TIDMCARD
RNS Number : 7753B
Card Factory PLC
25 September 2018
25 September 2018
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2018
Growing sales despite a challenging consumer environment;
special dividend announced
Card Factory, the UK's leading specialist retailer of greeting
cards, dressings and gifts, announces its interim results for the
six months ended 31 July 2018.
Financial highlights
Financial Metric H1 FY19 H1 FY18 Change
Revenue GBP185.3m GBP179.6m 3.2%
Card Factory like-for-like
sales* (0.2%) 3.1% (3.3 ppts)
Underlying EBITDA* GBP29.9m GBP32.8m (8.9%)
Underlying operating
profit* GBP24.5m GBP27.7m (11.6%)
Operating profit GBP29.0m GBP24.6m 17.9%
Underlying profit before
tax* GBP22.7m GBP26.3m (13.9%)
Profit before tax GBP27.2m GBP23.2m 17.2%
Underlying Basic EPS* 5.31 pence 6.19 pence (14.2%)
Basic EPS 6.38 pence 5.45 pence 17.1%
Leverage* 1.76 x 1.50 x
-- The Board continues to expect underlying EBITDA for the full
year to be in the range of GBP89m to GBP91m
-- Interim dividend of 2.9 pence (FY18: 2.9 pence)
-- Special dividend of 5.0 pence per share (FY18: 15.0 pence), a
return of GBP17.1m to shareholders; consistent with our capital
policy
-- A total of GBP295.4m returned to shareholders via dividends since IPO in May 2014
* See explanatory Note 2 "Alternative Performance Measures" for
further information and definitions
Business highlights
Strategic progress in a challenging consumer environment:
1. Like-for-like sales
-- Overall H1 FY19 sales impacted by lower high street footfall
in a weak consumer environment, leading to:
- Weaker sales of Everyday ranges, but;
- Strong seasonal performance; Valentine's Day, Mother's Day and
Father's Day ranges each delivered record sales; with
- Strong growth in sales from Card Factory online; and
- Further growth in average spend driven by continuing
improvements to the quality and range of both card and
complementary non-card products coupled with better utilisation of
space in store.
-- All stores on the new EPOS platform.
2. Continuing new store roll out
-- 25 net new UK stores opened in the period, bringing total UK estate to 940.
-- Seven trial stores in the Republic of Ireland, including one opened in the half year.
-- Strong pipeline of new store opportunities - on track to
deliver approximately 50 net new UK openings by the year end and
solid pipeline for FY20.
3. Delivering business efficiencies
-- Underlying EBITDA margin of 16.1% (H1 FY18: 18.3%) reflects
like-for-like sales performance, the annualisation of prior year
operational investment and cost headwinds - most notably foreign
exchange and national living wage, amounting to a combined
c.GBP4.0m - and the effect of business efficiencies delivered.
-- On track to deliver planned business efficiencies for goods,
supply chain, retail operations and property costs, with further
efficiency initiatives planned going forward.
4. Development of complementary online sales channels
-- Card Factory website delivered sales growth of c.85% and is
on track to be profitable this year.
-- Trading performance at Getting Personal remains challenging,
with increased price competition and rising costs of customer
acquisition impacting the business.
In addition, trials are underway to extend Card Factory's market
penetration, including:
-- Retail partnerships: opportunities are being assessed and
worked through with potential partners to offer Card Factory
branded cards. One small trial is already underway.
-- Franchising: one trial franchised unit will open in November 2018.
-- Concessions: Two concession units opened this month with an
additional four in the process of being fitted out.
Karen Hubbard, Chief Executive Officer, commented:
"We have delivered solid interim results with overall sales
growth, despite the weak consumer environment and particularly
challenging footfall across the high street, driven by various
factors. Profitability was impacted by lower like-for-like sales,
but we continue to largely mitigate the headwinds we face through
various business efficiencies.
"Despite this difficult consumer backdrop, we have seen record
numbers for Valentine's Day, Mother's Day and Father's Day both in
terms of volume and value. This strong seasonal performance gives
us confidence for the key Christmas trading period.
"Our business model remains highly cash generative and, further
to previous guidance, we are pleased to be announcing another
special dividend of 5.0 pence per share, which is consistent with
our capital policy. Combined with a 2.9 pence per share interim
dividend, this means we will have returned almost GBP300m to
shareholders since our IPO in May 2014.
"As expected, trading in recent weeks has remained challenging
given the weak consumer environment, but we have seen continued
growth in average spend and improved performance of redesigned
Everyday ranges. The Board is confident that the Group will
continue to make further strategic progress on new initiatives.
"We remain positive about the growth prospects for the business
over the medium term."
Interim results presentation
A presentation for analysts will be held today starting at
10.00am at UBS Limited, 5 Broadgate, London EC2M 2QS. If you would
like to register for attendance then please contact Nessyah Hart at
MHP Communications on 0203 128 8156 or cardfactory@mhpc.com.
Enquiries
Card Factory plc +44 (0) 203 128 8100
Karen Hubbard, Chief Executive Officer
Kris Lee, Chief Financial Officer
MHP Communications +44 (0) 203 128 8100
Simon Hockridge / Giles Robinson / Tim Rowntree
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2018
Chief Executive's Report
Overview
Card Factory has had a solid first half to the financial year,
generating growth in total revenue despite a difficult consumer
environment with lower footfall across the high street. Overall
sales growth has been delivered from new store openings and also
from strong online growth from Cardfactory.co.uk, although Getting
Personal continues to face a challenging competitive
environment.
Our like-for-like performance has impacted profitability, as
have the ongoing cost headwinds of foreign exchange and national
living wage, but we continue to implement business efficiencies to
ensure we retain our industry-leading EBITDA margins.
We continue to generate cash, allowing us to return GBP17.1m of
surplus cash to shareholders via a special dividend, the fourth
such distribution we will have made since IPO in May 2014.
We have a clear strategy underpinned by four pillars of growth,
whilst also seeking new growth opportunities. The underlying card
market remains large and resilient with Card Factory well
established as the clear market leader. The substantial barriers to
entry built over the past decade through significant investment
provide us with a clear strategic advantage. We remain vigilant to
the competition from card and non-card retailers and will continue
to adapt and evolve our proposition to changes in the market,
whilst monitoring and combatting potential new entrants - which we
are well practised at doing since Card Factory's inception more
than 20 years ago.
Our focus in the medium term will be on continuing to deliver on
our four strategic pillars, develop and evolve our product offering
for customers and enhance our vertical integration across the
business to strengthen our ability to grow both revenue and profit,
whilst pursuing other new growth opportunities, some of which are
outlined above.
Our progress in relation to each of the four strategic pillars
is summarised below:
1. Continue to grow like-for-like sales
As previously reported, sales performance in the first half was
affected by extreme weather conditions, which impacted high street
footfall, and continued consumer caution across the UK. The
business is not immune to such trends and our like-for-like sales
performance was impacted correspondingly.
Strong performances are clearly evident where we have stepped up
the focus and activity in designing new ranges, using the
industry-leading skills of our own Design Studio. This is reflected
in the record sales for the Group from our Valentine's Day,
Mother's Day and Father's Day seasonal ranges and gives us
confidence on the prospective performance of sales in the key
Christmas period.
Whilst the performance of Everyday ranges, as a whole, has been
disappointing, we have also seen an improvement in performance as a
result of redesigned ranges. We continued to improve our range
availability and utilisation of space in store and maintained our
competitive price position.
Excluding cardfactory.co.uk, like-for-like sales performance for
our store network was down 0.7% (H1 FY18: up 3.0%) with
consistently strong growth in average spend offsetting in part the
transaction volume reduction. Like-for-like sales for Card Factory
as a whole fell by 0.2% (H1 FY18: up 3.1%) due to growth of c.85%
from the cardfactory.co.uk website.
2. Continue to roll out profitable new stores
In the first half we opened 25 net new UK stores (H1 FY18: 30)
bringing the total UK estate to 940 stores as at 31 July 2018, in
addition to seven trial stores in the Republic of Ireland. The
contribution to overall Group revenue growth from net new store
openings was slightly lower than in the first half last year as a
result of later opening dates and fewer new stores.
We remain on track to deliver approximately 50 net new UK stores
in the current financial year, having opened a further six net new
UK stores since the half year point. Over one third of our new UK
stores were in retail parks; this category continues to perform
ahead of expectations, and provides further store estate
diversity.
3. Continue to focus on delivering business efficiencies
The Group continues to deliver its ongoing programme of business
efficiencies as part of its strategy to uphold best-in-class
margins, whilst maintaining value for our customers by holding our
low price points. This approach is particularly important in light
of recent high street footfall weakness and the impact of foreign
exchange and national living wage headwinds.
Targeted efficiencies include improving vertical integration,
supply chain development, store productivity and other business
efficiencies, including rent reductions, improved buying terms and
loss prevention. Looking forward, while the recent levels of
foreign exchange cost headwinds are set to ease, mitigation is
planned for ongoing increases in national living wage, electricity
and card transaction fees. The potential for further Sterling
weakness in the medium term is also a consideration, albeit the
short-term impact is managed via the Group's hedging policy.
4. Increase penetration of the complementary online market
The online personalised card market segment, estimated to be in
excess of GBP100m, remains an attractive, niche market.
Cardfactory.co.uk is currently under-represented with a share of
less than 1% of this market, but continues to see strong sales
growth as a result of the strategy implemented over the past 12
months. This strategy is clearly resonating with customers, who are
responding well to the proposition and we are seeing growing sales
volumes and positive feedback as we continue to refresh and update
our product offering - increasing the range of personalised and
non-personalised ranges across both card and non-card - and
enhancing the shopping experience in order to help our customers
celebrate life moments.
Our rate of online sales growth at cardfactory.co.uk was c.85%;
we continue to target new customers by leveraging our high street
presence whilst ensuring our investment delivers profitable sales
growth.
Trading performance at Getting Personal remains challenging,
with increased price competition and rising costs of customer
acquisition impacting the business. Year-on-year sales were down
8.5% (H1 FY18: up 5.0%). However, we have recruited a new Digital
Director for the Group who is now providing further direction for
the business.
While Getting Personal is currently in a period of transition,
we remain optimistic that we will deliver continuing growth in
revenue and profit from the Card Factory online channel into the
medium term, with better engagement, product offering and service
levels for our customers, whilst continuing to develop improved
customer navigation.
Investment for the future
In the previous year, we invested in systems, infrastructure and
people, including a number of new senior management appointments in
order to support the enlarged business, enable future growth and
underpin the Group's ability to realise its full potential.
In store, we continue to increase the proportion of customers
using contactless payments and we will upgrade c.10% of our stores
with mobile POS technology in advance of the Christmas season; this
will reduce queues, improve customer experience and ultimately help
to optimise sales.
We also continue to invest in our two online propositions and in
our unique, vertically integrated, supply chain, to ensure that we
maintain our competitive advantage.
Revenue
Total revenue during the period grew by 3.2% to GBP185.3m (H1
FY18: GBP179.6m):
H1 FY19 H1 FY18 Increase
GBP'm GBP'm / (Decrease)
Card Factory 178.6 172.3 3.7%
Getting Personal 6.7 7.3 (8.5%)
-------- --------
Group 185.3 179.6 3.2%
-------- --------
Growth in like-for-like sales by retail channel, calculated on a
calendar week basis, can be broken down as follows:
H1 FY19 H1 FY18
Card Factory stores (0.7%) 3.0%
Card Factory online 84.6% 29.8%
-------------- ------------
Card Factory combined (0.2%) 3.1%
-------------- ------------
Getting Personal (8.5%) 5.0%
Total online combined 1.9% 7.3%
-------------- ------------
Operating costs
Underlying cost of sales and operating expenses continue to be a
key focus and are broken down as follows:
H1 FY19 H1 FY18 GBP Increase
GBP'm % of revenue GBP'm % of revenue
Cost of goods
sold 59.5 32.1% 56.9 31.7% 4.5%
Store wages 35.8 19.3% 33.7 18.8% 6.0%
Store property
costs 33.6 18.1% 32.3 18.0% 4.1%
Other direct expenses 9.5 5.2% 8.1 4.5% 19.0%
------ ------
Cost of sales 138.4 74.7% 131.0 73.0% 5.7%
------ ------
Operating expenses* 17.0 9.2% 15.8 8.7% 7.3%
------ ------
*excluding depreciation and amortisation
The overall ratio of cost of sales to revenue increased to 74.7%
on an underlying basis (H1 FY18: 73.0%) with the following
movements in sub-categories:
-- Cost of goods sold: principally comprises cost of raw
materials, production costs, finished goods purchased from third
party suppliers, import duty, freight and carriage costs and
warehouse wages. The increase in this cost ratio principally
reflects foreign exchange headwinds. Whilst the business has always
been well hedged in line with policy, the sustained weakness of
sterling in relation to US dollar has, as expected, had further
impact in the half year; this is explained in more detail below.
The shift in product mix from card to complementary non-card was
smaller than in the previous half year and the margin impact was
more than offset by product sourcing improvements.
-- Store wages: includes wages and salaries for store based
staff, together with bonuses, national insurance, pension
contributions, overtime, holiday and sick pay. This cost has
increased as expected as new stores have been opened and pay
increases (reflecting national living wage) awarded. The increase
in the cost ratio reflects these factors, with some mitigation as a
result of steps taken to reduce tasks in store and to manage hours
more effectively.
-- Store property costs: consists principally of store rents
(net of rental incentives), business rates and service charges.
This cost has increased in absolute terms as new stores have been
opened but as a ratio of revenue is broadly in line. We continue to
target improvements in our overall rent roll as we reach break
points or expiries on existing leases.
-- Other direct expenses: includes electricity costs, store
opening and utility costs, waste disposal, store maintenance, point
of sale costs, bank charges and pay per click expenditure. This
cost category is largely variable for existing stores and increases
with new store openings. The ratio of other direct expenses has
increased by 0.7ppts to 5.2% (H1 FY18 4.5%) due to an increasing
proportion of debit/credit card transactions and increased merchant
fees thereon, point of sale costs and a rise in electricity costs,
reduced in part by business efficiencies such as LED lighting.
Total underlying operating expenses (excluding depreciation and
amortisation) in the first half increased to GBP17.0m (H1 FY18:
GBP15.8m). These costs include items such as head office salaries
and remuneration, costs for regional and area managers, design
studio costs and insurance, together with other central overheads
and administration costs. The GBP1.2m increase in operating
expenses reflects investment in EPOS, amongst other IT projects,
Card Factory online and the first-half year impact of other
operational investments made in the previous year to support future
growth and underpin the Group's ability to realise its full
potential.
Depreciation and amortisation increased slightly from GBP5.1m to
GBP5.4m.
Net finance expense
The underlying net financing expense increased to GBP1.8m (H1
FY18: GBP1.4m) due to higher average debt levels and a slight
increase in the average interest rate.
Profit before tax
As a consequence of the above factors, underlying profit before
tax reduced by 13.7% to GBP22.7m (H1 FY18: GBP26.3m). The table
below reconciles underlying profit before tax to the statutory
profit before tax:
H1 FY19 H1 FY18 Increase
/ (Decrease)
GBP'm GBP'm
Underlying profit before
tax 22.7 26.3 (13.9%)
Non-underlying items:
Cost of sales
Gain / (loss) on foreign currency
derivative financial instruments
not designated as a hedge 4.5 (2.8)
Operating expenses
Non-underlying operating expenses - (0.3)
Statutory profit before tax 27.2 23.2 17.2%
-------- --------
Taxation
The Group's underlying effective tax rate of 19.7% (H1 FY18:
19.7%) remains close to the current headline rate of corporation
tax.
Earnings per share
Earnings per share increased by 17.1% to 6.38 pence (H1 FY18:
5.45 pence).
Underlying basic earnings per share decreased by 14.2% to 5.31
pence (H1 FY18: 6.19 pence). Excluding the c.GBP4.0m impact of
foreign exchange and national living wage, underlying basic
earnings per share would have increased by approximately 5%.
Capital expenditure
Capital expenditure of GBP5.6m (H1 FY18: GBP6.6m) included
investment of GBP1.5m in new printing equipment and GBP0.6m (H1
FY18 GBP2.1m) in order to complete the migration of our store
estate on to our PCMS EPOS platform. Our expectation is that
capital expenditure will run at around GBP14m per annum over the
medium term.
Foreign exchange
With approximately half of the Group's cost of goods sold
expense relating to products sourced in US dollars, the Group takes
a prudent but flexible approach to hedging the risk of exchange
rate fluctuations.
As disclosed in previous announcements, we have continued to
face foreign exchange gross margin pressure due to the fall in the
value of Sterling and its impact on our average US dollar hedge
rates over time. The effective exchange rate applicable to H1 FY19
underlying profit is c.$1.35, which compares to c.$1.50 in H1 FY18
and c.$1.38 in the full year FY18.
At the date of this announcement, the Group has hedged all of
its foreign exchange requirement for the remainder of FY19 and a
large proportion of FY20, giving expected effective exchange rates
of c.$1.35 for FY19 and FY20. This protects the Group from
short-term exchange rate volatility.
The Group's expected effective exchange rates are subject to
movements on transactions yet to be hedged for FY20 and timing
variances in respect of structured options that can't be hedge
accounted.
Underlying EBITDA
The underlying EBITDA margin of the Group decreased to 16.1% (H1
FY18: 18.3%), and can be broken down as follows:
H1 FY19 H1 FY18 Increase/
GBP'm GBP'm (Decrease)
Underlying EBITDA
Card Factory 29.4 31.8 (7.6%)
Getting Personal 0.5 1.0 (52.8%)
-------- --------
Group 29.9 32.8 (8.9%)
-------- --------
Underlying EBITDA margin
Card Factory 16.5% 18.5% (2.0 ppts)
Getting Personal 6.9% 13.3% (6.4 ppts)
-------- --------
Group 16.1% 18.3% (2.2 ppts)
-------- --------
The reduction in Card Factory underlying EBITDA reflects the
impact of foreign exchange, national living wage, card payment
charges, electricity and our investment in strengthening our
competitive position by maintaining our low price points.
Further to our recent trading update, provided on 9 August 2018,
the Board continues to expect underlying EBITDA for the year to be
in the range of GBP89m to GBP91m. Our key Q4 trading will be
critical in determining the final result, but we believe we are
well positioned for the important Christmas trading season.
The reduction in Getting Personal underlying EBITDA is due to
the 8.5% fall in sales and the rising cost of customer
acquisition.
Cash generation
The Group has a business model which is highly cash generative
due to its strong operating margins, limited working capital
absorption and relatively low capital expenditure requirements.
Cash generation in the half year improved due to a planned
reduction in stock levels in the period and favourable working
capital timing differences.
Dividends
The Board has declared an interim ordinary dividend of 2.9p per
share (FY18: 2.9p).
In addition, the Board is pleased to declare a special dividend
of 5.0p per share, equating to a special return to shareholders of
GBP17.1m.
Both the interim ordinary dividend and the special dividend will
be paid on 14 December 2018 to shareholders on the register at
close of business on 9 November 2018. We will, at that point, have
returned a total of 86.6p per share (GBP295.4m) to shareholders
since IPO in May 2014 - equivalent to over 38% of the IPO
price.
Net debt
As at 31 July 2018, before deduction of capitalised debt costs,
net debt totalled GBP159.8m (31 July 2017: GBP146.0m, 31 January
2018: GBP161.3m).
As at 31 July 2018 2017
GBP'm GBP'm
Borrowings
Current liabilities 0.1 -
Non-current liabilities 164.6 149.4
------- -------
Total borrowings 164.7 149.4
Add: debt costs capitalised 0.3 0.6
------- -------
Gross debt 165.0 150.0
Less cash (5.2) (4.0)
------- -------
Net debt 159.8 146.0
------- -------
Net debt at 31 July 2018 represented 1.76x underlying EBITDA for
the 12 months ended on that date, compared with 1.50x at 31 July
2017 and 1.26x at 31 July 2016.
Dividend and capital policies
Since IPO, the Board has consistently adopted a progressive
ordinary dividend policy for the Company, reflecting its strong
earnings potential and cash flow characteristics, while allowing it
to retain sufficient capital to fund ongoing operating requirements
and to invest in the Company's long-term growth. It remains the
Board's intention, subject to, inter alia, available distributable
profits, to pay annual ordinary dividends based on a targeted
ordinary dividend cover of between 1.5 and 2.5 times the Company's
underlying consolidated post-tax profit. Over the short to
medium-term we expect to be at around the middle of the cover
range.
Over the medium-term, the Board expects to maintain leverage
broadly in the range of 1.0 to 2.0 times net debt to underlying
EBITDA (excluding the impact of IFRS 16). It should be noted that
net debt at the half and full year period ends is lower than intra
year peaks, reflecting usual trading patterns and working capital
movements. In line with this, over the short to medium term the
Board currently expects to target year-end net debt/underlying
EBITDA of approximately 1.7 times (excluding the impact of IFRS
16). Reflecting the highly cash generative nature of the business,
absent any material investments, the Board expects to generate
surplus cash which it will return to shareholders; currently the
Board expects to return surplus cash on an annual basis.
Outlook
We continue to experience a weak consumer environment and we
don't foresee this changing in the short term, however we have a
solid business plan centered on refreshed ranges and a strong value
proposition for the Christmas season.
As reported, we have experienced cost headwinds, but the foreign
exchange headwind will be removed in FY20 if we assume a steady
state of currency with the majority of the year currently hedged,
with significant plans already in place to mitigate the increase in
National Living Wage.
Taking into account the above, the Board's current expectation
is that underlying EBITDA for the year will be in the range of
GBP89m to GBP91m. Our key Q4 trading period will of course be
critical in determining the final result for the year, but we
believe we are well positioned to deliver a good performance in our
important Christmas trading season.
We remain as convinced as ever of the strong growth prospects
for the business.
Karen Hubbard
Chief Executive Officer
25 September 2018
Notes
1. Background information
Card Factory is the UK's leading specialist retailer of greeting
cards, dressings and gifts. It focuses on the value and mid-market
segments of the UK's large and resilient greeting cards market, and
also offers a wide range of complementary products associated with
card giving occasions. Card Factory principally operates through
its nationwide chain of over 900 Card Factory stores, as well as
through its online offerings: www.cardfactory.co.uk and
www.gettingpersonal.co.uk.
The Group's clear strategy is focused on four pillars of
growth:
- continuing to grow like-for-like sales;
- continuing to roll out profitable new stores;
- continuing to focus on delivering business efficiencies; and
- increasing penetration of the complementary online market.
Card Factory commenced operations in 1997 with just one store
and has expanded its store estate primarily through organic growth
into a market-leading value retailer with a nationwide presence.
The Group's stores are in a wide range of locations including on
high streets in small towns through to major cities, shopping
centre developments, out-of-town retail parks and factory outlet
centres.
Since 2005, Card Factory has developed a vertically integrated
business model with an in-house design team, an in-house printing
facility and central warehousing capacity of over 360,000 sq. ft.
This model differentiates the Group from its competitors by
significantly reducing costs and adding value to customers in terms
of both price and quality.
In the financial year ended 31 January 2018, the Group reported
revenue growth of 6.0% to GBP422.1m (FY17: GBP398.2m) and
underlying EBITDA reduction of 4.6% to GBP94.0m (FY17: GBP98.5m) at
a margin of 22.3% (FY17: 24.7%).
2. Alternative Performance Measures ("APMs") and other explanatory information
"EBITDA" is defined as earnings before interest, tax,
depreciation and amortisation and represents profit for the period
before net finance expense, taxation, depreciation and
amortisation.
"Leverage" is calculated as the ratio of net debt to underlying
EBITDA for the previous 12 months.
"Underlying" profit figures exclude costs principally relating
to mark-to-market movements on derivatives not designated as a
hedging relationship. The non-underlying profit in the period
principally relates to future foreign exchange transactions that
cannot be hedge accounted.
"Like-for-like" is defined as follows:
The Group defines Card Factory store Iike-for-Iike ('LFL') sales
as the year-on-year growth in sales for Card Factory stores which
have been opened for a full year, calculated on a calendar week
basis. The reported LFL sales figure excludes sales:
-- made via the Card Factory website, www.cardfactory.co.uk;
-- made via the separately branded personalised card and gift website, Getting Personal, www.gettingpersonal.co.uk;
-- by Printcraft, the Group's printing division, to external third-party customers; and
-- from stores closed for all or part of the relevant period (or
the prior year comparable period).
Card Factory stores are included in the reported LFL figures for
each week of trading after having been open for 52 weeks.
"Total Card Factory LFLs" are reported including the impact of
the Card Factory website.
The Group defines Getting Personal LFL sales as the year-on-year
growth in sales for the Getting Personal website, calculated on a
calendar week basis.
"Percentage Movements" - Percentage changes have been calculated
before figures were rounded to GBP0.1m.
3. Cautionary Statement
This announcement is based on information from unaudited
management accounts and contains certain forward-looking statements
with respect to the financial condition, results of operations, and
businesses of Card Factory plc. These statements and forecasts
involve risk, uncertainty and assumptions because they relate to
events and depend upon circumstances that will occur in the future.
There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied
by these forward-looking statements. These forward-looking
statements are made only as at the date of this announcement.
Nothing in this announcement should be construed as a profit
forecast. Except as required by law, Card Factory plc has no
obligation to update the forward-looking statements or to correct
any inaccuracies therein.
Condensed consolidated income statement
For the six months ended 31 July 2018
Six months ended Six months ended Year ended 31 January
31 July 2018 31 July 2017 2018
----------------------------------- -------------------------- -------------
Underlying Non-underlying Total Underlying Non-underlying Total Underlying Non-underlying Total
(note (note (note
6) 6) 6)
Note GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
Revenue 4 185.3 - 185.3 179.6 - 179.6 422.1 - 422.1
Cost of sales (138.4) 4.5 (133.9) (131.0) (2.8) (133.8) (297.0) (7.6) (304.6)
--------------- ------------- -------------- ------- ---------- -------------- ------- ---------- -------------- -------------
Gross
profit/(loss) 46.9 4.5 51.4 48.6 (2.8) 45.8 125.1 (7.6) 117.5
Operating
expenses (22.4) - (22.4) (20.9) (0.3) (21.2) (41.7) (0.3) (42.0)
--------------- ------------- -------------- ------- ---------- -------------- ------- ---------- -------------- -------------
Operating
profit/(loss) 24.5 4.5 29.0 27.7 (3.1) 24.6 83.4 (7.9) 75.5
Financial
income 7 - - - - - - 0.1 - 0.1
Financial
expense 7 (1.8) - (1.8) (1.4) - (1.4) (3.0) - (3.0)
--------------- ------------- -------------- ------- ---------- -------------- ------- ---------- -------------- -------------
Net financing
expense (1.8) - (1.8) (1.4) - (1.4) (2.9) - (2.9)
Profit/(loss)
before tax 22.7 4.5 27.2 26.3 (3.1) 23.2 80.5 (7.9) 72.6
Taxation 8 (4.5) (0.9) (5.4) (5.2) 0.6 (4.6) (15.8) 1.5 (14.3)
Profit/(loss)
for the period 18.2 3.6 21.8 21.1 (2.5) 18.6 64.7 (6.4) 58.3
---------------- ------------- -------------- ------- ---------- -------------- ------- ---------- -------------- -------------
Earnings per pence pence pence pence pence pence
share
- Basic 9 5.31 6.38 6.19 5.45 18.94 17.08
- Diluted 9 5.31 6.38 6.19 5.45 18.94 17.08
--------------- ------------- -------------- ------- ---------- -------------- ------- ---------- -------------- -------------
All activities relate to continuing operations.
Condensed consolidated statement of comprehensive income
For the six months ended 31 July 2018
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Profit for the period 21.8 18.6 58.3
--------------------------------------------- -------------- ----------- ------------
Items that are or may be reclassified
subsequently to profit or loss:
Cash flow hedges - changes in fair
value 7.4 (2.2) (7.2)
Cash flow hedges - reclassified to
profit or loss - (1.6) (1.5)
Cost of hedging reserve - changes 0.7 - -
in fair value
Cost of hedging reserve - reclassified (0.3) - -
to profit or loss
Tax relating to components of other
comprehensive income (1.5) 0.7 1.7
--------------------------------------------- -------------- ----------- ------------
Other comprehensive income/(expense)
for the period, net of tax 6.3 (3.1) (7.0)
Total comprehensive income for the
period attributable to equity shareholders
of the parent 28.1 15.5 51.3
--------------------------------------------- -------------- ----------- ------------
Condensed consolidated statement of financial position
As at 31 July 2018
Note 31 July 2018 31 July 2017 31 January
2018
(restated (restated
GBP'm - note 19) - note 19)
GBP'm GBP'm
Non-current assets
Intangible assets 11 331.7 330.8 331.6
Property, plant and equipment 12 40.0 39.9 40.0
Deferred tax assets 0.6 1.3 1.9
Other receivables 0.7 0.7 0.8
Derivative financial instruments 15 1.1 - 0.2
---------------------------------- ----- ------------- ------------- ------------
374.1 372.7 374.5
Current assets
Inventories 56.8 59.9 51.5
Trade and other receivables 27.5 26.5 16.6
Derivative financial instruments 15 1.6 1.6 0.3
Cash and cash equivalents 13 5.2 4.0 3.6
---------------------------------- ----- ------------- ------------- ------------
91.1 92.0 72.0
Total assets 465.2 464.7 446.5
Current liabilities
Borrowings (0.1) - (14.9)
Trade and other payables (58.5) (53.9) (37.7)
Tax payable (5.7) (4.3) (5.5)
Derivative financial instruments 15 - (1.3) (7.0)
---------------------------------- ----- ------------- ------------- ------------
(64.3) (59.5) (65.1)
Non-current liabilities
Borrowings (164.6) (149.4) (149.6)
Trade and other payables (10.7) (10.7) (10.0)
Derivative financial instruments 15 (0.2) (1.2) (3.4)
---------------------------------- ----- ------------- ------------- ------------
(175.5) (161.3) (163.0)
Total liabilities (239.8) (220.8) (228.1)
Net assets 225.4 243.9 218.4
---------------------------------- ----- ------------- ------------- ------------
Equity
Share capital 16 3.4 3.4 3.4
Share premium 16 202.2 202.2 202.2
Hedging reserve 1.6 (1.1) (5.0)
Cost of hedging reserve 0.2 (0.3) (0.3)
Reverse acquisition reserve (0.5) (0.5) (0.5)
Merger reserve 2.7 2.7 2.7
Retained earnings 15.8 37.5 15.9
---------------------------------- ----- ------------- ------------- ------------
Equity attributable to equity
holders of the parent 225.4 243.9 218.4
---------------------------------- ----- ------------- ------------- ------------
Condensed consolidated statement of changes in equity
For the six months ended 31 July 2018
Six months ended 31 July Share Share Hedging Cost Reverse Merger Retained Total
2018 capital premium reserve of acquisition reserve earnings equity
hedging reserve
reserve
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
At 31 January 2018
(restated
- see note 19) 3.4 202.2 (5.0) (0.3) (0.5) 2.7 15.9 218.4
Opening reserves
adjustment
(see note 19) - - 0.6 0.2 - - (0.3) 0.5
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
At 1 February 2018 3.4 202.2 (4.4) (0.1) (0.5) 2.7 15.6 218.9
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total comprehensive
income
for the period
Profit or loss - - - - - - 21.8 21.8
Other comprehensive
income - - 6.0 0.3 - - - 6.3
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
- - 6.0 0.3 - - 21.8 28.1
Transactions with owners,
recorded directly in
equity
Share based payment
charges - - - - - - 0.3 0.3
Dividends (note 10) - - - - - - (21.9) (21.9)
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total contributions by
and
distributions to owners - - - - - - (21.6) (21.6)
At 31 July 2018 3.4 202.2 1.6 0.2 (0.5) 2.7 15.8 225.4
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Six months ended 31 July Share Share Hedging Cost Reverse Merger Retained Total
2017 capital premium reserve of acquisition reserve earnings equity
hedging reserve
reserve
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
At 1 February 2017
(restated
- see note 19) 3.4 201.9 2.0 (0.3) (0.5) 2.7 40.3 249.5
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total comprehensive
income
for the period
Profit or loss - - - - - - 18.6 18.6
Other comprehensive
expense - - (3.1) - - - - (3.1)
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
- - (3.1) - - - 18.6 15.5
Transactions with owners,
recorded directly in
equity
Issue of shares (note 16) - 0.3 - - - - - 0.3
Taxation on share based
payments
recognised in equity - - - - - - 0.1 0.1
Dividends (note 10) - - - - - - (21.5) (21.5)
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total contributions by
and
distributions to owners - 0.3 - - - - (21.4) (21.1)
At 31 July 2017 (restated
- see note 19) 3.4 202.2 (1.1) (0.3) (0.5) 2.7 37.5 243.9
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Year ended 31 January Share Share Hedging Cost Reverse Merger Retained Total
2018 capital premium reserve of acquisition reserve earnings equity
hedging reserve
reserve
GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm GBP'm
At 1 February 2017
(restated
- see note 19) 3.4 201.9 2.0 (0.3) (0.5) 2.7 40.3 249.5
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total comprehensive
income
for the period
Profit or loss - - - - - - 58.3 58.3
Other comprehensive
expense - - (7.0) - - - - (7.0)
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
- - (7.0) - - - 58.3 51.3
Transactions with owners,
recorded directly in
equity
Issue of shares (note 16) - 0.3 - - - - - 0.3
Share based payment
charges - - - - - - (0.1) (0.1)
Dividends (note 10) - - - - - - (82.6) (82.6)
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Total contributions by
and
distributions to owners - 0.3 - - - - (82.7) (82.4)
At 31 January 2018
(restated
- see note 19) 3.4 202.2 (5.0) (0.3) (0.5) 2.7 15.9 218.4
-------------------------- --------- --------- --------- --------- ------------- --------- ---------- --------
Condensed consolidated cash flow statement
For the six months ended 31 July 2018
Note Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Cash inflow from operating activities 17 36.2 27.6 89.7
Corporation tax paid (5.6) (8.8) (17.0)
--------------------------------------- ----- ----------- ----------- -------------------
Net cash inflow from operating
activities 30.6 18.8 72.7
Cash flows from investing activities
Purchase of property, plant and
equipment 12 (4.9) (5.5) (10.6)
Purchase of intangible assets 11 (0.7) (1.1) (2.5)
Interest received - - 0.1
--------------------------------------- ----- ----------- ----------- -------------------
Net cash outflow from investing
activities (5.6) (6.6) (13.0)
Cash flows from financing activities
Proceeds from bank borrowings 15.0 19.9 20.0
Interest paid (1.6) (1.2) (2.7)
Proceeds from new shares issued 16 - 0.3 0.3
Dividends paid 10 (21.9) (21.5) (82.9)
--------------------------------------- ----- ----------- ----------- -------------------
Net cash outflow from financing
activities (8.5) (2.5) (65.3)
Net increase/(decrease) in cash
and cash equivalents 16.5 9.7 (5.6)
Cash and cash equivalents at
the beginning of the year (11.3) (5.7) (5.7)
--------------------------------------- ----- ----------- ----------- -------------------
Closing cash and cash equivalents 13 5.2 4.0 (11.3)
--------------------------------------- ----- ----------- ----------- -------------------
Notes to the interim financial statements
1 General information
Card Factory plc (the 'Company') is a public limited company
incorporated in the United Kingdom. The Company is domiciled in the
United Kingdom and its registered office is Century House, Brunel
Road, 41 Industrial Estate, Wakefield WF2 0XG.
2 Basis of preparation
These unaudited condensed consolidated interim financial
statements ('interim financial statements') for the six months
ended 31 July 2018 comprise the Company and its subsidiaries
(together referred to as the 'Group'). The interim financial
statements have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and the
requirements of IAS 34 Interim Financial Reporting as adopted by
the European Union. The interim report was approved by the Board of
Directors on 25 September 2018.
These condensed interim financial statements do not comprise
statutory accounts within the meaning of section 434 of the
Companies Act 2006. The interim financial statements should be read
in conjunction with the annual financial statements for the year
ended 31 January 2018 ('Annual Report') which have been prepared in
accordance with IFRSs as adopted by the European Union ('EU IFRS').
The comparative figures for the financial year ended 31 January
2018 are an extract from the Annual Report and are not the Group's
statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the
registrar of companies. The report was (i) unqualified, (ii) did
not contain an emphasis of matter paragraph and (iii) did not
contain any statement under section 498 of the Companies Act 2006.
The statutory accounts for the year ended 31 January 2018 were
approved by the Board of Directors on 9 April 2018 and delivered to
the Registrar of Companies. The auditor's review report for the six
month period ended 31 July 2018 is attached.
Significant judgements and estimates
The preparation of the interim financial statements requires the
use of judgements, estimates and assumptions that affect the
application of the Group's accounting policies and reported amounts
of assets and liabilities, income and expenses. Actual results may
differ from these estimates. The significant judgements and key
sources of estimation uncertainty were consistent with those
applied to the consolidated financial statements for the year ended
31 January 2018. Judgements relating to foreign currency hedge
accounting are now in respect of IFRS 9 accounting policies as
explained in note 19 to these interim financial statements.
Going concern
Taking into account current and anticipated trading performance,
current and anticipated levels of borrowings and the availability
of borrowing facilities and exposures to and management of the
financial risks detailed in the Annual Report, the Board is of the
opinion that there is a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future, a period of not less than 12 months from the
date of this report. Accordingly, the interim financial statements
continue to be prepared on a going concern basis.
3 Principal accounting policies
The financial statements have been prepared under the historical
cost convention except for derivative financial instruments which
are stated at their fair value. The accounting policies are
consistent with those applied in the consolidated financial
statements for the year ended 31 January 2018 except in respect of
accounting policy amendments on adoption of International Financial
Reporting Standards effective in the current period.
Amendments to International Financial Reporting Standards
effective in the current period
-- IFRS 9 Financial Instruments
-- Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)
-- IFRS 15 Revenue from Contracts with Customers
-- Clarifications to IFRS 15 Revenue from Contracts with Customers
-- Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
-- Transfers of Investment Property (Amendments to IAS 40)
-- Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IFRS 1)
-- Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IAS 28)
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration
The impact on the financial statements of adoption of IFRS 9 is
detailed in note 19 to these interim financial statements.
IFRS 15 introduces principles to recognise revenue by allocation
of the transaction price to performance obligations and is
effective for accounting periods commencing on or after 1 January
2018. Adoption of the measurement and recognition principles under
IFRS 15 has no impact on the values reported in these interim
financial statements.
There is no impact on the values reported in these interim
financial statements from adoption of the other amendments to
International Financial Reporting Standards effective in the
current period.
EU Endorsed International Financial Reporting Standards in issue
but not yet effective
-- IFRS 16 Leases
-- Prepayment Features with Negative Compensation Amendments to IFRS 9
IFRS 16 Leases (effective for annual periods beginning on or
after 1 January 2019). IFRS 16 will replace IAS 17 and related
interpretations and requires entities to apply a single lessee
accounting model, with lessees recognising right-of-use-assets and
lease liabilities on balance sheet for all applicable leases. In
addition, the nature of expenses related to those leases will
change because IFRS 16 replaces the straight-line operating lease
expense with a depreciation charge for the right-of-use assets and
an interest expense relating to lease liabilities.
Substantially all of the operating lease commitments disclosed
in note 22 of the Annual Report for the year ended 31 January 2018
would meet the definition of a lease under IFRS 16. Based on an
initial assessment of the potential impact on its consolidated
financial statements the Group intends to apply a full
retrospective application of the standard. Historic lease data has
been collated and cash flow data is being constructed in
preparation for transition to the new standard and to enable the
full impact assessment to be completed.
New and revised International Financial Reporting Standards or
interpretations effective for future periods that are currently
awaiting EU endorsement
The future impact on the financial statements of new standards
and amendments awaiting EU endorsement is currently being assessed
but is not expected to have a material impact on the financial
statements.
4 Segmental reporting and revenue
The Group has two operating segments trading under the names
Card Factory and Getting Personal. Card Factory retails greeting
cards, dressing and gifts principally through an extensive UK store
network. Getting Personal is an online retailer of personalised
cards and gifts. Getting Personal does not meet the quantitative
thresholds of a reportable segment as defined in IFRS 8.
Consequently the results of the Group are presented as a single
reportable segment.
Group revenue is almost entirely derived from retail customers.
Average transaction value is low and products are transferred at
the point of sale. Group revenue is presented as a single category
subject to substantially the same economic factors that impact the
nature, amount, timing and uncertainty of revenue and cash flows.
Revenue from non-retail customers and revenue from outside the UK
are both less than 1% of Group Revenue.
5 Underlying EBITDA
Underlying earnings before interest, tax, depreciation and
amortisation ("EBITDA") represents underlying profit for the period
before net finance expense, taxation, depreciation and
amortisation.
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Underlying operating profit 24.5 27.7 83.4
Depreciation and amortisation 5.4 5.1 10.6
------------------------------- ----------- ----------- ----------------
Underlying EBITDA 29.9 32.8 94.0
------------------------------- ----------- ----------- ----------------
6 Non-underlying items
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Cost of sales
Gain/(loss) on foreign currency derivative
financial instruments not designated
as a hedge 4.5 (2.8) (7.6)
-------------------------------------------- ----------- ----------- -----------------
Operating expenses
Other non-underlying operating expenses - (0.3) (0.3)
-------------------------------------------- ----------- ----------- -----------------
The Group has chosen to present an underlying profit and
earnings measure. The Group believes that underlying profit and
earnings information enables shareholders to make more meaningful
comparisons of performance year-on-year. Underlying earnings is not
a recognised profit measure under EU IFRS and may not be directly
comparable with 'adjusted' profit measures reported by other
companies. The reported non-underlying adjustments are as
follows:
Net fair value remeasurement gains and losses on derivative
financial instruments
The Group utilises foreign currency derivative contracts to
manage the foreign exchange risk on US Dollar denominated purchases
and interest rate derivative contracts to manage the risk on
floating interest rate bank borrowings. Fair value gains and losses
on such instruments are recognised in the income statement to the
extent they are not hedge accounted. Where such gains and losses
relate to future cash flows, these are deemed not representative of
the underlying financial performance in the year and presented as
non-underlying items in accordance with the commercial reasoning
for entering into the agreements. Any gains or losses on maturity
of such instruments are presented within underlying profit to the
extent the gain or loss is not recognised in the hedging reserve or
cost of hedging reserve.
Other non-underlying operating expenses
In January 2017, Card Factory plc announced the retirement and
succession of the Chief Financial Officer. Costs attributable to
the recruitment of a new Chief Financial Officer and dual
remuneration costs during the handover period were presented as a
non-underlying item in the prior year.
7 Finance income and expense
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Finance income
Bank interest received - - (0.1)
--------------------------------------- ----------- ----------- ------------
Finance expense
Interest on bank loans and overdrafts 1.6 1.2 2.6
Amortisation of loan issue costs 0.1 0.1 0.2
Fair value loss on interest rate
derivative contracts 0.1 0.1 0.2
--------------------------------------- ----------- ----------- ------------
1.8 1.4 3.0
--------------------------------------- ----------- ----------- ------------
Net finance expense 1.8 1.4 2.9
--------------------------------------- ----------- ----------- ------------
8 Taxation
The tax charge on underlying profit before tax for the interim
period has been calculated on the basis of the estimated effective
tax rate on underlying profit before tax for the full year to 31
January 2019 of 19.7% (six months ended 31 July 2017 19.7%, year
ended 31 January 2018 19.7%).
9 Earnings per share
Basic earnings per share is calculated by dividing the profit
for the period attributable to ordinary shareholders by the
weighted average number of ordinary shares in issue during the
period.
Diluted earnings per share is based on the weighted average
number of shares in issue for the period, adjusted for the dilutive
effect of potential ordinary shares. Potential ordinary shares
represent share incentive awards and save as you earn share
options.
The Group has chosen to present an alternative earnings per
share measure, with profit adjusted for non-underlying items to
reflect the Group's underlying profit for the year. Underlying
earnings is not a recognised profit measure under EU IFRS and may
not be directly comparable with 'adjusted' profit measures used by
other companies.
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
Number Number Number
Weighted average number of shares
in issue 341,505,537 341,058,641 341,260,105
Weighted average number of dilutive
share options 2,387 75,766 37,572
------------------------------------- ------------ ------------ -------------------------
Weighted average number of shares
for diluted earnings per share 341,507,924 341,134,407 341,297,677
------------------------------------- ------------ ------------ -------------------------
GBP'm GBP'm GBP'm
Profit for the financial period 21.8 18.6 58.3
Non-underlying items (3.6) 2.5 6.4
---------------------------------------- ------ ------ ------
Total underlying profit for underlying
earnings per share 18.2 21.1 64.7
---------------------------------------- ------ ------ ------
pence pence pence
Basic earnings per share 6.38 5.45 17.08
Diluted earnings per share 6.38 5.45 17.08
Underlying basic earnings per share 5.31 6.19 18.94
Underlying diluted earnings per share 5.31 6.19 18.94
--------------------------------------- ------ ------ ------
10 Dividends
The Directors have declared an interim dividend of 2.9 pence per
share for the period ended 31 July 2018 which equates to GBP10.2
million and a special dividend of 5.0 pence per share which equates
to GBP17.1 million. Both dividends will be paid on 14 December 2018
to shareholders on the register at the close of business on 9
November 2018. The interim and special dividend were approved by
the Board on 25 September 2018 and, as such, have not been included
as a liability as at 31 July 2018.
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
Pence per Pence per Pence per
share share share
Dividends declared not yet paid at
31 July 2018:
Special dividend for the year ended 5.0p - -
31 January 2019
Interim dividend for the year ended 2.9p - -
31 January 2019
------------------------------------------- ------------------------- ----------- ----------------
7.9p - -
Dividends paid:
Final dividend for the year ended 6.4p - -
31 January 2018
Special dividend for the year ended
31 January 2018 - - 15.0p
Interim dividend for the year ended
31 January 2018 - - 2.9p
Final dividend for the year ended
31 January 2017 - 6.3p 6.3p
6.4p 6.3p 24.2p
Total dividends 14.3p 6.3p 24.2p
------------------------------------------- ------------------------- ----------- ----------------
Six months Six months Year ended
ended 31 ended 31 31 January
July 2018 July 2017 2018
GBP'm GBP'm GBP'm
Dividends declared not yet paid at
31 July 2018:
Special dividend for the year ended 17.1 - -
31 January 2019
Interim dividend for the year ended 9.9 - -
31 January 2019
------------------------------------------- ------------------------- ----------- ----------------
27.0 - -
Dividends paid:
Final dividend for the year ended 21.9 - -
31 January 2018
Special dividend for the year ended
31 January 2018 - - 51.2
Interim dividend for the year ended
31 January 2018 - - 9.9
Final dividend for the year ended
31 January 2017 - 21.5 21.5
21.9 21.5 82.6
Dividend equivalents paid under long-term
incentive schemes - - 0.3
------------------------------------------- ------------------------- ----------- ----------------
Total dividends 48.9 21.5 82.9
------------------------------------------- ------------------------- ----------- ----------------
11 Intangible assets
Goodwill Software Total
GBP'm GBP'm GBP'm
Cost
At 1 February 2018 328.2 8.9 337.1
Additions - 0.7 0.7
---------------------------- --------- --------- ------
At 31 July 2018 328.2 9.6 337.8
Amortisation
At 1 February 2018 - 5.5 5.5
Amortisation in the period - 0.6 0.6
---------------------------- --------- --------- ------
At 31 July 2018 - 6.1 6.1
Net book value
At 31 July 2018 328.2 3.5 331.7
---------------------------- --------- --------- ------
At 31 January 2018 328.2 3.4 331.6
---------------------------- --------- --------- ------
12 Property, plant and equipment
Freehold Leasehold Plant, equipment, Total
property improvements fixtures &
vehicles
GBP'm GBP'm GBP'm GBP'm
Cost
At 1 February 2018 17.4 35.8 52.6 105.8
Additions - 1.2 3.7 4.9
Disposals - (0.2) (0.3) (0.5)
--------------------- ---------- -------------- ------------------ ------
At 31 July 2018 17.4 36.8 56.0 110.2
Depreciation
At 1 February 2018 2.7 26.4 36.7 65.8
Depreciation in the
period 0.2 1.7 2.9 4.8
Disposals - (0.2) (0.2) (0.4)
--------------------- ---------- -------------- ------------------ ------
At 31 July 2018 2.9 27.9 39.4 70.2
Net book value
At 31 July 2018 14.5 8.9 16.6 40.0
--------------------- ---------- -------------- ------------------ ------
At 31 January 2018 14.7 9.4 15.9 40.0
--------------------- ---------- -------------- ------------------ ------
13 Cash and cash equivalents
31 July 2018 31 July 2017 31 January
2018
GBP'm GBP'm GBP'm
Cash at bank and in hand 5.2 4.0 3.6
Unsecured bank overdraft - - (14.9)
------------------------------- ------------- ------------- -----------
Net cash and cash equivalents 5.2 4.0 (11.3)
------------------------------- ------------- ------------- -----------
14 Analysis of net debt
Six months ended 31 July At 1 February Cash flow Non-cash changes At 31 July
2018 2018 2018
GBP'm GBP'm GBP'm GBP'm
Unsecured bank loans
and accrued interest (149.6) (15.0) (0.1) (164.7)
Cash and cash equivalents
(note 13) (11.3) 16.5 - 5.2
--------------------------- -------------- ---------- ----------------- -----------
Total net debt (160.9) 1.5 (0.1) (159.5)
--------------------------- -------------- ---------- ----------------- -----------
Six months ended 31 July At 1 February Cash flow Non-cash changes At 31 July
2017 2017 2017
GBP'm GBP'm GBP'm GBP'm
Unsecured bank loans
and accrued interest (129.4) (19.9) (0.1) (149.4)
Cash and cash equivalents
(note 13) (5.7) 9.7 - 4.0
--------------------------- -------------- ---------- ----------------- -----------
Total net debt (135.1) (10.2) (0.1) (145.4)
--------------------------- -------------- ---------- ----------------- -----------
Year ended 31 January At 1 February Cash flow Non-cash changes At 31 January
2018 2017 2018
GBP'm GBP'm GBP'm GBP'm
Unsecured bank loans
and accrued interest (129.4) (20.0) (0.2) (149.6)
Cash and cash equivalents
(note 13) (5.7) (5.6) - (11.3)
--------------------------- -----------------
Total net debt (135.1) (25.6) (0.2) (160.9)
--------------------------- -------------- ---------- ----------------- --------------
At the period end date, Group borrowing facilities consisted of
a GBP200 million revolving credit facility ('RCF') terminating 26
June 2020 with an additional GBP100 million accordion. Borrowings
under the facility attract interest at LIBOR plus a margin in the
range 1.0% to 2.0%, subject to a leverage ratchet (LIBOR plus 1.40%
at 31 July 2018). The facilities are subject to financial covenants
typical to an arrangement of this nature.
Subsequent to the period end, the Group has entered into a
replacement GBP200 million RCF which terminates on 31 October 2023.
The new facility also has an additional GBP100 million accordion
and attracts the same rate of interest for leverage levels in line
with the Group's capital structure policy.
15 Financial instruments
Financial instruments carried at fair value are measured by
reference to the following fair value hierarchy:
- Level 1: quoted prices in active markets for identical assets or liabilities
- Level 2: inputs other than quoted prices included within Level
1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value and
measured under a level 2 valuation method. Valuations are provided
by the instrument counterparty.
31 July 2018 31 July 2017 31 January
2018
GBP'm GBP'm GBP'm
Derivative assets
Non-current
Interest rate contracts 0.2 - 0.2
Foreign exchange contracts 0.9 - -
-------------------------------------- ------------- ------------- -----------
1.1 - 0.2
Current
Foreign exchange contracts 1.6 1.6 0.3
-------------------------------------- ------------- ------------- -----------
Derivative liabilities
Current
Interest rate contracts - (0.1) -
Foreign exchange contracts - (1.2) (7.0)
-------------------------------------- ------------- ------------- -----------
- (1.3) (7.0)
Non-current
Foreign exchange contracts (0.2) (1.2) (3.4)
-------------------------------------- ------------- ------------- -----------
Net derivative financial instruments
Interest rate contracts 0.2 (0.1) 0.2
Foreign exchange contracts 2.3 (0.8) (10.1)
-------------------------------------- ------------- ------------- -----------
2.5 (0.9) (9.9)
-------------------------------------- ------------- ------------- -----------
16 Share capital and share premium
31 July 2018 31 July 2017 31 January
2018
Share capital (Number) (Number) (Number)
Allotted, called up and fully paid
ordinary shares of one pence:
At the start of the period 341,459,281 340,844,864 340,844,864
Shares issued in relation to share
based payments 90,025 612,262 614,417
At the end of the period 341,505,537 341,457,126 341,459,281
------------------------------------ ------------- ------------- ------------
GBP'm GBP'm GBP'm
Share capital
At the start of the period 3.4 3.4 3.4
Shares issued in relation to share - - -
based payments
At the end of the period 3.4 3.4 3.4
------------------------------------ ------------- ------------- ------------
GBP'm GBP'm GBP'm
Share premium
At the start of the period 202.2 201.9 201.9
Shares issued in relation to share
based payment - 0.3 0.3
At the end of the period 202.2 202.2 202.2
------------------------------------ ------------- ------------- ------------
17 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from
operations:
31 July 2018 31 July 2017 31 January
2018
GBP'm GBP'm GBP'm
Profit before tax 27.2 23.2 72.6
Net finance expense 1.8 1.4 2.9
--------------------------------------- ------------- ------------- -----------
Operating profit 29.0 24.6 75.5
Adjusted for:
Depreciation and amortisation 5.4 5.1 10.6
Loss on disposal of fixed assets 0.1 0.1 0.2
Cash flow hedging foreign currency
movements 0.1 (2.6) (3.4)
Share based payments charge/(credit) 0.3 - (0.1)
--------------------------------------- ------------- ------------- -----------
Operating cash flows before changes
in working capital 34.9 27.2 82.8
(Increase)/decrease in receivables (10.7) (8.1) 3.0
Increase in inventories (4.7) (8.5) (0.1)
Increase in payables 16.7 17.0 4.0
--------------------------------------- ------------- ------------- -----------
Cash inflow from operating activities 36.2 27.6 89.7
--------------------------------------- ------------- ------------- -----------
18 Principal risks and uncertainties
The Board and the senior management team are collectively
responsible for managing risks and uncertainties across the Group.
In determining the Group's risk appetite and how risks are managed,
the Board, Audit and Risk Committee and the senior management team
look to ensure an appropriate balance is achieved which enables the
Group to achieve its strategic and operational objectives and
facilitates the long-term success of the Group.
The Group's Audit and Risk Committee is responsible for
reviewing the Group's risk management framework and ensuring that
it enables the Committee and the Board to carry out a robust
assessment of the principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity.
The principal risks and uncertainties which could have a
material impact on the Group's performance over the remaining six
months of the financial year and beyond, and which could cause
actual results to differ materially from expected and historical
results are as follows:
- Changes in consumer demands and market trends
- Increased competition
- Damage to brand and reputation
- Success of, or inability to implement, Group strategy
- Supply chain and product sourcing
- Retaining and developing the culture of the business
- Senior management succession implementation, colleague
development and retention of key personnel
- Managing business initiatives and change alongside 'business' as usual activities
- Treasury and financial risk
- Business continuity and response to major incidents
- Compliance with legal requirements, standards and regulations
- Maintenance and development of IT systems
- Development of the Group's online business
The Board considers that these principal risks and uncertainties
affecting the Group (as published and explained in more detail on
pages 24 to 27 of the Group's Annual Report for the year ended 31
January 2018) remain unchanged.
19 Transition to IFRS 9 Financial Instruments
IFRS 9 'Financial Instruments' is effective for periods
beginning on or after 1 January 2018 and has been adopted by the
Group in the year. IFRS 9 sets out requirements for recognising and
measuring financial assets and financial liabilities and replaces
IAS 39 'Financial Instruments: Recognition and Measurement'. The
impact on the consolidated financial statements of the Group is
detailed below.
Classification of financial assets
IFRS 9 contains a new classification and measurement approach
for financial assets that reflects the business model in which
assets are managed and the cash flow characteristics of the
assets.
IFRS 9 contains three principal classification categories for
financial assets: measured at amortised cost, fair value through
other comprehensive income and fair value through profit or loss.
The standard eliminates the existing IAS 39 categories of held to
maturity, loans and receivables and available for sale. The new
classification requirements do not impact the accounting for the
Group's financial assets.
Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with a
forward-looking 'expected credit loss' model. The new impairment
model will apply to financial assets measured at amortised cost.
Revenue from retail customers represents over 99% of Group revenues
and consequently trade and other receivables measured at amortised
cost are not material to the financial statements. There is no
impact on the values reported in the financial statements from
adopting IFRS 9 in respect of expected credit losses.
Cash and cash equivalents
Cash and cash equivalents are held at banks with a strong credit
rating and are not subject to any period of notice. The Group
typically maintains a low value of cash and cash equivalents and
often a net overdrawn cash position as part of its RCF funding
arrangement. There is no impact on the values reported in the
financial statements from adopting IFRS 9 in respect of expected
credit losses.
Classification of financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for
the classification of financial liabilities. The classification
requirements of IFRS 9 do not impact the financial statements.
Hedge accounting
On initial adoption of IFRS9, the Group may choose as its
accounting policy to continue to apply the hedge accounting
requirements of IAS 39 instead of the requirements in IFRS 9. The
Group has chosen to apply the new requirements of IFRS 9.
IFRS 9 requires the Group to ensure that hedge accounting
relationships are aligned with the Group's risk management
objectives and strategy and to apply a more qualitative and
forward-looking approach to assessing hedge effectiveness. IFRS 9
also introduces new requirements on rebalancing hedge relationships
and prohibiting voluntary discontinuation of hedge accounting.
Under the new model, it is possible that more risk management
strategies may qualify for hedge accounting, though eligibility for
hedge accounting of the Group's existing hedging activities have
been assessed as unchanged.
Foreign exchange hedge accounting
The Group utilises foreign currency derivative contracts and US
Dollar denominated cash balances to manage the foreign exchange
risk on US Dollar denominated inventory purchases. The Group
designates only the change in the fair value of the spot element of
forward currency contracts as the hedging instrument in cash flow
hedging relationships. Under IAS 39, the change in fair value of
the forward element of the forward currency contract ('forward
points') was recognised immediately in profit or loss (presented as
a non-underlying item, see note 6 to these interim financial
statements).
On adoption of IFRS 9, the Group has elected to separately
account for the forward points as a cost of hedging. Consequently,
changes in forward points are recognised in other comprehensive
income and accumulated in a cost of hedging reserve as a separate
component within equity and subsequently recognised into the hedged
inventory purchase value. The Group has not applied the
transitional option to retrospectively apply this treatment.
In accordance with the requirements of IFRS 9, the Group has
amended the accounting policy in respect of cash flow hedge
accounting. Gains or losses recognised in other comprehensive
income in respect of a cash flow hedge of a forecast transaction
that results in the recognition of a non-financial asset or
liability are included in the initial measurement of the asset or
liability. The previous accounting policy, under IAS 39, recognised
such gains or losses in profit or loss in the same period or
periods during which the hedged forecast transaction, or a
resulting asset or liability, affects profit or loss, but did not
recognise the gain or loss in the initial measurement of a
resulting asset or liability.
Interest rate hedge accounting
The Group utilises interest rate derivative contracts to manage
the risk on floating rate bank borrowings. The Group designates
only the change in the fair value of the intrinsic element of
interest rate caps as the hedging instrument in cash flow hedging
relationships. Under IAS 39, the change in fair value of the time
value element of the interest rate cap was recognised immediately
in profit or loss (presented as a non-underlying item until the
date of the hedged cash flow, see note 6 to these interim financial
statements).
On adoption of IFRS 9, the Group has elected to separately
account for the time value as a cost of hedging. Consequently,
changes in time value are recognised in other comprehensive income
and accumulated in a cost of hedging reserve as a separate
component within equity and reclassified to profit or loss on the
date of the hedged cash flow. IFRS 9 mandates retrospective
application of this treatment.
Transition
The impact on the financial statements from the adoption of IFRS
9 is detailed below. The amendments to hedge accounting policies
detailed above are applied prospectively except for the mandated
retrospective application of the time value element of interest
rate cap hedges. Consequently the comparative period is restated
solely in respect of hedge accounting for the time value element of
interest rate caps. Other adjustments on transition to IFRS 9 are
presented as an adjustment to opening reserves at 31 January
2018.
Restatement
31 January 31 July 2017 31 January
2018 2017
GBP'm GBP'm GBP'm
Consolidated statement of financial position and consolidated
statement of changes in equity
Equity
Cost of hedging reserve (0.3) (0.3) (0.3)
Retained earnings 0.3 0.3 0.3
--------------------------- ------------ ------------- -----------
- - -
--------------------------- ------------ ------------- -----------
Movements in the cost of hedging reserve in respect of interest
rate hedges from 31 January 2017 to 31 July 2017 and 31 January
2018 were less than GBP0.1m. Consequently the consolidated income
statement and the consolidated statement of comprehensive income
are not restated.
Opening Reserves Adjustment
31 January
2018
GBP'm
Consolidated statement of financial position and consolidated
statement of changes in equity
Deferred tax (0.2)
Tax payable 0.1
Inventory 0.6
-------------------------------------------- -------------------
Net Assets 0.5
Equity
Hedging reserve 0.6
Cost of hedging reserve 0.2
Retained earnings (0.3)
-------------------------------------------- -------------------
0.5
-------------------------------------------- -------------------
Responsibility statement of the Directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the
information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
By order of the Board
Karen Hubbard Kris Lee
Chief Executive Officer Chief Financial Officer
25 September 2018
Independent review report to Card Factory plc
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 31 July 2018 which comprises the consolidated
income statement, the condensed consolidated statement of
comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes
in equity, the condensed consolidated cash flow statement and the
related explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 31
July 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
Nicola Quayle (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DW
25 September 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FKQDPOBKDNCB
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September 25, 2018 02:00 ET (06:00 GMT)
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