Investments of cash, borrowings and derivative instruments are transacted only through counterparties meeting the creditrating and investment criteria specified in the Group's treasury policy. The Group's exposure and the credit ratings of its counterparties are regularly reviewed. Concentrations of risk are mitigated through the use of multiple counterparties and by counterparty limits which are reviewed and approved by the Board. The Group considers that expected credit losses on derivative assets arising from the default of counterparties are not material. The Group does not have any significant creditrisk exposure to any single counterparty or any group of counterparties having similar characteristics. ### **Capital management** The capital structure of the Group consists of debt, as analysed in note 27, and equity attributable to the equity holders of the parent company, comprising issued capital, reserves and retained earnings as shown in the consolidated statement of changes in equity. The Group manages its capital with the objective that all entities within the Group continue as going concernswhile maintaining an efficient structure to minimise the cost of capital.The Group is notrestricted by any externally imposed capitalrequirements. ### **25 Share based payments** The Group has four share based payment schemes in operation: ### **Long Term Incentive Plan (LTIP)** The LTIP is a discretionary executive reward plan that allows the Group to grant conditional share awards or nil-cost options to selected executives atthe discretion ofthe Remuneration Committee. The scheme is focused on the senior leadership roles in the Group, including Executive Directors. The maximum value of LTIP awards granted to an individual is 150% of base salary, although the Remuneration Committee may in exceptional circumstances increase this to 300%. LTIP awards vest after a three year performance period subject to the achievement of performance measures based on earnings per share, total shareholder return targets and ESG targets. Further information on LTIP performance targets and awards made to Directors is given in the Directors' Remuneration Report on pages 67 to 87. Based on the scheme rules, the Group may settle the vested shares in cash sum equivalent to the market value of the shares and this decision is driven solely at the discretion ofthe Board.During the year, no LTIP shares vested, so no cash paymentswere made to participating employees (2023: £nil).As there is no present obligation thatthe Group will settle future awards in cash, the Group will continue to recognise the LTIP as an equity settled scheme. ### **Deferred bonus scheme (DBS)** 25% of any bonus earned by the Executive Directors is granted as a deferred award under the Deferred Bonus Plan. The deferred award ordinarily has a vesting period of three years, and its vesting is conditional on the participant's continued employment with the Group at the end of the vesting period unless they are a 'good leaver'. *AT 3 0 J U N E 2 0 2 4* ### **25 Share based payments** continued ### **Restricted Share Plan (RSP)** The RSP is also a discretionary reward plan underwhich conditional share awards or nil-cost options may be granted to individuals in key executive roles in the Group, excluding ExecutiveDirectors and otherrecipients of LTIP awards.Awards may not exceed 50% of an individual's salary for a particular financial year. RSP awards vest after a three year performance period (other than those granted shortly after Admission vested in July 2017). For awards granted on or after 1 July 2019, 50% of awards made to each individual are subjectto either an earnings per share or underlying profit before tax performance target;remaining awards are not subjectto other performance conditions. Based on the scheme rules,the Group may settle the vested shares in cash sum equivalent to the market value of the shares and this decision is driven solely at the discretion ofthe Board.During the year,the Group settled none ofthe vested RSP shares by offering cash payments to participating employees (2023: £0.3m).As there is no present obligation that the Group will settle future awards in cash, the Group will continue to recognise the RSP as an equity settled scheme. ### **Save as You Earn (SAYE)** SAYE schemes are currently available to all employees in theUK and Republic ofIreland,with invitations to participate generally issued on an annual basis and subjectto HMRCrules.The current maximum monthly savings limitforthe schemes is £500.Options are granted atthe prevailing market share price less a discount of 20% and vest three years from the date of grant. The movements in outstanding awards under each of the schemes are summarised below: | | 53 weeks ended 30 June 2024 | | | | | 52 weeks ended 25 June 2023 | | | |--------------------------------------------------------------------------------------------------------|------------------------------------------------------------|--------------------------------------|--------------------------------------------------|----------------------------------------------------------------------------------------------------|-----------------------------------------------|----------------------------------------|--------------------------------------------------|----------------------------------------------------------------------------------| | | LTIP
No. | DBS
No. | RSP
No. | SAYE
No. | LTIP
No. | DBS
No. | RSP
No. | SAYE
No. | | Outstanding at the beginning of the period
Granted
Forfeited
Exercised
Lapsed
Cancelled | 2,567,546
2,034,223
(108,699)
–
(558,357)
– | 60,211
61,144
–
–
–
– | 2,678,998
(626,562)
(402,385)
(402,323) | 3,765,977 10,925,424 1,982,263
4,627,564
(341,719)
(38,425)
(495,001)
– (3,674,755) | 1,547,809
(526,237)
–
(436,289)
– | 93,938
–
(33,727)
–
–
– | 2,692,875
(535,072)
(399,060)
(415,394) | 4,116,029
2,422,628 10,102,311
(283,551)
–
(30,622)
– (2,978,743) | | Outstanding at the end of the period | 3,934,713 | 121,355 | | 5,013,705 11,003,088 2,567,546 | | 60,211 | | 3,765,977 10,925,424 | | Weighted average remaining contractual life (months)
Weighted average share price at exercise | 19.2
– | 9.7
– | 20.0
£1.02 | 23.1
£1.14 | 18.8
– | 15.9
– | 20.4
£1.15 | 28.1
– | At 30 June 2024 theweighted average exercise price of outstanding SAYE optionswas £0.90 (2023: £1.01) and the range of exercise priceswas £0.82 to £2.18 (2023: £0.88 to £2.18).At 30 June 2024 therewere 455,755 (2023: 408,057) exercisable SAYE options,with aweighted average exercise price of £1.62 (2023: £1.88).Therewere no exercisable LTIP, DBP or RSP options at 30 June 2024 (2023: nil). ### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED AT 30 JUNE 2024 ### 25 Share based payments continued ### Fair value calculations The LTIP, DBS, RSP and SAYE awards are all accounted for as equity-settled under IFRS 2. The fair value of LTIP awards which are subject to a market based performance condition (total shareholder return) is calculated using a stochastic (Monte Carlo) option pricing model. RSP awards, SAYE awards and LTIP awards subject to a non-market based performance condition (earnings per share) are valued using a Black-Scholes option pricing model. The inputs to these models for awards granted during the financial period are detailed below: | | LTIP | DBS | RSP | SAYE | |--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|--------------------------------------------------|----------------------------------------------------------------|--------------------------------------------------------------------------| | Grant date Share price at date of grant Exercise price Volatility Expected life Risk free rate Dividend yield | 16 October 2023
£1.00
Nil
34.6% to 39.1% ¹
3 years
4.3% to 4.5% ¹ | 20 October 2023
£1.08
Nil
_2
3 years | 16 October 2023
£1.00
Nil
_2
3 years
_2
4.5% | 28 November 2023
£1.08
£0.82
36.7%
3.4 years
4.3%
4.2% | | Fair value per share Market based performance conditions Non-market based performance condition No performance condition | £0.43 to £0.48 ¹
£1.00 ¹ | £1.05 | 4.3%
-
£0.87
£0.87 | 4.270
-
-
£0.35 | - 1. The LTIP grant included a number of required holding periods, giving a range of volatility and fair values. - 2. Volatility and risk free rates do not impact the fair value calculation for awards with no exercise price or market based performance condition - 3. LTIP and DBS participants are entitled to receive dividend equivalents on unvested awards therefore dividend yield does not impact the fair value calculation Expected volatility is calculated over the period of time commensurate with the relevant performance period or holding period. Expected life has been assumed to equate to the vesting period of the awards. The total share based payment expense included in administration costs in respect of the above schemes was £3.2m (2023: £1.8m). *AT 3 0 J U N E 2 0 2 4* ### **26 Net cash from operating activities** | | | 53 weeks to
30 June 2024 | 52 weeks to
25 June 2023 | |---------------------------------------------------------------------------|------|-----------------------------|-----------------------------| | | Note | £m | £m | | (Loss)/profitforthe period | | (4.4) | 26.2 | | Adjustments for: | | | | | Income tax expense | 6 | 3.0 | 7.1 | | Finance income | 5 | (0.4) | (0.2) | | Finance expenses | 5 | 41.5 | 34.3 | | Exceptional financing costs | 5 | 1.9 | – | | Depreciation of property, plant and equipment | 8 | 22.0 | 22.1 | | Depreciation of right of use assets | 9 | 55.8 | 58.4 | | Amortisation of intangible assets | 10 | 13.7 | 11.6 | | Impairment of assets | 8 | 0.3 | 2.0 | | Loss/(gain) on sale of property, plant and equipment | 3 | 2.0 | (0.8) | | Gain on disposal of right of use assets | 3 | (0.6) | (1.2) | | Settlement of share based payments | | – | (0.3) | | Share based payment expense | 25 | 3.2 | 1.8 | | Foreign exchange impact on cash flowhedges | | (1.3) | 1.4 | | (Increase)/decrease in trade and other receivables | | (0.9) | 13.2 | | (Increase)/decrease in inventories | | (3.2) | 8.6 | | | | | | | Decrease in trade and other payables
Increase/(decrease) in provisions | | (15.9)
2.2 | (55.8)
(6.0) | | | | | | | Net cash from operating activities before tax | | 118.9 | 122.4 | | Tax paid | | (3.0) | (0.7) | | Net cash from operating activities | 26 | 115.9 | 121.7 | ### **27 Net debt** | | | | 30 June 2024 | | |---------|--------------------------------------------------------------|--------------------------------------------------------------|----------------------------------------------------------------|--| | £m | £m | £m | £m | | | | | | 26.8 | | | | | | (2.6) | | | | | | 24.2 | | | | | | (137.4) | | | | | | (50.0) | | | | | | (401.7) | | | (550.5) | 67.9 | (82.3) | (564.9) | | | | 25 June 2023
26.7
–
26.7
(165.8)
–
(411.4) | Cash flow
0.1
(2.6)
(2.5)
28.0
(50.0)
92.4 | Other non-cash
changes
–
–
–
0.4
–
(82.7) | | | | 26 June 2022
£m | Cash flow
£m | Other non-cash
changes
£m | 25 June 2023
£m | |------------------------------------------------------|--------------------|-----------------|---------------------------------|--------------------| | Cash in hand, at bank | 17.3 | 9.4 | – | 26.7 | | Bank overdraft | (12.3) | 12.3 | – | – | | Cash and cash equivalents (including bank overdraft) | 5.0 | 21.7 | – | 26.7 | | Senior revolving credit facility | (93.5) | (72.0) | (0.3) | (165.8) | | Lease liabilities | (445.4) | 61.6 | (27.6) | (411.4) | | Total net debt | (533.9) | 11.3 | (27.9) | (550.5) | Non-cash changes include the addition ofleaseswithin the period, lease remeasurements, disposals ofleases, lease interest and the prepayment of debtissue costs net of amortisation. *AT 3 0 J U N E 2 0 2 4* ### **28 Related parties** ### **Key Management Personnel** At 30 June 2024, Directors of the Company held 0.4% of its issued ordinary share capital (2023: 0.4%), and a further 0.1% (2023: 0.1%) was held by other key management personnel. The compensation of key management personnel (including the Directors) is as follows: | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-------------------------------------------------|-----------------------------------|-----------------------------------| | Emoluments | 4.2 | 3.5 | | Share based payments expense | 0.3 | 0.1 | | Company contributions to money purchase schemes | 0.1 | 0.1 | | | 4.6 | 3.7 | Anumber of key management personnel hold positions in other companies thatresultin them having control or significantinfluence overthese companies.During the year, one such relationship existed with an entity which the Group conducts business. The terms and conditions of these transactions were no more favourable than those available, or which might reasonably be expected to be available, in similar transactions with other companies with no relationship with members of key management, and were conducted on an arm's length basis. The aggregate value oftransactions related to key management personnel and entities overwhich they have, or had during the year, control or significantinfluencewas £4.8m (2023: £4.3m), and the outstanding balance atthe year endwas £0.8m (2023: £0.6m). From time to time key management personnel or their related parties may buy goods from the Group. These purchases are on the same terms and conditions as those entered into by other Group employees or customers. ### **29 Discontinued operations** During the period to 26 June 2022 the Group took the decision to exit its operations in the Netherlands and Spain. The cessation of these operations was completed in the year ended 25 June 2023, with the order book at the point of closure being delivered during that year. The revenues and expenses of the discontinued operations were therefore eliminated from the consolidated income statementforthe Group's continuing operations and are shown as a separate single post-tax line item. Priorto being classified as discontinued operations,these operationswere includedwithin theDFS segment ofthe Group's segmental analysis. | Results from discontinued operations: | 53 weeks to
30 June 2024 | | | 52 weeks to
25 June 2023 | |--------------------------------------------------------------------------|-----------------------------|----------------|-------|-----------------------------| | | Underlying | Non-underlying | Total | Total | | | £m | £m | £m | £m | | Revenue | – | – | – | 2.0 | | Cost of sales | – | – | – | (1.1) | | Gross profit | – | – | – | 0.9 | | Selling and distribution costs | – | – | – | (1.1) | | Administrative expenses | – | 0.3 | 0.3 | 3.8 | | Operating (loss)/profit before depreciation, amortisation and impairment | – | 0.3 | 0.3 | 3.6 | | Depreciation | – | – | – | – | | Impairment | – | – | – | – | | Operating (loss)/profit | – | 0.3 | 0.3 | 3.6 | | Finance expenses | – | – | – | – | | (Loss)/profit before tax | – | 0.3 | 0.3 | 3.6 | | Taxation | – | – | – | (0.4) | | (Loss)/profit for the period from discontinued operations | – | 0.3 | 0.3 | 3.2 | *AT 3 0 J U N E 2 0 2 4* ### **29 Discontinued operations** continued | Non-underlying items from discontinued operations:
53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | |-----------------------------------------------------------------------------------------|-----------------------------------| | Closure credits
(0.3) | (3.8) | Closure credits relate to the release of provisions made in FY22 for costs associatedwith the closure ofthese operationswhere the actual costs incurredwere lowerthan had been expected when the provision was made. | Cash flows from discontinued operations: | 52 weeks to
25 June 2023
£m | 52 weeks to
25 June 2023
£m | |---------------------------------------------------------------------------|-----------------------------------|-----------------------------------| | Net cash from operating activities | – | (0.6) | | Net cash used in investing activities | – | – | | Net cash used in financing activities | – | (0.4) | | Net decrease in cash and cash equivalents | – | (1.0) | | Cash and cash equivalents at beginning of period | 0.3 | 1.3 | | Net cash and cash equivalents (including bank overdraft) at end of period | 0.3 | 0.3 | ### **30 Subsequent events** As detailed in the Financial review on page 18, whilst the Group expects to stay within the covenants applicable to its borrowing facilities, in September 2024 a temporary widening of covenants was agreed which provides additional headroom in the event of unanticipated downside scenarios that result in a further decline in market volumes and lower EBITDA. The amended leverage covenantwidens to 3.9x atH1 FY25 and 3.7x at FY25 period end, before returning to 3.0x atH1 FY26.The amended fixed charge cover covenant widens to 1.3x atH1 FY25, 1.3x at FY25 period end and 1.4x atH1 FY26, before returning to 1.5x at FY26. ### **COMPANY BAL ANCE SHEET** *AT 3 0 J U N E 2 0 2 4* | | | 30 June 2024 | 25 June 2023 | |--------------------------------------|------|--------------|--------------| | | Note | £m | £m | | Non-current assets | | | | | Investments | 2 | 257.7 | 254.5 | | Amounts due from group companies | 3 | 275.0 | 275.0 | | | | 532.7 | 529.5 | | Current liabilities | | | | | Amounts due to group companies | 4 | (72.8) | (63.3) | | Net assets | | 459.9 | 466.2 | | Capital and reserves | | | | | Called up share capital | 5 | 23.6 | 24.1 | | Share premium | 5 | 40.4 | 40.4 | | Merger reserve | 5 | 18.6 | 18.6 | | Capital redemption reserve | 5 | 360.1 | 359.6 | | Treasury shares | 5 | (2.9) | (10.1) | | Shares held by employee benefittrust | 5 | (5.9) | (6.6) | | Retained earnings | | 26.0 | 40.2 | | Equity shareholders' funds | | 459.9 | 466.2 | TheCompany's profitforthe periodwas £nil (2023: £70.0m). These financial statementswere approved by the board of directors on 25 September 2024 and were signed on its behalf by: ### **TIM STACEY** Chief Executive Officer ### **JOHN FALLON** Chief Financial Officer Company registered number: 07236769 ### **CO M PA N Y STAT E M E N T O F C H A N G E S I N EQ U I T Y** *AT 3 0 J U N E 2 0 2 4* | | Share capital
£m | Share
premium
£m | Merger
reserve
£m | Capital
redemption
reserve
£m | Treasury
shares
£m | Shares held
by employee
benefittrust
£m | Retained
earnings
£m | Total equity
£m | |--------------------------------------------------------------------------------------------------------------------------------------|----------------------|------------------------|-------------------------|----------------------------------------|--------------------------|--------------------------------------------------|---------------------------------|------------------------| | Balance at 26 June 2022 | 25.9 | 40.4 | 18.6 | 357.8 | (4.9) | (6.9) | 6.8 | 437.7 | | Profitforthe period
Other comprehensive income | –
– | –
– | –
– | –
– | –
– | –
– | 70.0
– | 70.0
– | | Total comprehensive income for the period | – | – | – | – | – | – | 70.0 | 70.0 | | Dividends paid
Purchase of own shares | –
– | –
– | –
– | –
– | –
(30.9) | –
– | (12.1)
– | (12.1)
(30.9) | | Cancellation of treasury shares
Employee BenefitTrust shares issued
Settlement of share based payments
Share based payments | (1.8)
–
–
– | –
–
–
– | –
–
–
– | 1.8
–
–
– | 25.7
–
–
– | –
0.3
–
– | (25.7)
(0.3)
(0.3)
1.8 | –
–
(0.3)
1.8 | | Balance at 25 June 2023 | 24.1 | 40.4 | 18.6 | 359.6 | (10.1) | (6.6) | 40.2 | 466.2 | | Profitforthe period
Other comprehensive income | –
– | –
– | –
– | –
– | –
– | –
– | –
– | –
– | | Total comprehensive income for the period | – | – | – | – | – | – | – | – | | Dividends paid
Cancellation of treasury shares
Employee BenefitTrust shares issued
Share based payments | –
(0.5)
–
– | –
–
–
– | –
–
–
– | –
0.5
–
– | –
7.2
–
– | –
–
0.7
– | (9.5)
(7.2)
(0.7)
3.2 | (9.5)
–
–
3.2 | | Balance at 30 June 2024 | 23.6 | 40.4 | 18.6 | 360.1 | (2.9) | (5.9) | 26.0 | 459.9 | ### **N OT E S TO T H E CO M PA N Y F I N A N C I A L STAT E M E N TS** *AT 3 0 J U N E 2 0 2 4* ### **1 Accounting policies** ### **Basis of preparation** The financial statements are prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework ("FRS 101"). In preparing these financial statements,theCompany applies the recognition, measurement and disclosure requirements of international accounting standards ("UK-adopted IFRSs"), but makes amendments where necessary in order to comply with Companies Act 2006. The Company has applied the exemption available under FRS101 in respect of the following disclosures: - a cash flowstatement and related notes; - comparative period reconciliations; - disclosures in respect of transactions with wholly owned subsidiaries; - disclosures in respect of capital management; and - the impact of newbut not yet effective IFRSs. As the consolidated accounts of the Company include the equivalent disclosures, the Company has also taken the exemption available under FRS 101 in respect of IFRS 2 Share Based Payments disclosures of group settled share based payments. Under Section 408 of the Companies Act 2006, the Company is not required to presentits own profit and loss account. TheCompany's profitforthe periodwas £nil (2023: £70.0m). The Company proposes to continue to adopt the reduced disclosure framework of FRS 101 in its next financial statements. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. ### **Going concern** TheCompany heads a groupwhich has a £200.0m revolving credit facility with a consortium of lending banks maturing in September 2027 and £50.0m of private placement debt, £25.0m ofwhich matures in September 2028 and £25.0m in September 2030.At 18 September 2024, £63.0m ofthe revolving credit facility remained undrawn, in addition to cash in hand, at bank of £5.7m.TheDirectors have considered the projected trading and cash flowforecasts for the Company, including the inherent uncertainty in forecasting the impact of the current economic and political environment, and are confidentthat the Company has adequate resources to continue to meet all liabilities as and when they fall due for the foreseeable future and at least twelve months from the date of approval ofthese financial statements. Accordingly,the financial statements are prepared on a going concern basis. ### **Investments** Investments are stated at cost, less any accumulated impairment losses. Carrying values of investments in subsidiary companies are reviewed at each reporting date to determine whether there is any indication of impairment. If any such exists, then the investment's recoverable amount is estimated based on a value in use calculation. An impairment loss is recognised if the carrying amount of the investment exceeds its estimated recoverable amount. Impairment losses are recognised in profit orloss. ### **Amounts due from and to group companies** Amounts receivable from or payable to other companies within the Company's group are recognised initially at fair value and subsequently measured at amortised cost less allowances for expected credit losses. ### **Taxation** Tax on the profit orloss forthe period comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to a business combination, or items recognised directly in equity or other comprehensive income. Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. ### **Share based payments** Awards (options or conditional shares) granted by the Company over its own shares to the employees of subsidiary companies are recognised in the Company's own financial statements as an increase in the cost of investment in subsidiaries. The amount recognised is equivalentto the equity-settled share based payment charge recognised in the consolidated financial statements. The corresponding credit is recognised directly in equity. ### **Treasury shares** Where the Company purchases the Company's equity share capital into treasury (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. ### **Audit fees** Amounts receivable by the Company's auditor, and its associates in respect of services to the Company and its associates, other than the audit of the Company's financial statements have not been disclosed as the information is required instead to be disclosed on a consolidated basis in the consolidated financial statements. ### **Directors' remuneration and staff numbers** The Company has no employees other than the Directors, who did not receive any remuneration for their services directly from the Company in either the current or preceding period. See note 28 in the consolidated financial statements for KeyManagement Personnel compensation. ### **N OT E S TO T H E CO M PA N Y F I N A N C I A L STAT E M E N TS** CONTINUED *AT 3 0 J U N E 2 0 2 4* | 2 Investments | Shares in subsidiary undertakings | | | |----------------------------------------------------------------------------|-----------------------------------|-----------------------------------|--| | | 53 weeks to
30 June 2024
£m | 52 weeks to
25 June 2023
£m | | | Cost and net book value
Atthe start ofthe financial period
Additions | 254.5
3.3 | 252.7
1.8 | | | Atthe end ofthe financial period | 257.8 | 254.5 | | Details oftheCompany's investments are given in note 11 to the consolidated financial statements.Additions in the current and prior period relate to capital contributions made in respect of share based payments schemes for the Group's employees. As a consequence of the Company's share price at 30 June 2024, a value in use calculation was performed to testthe carrying value ofthe investments forimpairment.The key assumptions usedwere in linewith those set outin note 10 to the consolidated financial statements.The value in use calculations assessed the value in use of equity only, and showed a significant headroom between the calculated value in use and the carrying value ofthe investments in theCompany financial statements.Anumber of sensitivitieswere then applied to the base case modelto assesswhether any reasonably possible changes in assumptions could cause an impairmentthatwould be materialto theseCompany financial statements.On the basis ofthis analysis theDirectors concluded that a reasonably possible change in assumptions would not lead to an impairment being recognised. Coin Furniture Limited (Company number 08586227) and DFS Spain Limited (Company number 09668511) are exempt from the requirement of the Companies Act relating to the audit ofindividual financial statements by virtue of s479AoftheCompaniesAct 2006.DFS Furniture plcwill guarantee the debts and liabilities ofthese entities in accordance with Section 479C of the Companies Act 2006. | 3 Debtors | 30 June 2024
£m | 25 June 2023
£m | |-------------------------------------------------------------------------------------|--------------------|--------------------| | Amounts due from subsidiary undertakings (non-interest bearing,repayable on demand) | 275.0 | 275.0 | Amounts due from subsidiary undertakings have been classified as non-current assets as they are not expected to be settledwithin the next 12 months.TheCompany has assessed the expected credit loss as very low and has therefore made no provision for impairment. | 4 Creditors: amounts due in less than one year
30 June 2024
£m | 25 June 2023
£m | |-------------------------------------------------------------------------------------------|--------------------| | Amounts due to subsidiary undertakings (non-interest bearing,repayable on demand)
72.8 | 63.3 | ### **5 Capital and reserves** ### **Share capital** 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. | | Number of shares
'000 | Ordinary shares
£m | |-------------------------------------------------------------------------------------------------------------------|--------------------------|-----------------------| | Ordinary shares of £0.10 each | | | | Allotted, called up and fully paid
Atthe start ofthe financial period
Cancelled during the financial period | 240,678
(4,678) | 24.1
(0.5) | | Atthe end ofthe financial period | 236,000 | 23.6 | On 3 May 2024 4,678,120 ordinary shares which had been held in treasury were cancelled. ### **N OT E S TO T H E CO M PA N Y F I N A N C I A L STAT E M E N TS** CONTINUED *AT 3 0 J U N E 2 0 2 4* ### **5 Capital and reserves** continued ### **Share premium** The share premium account represents the surplus of consideration received for issued ordinary share capital over its nominal value. This arose on the issue of ordinary shares on 11 March 2015. ### **Merger reserve** The merger reserve arose on the issue of shares in the Company in exchange for minority interests in the issued share capital of a subsidiary company on 10 March 2015. ### **Capital redemption reserve** The capital redemption reserve represents the par value of cancelled treasury shares. ### **Treasury shares** Where the Company purchases the Company's equity share capital into treasury (treasury shares), the consideration paid, including any directly attributable incremental costs is deducted from equity attributable to the Company's equity holders until the shares are cancelled, reissued or disposed of. 4,678,120 treasury shares (2023: 17,958,600) were cancelled on 3 May 2024. None of the Company's own ordinary shares (2023: nil) were used to satisfy employee share based payment awards during the year. At 30 June 2024 the company had 1,855,580 ordinary shares held in treasury (2023: 6,533,700). ### **Employee Benefit Trust shares** The Employee BenefitTrust holds ordinary shares which are issued for the purpose of satisfying future employee share based payments awards and is consolidated into the Group financial statements. During the period ended 30 June 2024 the Company used 172,800 shares from the Employee BenefitTrust to satisfy employee share based payments awards (2023: 172,800). At 30 June 2024 the Employee BenefitTrust held 3,456,074 oftheCompany's ordinary shares (2023: 3,686,178). ### **FINANCIAL HISTORY** *AT 3 0 J U N E 2 0 2 4* | | | FY24 | FY23 | FY22 | FY21 Restated1 | FY20 | |------------------------------------------------------------------|----|---------|---------|---------|----------------|--------| | | | | | IFRS 16 | | | | Gross sales | £m | 1,311.8 | 1,423.6 | 1,474.6 | 1,359.4 | 935.0 | | Revenue | £m | 987.1 | 1,088.9 | 1,149.8 | 1,060.2 | 724.5 | | Underlying EBITDA | £m | 142.0 | 157.4 | 175.9 | 224.0 | 61.9 | | Underlying profit/(loss) before tax excluding brand amortisation | £m | 10.5 | 30.6 | 60.3 | 109.2 | (63.1) | | Profit/(loss) before tax from continuing operations | £m | (1.7) | 29.7 | 58.5 | 102.6 | (81.2) | | Basic earnings per share from continuing operations | p | (2.0) | 9.8 | 17.3 | 35.8 | (31.4) | | Ordinary dividends per share | p | 1.1 | 4.5 | 7.4 | 7.5 | – | | Special dividends per share | p | – | – | 10.0 | – | – | | Purchase of own shares | £m | – | 30.9 | 4.4 | – | 1.1 | | Total shareholder return | % | -17.3 | -28.3 | -37.9 | +71.4 | -32.5 | ^1. Restated to exclude operations becoming discontinued in FY22. ### **S H A R E H O L D E R I N FO R M AT I O N** ### **Contacts** ### **Chief Executive Officer** Tim Stacey ### **Chief Financial Officer** John Fallon ### **Group Company Secretary & General Counsel** Elizabeth McDonald Companysecretary@dfs.co.uk ### **Investor relations** Investor.relations@dfs.co.uk ### **Corporate website** www.dfscorporate.co.uk ### **Registered office** DFS Furniture plc 1 Rockingham Way Redhouse Interchange Adwick-le-Street Doncaster DN6 7NA ### **Corporate advisors** ### Auditor KPMG LLP 1 St Peter's Square Manchester M2 3AE ### Remuneration advisor Deloitte LLP 2 New Street Square London EC4A 3BZ ### Brokers PeelHunt Limited&Jefferies International Limited ### **Shareholder enquiries** The Company's registrar is Equiniti. They will be pleased to deal with any questions regarding your shareholding or dividends. Please notify them of your change of address or other personal information. Their address details are: Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Equiniti helpline: 0371 384 2030. Overseas holders should contact +44 (0)121 415 7047. Lines are open 8.30am to 5.30pm, Monday to Friday (excluding public holidays). Shareholders are able to manage their shareholding online and facilities include electronic communications, account enquiries, amendment of address and dividend mandate instructions. ### **Electronic communications** +44 (0)20 7353 4200 Shareholders will receive annual report and accounts and other documentation electronically, unless they tell our registrar that they would like to continue to receive printed materials. This is in line with best practice and underpins our commitment to reduce waste. Shareholders may view shareholder communications online instead of receiving them in hard copy. Shareholders may electto receive notifications by email whenever shareholder communications are added to the website by visiting www.shareview.co.uk and registering online. For institutional investor enquiries, please contact: Teneo The Carter Building 11 Pilgrim Street London EC4V 6RN ### **Annual General Meeting 2024** This year's AGM will be held at 2.30pm on 22 November 2024 at DFS Group Support Centre, 1 Rockingham Way, Redhouse Interchange, Adwick-le-Street,Doncaster,DN6 7NA. ### **Financial calendar** FY24 full yearresults 25 September 2024 Annual General Meeting 22 November 2024 ### **Company registration number** 07236769 DN6 7NA ### **Registered address** 1 Rockingham Way Redhouse Interchange Adwick-le-Street Doncaster ### **Corporate website** www.dfscorporate.co.uk **NOTES** Printed by aCarbonNeutralOperation (certified: CarbonQuota) under the PAS2060 standard. Printedonmaterialfromwell-managed, FSC™ certified forests and other controlled sources. This publication was printed by an FSC™ certified printerthat holds an ISO14001 certification. 100% of the inks used are HP Indigo ElectroInk which complies with RoHS legislation and meets the chemical requirements of the Nordic Ecolabel (Nordic Swan) for printing companies, 95% of press chemicals are recycled for further use and, on average 99% of any waste associated with this production will be recycled and the remaining 1% used to generate energy. The paper is Carbon Balanced with World Land Trust, an international conservation charity,whooffset carbon emissions through the purchase and preservation of high conservation value land. Through protecting standing forests, underthreatof clearance, carbon is locked-in, that would otherwise be released. www.dfscorporate.co.uk www.dfs.co.uk www.sofology.co.uk