Sofa firm DFS sits pretty as rivals struggle

The Doncaster-based business, founded by Graham Kirkham more than 40 years ago, was bought by private equity firm Advent International earlier this year for 500m.

Yesterday the group said sales in the year to the end of July surged 13 per cent to 653m with adjusted earnings rising 10.6 per cent to 71.8m.

DFS, which makes some of its own sofas, said it grew market share to more than 20 per cent following the struggles of competitors which include Land of Leather, SCS Upholstery, Sofa Workshop and Pier.

"In tough times, people, particularly if they're going to pay a deposit, want to put their money in a company they can trust," said chairman Richard Baker.

DFS operates from 74 sofa stores and five dining furniture stores across the UK, employing more than 3,000 staff.

Mr Baker, the former chief executive of Alliance Boots, joined Advent as an operating partner in August 2009, assuming the role of DFS chairman at the time of its acquisition in April.

Following a refinancing in July, which raised 240m via a seven-year senior secured note issue, Mr Baker said DFS has the funds to add another 20 to 25 stores.

It recently opened sites in Bradford and Inverness and yesterday also signed for stores in Ashford, Kent, and Dundee.

With each new store employing around 25 staff, Mr Baker said DFS expects to add around 500 extra staff over the next three years. Potential sites are dotted across the country. "In this next era of the company's life we have said more of the same," said Mr Baker.

"We have bought a good business and have no desire to upset the model that Graham has built.

"It's a great example of a Yorkshire company. It's very focused and sticks to its knitting."

Apart from his role as group chief executive at Alliance Boots, Mr Baker also spent nine years at Leeds-based Asda in a number of positions, latterly as chief operating officer. At Boots he led the pharmacy and retailing group through its merger with Alliance UniChem in 2006. Lord Kirkham now has no financial interest in the company after the refinancing allowed Advent to pay off a vendor loan, lent to the group at the time of the deal.

"It's very tough to give up a business you have run for 41 years," said Mr Baker. "Graham has been an absolute superstar in the handover."

The group also paid off 93m of bank facilities, aided by strong cash generation, and ended the period with 7m cash.

As well as its stores, the group has three manufacturing centres at Carcroft in Yorkshire, Long Eaton in Nottinghamshire and Alfreton in Derbyshire, which make about 20 per cent of its products.

Mr Baker said these factories give DFS a "huge advantage", allowing it to keep a tight rein on costs. DFS has also been able to stand its ground when suppliers try to force through price increases.

"We know the price of everything that goes into making our products," he said. "We are able to push it back because we are not seeing it in our own factories."

Furniture firms are in for a tough spell as Government spending cuts hold back consumer confidence. Coupled with January's VAT sales tax increase, from 17.5 per cent to 20 per cent, Mr Baker said "there are undoubtedly challenges ahead".

DFS's order book carried into its new financial year was marginally below 2009 levels.

"We're cautious," he said. "I think markets will be flat next year. (But) I'm not a huge pessimist. "I'm confident about the business because it's in a very strong position and very profitable."

In July the company appointed former Alliance Boots trading director Ian Filby as chief executive. Mr Filby has thirty years' retail experience, primarily with Alliance Boots, where his most recent roles were retail brand development director and trading director. There he worked alongside Mr Baker for four years.

Until January he was also interim chief executive of Nectar, the UK's leading loyalty programme. Advent has been investing in the retail, consumer products and leisure sectors since 1984.

Over the last 10 years it has completed 25 investments in these sectors across Europe, North America, Latin America, and Asia. Recent retail investments include Poundland and Fat Face, Charlotte Russe and Lululemon, Gerard Darel, Stokomani and Takko.

Company that has grown to be part of the furniture

DFS was founded by Graham Kirkham as Northern Upholstery in 1969.

The adopted son of a miner started selling furniture after leaving Maltby Grammar School.

He rented a room above a snooker hall in Doncaster and started making furniture upstairs and selling it downstairs.

In 1983 Lord Kirkham bought one of Northern Upholstery's biggest suppliers, Direct Furnishing Supplies, from the receivers.

Northern Upholstery was renamed DFS and Lord Kirkham floated the business in 1993 before taking it private again in 2004 for 507m.

In April Lord Kirkham sold DFS to private equity firm Advent International for 500m.