Annual Report 2018

Mid-term objectives

Performance framework

Beter Bed Holding has developed a performance framework in order to properly track and maintain a tight management focus on progress on its strategy. This framework comprises an integral combination of measuring financial results, progress on strategy implementation, customer and employee satisfaction and the principal operational results. This ensures that the strategy creates value for all stakeholders of the Group.

To be able to implement the strategy as quickly and effectively as possible, a detailed internal way of working has been agreed, which includes clear agreements on the specific objectives and responsibilities of employees within the organisation. Progress on this is measured on a monthly basis.

Progress on strategy will also regularly be communicated externally. For instance, the progress on strategy implementation will be discussed extensively in the reporting of the interim and full-year results.

Accelerating on the five strategic pillars

Specific methods for measuring progress have been agreed for each of the five strategic pillars. Internal and sometimes also external objectives have also been agreed for each component. The methods for measuring progress for each strategic pillar are as follows:

Value-for-money proposition

  • Continually guaranteeing the lowest price on a relevant selection of entry-level articles in the product segments that are most important for the customer.
  • Increasing market share.

Best sleep advice

  • Improving customer satisfaction.

Seamless omni-channel experience

  • Increase the share of online sales within total sales to 20% by 2022.

Strong performance culture

  • Improving employee satisfaction.
  • Achieving the CSR/sustainability objectives.

Cost leadership

  • Realizing cost-savings of € 25 million by 2020.

Return to profitable growth

The ambition is that all activities that are developed to accelerate on the five strategic pillars will lead to a return to profitable growth.

Return to growth in sales

Beter Bed Holding aims to achieve annual growth in sales of 4-5% in the medium term. This growth consists of several components. Firstly, there is the ambition to achieve 1-2% growth in the sales of physical stores annually. This relates to annual growth in the portfolio of profitable stores. A short-term action plan will be drawn up for the stores that are not profitable, progress on which will be measured each quarter. Should progress be unsatisfactory, alternatives, such as store closures, will be considered. The expectation is that these measures will lead to a healthy, but slightly contracting store portfolio.
Secondly, the 4-5% growth in sales will be driven by strong online growth. The objective is to achieve growth of the online share to 20% of total sales by 2022. The development of the business-to-business channel offers many opportunities, such as independent dealers, retailers from adjoining countries, and hotels and holiday parks. These opportunities will be developed by the wholesaling organisation DBC International and will be aimed in part at expanding the M line brand.

Return to profitability

Beter Bed Holding aims to grow to an EBITDA as a percentage of sales of 7-9% in the medium term. This would restore Beter Bed Holding to the level of 2016-2017 at which the successful markets and stores within the Group operated. Objectives have been formulated for all regions in the Group, to take the necessary steps towards achieving this ambition. If certain regions of the Group underperform, strategic alternatives will be considered. The expectation is that the present portfolio of activities can contribute to the return to profitable growth.

Expectations for gross profit margin

Specific expectations for the gross profit margin have been formulated in order to grow towards a healthy EBITDA ambition. Trends are visible in the market that will entail both positive and negative movements within the gross profit margin.

It is important to make choices in order to favourably affect our gross profit:

  • Choices in terms of product ranges, brands and the suppliers with which the Group wants to collaborate. As part of the strategy, a more strategic relationship will be entered into with a select Group of suppliers in order to further optimise sales, gross profit and costs.
  • Standardisation and centrally buying of assortments between the regions within the Group.
  • Optimisation of pricing policy on the basis of analytics and algorithms.

A number of negative movements within the gross profit margin are:

  • The persistent pressure on lower prices due to increasing competition.
  • The shift of the share in sales between the countries within the Group.
  • The shift of the mix to lower-priced articles driven by new propositions and changing customer behaviour.
  • The pressure from rising raw material prices on the cost of the products.

The Group is pursuing increasingly stringent coordination to ensure that the overall gross profit margin will contribute appropriately to the EBITDA ambition in the mid-term.

Expectations for operating costs

A very strong focus will be placed on a structurally lower cost base in order to achieve a healthy EBITDA ambition. The analysis underlying the formulation of the mid-term objective showed that Beter Bed Holding did not manage costs critically enough, which led to a cost level that was systematically too high. The goal is to systematically reduce the Group’s costs. A first step towards achieving this comprised the closure of 172 loss-generating Matratzen Concord stores, a reduction of the organisation by 64 FTEs and a reduction of inventories and other costs, such as marketing costs. This has led to a reduction of the cost level by € 15 million as of 2019.

A cost-saving program has furthermore been introduced to successfully achieve the above measures and save an additional € 10 million. The overall cost-saving program of € 25 million will be realised in the full-year results of 2020.

Sustainable value creation

There is a very clear ambition within Beter Bed Holding to translate the return to profitable growth into sustainable value creation for all stakeholders of the Group. Several specific objectives have been formulated for the mid-term in order to achieve this:

  • Capital investments of approximately 3% of sales on an annual basis. However, until at least mid-2019, investments will be very limited due to the focus on returning to positive cash flow generation. The Group will grow towards the ambition of 3% capital investment from the second half of 2019. Within this growth, there will be priority on investments in the omni-channel offering for customers. This comprises investments in IT infrastructure, the web shops in the various countries and digital platforms and knowledge.
  • A reduction of net working capital by 25% measured compared with the interim results 2018. The net working capital is measured as the inventories in stores and distribution centres, the payments outstanding to suppliers and other amounts outstanding, such as bonuses and discounts from suppliers.
  • A systematic review process to guarantee the added value of all countries in the portfolio of Beter Bed Holding. All activities have both the strategic and financial potential to contribute added value within the present portfolio.
  • Retaining a strong balance sheet with solvency of at least 30% and a ratio between net interest-bearing debt/EBITDA not exceeding two.
  • Applying the dividend policy within these financial frameworks and possibilities, with the ambition of distributing 50% of net profit.