Eve Sleep raises £12m to expand beyond the yellow mattress

Mattress firm Eve Sleep announced a conditional placing of 120,317,323 new ordinary shares at a price of 10p each on Wednesday, to raise about £12m before expenses from existing and new investors.

The AIM-traded company also said that Channel Four, which provided advertising services to the firm and was an existing shareholder, had agreed that £0.9m of future advertising spend would, when payable, be satisfied by the issue of new ordinary shares at the placing price over a period of up to 24 months from admission.

Eve’s placing came after it announced the results of its business review and a trading update in November, when it stated its intention to raise new equity.

The net proceeds of the placing, being approximately £11.7m, and the proposed Channel Four future advertising spend of £0.9m would, in conjunction with existing cash resources of about £6m as at 31 December, be utilised by the company to implement its updated strategy, the board said.

“The company's updated strategy, which has been formulated in light of [the business] review, is to refocus on the core sleep markets of the UK and Ireland, and France, which collectively are estimated to be worth approximately £6bn per annum,” the Eve Sleep board said in its statement.

“The rationale for this re-focus is twofold - first, the UK&I and France are among the biggest sleep markets in Europe.

“Second, despite the company achieving growth across the rest of Europe in the first half of the year, the negative profit contribution from the company trading in this region was considered to be too great to justify continued investment.”

Eve Sleep said that within the core markets of the British Isles and France, the board's revised strategy was to transform eve from being a single product focused business to a repeat purchase, multi-product sleep specialist, building on its growing share of the mattress market.

The board said it believed that the updated strategy, together with the funds raised in the placing, would help drive continued revenue growth and increase conversion.

It said it also expected that its updated, more targeted marketing strategy would help lead to significant improvements in unit economics.

Such results were expected to be facilitated by the estimated 40% increase in online market penetration of the UK bedroom furniture market between 2018 and 2023, the board added.

“Accordingly, the Company's updated strategy will focus on three core pillars with the intention that the company will further grow its share of the £6bn bedroom market in UK&I and France resulting in revenue growth for the company.

“The three core pillars are aimed at creating a clearer position for the company in the wider sleep market with a wider bedroom product range and an increased ability for cross-selling, by investing in technology and digital teams to improve conversion and the company's repeat purchase metrics, and by continued investment in a more effective return on marketing spend.”

Those three core pillars included differentiated brand positioning, whereby the board wanted to broaden the company's current position to become a “trusted destination” for a wider range of bedroom products.

They also included an expanded product range, with a focus on “carefully curated”, design-led ranges that would increase cross-selling and repeat purchases, while continuing to deliver product quality in the mattress range, as well as a “lower friction” customer experience.

“The company, with an estimated compound quarterly revenue growth rate of 17% between the first quarter of 2016 and the third quarter of 2018, aims to achieve further growth.

“The directors believe this revised strategy will drive improved customer lifetime value and, as such, offer the potential to deliver medium-term profitability of approximately high single digit EBITDA margins.”