REG - Card Factory PLC - Annual Financial Report

Card FactoryAnnouncement

29/06/2021 16:30

RNS Number : 5394D
  
Card Factory PLC
  
29 June 2021
  
 

                                                                                                
29 June 2021
Card Factory plc
Annual Financial Report and Notice of AGM
Card Factory plc ("Card Factory" or the "Company") announces that it has published its Annual Report and Accounts for the year ended 31 January 2021 and Notice of the Company's 2021 Annual General Meeting.
The Annual General Meeting is to be held at the offices of UBS, 5 Broadgate, London EC2M 2QS at 11.00 a.m. on Wednesday 28 July 2021.  
As at the date of this notice, the UK Government still has restrictive social measures in place, together with the uncertainty as to any future measures which may be implemented prior to the date of the AGM, therefore we are proposing to hold the AGM with only the minimum attendance required to form a quorum.  We encourage shareholders to vote on the resolutions in advance of the meeting by completing forms of proxy.  To facilitate shareholders to make an informed decision on voting, and to minimise any disruption, should attendance be restricted, we will respond to shareholder questions in advance of the meeting, which can be submitted by email to legal@cardfactory.co.uk by no later than 4pm on 22 July 2021. The Company shall provide a response by email and appropriate questions and answers will be available on the Company's website following the conclusion of the AGM.
Copies of the documents listed below have today been posted to shareholders:
1.      Annual Report and Accounts 2021;
2.      Notice of 2021 Annual General Meeting; and
3.      Form of Proxy for the 2021 Annual General Meeting.
The Annual Report and Accounts and the Notice of the 2021 Annual General Meeting will also be accessible later today via the Company's investor relations website www.cardfactoryinvestors.com. In compliance with LR9.6.1, the Company has today submitted electronic copies of the above documents to the National Storage Mechanism appointed by the Financial Conduct Authority and these will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Card Factory's preliminary results announcement on 10 June 2021 (which is available via the Company's investor relations website referred to above) included, in addition to the preliminary financial results for the year ended 31 January 2021, information on important events that occurred during the year and their impact on those financial results. That information, together with the information set out in the Appendix below is provided in compliance with the requirements of DTR6.3.5(2)(b). This information is not a substitute for reading the full Annual Report and Accounts for the year ended 31 January 2021.
For further information:




Ciaran Stone, Group General Counsel and Company Secretary
Card Factory plc


Tel: 01924 839150




 
ENDS
 
 
 
Appendix
Principal Risks and Uncertainties
The principal risks and uncertainties facing the Card Factory group (the "Group") are set out below, together with details of how these are currently mitigated. For further information on how the Group manages risk, see pages 40 to 43 of the Strategic Report and also pages 66 and 67 of the Corporate Governance Report within the Annual Report and Accounts 2021 ("Annual Report").




Risk


Description


Mitigation




Financial Risks
 




Impact of Coronavirus
 
 
Since 2020: Reduced


The risk of future mandatory closure of nonessential retail stores due to the ongoing Covid-19 pandemic is a significant ongoing risk for Card Factory. Loss of revenue from the store estate, which accounts for the majority of sales, would impact the Group's liquidity. Any lasting shift in shopper behaviours following the pandemic may further impact performance of our stores.


We have successfully secured additional bank facilities that provide additional liquidity, should further store closures be required, however, further agreements with our banks may be necessary, if any additional periods of closure are prolonged. Alteration to our store estate may be required - our short lease terms allows us to review locations and hold constructive discussions with landlords to manage our property costs. Investment in capacity to meet online sales demand and diversification of sales with retail partners provides other routes to the customer, via 'essential retailers'.




Geopolitical Instability
 
Since 2020:  New


The Group is reliant on a wide range of products supplied from the Far East, particularly China. Increasing political tension with China, and potential for increasing tariffs on imports (or countries which could provide alternative supplies) could disrupt supply and/or result in a need to increase sale price, which may impact our value proposition or, potentially reducing sales or profitability.


Any cost increases for imported products are likely to affect competitors equally. In the medium-term the business is proposing to on-shore a larger proportion of card production to its Printcraft business in the UK, with investment in technology to facilitate this. Buyers are also actively reviewing alternative supply sources and reviewing the applicable tariffs and duties to seek to maintain value and quality of supply to maintain our competitive range proposition.




Finance and treasury
 
Since 2020: Unchanged


Cash management has become critical for the Group, particularly as revenue has been severely reduced due to mandatory closure of stores for extended periods and the risk of further closures due to the Covid-19 pandemic.
 
Group finance arrangements and a reliance on overseas suppliers mean that a lack of appropriate levels of covenant headroom and/or cash resources; interest or exchange rate fluctuation, or inadequate cost control could impact operations and performance.


Following refinancing in May 2021, additional headroom has been created that provides a platform for stabilising and implementation of the strategic plan. The Board will continue to carefully manage the liquidity position and identify other opportunities to improve the balance sheet and liquidity.
 
The Group will continue to hedge against interest rate and currency fluctuations in the CFO's Review (page 38 of the Annual Report).
 




Operational Risks
 




ERP Implementation
 
Since 2020:  Reduced


The Group has commenced development of its new ERP (Enterprise Resource Planning) solution to replace multiple existing systems that are end-oflife. This significant project involves changing the core IT infrastructure on which the Group operates, to facilitate efficiencies and provide a platform future growth. However, ensuring appropriate design of any ERP system, and implementation of business change to realise the benefits of it, require proper execution. There are inherent risks of business disruption, data loss or delays in any ERP implementation.


Our ERP implementation is being effected on a phased basis, following detailed testing, with support from specialist third parties, and strong governance, designed to materially adopt established solutions, with limited
bespoke arrangements. The initial phase is due to be cut-over in October 2021 affecting master data, point of sale data and finance system changes. It has been subject to detailed design, with extensive consultation across the business to understand requirements, and will be subject to extensive testing and user training as part of implementation. Clear business mitigation plans will be defined in the event of any issues at the point of go live.




IT Infrastructure and risk of IT/security disruption
 
Since 2020:  Increased


Our IT infrastructure includes many legacy systems, some of which are unsupported and some which are subject to extensive tailoring. Many IT systems need further investment and development to ensure they are resilient, secure and support the strategic ambitions and business transformation agenda of the Group, in addition to maintaining our day-today operations. This is critical to our future success.


The Group is implementing an IT strategy which prioritises mitigation of the more material risks (which are subject to monthly reviews) to improve the resilience of the IT systems, with additional resource commitments to maintain and support the current systems and implement system changes where required (in addition to the ERP Implementation). This includes supplementing the cyber security protection and enhancing frequency and resilience of server backup.




HR Compliance 
 
Since 2020:  No change 


Compliance requirements for our colleagues continue to grow, explicitly through legislations and also indirectly via case law with National Living and Minimum Wage, Holiday Pay and Equal Pay. The Covid-19 pandemic has also required regular reviews of operations to improve the Health and Safety of our colleagues and compliance with the Coronavirus Job Retention Scheme rules (and the equivalent in Ireland). Compliance is time-intensive and costly
with sanctions becoming more punitive.


The business has undertaken an extensive review and adopted policies and technology to support ensuring colleagues are paid for all the hours they work, designed to ensure compliance with minimum wage requirements. An internal audit review confirmed these systems and processes are effective. The HR specialists within the Group monitor regulatory changes to ensure steps are taken to maintain compliance.




Loss of key personnel & organisational culture
 
Since 2020:  No change


Retaining key colleagues remains challenging. Effective succession planning and ensuring we have the capacity, capability and organisational structure to implement our strategy are critical to the Group's long‑term success. Colleague retention is also aided by ensuring the business has a culture, management cohesion and leadership behaviours that support the Group's strategic vision. This is critical to long-term sustainable success.


A full review of the organisational design and reward applicable to all colleagues within this structure is being progressed which, once complete, should ensure clear, transparent structures and competitive benefits are provided to aid retention and development of succession plans. Retention of colleagues at stores remains challenging where a large proportion of staff are paid National Minimum/Living wage. Other benefits, such a personal development and opportunity for career progression are used, with sales based bonus and SAYE incentives.




Supplier CSR Breach
 
Since 2020: New


The Group relies on a range of third party suppliers for many product ranges. Failure to ensure such suppliers meet our standards, including anti-corruption
compliance, non-exploitation and all safety standards could damage our reputation. Recent travel restrictions have limited the opportunity for site inspections by us or our independent inspectors which could increase the
opportunity for non-compliance. Investors may elect to sell or not invest in the Company if such standards are not maintained, which could reduce our share price and limit opportunity to raise future funding.


Card Factory maintains it strict 'no audit-no order' policy, and adherence to ethical and technical standards which are subject to appropriate audits. As a member of SEDEX (Supplier Ethical Data Exchange), we monitor whether any human rights issues arise in or supply chain to take prompt action. Suppliers of cards are required to meet the high due diligence requirements (including Forestry Stewardship Council® (FSC®, License code:FSC-C128081)) Certified sourcing standards).




Business Continuity
 
Since 2020: No Change 


Major disruption to our business, but particularly our manufacturing and online fulfilment facility, Printcraft, our distribution centres or our design studio, could severely affect our performance and profitability.


Ongoing IT system and process improvements and detailed disaster recovery planning is in place for the Printcraft site, which also services fulfilment of online orders. Further disaster recovery planning is required for other key parts of the business, to minimise disruption to trade. Insurance cover is in place to mitigate risk.




Strategic Risks
 




ESG Compliance and climate change risks
 
Since 2020:  Increased 


The future success of Card Factory relies on progressive adoption of sustainable solutions to support the environment and long-term growth. Procuring sustainably sourced materials, and development of recyclable products, whilst reducing our carbon footprint are business priorities, recognising that failure to do so is likely to create reputational issues and could limit growth. Managing risks from climate change, including increased demand for paper products may impact
future cost base for the Group.
 


The Group has commenced the journey by developing its ESG Strategy, undertaking a materiality assessment and centralising oversights of its various
ESG initiatives to ensure co-ordination and focused support for priority projects. The Group is reviewing a range of industry approaches to support accelerating progress (e.g. as a signatory to the British Retail Consortium's Diversity & Inclusion Charter) as has set targets (see pages 49 and 53 of the Annual Report) for further improvement of its environmental credentials.




Adapting to customer preferences
 
Since 2020: New


The Group generates most revenue from cards, dressings, balloons and gifts. Customers, trends and tastes can change quickly. It's essential that it successfully predicts and responds to these challenges and to declining high-street footfall and increased reliance on online and digital offering following the Covid-19 pandemic.
 
Competition remains fierce, particularly during key seasonal card-buying occasions, when closure of 'non-essential retail' favoured essential retailers who sell these products. Range depth, quality and value remain key differentiators.
 
Competitor groups, including supermarkets and exclusively online businesses, enjoy strong brand recognition, flexible retail space, purchasing power, more mature multi-channel capability and pricing flexibility.
 
The Group's websites are important sales channels supporting our strategic ambitions. Developing our e-commerce model, including the introduction of 'click and collect' and a mobile app, is critical to meeting evolving customer expectations and shopping preferences and to taking market share in these channels.


Design, Buying, Merchandise Planning or Strategic Partnership teams are operating with data based insights in developing our range, supported by customer segmentation analysis undertaken as part of the refresh of the Group strategy in 2020. Further market research and use of market research technology solutions, supports improved range and design decision making.
 
A structured, data-led, programme of redesigning categories on a rolling basis ensures 'newness' to keep customers returning to shop with us.
 
Merchandising, marketing and PR initiatives help maintain brand perception.
 
Significant investment in the new online platform for cardfactory.co.uk and related iOS and Android apps should assist to support growth in the online business and capture channel shift, which has accelerated over the Covid-19 pandemic.
 
Strategic partnerships e.g. Aldi, TRS support brand development and facilitate reaching customers who shop for convenience.




 
Directors' Responsibility Statement
The Annual Report and Accounts 2021 contains a statement of directors' responsibility by Darcy Willson-Rymer, Chief Executive Officer, and Kristian Lee, Chief Financial Officer, by order of the Board in the following form:
"We confirm that to the best of our knowledge:
·      the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and
·      the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy."
Related Party Transactions
Details of the only material transactions with related parties during the financial year ended 31 January 2021 are set out in note 28 of the financial statements on page 148 of the Annual Report and Accounts.
 

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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
  END
 
 
ACSEASKNAFSFEFA