Sofa so good for DFS Furniture

That's because DFS used the proceeds of its IPO to pay off part of its £310m debt pile. The remainder was also re-financed at a much lower rate of interest, while a further tranche of debt was converted into equity. This shift in capital structure, which is typical of companies coming out of private-equity ownership, will slash borrowing costs. These totalled £30m in the first half alone, tipping the group into the red - a common private-equity wheeze to cut the tax bill.

Underlying operating profits, which exclude one-off IPO-related charges as well as financing costs, grew 24 per cent to £27.6m. This was driven by a 9 per cent increase in like-for-like sales as well as store openings - four in the UK, one in Ireland and a debut outlet in Holland.

The growth strategy centres on slowly expanding the store base while also increasing online sales, which accounted for just 11 per cent of the total in the period. Finally, management wants to broaden the appeal of DFS products through partnerships with brands like French Connection and Country Living. DFS recently acquired the "aspirational" Dwell and Sofa Workshop labels. In October, it started selling their products in normal DFS stores and through the DFS website - an initiative which is reported to be faring well.

DFS operates a negative working-capital model: it holds minimal stock and items are made to order, with one-third manufactured in its own UK factories. Lead times are very low and two-thirds of the products are sold on credit - offered by third parties who assume the risk of default. What all this means is that cash generation and return on capital employed are very strong.

Management plan to pay out 40 to 50 per cent of net profit in dividends. The first such payment is expected at the end of the financial year.