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Dreams is number one in Sunday Times profit Track 100


Apr 9, 2018 #Business, #Dreams, #home

The Sunday Times

Regions roar as profits soar outside London

1 Dreams 166.89%

Bed manufacturer and retailer

Smaller, brighter stores, a revamped fleet of delivery vans and a sizeable investment in ecommerce are just some of the measures that have fuelled this bedmaker’s dramatic recovery from the brink of collapse five years ago.

In 2013, the company, which had been struggling under high debt repayments, was rescued from administration by private equity firm Sun European Partners.

To lead Dreams‘ transformation, its new owners brought in former Mothercare UK managing director and Asda commercial director Mike Logue, 45, as chief executive, supported by capital investment totalling £37m.

Operating out of its High Wycombe head office — renamed “Bedquarters” by Logue — Dreams has since sought to reposition itself as an “expert in sleep”, focusing on offering quality beds and a high standard of customer service.

As part of this strategy, it has reduced its rent bill by moving to smaller stores, which have been refurbished, and recently spent £2.5m upgrading its fleet of distribution vehicles, part of a supply chain and home-delivery network owned by the company.

With an eye to taking on smaller, online-based competitors, it launched its own bed-in-a-box subsidiary, Hyde & Sleep. A focus on digital and ecommerce has also been a key part of its turnaround strategy, including the launch last year of a free sleep-tracking app, Sleep Matters. Ecommerce sales grew by 15% last year.

Each week the company sells more than 11,000 mattresses, bases and headboards — most of them made in its Oldbury bed factory — to customers nationwide through its 187-strong store network and online. Last year, it made operating profits of £34.5m on sales of £290.3m.

However, Logue isn’t yet finished with the company’s transformation. In February, the firm announced that it was partnering with the Mumsnet website to produce a range of mattresses designed for parents and parents-to-be, and Logue’s plans for the future include further investments in technology, digital and colleagues, as well as more, smaller stores.

The “Midlands Engine” has for the first time overtaken London as the chief home of Britain’s private companies with the fastest-growing profits.

The elite group in the Midlands ranges from Worcesterbased Gtech (No 85) to Cardzone (No 63) in Nottinghamshire, and totals 19 companies, up from 11 last year.

In contrast, the capital saw a dramatic drop from 25 to 14 companies — a record low. The “Northern Powerhouse” has also slipped, with just 13 companies based in the north of England, down from 21 last year.

The biggest gains were seen in southeast England, with 28 companies represented — a record high. They include Media 10 (No 64), the Essex-based events business that organises Grand Designs Live; Watchfinder (No 52), which sells pre-owned luxury watches and is based in Kent; and this year’s No 1 firm, Dreams, based in High Wycombe. It has seen profits rise 167% a year for the past three years, to £34.5m, as it continues its turnaround under chief executive Mike Logue. Overall, average profit growth for the 100 companies over the past three years was 77% a year, with combined operating profits of £1.1bn.

Dreams is one of 20 retailers on the table to have increased their profits despite difficult trading on the high street. The rapid growth of ecommerce has driven the profitability of some, such as fashion retailer END. (No 47) and fitness clothing brand Gymshark (No 46), whose founder, Ben Francis, 25, talks to Mark Goddard of UBS on page II.

Services firms are the most numerous this year, with 40 companies listed, including charter airline Titan Airways (No 70) and healthcare software firm TPP (No 93), followed by the 24 manufacturing companies, such as automotive component supplier McGavigan (No 9).

The companies have collectively grown their top line by 34% a year, to £10.9bn, but profit margins have also improved despite rising input costs due to a weaker pound. On average, margins hit 15% in their latest year, up from 8% three years ago. Automotive engineer Integral Powertrain (No 57) recorded a 41% profit margin — one of the highest on the table.

Such levels of profitability have attracted interest from private equity. Two of the biggest deals of the past year involved Cheshire-based The Hut Group — a former Profit Track No 1, this year ranked at No 87 — and Leeds-based PureGym (No 56). The former was valued at £2.5bn after Old Mutual took at 5% stake for £125m last August. PureGym’s chief executive Humphrey Cobbold led a buyout last November backed by US private equity firm Leonard Green & Partners, which acquired a majority stake. The deal valued the firm at more than £600m.

Seventeen of this year’s cohort are owned by private equity, with the majority — 55 firms — still owned by entrepreneurs, such as Andy Alderson of van leasing broker Vanarama (No 20). Seventeen are family-owned, including Co Down steel fabricator Walter Watson (No 6).

One company that featured on our 2017 Ones to Watch joined the stock market in the past year: fashion retailer Quiz Clothing. It floated on AIM in July and is now valued at £185m. Last year’s Ones to Watch winner, games developer Team 17, is preparing for a £200m IPO. This year’s Ones to Watch cohort, as judged by BDO, Fast Track and Sunday Times columnist Luke Johnson, chairman of Risk Capital Partners, appears on page V. These firms all have big plans, but the majority will remain in private hands and vie for a place on next year’s Profit Track 100.

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