REG - Card Factory PLC - Final Results
03/05/2023 07:00
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RNS Number : 1890Y Card Factory PLC 03 May 2023
3 May 2023
Card Factory plc ("cardfactory" or the "Group")
Preliminary results for the year-ended 31 January 2023
cardfactory, the UK's leading specialist retailer of greeting cards, gifts and
celebration essentials, announces its preliminary results for the year ended
31 January 2023 ('FY23').
Continued positive momentum, underpinned by a resilient balance sheet:
· cardfactory LFL(1) revenue growth of +6.7% is underpinned by a strong
performance in the core business activity of store-based sales and Everyday
card ranges, accompanied by strong trading through the Christmas season.
o Store revenue grew +7.6% on a LFL(1) basis, reflecting a return of
customers to the high street, the success of our new ranges and our strong
value for money proposition, alongside the successful implementation of
targeted price increases.
o cardfactory.co.uk sales fell -18.8% year-on-year, due to a combination of
customers returning to the high street and the impact of Royal Mail strikes
during the Christmas trading period, but remained up significantly in
comparison to pre-pandemic (+86.4% 3Y LFL(1)).
· EBITDA(1) of £112.0m (FY22 £85.6m) as the majority of inflationary
pressures were offset through a combination of efficiency measures and
targeted price increases.
· PBT of £52.4m (FY22 £11.1m) includes £3.5 million of one-off
benefits due to the release of CJRS provision and refinancing of debt
facilities.
· Strong operating cash conversion(1) through the year of +96% contributed
to a reduction in net debt (excluding lease liabilities) to £57.2m (FY22:
£74.2m), which is significantly reduced compared to pre-pandemic levels
(FY20: £143.1 million), in addition to previously deferred rent positions,
totalling £10.8m, fully unwinding during the year.
· Successful refinancing in April 2022 provides platform for strategic
growth, with more flexible debt portfolio enabling reduction in gross debt.
· Capex investment increased from £6.9m in FY22 to £18.2m in FY23 to
support key enablers to our strategic growth plans including ERP
implementation, store investment and ecommerce initiatives to progress our
omnichannel ambitions.
· Targeted price increases delivered approximately two-thirds of the
LFL growth, with both transactions and average basket values increasing
compared to last year.
Financial summary
Financial Metrics FY23 FY22 Change
Revenue £463.4m £364.4m 27.1%
EBITDA (1) £112.0m(2) £85.6m 28.6%
Profit before tax £52.4m(2) £11.1m 368.5%
Leverage (excl. lease liabilities) (1) 0.5x 0.9x (44.4%)
Cash from operations (1) £107.8m £113.6m (5.2%)
Basic EPS 12.9p 2.4p 437.5%
( )
(1) For further information and definitions of Like-for-like (LFL) and other
alternative performance measures see Explanatory Notes (below) "Alternative
Performance Measures ("APMs") and other explanatory information".
(2) EBITDA and PBT for FY23 includes one-off benefit associated with CJRS
settlement (£2.5 million). Profit before tax includes a further one-off
benefit related to refinancing of debt facilities (£1.0 million).
Delivering against our strategic priorities:
· Stores
o The learnings and results we have from our model store format trial have
been used to develop our Store Evolution Programme.
o This comprises three components - capex light space realignment being
applied across 750 stores in FY24; display reorganisation being applied across
50 stores in FY24; updated store design being applied to new stores and a
select number of existing stores in line with existing refit costs.
o Continued focus on expanding in underpenetrated markets with the opening
of three small format trial stores in central London, as well as continued
expansion in the Republic of Ireland.
· Leadership in Everyday Card
o Revenue growth in Everyday card was driven by range development and our
targeted pricing strategy.
o Permanent 3 for 2 mechanic on general card range introduced delivering
+20% LFL revenue growth and +48% LFL volume growth in this category.
o Entire review of Everyday card range undertaken with new ranges developed
and expanded diversity across all card ranges to ensure all of our customers
are included.
· Online including omnichannel
o Completed the transition of cardfactory.co.uk and gettingpersonal.co.uk to
a new shared platform to enable phased expansion of online ranges.
o Click & Collect trial completed across 87 stores in FY23 with average
order value 16% higher than our current online average and an indication of
in-store basket uplift with 7% of customers purchasing an additional item in
store. UK nationwide rollout of Click & Collect was completed at the end
of April, with further developments to the service planned in FY24.
o Major app update added a range of new features.
· Gifts & Celebration Essentials (formerly referred to collectively
as 'complementary categories')
o Strong LFL growth of +11.4% reflective of range development work and
expansion of Everyday and Seasonal gifting which will continue across a wider
proportion of the estate to provide customers with greater choice.
o Broadened categories by introducing third-party brands and licensed
ranges.
o New categories introduced online including flowers and alcohol, generating
an 11% uplift in online gifting sales in H2 FY23.
· Partnerships
o New partnership agreement signed in April 2023:
§ Long-term master franchise agreement signed with Middle East-based, Liwa
Trading Enterprises, who will act as our exclusive franchise partner in the
region, to open c. 36 cardfactory branded stores in the Middle East.
o Acquisition post-year-end of SA Greetings:
§ Foothold into target South African market with 28 "Cardies" retail stores.
§ Local wholesaling offer through the company's printing, merchandising and
warehousing capacity.
§ Provides opportunity to build out further wholesale partnerships in South
Africa.
o Market opportunity research conducted across both card and gifting,
validating our seven international markets of interest.
o Foundations scoped and in development to support franchise and wholesale
partnership models.
Current trading and Outlook:
· Trading in the first weeks of the new financial year has been
encouraging and slightly ahead of the Board's expectations. Both Everyday
and Seasonal ranges have performed strongly across cards and gifts during this
time, with our offer across our FY24 Spring seasons of Valentine's Day and
Mother's Day also landing well with customers, resulting in a robust
performance.
· As we look ahead, we continue to have confidence in our ability to
mitigate cost inflation through a combination of productivity initiatives and
targeted price actions. This approach, together with our clear growth
strategy and compelling value-led proposition, gives us confidence the Group
will continue to make strategic and financial progress in the year ahead.
· The Board remains confident in the compelling growth opportunity for
the business, as well as in our ability to use our expertise and the
flexibility in our business model to drive profitability and returns for
shareholders over the long term. As part of our Capital Markets Strategy
Update, we will outline a pathway for revenues of around £650m and margins
around 14% in FY27, supported by a capital investment plan of £24m per annum,
over the next three years.
Darcy Willson-Rymer, Chief Executive Officer, commented:
"I have been incredibly pleased with our performance this year which has been
ahead of expectations. These strong results reflect positive momentum across
the business, including notable progress on our strategic growth initiatives,
buoyed by the marked shift of customer spend back towards the high street.
Revenue growth has been underpinned by a strong performance of store-based
sales and Everyday card ranges, alongside strong trading through the Christmas
season, with new ranges and our compelling value for money offer clearly
resonating with customers, driving both store transactions and average basket
values.
Proactive measures that we put in place to manage the inflationary pressures
faced in the year, coupled with our strengthening financial position, have
underpinned positive progress on our strategic priorities.
Whilst remaining mindful of the ongoing impact of the cost of living crisis on
our customers, we are confident that we are well positioned to make good
progress in our transition to becoming the market leading omnichannel retailer
of cards and gifts."
Preliminary results webcast and Capital Market Strategy Update
There will be an analyst presentation for the preliminary results today at
10:00 am in central London. We will also provide a live video webcast
available via the following link
(https://storm-virtual-uk.zoom.us/webinar/register/WN_QCORwrDbTRyZWK9dW1EEmQ)
.
The results presentation will be followed by a Capital Markets Strategy
Update, commencing at 11:30 am. The event will be hosted by CEO Darcy
Willson-Rymer and will feature a series of short presentations from some of
the cardfactory senior management team who will provide a broader update on
strategic plans through to FY27.
A live video webcast will be available via the following link
(https://nam12.safelinks.protection.outlook.com/?url=https%3A%2F%2Furl6.mailanyone.net%2Fscanner%3Fm%3D1phuTe-0000PM-3t%26d%3D4%257Cmail%252F90%252F1680190800%252F1phuTe-0000PM-3t%257Cin6e%257C57e1b682%257C11051986%257C10909687%257C6425AEC6FBDC689A21FB12139436FA83%26o%3D%252Fphtt%253A%252Fstst-orairumvokl-.zomu.nwusrbia%252Feeg%252Fr%252FstreiLrWN1_6m_NtO4SSXqaiIQ30t6%26s%3Dfiu4tblnm4KmNra4uDXv2yN7BtM&data=05%7C01%7CToby.Zeal%40teneo.com%7C90f05f7ac0ac470df2de08db313ec171%7C3601ef954dea4cfc9a88eaef968ce713%7C0%7C0%7C638157917841522933%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=kxVjB9pNLCSAI0JhXnmBszk4MJdctQTLKza2k7Lo414%3D&reserved=0)
. Those analysts who wish to join in person are requested to contact Yasemin
Balman of Teneo on the number provided below or by
emailing cardfactory@teneo.com (mailto:cardfactory@teneo.com) .
A copy of the webcasts and accompanying presentations will be made available
via the cardfactory investor relations website: www.cardfactoryinvestors.com
(http://www.cardfactoryinvestors.com/) .
Enquiries
Card Factory
plc
via Teneo (below)
Darcy Willson-Rymer, Chief Executive Officer
Teneo
+44 (0) 207 353 4200
James Macey White / Jo
Blackshaw
cardfactory@teneo.com (mailto:cardfactory@tulchangroup.com)
This announcement 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.
Explanatory notes
Alternative Performance Measures ("APMs") and other explanatory information
Introduction
In the reporting of the preliminary results and condensed consolidated
financial statements, the Directors have adopted various Alternative
Performance Measures ('APMs') of financial performance, position or cash flows
other than those defined or specified under International Financial Reporting
Standards ('IFRS'). These measures are not defined by IFRS and therefore may
not be directly comparable with other companies' APMs, including those in the
Group's industry. APMs should be considered in addition to IFRS measures and
are not intended to be a substitute for IFRS measurements.
Purpose
The Directors believe that these APMs provide additional useful information on
the performance and position of the Group and are intended to aid the user in
understanding the Group's results.
The APMs presented are consistent with measures used internally by the Board
and management for performance analysis, planning, reporting and incentive
setting purposes.
Definitions of the APMs used in this report are as follows:
"EBITDA" is earnings before interest, tax, gains or losses on disposal,
depreciation, amortisation and impairment charges. Earnings is equivalent to
profit after tax calculated in accordance with IFRS and each adjusting item is
calculated in accordance with the relevant IFRS. A reconciliation of EBITDA to
operating profit is provided in note 3 to the condensed consolidated financial
statements. The Group uses EBITDA as a measure of trading performance, as it
usually closely correlates to the Group's operating cash generation.
"Leverage" is the ratio of Net Debt to EBITDA for the previous 12 months. The
Group monitors and reports leverage as a key measure of its financing position
and performance. Leverage is also a key covenant defined within the Group's
financing facilities. A calculation of Leverage (both inclusive and exclusive
of lease liabilities) is provided in the Chief Financial Officer's review
below.
"Like-for-like" or "LFL" calculates the growth or decline in gross sales in
the current period versus a prior comparative period. For stores, LFL measures
exclude any sales earned from new stores opened in the current period or
closed since the comparative period and only consider the time period where
stores were open and trading in both the current and prior period (hence any
periods of lockdown in either period are excluded from both periods).
LFL measures for product lines or categories, where quoted, are calculated
using the same principles.
LFL measures for our online businesses (cardfactory.co.uk and
gettingpersonal.co.uk) compare gross sales for the current and comparative
period made through the respective online platform.
All LFL measures in this report compared FY23 to FY22, unless otherwise
stated. A "3Y LFL" compares FY23 to FY20.
In addition, the Group reports combined Like-for-Iike sales measures for
certain components of the business as follows:
· "cardfactory LFL" is defined as Like-for-like sales in stores plus
Like-for-like sales from the cardfactory website www.cardfactory.co.uk
(http://www.cardfactory.co.uk) ;
· "Online": Like-for-like sales for cardfactory.co.uk and
gettingpersonal.co.uk combined.
Sales by Printcraft, the Group's printing division, to external third-party
customers are excluded from any LFL sales measure.
"Net Debt" is calculated by subtracting the Group's cash and cash equivalents
from its borrowings. Net Debt is a key measure of the Group's balance sheet
strength, and is also a covenant in the Group's financing facilities. The
Group presents Net Debt both inclusive and exclusive of lease liabilities, but
focusses upon the value exclusive of lease liabilities, which is consistent
with the calculation used for covenant purposes.
"Operating cash conversion" is Cash from operations (calculated as cash from
operating activities before corporation tax payments) per the cash flow
statement prepared in accordance with IFRS divided by EBITDA and expressed as
a percentage.
"Percentage Movements" have been calculated before figures were rounded to
£0.1m.
Card Factory plc ("cardfactory" or the "Group")
Preliminary results for the year-ended 31 January 2023
CHAIR'S STATEMENT
Ahead of management expectations, the positive performance of FY23 reflects
the good momentum we have within the business, the strong leadership we now
have in place and the unwavering commitment from our colleagues. With revenue
exceeding pre-pandemic levels and notable progress on our strategic
initiatives, we are well placed to deliver on our growth ambitions.
Year in review
Through FY23 we saw store-based sales and Everyday card ranges underpin our
strong performance. This was accompanied by very positive trading through the
Christmas season with new ranges and our compelling value for money offer
driving improvements in both store transactions and average basket value. We
are encouraged that this trend has continued in our FY24 Spring seasons of
Valentine's Day and Mother's Day. This reflects work undertaken throughout the
year on range curation and improved availability, as well as the successful
implementation of targeted price increases.
As customers returned to the high street, online sales were down year-on-year
but remained significantly ahead of pre-pandemic levels, reflecting the
continued expansion of product ranges online and improvements to customer
experience.
Growth delivery
We have made positive progress on our strategic priorities which are the
building blocks of our future growth ambition, transforming cardfactory into a
market-leading omnichannel retailer of cards and gifts.
Through this strategy, cardfactory will become the UK's number one destination
for all customers seeking unrivalled quality, value, choice, convenience and
experience, however they wish to shop. We will transform cardfactory into the
leading omnichannel brand in the category, helping customers celebrate each
and every special occasion. We will emerge as a global competitor putting
cards and gifts in the hands of more customers.
Delivery of the 'Opening Our New Future' strategy is firmly underway with core
foundations now in place and encouraging progress being made that is
delivering tangible growth, especially in gifts and celebration essentials. As
such, the Board remains confident in the longer-term growth opportunity for
the business and its expectations for revenues reaching around £650m in FY27.
Outlook and financial headwinds
The Board is encouraged by performance since the January 2023 trading update,
with current trading slightly ahead of management expectations. We expect our
performance for the coming year to reflect continued progress on our strategic
growth initiatives.
We have demonstrated our ability in FY23 to mitigate a significant proportion
of inflationary headwinds and based on the current outlook, we are confident
in our ability to continue managing these pressures with a focus on
productivity and efficiencies whilst also benefiting from normalisation of
freight costs and annualisation of targeted price increases implemented in
FY23.
Board appointments
The Board looks forward to welcoming Matthias Seeger as Chief Financial
Officer, who will join the business in May 2023. We extend our thanks to Kris
Lee for the significant role he played in helping guide cardfactory through
the last few years, in particular, during the pandemic-impacted period.
In FY23 we were also pleased to welcome Indira Thambiah as Non-Executive
Director. Indira is an experienced multi-channel retail executive and
consultant.
Following the decision by Octavia Morley to step down from the Board at the
end of January 2023, Indira was appointed Chair of the Remuneration Committee,
with effect from 1 February 2023. Roger Whiteside has assumed the role of
Senior Independent non-Executive Director.
Summary
There is clear, positive momentum within the business and early signs that the
'Opening Our New Future' strategy will help deliver our growth ambition. While
mindful of the ongoing impact of the cost-of-living crisis, we remain
confident that our great value for money proposition across a range of
products and price points will resonate with customers who continue
prioritising celebrating life's moments.
Paul Moody
Chair
3 May 2023
CHIEF EXECUTIVE OFFICER'S REVIEW
Introduction
With sales in FY23 exceeding pre-pandemic levels and delivery of our 'Opening
Our New Future' growth strategy showing early signs of success, it is clear
there is good momentum within the business.
The return of footfall to the high street and the unwavering loyalty from our
customers has made a significant contribution to this success. In addition,
the cultural transformation the business has undergone and the dedication of
colleagues across the business and their willingness to embrace change over
the past two years, has fuelled that return of sales and the growth that we
are now enjoying.
cardfactory needed to become customer-centric in its thinking and approach and
to achieve that we have placed customer data at the heart of our
decision-making. From product creative in our design studio to the customer
service experience training we are giving our colleagues in-store, we are now
applying customer data into our thinking and how we respond to market change.
This is leading to positive, data-led outcomes around the customer which is
being seen across every part of the business.
FY23 performance
Revenue of £463.4 million reflects the continued progress across the
business alongside the shift of customer spend back towards the high street.
cardfactory LFL revenue growth of +6.7% was driven by strong performance of
stores and Everyday card ranges.
Store sales grew +7.6% on a LFL basis reflecting a return of customers to the
high street, the success of our new ranges, our strong value for money
proposition, and selective price increases. It is through the strength of our
store footprint that we will be able to deliver on our omnichannel proposition
and ambitions.
Strong performance in Everyday product across card, gifts and celebration
essentials supported increased sales across the year. We also achieved
double-digit Like-for-like growth in specific card ranges including our fully
refreshed wedding range, as well as life moments and children's.
Christmas trading saw increased store transactions and average basket values,
supported by new ranges, the strength of our expanding gifting offer, and our
strong value for money offer. These trends have continued through to
Valentine's Day and Mother's Day in Q1 FY24.
We successfully executed our pricing strategy in FY23 whilst choosing to
protect our competitive entry price point and building greater value into our
pricing architecture. This resulted in minimal impact on customer switching.
Following expansion of our gifts and celebration essentials (previously
together referred to under the single 'complementary categories' heading we
have now split this out to conform to industry recognised market analysis and
to enable clearer measurement) we have continued to grow share in line with
our strategic priorities. By targeting the gifts and celebration essentials
market we have also been able to recalculate the total addressable UK market
opportunity for cardfactory at £13.4bn.
Customers returning to the high street and the impact of Royal Mail strikes
during the Christmas trading period saw cardfactory.co.uk sales decline -18.8%
year-on-year although this remained significantly up in comparison to
pre-pandemic (+86.4% 3Y LFL). At -34.7%, gettingpersonal.co.uk was also
impacted by postal strikes as well as a pause on new product development while
replatforming was undertaken. This is now complete and will enable the
opportunity for range development and further functionality.
In FY23 we saw a continued robust performance of existing partnerships during
the year with a 10% increase in sales compared to the prior year. Considerable
work was undertaken to lay the foundations for future partnership growth.
Strategy delivery
FY23 was the launch year of our business transformation as we began delivery
of our strategy and we have achieved significant milestones across all our
areas of focus. By delivering on our strategy we are confident we will achieve
our growth ambition of reaching £650m in FY27.
Within our core business, we will build upon our leadership in cards within
the UK using insight-led innovation and range development. This work is well
underway and is delivering sales growth in both Everyday and Seasonal. Store
Like-for-like sales are expected to continue to grow through our store estate
as we continue with our store location optimisation programme and expand into
under penetrated markets.
The building blocks of our additional revenue growth will come from three
areas. Already we are seeing positive growth from our first area of focus:
gifts and celebration essentials. We saw total sales of Everyday gifts and
celebration essentials through our stores, on a Like-for-like basis, increase
by 11.4% with confectionery being the largest sales growth area at +111% and
tableware achieving the largest volume increase at +124%. Our gifting offer
will be further supported by our Store Evolution Programme which has been
developed from the learnings of our model store trial. Comprised of three key
components: space realignment that will be applied across 750 stores in FY24;
display reorganisation that will be applied across 50 stores in FY24; and an
updated store design to new stores and a select number of existing stores in
FY24.
We also made significant progress in delivering on our omnichannel ambition,
rolling out a successful Click & Collect trial across 87 stores. This was
the first of our omnichannel propositions and UK nationwide rollout to over
1,000 stores was completed at end of April 2023. Further developments to the
service are planned for FY24.
Finally, for partnerships we are pleased to have announced our first master
franchise partnership in the Middle East. Our exclusive franchise partner in
the UAE, Liwa, will open c. 36 cardfactory branded stores in the Middle East
over the next five years. We also recently announced the acquisition of SA
Greetings, meaning we now have our first presence within this market both as a
retailer and wholesaler. This supports our partnerships strategy by providing
access to key wholesale accounts through the company's printing, merchandising
and warehousing capacity. It also provides us with the opportunity to learn
how we can deliver similar local capability in our other target international
markets. In FY23 we completed the research of the international market
opportunity for both card and gifting, validating our seven international
markets of interest. The foundations for our partnership model have now been
scoped and are in development to support both franchise and wholesale
partnership models. We also invested in our transformation capability with a
new Transformation Office which is providing the planning, collaboration and
risk management diligence that will ensure we deliver at pace, to plan, on
time and on budget
Responding to headwinds
The successful management of significant inflationary cost pressures faced in
FY23 was achieved through a combination of proactive measures including
efficient management of costs and working capital, improved store efficiencies
and targeted price increases, alongside benefits from hedging policies across
both energy and foreign exchange.
People & Culture
Creating the culture and behaviours that both addresses barriers to
transformation and unlocks the potential of the business is fundamental for
any business which is serious about a growth agenda. The fact that we have
been able to make such a strong start in FY23 on the delivery of our strategy
is down to the fact that we have made positive headway in evolving our culture
and behaviours.
As we enter FY24, it is clear that the progress we have made is already paying
dividends. The business is delivering on the strategy from a position of
strength with a powerful culture and strong foundations in place.
This change has been recognised not just in our delivery but also through
external recognition with cardfactory named as the number one best big retail
business, and the third best big company in the UK to work for in Best
Companies Q1 2023 awards. We are delighted and very proud to receive this in
recognition of our commitment to workplace engagement.
In FY23 we also refreshed our brand, placing customers and their celebrations
at its heart. As part of this work, we have updated our values to reflect both
the natural evolution of the business and the values we need to live and
breathe if we are going to successfully deliver our growth strategy. For the
whole team at cardfactory, these are values we are actively embracing in
everything we do from the way we make decisions, interact with our customers
and each other, through to how we are approaching the delivery of our
strategy.
Our ESG commitment
The delivery of our ambitious 'Opening Our New Future' growth strategy and the
business transformation this requires are underpinned by our commitment to
operate sustainably across all areas of our business. As such, work has begun
to update our five-year ESG strategy and roadmap, starting with a refreshed
materiality assessment and assessment of our scope 3 greenhouse gas emissions
which will ensure our priorities reflect the changing world around us and
remain aligned with those of our stakeholders.
At the same time, we continued to make positive progress through FY23. One
highlight was the business entering into partnership with the Woodland Trust
to support their work to protect, restore and create native woodland in the
UK.
Summary
The business has a strengthened balance sheet now in place and we are clear on
our core business priorities and building blocks of growth. Having made a
strong start on our growth delivery in FY23, we have good momentum within the
business which will enable us to reach our revenue target of around £650m in
FY27.
Darcy Willson-Rymer
Chief Executive Officer
3 May 2023
CHIEF FINANCIAL OFFICER'S REVIEW
Financial Highlights
The Group has delivered a strong performance in the year ended 31 January 2023
(FY23), the first full year of trading post-pandemic, with results ahead of
management expectations set at the start of the year as follows:
- Encouraging trading performance in stores, with stores
Like-for-like(1) sales +7.6% compared to the prior year underpinned by growth
in Everyday ranges. Sales are now slightly ahead of pre-pandemic levels.
- Year-on-year improvement in EBITDA to £112.0 million reflects
sales growth plus effective management of inflationary headwinds and targeted
investment in people, systems and infrastructure to support growth.
- Profit before tax of £52.4 million includes £3.5 million of
one-off benefits relating to CJRS settlement and refinancing.
- Cash from operations of £107.8 million, with reduction in net
debt to £57.2 million having cleared £10.8 million of Covid-19 rent
deferrals.
- Successful refinancing of banking facilities to September 2025,
providing liquidity headroom to support delivery of the strategy.
FY23 FY22
Revenue £463.4m £364.4m
EBITDA (1) £112.0m £85.6m
Profit before tax £52.4m £11.1m
Basic earnings per share 12.9 pence 2.4 pence
Net debt (1) £57.2m £74.2m
Cash from operations £107.8m £113.6m
Leverage (excl. lease liabilities) (1) 0.5x 0.9x
(1) For definitions of Like-for-like (LFL) and other alternative performance
measures, see Explanatory Notes (above) "Alternative Performance Measures
("APMs") and other explanatory information".
Financial Performance
Sales
£m Total Sales
FY23 FY22
Stores 441.1 336.0
cardfactory Online 8.8 10.9
Getting Personal 8.5 12.9
Partnerships 5.0 4.6
Group 463.4 364.4
LFL Sales
FY23 FY22
Stores +7.6% -5.7%
cardfactory Online -18.8% -1.5%
cardfactory LFL +6.7% -3.9%
Getting Personal -34.7% -21.6%
Total Group sales for FY23 were £463.4 million, an increase of £99.0 million
compared to the previous year.
Our stores remain the source of a significant majority of our revenues, and
therefore a large part of this increase in total sales reflects that stores
were forced to close for approximately ten weeks in the first quarter of FY22
due to Covid-19 related lockdowns. However, we are encouraged by the positive
stores LFL of +7.6% which reflects an increase in both transactions and
average basket values compared to the prior year when considering just the
period where stores were open in both years.
The increase in basket values was partly driven by targeted price increases;
which have helped to offset the cost of inflationary headwinds, without any
significant impact on sales volumes.
We were pleased to see strong performance in our Everyday ranges, and our
continued drive to improve our offer to customers was reflected in
double-digit LFL growth across a number of celebration categories, including
wedding, life moments and children's.
Online sales, across both cardfactory.co.uk and gettingpersonal.co.uk, were
down compared to the prior year, falling 18.8% and 34.7% respectively compared
to FY22, reflecting the investment phase of these businesses, as well as being
impacted by Royal Mail strikes in the run up to Christmas and customers
returning to the high street. However, online remains an important enabler of
store sales and a key part of our omnichannel strategy and cardfactory.co.uk
sales remain significantly ahead of pre-pandemic levels.
Partnership sales increased to £5.0 million (FY22: £4.6 million). FY23 saw a
3% increase in points of sale and we are now selling through 949 partner
locations, and this remains an area where we expect to see growth in the
future supported by the investment we have made in our team to add capability
during this year.
Optimisation of our store portfolio continues to be an important source of
sales growth. During FY23 we opened 33 new stores and closed 21 stores,
including five relocations. This resulted in a net increase in the overall
store portfolio of 12 stores. At the end of the financial year, our store
portfolio stood at 1,032 stores, including 27 stores in the Republic of
Ireland and three trial central London stores.
Gross Profit
FY23 FY23 % Sales FY22 FY22 % Sales
£m £m
Group Sales 463.4 364.4
COGs (146.8) (31.7%) (124.1) (34.1%)
Product Margin - Constant Currency (1) 316.6 68.3% 240.3 65.9%
FX gains / losses 1.5 0.3% 2.6 0.7%
Product Margin 318.1 68.6% 242.9 66.6%
Store & Warehouse Wages (109.6) (23.7%) (91.4) (25.1%)
Property Costs (26.3) (5.7%) (15.8) (4.3%)
Other Direct Costs (21.5) (4.7%) (19.2) (5.2%)
Gross Profit 160.7 34.7% 116.5 32.0%
(1) Product margin calculated on a constant currency basis using a consistent
GBPUSD exchange rate across both periods. FX gains and losses reflect
conversion from the constant rate to prevailing market rates.
Overall gross profit for the Group increased by £44.2 million to £160.7
million, a 2.7ppts improvement in gross margin to 34.7%. The overall trend in
the year reflects active management of inflationary pressures, in particular
the benefit of our currency and energy hedging and through targeted price
increases, plus efficiency benefits arising from a full-year of trade and
deliberate actions taken to improve productivity and stabilise costs.
Product margins, calculated on a constant currency basis, improved 2.4ppts
from 65.9% in FY22 to 68.3% this year. This improvement largely reflects the
impact of targeted price increases on sales, which offset the impact of wage
inflation as well as material price inflation. Product margins include the
purchase price of goods, along with inbound freight, carriage and packing.
Product margin also benefitted from a reduction in stock provisions as supply
chain and inventory management challenges that affected FY22 did not recur in
FY23, and overall inventory levels normalised following the pandemic. Changes
in the value of stock provisions and other stock losses had a small negative
impact on margin of approximately 0.5ppts in the year.
Within the cost of goods sold, we saw a 0.6ppts increase in the cost of
inbound freight, as market prices for sea freight rose significantly towards
the end of 2021 and remained high through much of the 2022 calendar year. This
added over £5 million to the overall cost of goods sold in FY23. This impact
was partially mitigated through optimisation of inbound shipments where
possible.
The Group purchases approximately 50% of its total goods for resale in US
dollars and has a well-established hedging policy to manage the risk of
adverse fluctuations in market GBPUSD rates. In FY23 we achieved an average
GBPUSD rate of approximately 1.32 on US dollar purchases, slightly adverse to
the rate achieved in FY22 reflecting the weakening of sterling in the period,
but still significantly ahead of the average market spot rate for the year.
Store and warehouse wages reduced by 1.4ppts year-on-year as a percentage of
sales, which includes a one-off £2.5 million benefit in respect of provisions
released following the settlement of our CJRS position with HMRC. Excluding
this credit and making an equivalent adjustment in the prior period, store
wages as a percentage of sales are comparable in both years despite national
living wage increases of 6.6% being applicable from April 2022, due to
targeted price increases and more efficient deployment of labour resources,
enabled by stores being open for the whole year. Employee costs for FY22 are
stated net of CJRS support received in that period.
Property costs increased by 1.4ppts as a percentage of sales, reflecting the
cessation of extended business rates reliefs from April 2022. Property costs
do not include rents as the accounting treatment for leases results in these
costs being reflected as right-of-use depreciation and a finance charge on
lease liabilities, both below gross profit, a combined charge of £39.4
million in FY23 (FY22: £40.7 million).
Other direct expenses include warehouse costs, store opening costs, utilities,
maintenance, point of sale and pay-per-click expenditure. A large proportion
of costs in this category are variable in relation only to the size of the
store portfolio and available trading days, meaning whilst overall costs
increased, they fell as a percentage of sales given the improved trading
performance in the year. The Group has benefitted from its long-term energy
hedge, which fixed commodity costs at FY22 levels. All of the Group's UK
energy costs will continue to benefit from this hedge until September 2024.
EBITDA & Operating Profit
FY23 FY23 % Sales FY22 FY22 % Sales
£m £m
Group Sales 463.4 364.4
Gross Profit 160.7 34.7% 116.5 34.2%
Operating Expenses (48.7) (10.5%) (38.9) (10.7%)
Other operating income - - 8.0 2.2%
EBITDA 112.0 24.2% 85.6 23.5%
Depreciation & Amortisation (10.3) (2.2 %) (11.6) (3.2%)
Right-of-use asset depreciation (35.1) (7.5%) (37.4) (10.3%)
Impairment Charges (2.8) (0.6%) (5.0) (1.4%)
Operating Profit 63.8 13.8% 31.6 8.7%
Operating expenses (excluding depreciation and amortisation) include
remuneration for central and regional management, business support functions,
design studio costs and business insurance together with central overheads and
administration costs.
Total operating expenses increased by £9.7 million to £48.7 million in FY23,
reflecting the cessation of furlough for central staff alongside investment in
our people and strengthening our IT infrastructure and marketing approach to
support our 'Opening Our New Future' strategy to provide a platform for future
growth.
As a result, driven by the improved trading performance, effective management
of inflationary pressures and carefully targeted investment for growth, Group
EBITDA increased to £112.0 million in FY23.
Total depreciation and amortisation charges reduced by £3.6 million compared
to the prior year. This largely reflects a reduction in depreciation charges
on right-of-use assets in relation to our store portfolio. Store rents, and
therefore the related right-of-use assets, have continued to fall since the
pandemic and our dynamic, flexible approach to the store portfolio has enabled
us to continue to capture these reductions as part of lease renewals or
relocations.
Impairment charges, net of reversals, in respect of store right-of-use assets
reduced from £5.0 million in FY22 to £1.3 million in FY23, reflecting the
improved trading performance and our future expectations regarding store
performance and cost inflation. Impairment charges for FY23 also includes a
one-off £1.5 million impairment charge in respect of online platform
development for gettingpersonal.co.uk. The impairment reflects development
work that did not form part of the final solution, which was deployed shortly
after the year end in March 2023.
Profit Before Tax
FY23 FY23 % Sales FY22 FY22 % Sales
£m £m
Group Sales 463.4 364.4
Operating Profit 63.8 13.8% 31.6 8.7%
Finance Costs (11.4) (2.5%) (20.5) (5.7%)
Profit Before Tax 52.4 11.3% 11.1 3.0%
Total finance costs reduced significantly compared to the previous year, from
£20.5 million to £11.4 million. This largely reflects a reduction in loan
issue costs charged to the income statement.
£m FY23 FY22
Interest on loans 6.0 6.8
Loan issue cost amortisation 0.9 10.4
IFRS 16 Leases interest 4.5 3.3
Total Finance Expenses 11.4 20.5
FY22 included £10.4 million of costs associated with the May 2021 refinancing
which included costs related to a potential equity raise, the requirement for
which was removed by the subsequent refinancing in April 2022.
Our updated facilities, described in further detail below and in Note 12 to
the condensed consolidated financial statements, provide much greater
flexibility to the Group, which in combination with continued delivery of
operating cash flows has enabled us to reduce levels of gross debt. Taken in
conjunction with our interest rate hedging programme, which has provided a
degree of protection from increases in market rates during FY23, the interest
payable on our debt facilities reduced compared to the previous year.
As a result, profit before tax for the year was £52.4 million, up £41.3
million from £11.1 million for the previous year.
Taxation
The Group is committed to being a responsible taxpayer, paying the right
amount of tax at the right time is a fundamental principle of our operation.
We aim to maintain an open and honest relationship with the tax authorities in
the jurisdictions where we operate.
During FY23, we underwent a routine review of our business risk rating with
HMRC, which was confirmed in March 2023 as 'low'.
Our improved trading performance and subsequent increase in profitability, as
described above, means the Group made cash payments in respect of UK
corporation tax for the first time since 2020. Our tax charge for the year was
£8.2 million (FY22: £3.0 million). This represents an effective rate of
corporation tax for the year of 15.1%, which is lower than the standard rate
of UK Corporation tax applicable in the period of 19%. This principally
reflects the impact of prior year adjustments, with no tax ultimately payable
in respect of FY22 owing to the allocation of brought-forward tax losses and
reliefs to the period, when the tax computations for that period were
finalised, partly offset by the impact of deferred tax balances being accrued
at the higher rate of 25% applicable from 1 April 2023. The Group paid cash
taxes of £7.5 million in FY23, which all relate to the FY23 financial year.
Earnings per share
The net result for the year was a profit after tax of £44.2 million,
increased from £8.1 million in FY22. As a result, basic earnings per share
(EPS) for the year was 12.9 pence, with diluted EPS of 12.8 pence.
FY23 FY22
Profit after tax (£m) 44.2 8.1
Basic EPS (pence) 12.9 pence 2.4 pence
Diluted EPS (pence) 12.8 pence 2.4 pence
Cash flows
FY23 FY22
£m £m
Net cash from Operating Activities 99.9 113.7
Net cash used in Investing Activities (18.2) (6.9)
Net cash used in Financing Activities (110.1) (81.0)
Net Cash Flow for Year (28.4) 25.8
Operating cash flows less lease repayments(1) 47.4 59.2
Operating cash conversion(2) 96% 133%
(1) Operating cash flows less lease repayments is net cash from operating
activities of £99.9 million less lease payments of £52.5 million.
(2) Operating cash conversion is Cash from operations (cash from operating
activities before tax payments) of £107.8 million as a percentage of EBITDA.
Alternative performance measures are described in further detail in the
explanatory notes (above).
( )
The Group continued to deliver positive cash performance in FY23, with cash
from operations (before lease repayments and tax) of £107.8 million (2022:
£113.6 million) contributing to an overall reduction in net debt (See below).
Operating cash flows were slightly lower than in the previous year, which
reflects the normalisation of working capital profiles as we delivered a full
year of trading - including an £11 million increase in inventory levels to
support higher sales - partly offset by a net one-time benefit arising from
the realignment of VAT payment quarter ends with our fiscal year. The position
at the end of FY22 was impacted by the protective actions taken to secure cash
and liquidity during and immediately after the pandemic and the impact on
inventory balances as a result of global supply chain issues during that year
that did not recur in FY23. Operating cash conversion (calculated as EBITDA /
cash from operations) was 96%, despite the working capital normalisation.
Capital expenditure increased from £6.9 million to £18.2 million, as
investment increased following the cessation of all but essential spend during
the pandemic-affected years and the commencement of projects to drive future
growth.
Cash used in financing activities includes £45.1 million of debt facility
repayments (2022: £8 million of debt repayments) following the refinancing
and subsequent management of the revolving facility position, and £52.5
million of payments in respect of lease liabilities for the store portfolio
(2022: £54.5 million).
Lease payments were higher than normal, albeit broadly aligned with the prior
year, reflecting the continued settlement of deferred payment plans agreed
during the pandemic. The Group cleared approximately £11 million of deferred
rents during FY23 and has no VAT or rent deferrals outstanding at 31 January
2023.
Balance Sheet
Capital Expenditure
Total capital expenditure in FY23 was £18.2 million, increased from £6.9
million in FY22.
Key projects included the continuing development of our Group-wide ERP
implementation, with the next significant functionality updates expected
during FY24. We also invested in our new model stores, in addition to ongoing
spend in relation to the expansion and optimisation of the store portfolio.
eCommerce initiatives to support our omnichannel strategy were another key
focus, with the new platform for our gettingpersonal.co.uk website going live
in March 2023.
Looking forward, we expect capital investment to continue to increase to
approximately £24 million per annum, as we invest to deliver our strategy.
Net Debt
FY23 FY23 Leverage FY22 FY22 Leverage
Net Debt £m Net Debt £m
Current borrowings 50.1 25.5
Non-current borrowings 17.4 85.5
Total Borrowings 67.5 111.0
Add back capitalised debt costs 1.4 1.5
Gross Bank Debt 68.9 112.5
Less cash (11.7) (38.3)
Net Debt (exc. Leases) 57.2 74.2
Leverage (exc. Leases) 0.5x 0.9x
Lease Liabilities 105.4 119.8
Net Debt (inc. Leases) 162.6 194.0
Leverage (inc. Leases) 1.4x 2.3x
On 21 April 2022, the Group agreed an updated and amended financing package
with its banking partners, which reduced the overall quantum and extended the
term of the Group's facilities. The new package also provided greater
flexibility, with a proportion of the previous term loans effectively repaid
and replaced with a revolving facility.
The revised facilities comprised term loans of £30 million, CLBILS of £20
million and an RCF of £100 million. The CLBILS are subject to an amortising
repayment profile with final maturity in September 2023. The Term Loans are
set in two tranches, both with an amortising repayment profile. Tranche 'A'
has a final maturity in January 2024 and Tranche 'B' is coterminous with the
RCF in September 2025. The interest rates applicable to each facility are set
out in Note 12 to the condensed consolidated financial statements.
The Group focuses on net debt excluding lease liabilities, this reflects the
way the Group's covenants are calculated in its financing facilities. The cash
generation trend described above has contributed to a reduction in both gross
and net debt during FY23, with Leverage (calculated as Net Debt / EBITDA)
falling to the bottom end of our target 0.5-1.5x range as a result.
The Group made scheduled repayments in respect of the CLBILs and term loan
tranche 'A' totalling £6.1 million in January 2023. At 31 January 2023, the
Group had undrawn committed facilities of £77 million.
The reduction in lease liabilities reflects the repayment of deferred rentals
during FY23 that remained outstanding at the end of the previous year.
The Group's cash generation profile typically follows an annualised pattern,
with higher cash outflows in the first half of the year associated with lower
seasonal sales and investment in working capital ahead of the Christmas
season. The inverse is then usually true in the second half, as Christmas
sales lead to reduced stock levels and higher cash inflows. As a result, net
debt at the end of the year is usually lower than the intra-year peak, which
typically occurs during the third quarter.
The Group continues to hold a provision of £7.4 million relating to the
potential overpayment of government support during the pandemic, with
reference to subsidy control limits. The Group is actively taking steps to
resolve its position.
Capital Structure & Distributions
The Board remains committed to maintaining a capital structure that is
conservative yet efficient in terms of providing long-term returns to
shareholders after allowing for investment to fund ongoing operational
requirements and strategic growth.
The Group remains prohibited from making distributions under the terms of its
financing facilities until such time as the CLBILS and Tranche 'A' of the term
loans are fully repaid. Accordingly, there were no dividend payments made in
either the current or the preceding year.
The final maturity date for tranche 'A' of the term loans is 31 January 2024,
and accordingly the earliest that dividend payments will be considered is
during the FY25 financial year. Subject to continued financial performance in
line with the strategic plan, the Board envisages recommencing dividend
payments at a level of 2-3x dividend cover based on profit after tax, subject
to a Leverage ratio assessed across the financial year of not more than 1.5x
(excluding lease liabilities) being maintained after the distribution is made.
Acquisition of SA Greetings
Following the year end, on 25 April 2023, the Group acquired a 100% stake in
SA Greetings Corporation (Pty) Ltd ("SA Greetings") for fixed cash
consideration of £2.5 million, funded from existing cash reserves and working
capital.
SA Greetings is the leading wholesaler of greetings cards and gift packaging
in South Africa. It also operates 24 'Cardies' retail stores, with four
further stores operated by franchisees, and owns and operates a roll-wrap
production facility. Its head office and main warehouse are located in
Johannesburg, with sales offices in Durban and Cape Town.
The acquisition gives the Group immediate access to the South African market
via an established, successful business and expands cardfactory's global
presence in line with our strategy. We expect the acquisition to make a small
positive contribution to the Group's EBITDA and PBT in FY24 and look forward
to exploring the opportunities to support the development of the SA Greetings
business and enhance the Group's production, wholesale and retail offer in
both South Africa and the UK.
Outlook
Trading in the first weeks of the new financial year is slightly ahead of the
Board's expectations. Strong performance across both our Everyday ranges and
Spring seasons of Valentine's Day and Mother's Day compared to FY23, has seen
increased store transactions and average basket values, driven by effective
range development, an expanding gifting offer and our compelling value for
money offer across both cards and gifts.
Based on the current inflationary outlook, we are confident in our ability to
withstand these pressures with a continued focus on productivity and
efficiencies whilst also benefiting from the normalisation of freight costs
and annualisation of targeted price increases in FY23. We have full energy
hedging and over 90% of our currency requirements in place for FY24.
Whilst mindful of the ongoing impact of the cost of living crisis, we remain
confident that our compelling value for money proposition across a range of
products and price points will resonate with customers.
This approach, together with our clear growth strategy, gives us confidence
the Group will continue to make strategic and financial progress in the year
ahead.
In addition, the Board remains confident in the compelling growth opportunity
for the business. As part of our Capital Markets Strategy Update, we will
outline a pathway for revenues of around £650 million and margins of around
14% in FY27, supported by a capital investment plan of £24 million per annum,
over the next three years.
Simon Comer
Interim Chief Financial Officer
3 May 2023
Condensed consolidated financial statements
Consolidated income statement
For the year ended 31 January 2023
Note 2023 2022
£'m £'m
Revenue 463.4 364.4
Cost of sales (302.7) (247.9)
Gross profit 160.7 116.5
Other operating income 2 - 8.0
Operating expenses (96.9) (92.9)
Operating profit 2 63.8 31.6
Finance expense 5 (11.4) (20.5)
Profit before tax 52.4 11.1
Taxation 6 (8.2) (3.0)
Profit for the year 44.2 8.1
Earnings per share pence pence
- Basic 8 12.9 2.4
- Diluted 8 12.8 2.4
All activities relate to continuing operations.
Consolidated statement of comprehensive income
For the year ended 31 January 2023
2023 2022
£'m £'m
Profit for the year 44.2 8.1
Items that may be recycled subsequently into profit or loss:
Exchange differences on translation of foreign operations (0.2) -
Cash flow hedges - changes in fair value 8.2 4.1
Cost of hedging reserve - changes in fair value (0.2) -
Tax relating to components of other comprehensive income (1.2) (0.6)
Other comprehensive income for the period, net of income tax 6.6 3.5
Total comprehensive income for the period attributable to equity shareholders 50.8 11.6
of the parent
Consolidated statement of financial position
As at 31 January 2023
Note 2023 2022
£'m £'m
Non-current assets
Intangible assets 9 326.3 320.7
Property, plant and equipment 32.2 31.6
Right of use assets 10 100.5 98.5
Deferred tax assets 2.1 3.6
Derivative financial instruments 0.5 1.3
461.6 455.7
Current assets
Inventories 45.3 33.1
Trade and other receivables 13.3 8.1
Derivative financial instruments 5.3 0.8
Cash at bank and in hand 11 11.7 38.3
75.6 80.3
Total assets 537.2 536.0
Current liabilities
Borrowings 12 (50.1) (25.5)
Lease liabilities 10 (27.3) (41.1)
Trade and other payables (84.7) (71.7)
Provisions 15 (9.5) (12.2)
Tax payable - (1.5)
Derivative financial instruments (1.4) (0.2)
(173.0) (152.2)
Non-current liabilities
Borrowings 12 (17.4) (85.5)
Lease liabilities 10 (78.1) (78.7)
Derivative financial instruments (0.5) -
(96.0) (164.2)
Total liabilities (269.0) (316.4)
Net assets 268.2 219.6
Equity
Share capital 3.4 3.4
Share premium 202.2 202.2
Hedging reserve 3.5 1.3
Cost of hedging reserve (0.1) -
Reverse acquisition reserve (0.5) (0.5)
Merger reserve 2.7 2.7
Retained earnings 57.0 10.5
Equity attributable to equity holders of the parent 268.2 219.6
Consolidated statement of changes in equity
For the year ended 31 January 2023
Share capital Share premium Hedging reserve Cost of hedging reserve Reverse acquisition reserve Merger reserve Retained earnings Total
equity
£'m £'m £'m £'m £'m £'m £'m
£'m
At 31 January 2021 3.4 202.2 (3.1) 0.4 (0.5) 2.7 1.4 206.5
Total comprehensive income for the period
Profit or loss - - - - - - 8.1 8.1
Other comprehensive income - - 3.3 - - - 0.2 3.5
- - 3.3 - - - 8.3 11.6
Hedging gains/(losses) and costs of hedging transferred to the cost of - - 1.4 (0.5) - - - 0.9
inventory
Deferred tax on transfers to inventory - - (0.3) 0.1 - - - (0.2)
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 0.8 0.8
Dividends (note 7) - - - - - - - -
Total contributions by and distributions to owners - - - - - - 0.8 0.8
At 31 January 2022 3.4 202.2 1.3 - (0.5) 2.7 10.5 219.6
Total comprehensive income for the period
Profit or loss - - - - - - 44.2 44.2
Other comprehensive income - - 6.1 (0.1) - - 0.6 6.6
- - 6.1 (0.1) - - 44.8 50.8
Hedging gains/(losses) and costs of hedging transferred to the cost of - - (5.2) -- -- -- -- (5.2)
inventory
Deferred tax on transfers to inventory -- - 1.3 - - - - 1.3
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 1.7 1.7
Dividends (note 7) - - - - - - - -
Total contributions by and distributions to owners - - - - - - 1.7 1.7
At 31 January 2023 3.4 202.2 3.5 (0.1) (0.5) 2.7 57.0 268.2
Consolidated cash flow statement
For the year ended 31 January 2023
Note 2023 2022
£'m £'m
Cash from operations 13 107.8 113.6
Corporation tax paid (7.9) 0.1
Net cash inflow from operating activities 99.9 113.7
Cash flows from investing activities
Purchase of property, plant and equipment (8.8) (3.6)
Purchase of intangible assets 9 (9.4) (3.3)
Net cash outflow from investing activities (18.2) (6.9)
Cash flows from financing activities
Interest paid on bank borrowings (6.2) (6.5)
Proceeds from bank borrowings 27.8 57.0
Repayment of bank borrowings (72.9) (65.0)
Other financing costs paid (1.8) (8.7)
Payment of lease liabilities (52.5) (54.5)
Interest in respect of lease liabilities (4.5) (3.3)
Net cash outflow from financing activities (110.1) (81.0)
Net (decrease)/increase in cash and cash equivalents (28.4) 25.8
Cash and cash equivalents at the beginning of the year 38.3 12.5
Closing cash and cash equivalents 9.9 38.3
Accounting policies
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. The Group financial statements consolidate those of the
Company and its subsidiaries (together referred to as the 'Group').
Basis of preparation
This preliminary announcement and condensed consolidated financial statements
have been prepared in accordance with the recognition and measurement
principles of UK-adopted International Financial Reporting Standards
('UK-IFRS') in conformity with the requirements of the Companies Act 2006. It
does not include all the information required for full annual accounts. The
financial information contained in this preliminary announcement does not
constitute the company's statutory accounts for the years ended 31 January
2023 ('FY23') or 31 January 2022 ('FY22') but is derived from these accounts.
Statutory accounts for the year ended 31 January 2022 have been delivered to
the registrar of companies, and those for the year ended 31 January 2023 will
be delivered to the registrar in due course. The auditor has reported on those
accounts; the audit reports were (i) unqualified, (ii) did not include a
reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report and (iii) did not contain a statement
under section 498 (2) or (3) of the Companies Act 2006.
Going concern basis of accounting
The Board continues to have a reasonable expectation that both the Group and
the parent company have adequate resources to continue in operation for at
least the next 12 months and that the going concern basis of accounting
remains appropriate.
The Group has delivered a strong financial performance in the current
financial year, with encouraging sales momentum in the first full year of
trading after two consecutive years that were materially affected by the
Covid-19 pandemic. LFL sales have been positive and broadly in line when
compared to pre-pandemic, and as a result the Group has delivered robust
operating cash flows, cleared deferred VAT and rent payments, and reduced net
debt and leverage year-on-year. Trading since the balance sheet date has
remained in line with expectations and there have been no material events that
have affected the Group's liquidity headroom.
The Group renewed its financing facilities with its banking partners in April
2022, reducing the quantum of the Group's term loan facilities to £150
million and extending the tenure of the Group's debt to September 2025 (see
note 12). The first scheduled repayments under these facilities were made in
January 2023, with full repayment of the Coronavirus Large Business
Interruption Loan Scheme ('CLBILS') facilities by September 2023. Following
the final repayment of the CLBILs facilities, the Group does not expect to
utilise further government backed support going forward, other than those
schemes that are generally available in the ordinary course of business (such
as rates reliefs). The Board believes the renewed facilities provide adequate
liquidity and headroom for the Group to execute its strategic plan. At 31
January 2023, net debt excluding lease liabilities was £57.2 million.
The UK Corporate Governance Code requires that an assessment is made of the
Group's ability to continue as a going concern for a period of at least 12
months from the signing of these financial statements; however it is not
specified how far beyond 12 months should be considered.
For the purpose of assessing the going concern assumption, the Group has
prepared cash flow forecasts for the 12 month period following the date of
approval of these accounts, which incorporate the updated debt facilities and
related covenant measures. These forecasts are extracted from the Group's
approved budget and strategic plan which covers a period of five years. Within
the 12-month period, the Group has considered qualitative scenarios and the
Group's ability to operate within its existing banking facilities and meet
covenant requirements. Beyond the 12-month period, the Group has qualitatively
considered whether any factors (for example the timing of debt repayments, or
longer-term trading assumptions) indicate a longer period warrants
consideration.
The results of this analysis were:
· The Group's base case forecasts indicate that the Group will
continue to trade profitably, generate positive operating cash flows and make
scheduled debt repayments whilst retaining substantial liquidity headroom
against current facility limits and meet all covenant requirements on the
relevant test dates (see note 12 for more information in respect of covenant
requirements) in the 12 month period.
· Whilst debt repayments continue in the period following the going
concern assessment, they are much lower in the 12 months immediately following
(c£9 million) than those occurring in the going concern period itself (c£27
million).
· In the Board's view, there are no other factors arising in the
period immediately following 12 months from the date of these accounts that
warrant further consideration.
· Scenario analysis, which considered a reduction in sales,
profitability and cash flows on both a permanent basis of circa 10%, or a
significant one-off event affecting the Christmas period and reducing sales by
20%, indicated that the Group would maintain liquidity headroom and covenant
compliance throughout the 12 month period. The analysis did not consider any
potential upside from mitigating actions that could be taken to reduce
discretionary costs and provide further headroom.
In addition, the Group conducted a reverse stress test analysis which
considered the extent of sales loss or cost increase that would be required to
result in either a complete loss of liquidity headroom, or a covenant breach
during the period. Seasonality of the Group's cash flows, with higher
purchases and cash outflows over the summer to build stock for Christmas,
means liquidity headroom is at its lowest in September and October ahead of
the Christmas season. Conversely, covenant compliance is most sensitive early
in the year.
The reverse stress test analysis demonstrated that the level of sales loss or
cost increase required (either on a sustained basis or as a significant
one-off downside event) to result in a breach would require circumstances akin
to a pandemic lockdown for a period of several weeks, or other events with a
similar quantum of effect that would be unprecedented in nature. Accordingly,
such scenarios are not considered to be reasonably likely to occur. As with
the scenario analysis above, the stress test was conducted before considering
any potential benefit from available mitigating actions.
Over the preceding two years, the business has demonstrated a significant
degree of resilience and a proven ability to manage cash flows and liquidity
during a period of unprecedented economic downturn. Accordingly the Board
retains confidence that, were such a level of downturn to reoccur in the
assessment period, the Group would be able to take action to mitigate its
effects.
Based on these factors, the Board has a reasonable expectation that the Group
has adequate resources and sufficient loan facility headroom and accordingly
the accounts are prepared on a going concern basis.
Principal Accounting Policies
The preliminary announcement has been prepared using accounting policies that
are consistent with those published in the Group's accounts for the year-ended
31 January 2022 (available on the Company's website).
Accounting judgements and estimates
The preparation of financial statements in conformity with UK IFRS requires
judgement to be applied in forming the Group's accounting policies. It also
requires the use of estimates and assumptions that affect the reported amount
of assets, liabilities, income and expenses. Actual results may subsequently
differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to estimates are recognised prospectively in the period in which the
estimate is revised.
The Group does not consider there to be any judgements made in the current
period that have had a significant effect on the amounts recognised in the
financial statements.
Key sources of estimation uncertainty
The key sources of estimation uncertainty, being those estimates and
assumptions that carry the most significant risk of a material adjustment to
the carrying amounts of assets and liabilities in the next financial year, are
set out below.
Inventories
The Group holds significant volumes, and a broad range of inventory. The
inventory provision is calculated in accordance with a documented policy, that
is based on historical experience and the Group's stock management strategy,
which determines the range of product that will be available for sale in-store
and online. The Group provides against the carrying value of inventories where
it is anticipated the amount realised may be below the cost recognised.
Provision is made in full where there are no current plans to trade prior
season stock through stores, and partial provision is made against seasonal
stock from prior seasons or where certain ranges do not perform as
anticipated. The amounts provided for partial provisions are adjusted annually
to reflect experience.
The Group applied a consistent inventory provisioning policy with that applied
in the prior year, making only small amendments to partial provisioning
percentages based on the Group's experience of stock sell through rates for
partially provided product lines. These changes are not considered to have had
a material impact on the overall value of the provision, although reduced the
value of the provision compared to the prior year.
At the end of FY23, the total inventory provision was £16.1 million (FY22:
£20.7 million), comprised of fully-provided stock lines of £4.3 million and
partially provided lines of £11.8 million. The reduction in the value of the
provision year-on-year generally reflects the normalisation of stock levels
following the Covid pandemic and supply chain challenges experienced in the
prior year (which have resulted in a reduction in the value of stock lines
provided for in full), as well as the reduction due to changes in provisioning
percentages described above. As a result, the overall proportion of gross
inventory provided for reduced compared to the prior year.
The full range of reasonably possible outcomes in respect of the provision is
difficult to calculate at the balance sheet date as it is dependent on the
accuracy of forecasts for sales volumes and future decisions we may take on
aged, discontinued and potentially excess stock in response to market and
supply developments. The Group believes it has taken a cautious approach in
determining the provision. It has considered the nature of the estimates
involved and has concluded that it is possible, on the basis of existing
knowledge, that outcomes within the next financial year may be different from
the Group's assumptions applied as at 31 January 2023, and could require a
material adjustment to the carrying amount of the provision in the next
financial year.
The two elements of the provision which are most sensitive to judgement are:
· An £8.5m provision for aged and discontinued stock, the gross
value of which is £10.1m, which assumes limited sell-through and is
consistent with the current merchandising plan; and
· a further £7.9m provision, which represents 50% of a gross
carrying amount of £15.7m), reflecting our current estimates of future
sell-through of stock lines with high forecast sales cover, or which are
carried forward from prior seasons, and our expectations of product life.
Grant income
During the previous financial year, the Group received financial assistance
under various Government schemes intended to support businesses affected by
local and national restrictions during the Covid-19 pandemic, including CJRS
payments, business rates relief and lockdown grant payments. IAS 20 requires
that the Group has reasonable assurance that the various conditions attached
to Government grants will be complied with before recognising the income in
its financial statements. Income received under the lockdown grant schemes is
subject to conditions applied by the UK's subsidy control regime, in addition
to the rules and conditions attached to each individual grant. The most
material of these conditions relate to determining the eligible period for
grant receipts and the calculation of the Group's 'uncovered fixed costs' in
the eligible period, upon which the value of permitted relief is based. The
nature of the grants received, and the unprecedented nature of the pandemic
and the support mechanisms available, means the conditions and rules attached
to each payment are complex and open to a degree of interpretation at the
balance sheet date. Accordingly, the Group had to make certain assumptions
regarding which of the payments received it is reasonably certain to have met
all of the conditions, and thus that the grants are unlikely to be repaid in a
future period.
After making a provision for amounts the Group does not believe meet the above
criteria (see note 22), the Group recognised £8.0 million of other operating
income in relation to such grants received during FY22.
During FY23, the Group formally settled its CJRS position with HMRC utilising
£2.3 million and releasing £2.5 million from the provision. The Group has
received no new substantive evidence regarding its position in respect of
other support received and accordingly has not changed its position. A
provision of £7.4 million continues to be held in respect of potential
repayment of support received in excess of subsidy control thresholds,
consistent with the provision held in the prior year for the same purpose. The
minimum provision requirement is expected to be £4.5 million. Subject to
interpretation of the guidance relating to individual support schemes and
subsidy control thresholds, the Group believes a range of reasonably possible
outcomes remains and that the Group's provision reflects a cautious assessment
of the amount that may be repayable.
Other sources of estimation uncertainty
Impairment testing
An impairment review is conducted annually in respect of goodwill, and as
required for other assets and cash-generating units ('CGUs') where an
indicator of potential impairment exists. The carrying amounts of the assets
involved and the level of estimation uncertainty inherent in determining
appropriate assumptions for the calculation of the assets' recoverable amounts
means impairment reviews are an area of significant management focus. However,
whether that estimation uncertainty is significant to the financial statements
is not known until the analysis is concluded. The Group generally considers
the estimation uncertainty in impairment reviews to be significant if a
reasonably possible change in the key assumptions would lead to a material
change in the accounting outcome.
In FY23, the Group conducted an impairment review in respect of goodwill. The
carrying amount of goodwill in the consolidated balance sheet of £313.8
million is allocated in its entirety to the group of CGUs, shared assets and
functions that comprise the Group's Stores business.
In addition, the Group conducted a store-level impairment review specifically
covering right-of-use assets and property, plant and equipment insofar as
directly allocable to stores. The Group assesses indicators of impairment for
the store portfolio on the basis of whether a material impairment charge (or
reversal) could arise in respect of the store portfolio as a whole in the
period. Due to the challenging macro-economic environment, existence of a
material carried forward impairment charge, and an ongoing expectation that up
to 1-2% of the store portfolio can be loss-making at any time, the Group
concluded this condition was met for FY23.
Due to the existence of intangible assets that are not yet ready for use, the
Group also conducted an impairment test of each of the Card Factory Online and
Getting Personal CGUs.
The Group assessed the recoverable amount of all CGUs on a value in
use basis, using consistent assumptions across all reviews where applicable,
with estimates of future cash flows derived from forecasts included within the
Group's approved budget adjusted to exclude cash flows from new stores and
initiatives so as to assess the assets in their current state and condition.
Where impairment reviews are prepared in respect of assets not yet ready for
use, future development costs and revenues are not excluded so as to fairly
reflect the value of the assets being developed and costs to complete. The
assessment of future cash flows that underpin such impairment reviews
inherently require the use of estimates, notably in respect of future
revenues, operating costs including material, freight, wage and energy
inflation, terminal growth rates, foreign currency exchange rates, and
discount rates.
The results of the impairment tests are set out in note 10 (goodwill and
intangible assets) and note 12 (stores). The impairment tests in respect of
the Stores business and Card Factory Online had significant headroom and
accordingly, having undertaken scenario analysis on the key assumptions, the
Group does not believe there are any reasonably possible changes in those key
assumptions that would lead to an impairment.
The Group booked a net impairment charge in respect of stores of £1.3
million, which is comprised of £3.7 million of impairment charges and £2.4
million of impairment charge reversals. The reversals reflect those stores
where an impairment charge made in a prior period has been reversed due to
improved trading. Having considered scenarios consistent with those reviewed
in respect of goodwill impairment testing, the Group is satisfied that
reasonable changes in the key assumptions would not materially change the
impairment charge for stores.
The Group booked an impairment charge in respect of intangible assets in
Getting Personal of £1.5 million, reflecting costs incurred in developing a
new Online Platform that will not form part of the final solution once
deployed and will thus not be supported by future cash flows. The remaining
carrying amount of the Getting Personal CGU is not material, and therefore no
change in assumptions would result in a material additional impairment charge.
Climate Change
The Group has reviewed the potential impact of climate change and ESG-related
risks and uncertainties on the consolidated financial statements. Given the
nature of the Group's business and operations, the exposure to both physical
and transitional risks associated with climate change is considered to be low.
In particular, the Group has considered climate change in respect of
impairment testing (potential impact of climate and ESG risks on estimates of
future cash flows, notes 10 and 11), going concern (note 1, below), and
inventory provisions (impact of customer preferences and ESG considerations on
potential stock obsolescence, note 14 and above) and concluded in each case
that there is no material impact in each area at 31 January 2023.
1 Segmental reporting
Following investment in the Group's people, systems and infrastructure to
support its strategy, the Group is organised into five main business areas
which mean the definition of an Operating segment under IFRS, those being
cardfactory Stores, cardfactory Online, Getting Personal, Partnerships and
Printcraft. Each of these business areas has a dedicated management team and
reports discrete financial information to the Board for the purpose of
decision making.
· cardfactory Stores retails greeting cards, celebration
accessories, and gifts principally through an extensive UK store network, with
a small number of stores in the Republic of Ireland.
· cardfactory Online retails greetings cards, celebration
accessories, and gifts via its online platform.
· Getting Personal is an online retailer of personalised cards and
gifts.
· Partnerships sells greetings cards, celebration accessories and
gifts via a network of third party retail partners both in the UK and
overseas.
· Printcraft is a manufacturer of greetings cards and personalised
gifts, and sells the majority of its output intra-group to the Stores and
online businesses.
The accounting policies applied in preparing financial information for each of
the Group's segments are consistent with those applied in the preparation of
the consolidated financial statements. The Group's support centre and
administrative functions are run by the cardfactory Stores segment, with
operating costs recharged to other segments where they are directly
attributable to the operations of that segment.
The Board reviews revenue and EBITDA by segment, with the exception of
Printcraft by virtue of its operations being predominantly intra-group in
nature. Whilst only cardfactory Stores meets the quantitative thresholds in
IFRS to require disclosure, the Group's other trading segments are reported
below as the Group considers that this information is useful to stakeholders
in the context of the Group's Opening Our New Future strategy.
Revenue and EBITDA for each segment, and a reconciliation to the consolidated
operating profit per the financial statements, is provided in the table below:
2023 - £m cardfactory Stores cardfactory Online Getting Personal Partnerships Other Group
Segment Revenue 440.4 8.8 8.5 5.0 0.7 463.4
Segment EBITDA 116.1 (2.2) (1.5) 1.4 (1.8) 112.0
Depreciation, amortisation & impairment (48.2)
Consolidated Operating Profit 63.8
2022 - £m cardfactory Stores cardfactory Online Getting Personal Partnerships Other Group
Segment Revenue 335.1 10.9 12.9 4.5 1.0 364.4
Segment EBITDA 82.0 0.6 1.0 2.3 (0.3) 85.6
Depreciation, amortisation & impairment (54.0)
Consolidated Operating Profit 31.6
The "Other" column principally reflects central overheads and Printcraft sales
to third parties.
In the prior year, the Group disclosed a "Card Factory" segment which was
effectively an aggregation of the cardfactory Stores, cardfactory Online and
Partnerships segments disclosed above. The disclosure has been updated this
year to reflect changes in the Group's organisational structure and internal
reporting.
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 as, by segment, revenues are
subject to substantially the same economic factors that impact the nature,
amount, timing and uncertainty of revenue and cash flows.
The table below sets out a geographical analysis of revenues for the current
and prior year:
2023 2022
£'m £'m
Revenue derived from customers in the UK 451.6 357.5
Revenue derived from customers overseas 11.8 6.9
Consolidated revenue 463.4 364.4
Revenue from overseas reflects revenues earned from the Group's stores in the
Republic of Ireland and from retail partners based outside of the UK.
Of the Group's non-current assets, £5.0 million (2022: £2.1 million) relates
to assets based outside of the UK, principally in relation to the Group's
stores in the Republic of Ireland. The increase compared to the prior year
reflects the impact of the increase in the store portfolio on the value of
right-of-use assets.
2 Operating profit
Operating profit is stated after charging/(crediting) the following items:
2023 2022
£'m £'m
Staff costs (note 4) 138.2 113.8
Government grant income - (8.0)
Depreciation expense
- owned fixed assets 8.0 8.8
- right of use assets (note 11) 35.7 37.4
Amortisation expense (note 9) 2.3 2.9
Impairment of right-of-use assets (note 10) 1.3 5.0
Impairment of intangible assets (note 9) 1.5 -
Profit on disposal of fixed assets (0.6) -
Foreign exchange gain 1.5 2.6
The total fees payable by the Group to KPMG LLP and their associates during
the period was as follows:
2023 2022
£'000 £'000
Audit of the consolidated and Company financial statements 30 30
Amounts receivable by the Company's auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company 620 340
Audit-related assurance services 50 45
Other assurance services - 288
Total fees 700 703
Other assurance services provided in the prior year were in respect of
assurance services in connection with the Group's financial statements for
transactions that did not proceed. The appointment of KPMG LLP to provide such
services was made in accordance with the Group's policy on external auditors
supplying non-audit services.
3 EBITDA
EBITDA represents profit for the period before net finance expense, taxation,
gains or losses on disposal, depreciation, amortisation and impairment
charges.
2023 2022
£'m £'m
Operating profit 63.8 31.6
Depreciation, amortisation and impairment 48.2 54.0
EBITDA 112.0 85.6
4 Employee numbers and costs
The average number of people employed by the Group (including Directors)
during the year, analysed by category, was as follows:
2023 2022
Number Number
Management and administration 482 434
Operations 9,367 8,736
9,849 9,170
The aggregate payroll costs of all employees including Directors were as
follows:
2023 2022
£'m £'m
Employee wages and salaries 120.5 99.8
Equity-settled share-based payment expense 1.7 0.8
Social security costs 8.2 6.5
Defined contribution pension costs 1.8 1.5
Total employee costs 132.2 108.6
Agency labour costs 6.0 5.2
Total staff costs 138.2 113.8
Total employee costs are presented net of £nil (2022: £9.4 million)
recovered through the CJRS.
Key management personnel
The key management personnel of the Group comprise the Card Factory plc Board
of Directors, the Executive Board and the Operating Board. Key management
personnel compensation is as follows:
2023 2022
£'m £'m
Salaries and short-term benefits 6.1 4.4
Equity-settled share-based payment expense 1.4 0.6
Social security costs 0.8 0.6
Defined contribution pension costs 0.2 0.1
8.5 5.7
Remuneration of Directors
2023 2022
£'m £'m
Directors' remuneration 1.9 1.8
Amounts receivable under long-term incentive schemes 0.1 0.1
Company contributions to defined contribution pension plans - -
2.0 1.9
The table above includes the remuneration of Directors in each year.
Director's remuneration for the period includes £40k in respect of
compensation for loss of office for Kris Lee following his resignation on 31
January 2023.
Amounts receivable under long-term incentive schemes reflects the value of
options exercised during the year.
5 Finance expense
2023 2022
£'m £'m
Finance expense
Interest on bank loans and overdrafts 6.0 6.8
Amortisation of loan issue costs 0.9 10.4
Lease interest 4.5 3.3
11.4 20.5
6 Taxation
The tax charge includes both current and deferred tax. The tax charge reflects
the estimated effective tax on the profit before tax for the Group for the
year ending 31 January 2023 and the movement in the deferred tax balance in
the year, so far as it relates to items recognised in the income statement.
Taxable profit or loss differs from profit or loss before tax as reported in
the income statement, because it excludes items of income or expenditure that
are either taxable or deductible in other years or never taxable or
deductible.
Recognised in the income statement
2023 2022
£'m £'m
Current tax charge/(credit)
Current year 8.3 1.2
Adjustments in respect of prior periods (1.6) 0.8
Total current tax charge 6.7 2.0
Deferred tax charge/(credit)
Origination and reversal of temporary differences 2.5 1.2
Adjustments in respect of prior periods (1.8) (0.7)
Effect of change in tax rate 0.8 0.5
Total deferred tax charge 1.5 1.0
Total income tax charge/(credit) 8.2 3.0
The effective tax rate of 15.6% (2022: 27.0%) on the profit before taxation
for the year is lower than (2022: higher than) the average rate of mainstream
corporation tax in the UK of 19% (2022: 19%). The lower effective tax rate is
principally due to adjustments in respect of prior periods following the
allocation of brought-forward losses and reliefs when the tax computations for
that period were finalised subsequent to the publication of the consolidated
financial statements for the FY22 financial year, partially offset by the
effect of higher rates applicable to deferred tax balances.
The tax charge is reconciled to the standard rate of UK corporation tax as
follows:
2023 2022
£'m £'m
Profit before tax 52.4 11.1
Tax at the standard UK corporation tax rate of 19% (2022: 19.0%) 10.0 2.1
Tax effects of:
Expenses not deductible for tax purposes 0.7 0.3
Adjustments in respect of prior periods (3.3) 0.1
Effect of change in tax rate 0.8 0.5
Total income tax charge 8.2 3.0
Total taxation recognised through the income statement, other comprehensive
income and through equity are as follows:
2023 2022
Current Deferred Total Current Deferred Total
£'m £'m £'m £'m £'m £'m
Income statement 6.7 1.5 8.2 2.0 1.0 3.0
Other comprehensive income - 1.2 1.2 - 0.6 0.6
Equity - (1.3) (1.3) - 0.2 0.2
Total tax 6.7 1.4 8.1 2.0 1.8 3.8
7 Dividends
There were no dividends paid in either the current or the previous year. The
Board is not recommending a final dividend in respect of the financial year
ended 31 January 2023 (2022: no final dividend).
Whilst the Group's CLBILS and tranche A of the term loan facilities remain
outstanding (see note 12), the Group is prohibited from making distributions
under the terms of its financing arrangements.
8 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 employee share incentive
awards and save as you earn share options.
2023 2022
(Number) (Number)
Weighted average number of shares in issue 342,328,622 341,770,579
Weighted average number of dilutive share options 1,604,107 1,843,537
Weighted average number of shares for diluted earnings per share 343,932,729 343,614,116
£'m £'m
Profit for the financial period 44.2 8.1
pence pence
Basic earnings per share 12.9 2.4
Diluted earnings per share 12.8 2.4
9 Intangible assets
Goodwill Software Total
£'m £'m £'m
Cost
At 1 February 2022 328.2 17.0 345.2
Additions - 9.4 9.4
Disposals - (0.4) (0.4)
At 31 January 2023 328.2 26.0 354.2
Amortisation/impairment
At 1 February 2022 14.4 10.1 24.5
Amortisation in the period - 2.3 2.3
Impairment in the period - 1.5 1.5
Amortisation on disposals - (0.4) (0.4)
At 31 January 2023 14.4 13.5 27.9
Net book value
At 31 January 2023 313.8 12.5 326.3
At 31 January 2022 313.8 6.9 320.7
During the year, the Group recognised an impairment charge of £1.5 million in
respect of work performed in respect of a new online platform for Getting
Personal. The charge reflects work on functionality which was ultimately not
part of the platform when it went live in March 2023.
Goodwill Software Total
£'m £'m £'m
Cost
At 1 February 2021 328.2 13.7 341.9
Additions - 3.3 3.3
Disposals - - -
At 31 January 2022 328.2 17.0 345.2
Amortisation/impairment
At 1 February 2021 14.4 7.2 21.6
Amortisation in the period - 2.9 2.9
Amortisation on disposals - - -
At 31 January 2022 14.4 10.1 24.5
Net book value
At 31 January 2022 313.8 6.9 320.7
At 31 January 2021 313.8 6.5 320.3
Impairment Testing: Goodwill
Goodwill arising on the acquisition of Getting Personal in 2011 of £14.4
million was allocated to the Getting Personal CGU, which corresponds to the
Getting Personal operating segment (see note 2). Goodwill in respect of the
Getting Personal CGU was fully written down in 2020.
All remaining goodwill is in respect of the cardfactory Stores business, which
is comprised of all of the cardfactory stores (each an individual CGU for
impairment testing purposes), associated central functions and shared assets
(hereafter referred to in this note as "Card Factory"). cardfactory stores is
the lowest level at which the Group's management monitors goodwill internally.
As described in note 1, the Group updated its view of operating segments in
the period. The cardfactory Stores business previously formed part of the
'Card Factory' operating segment, which has been divided into 'cardfactory
Stores', 'cardfactory Online' and 'Partnerships' segments in FY23. The
cardfactory Stores business is comparable to the 'cardfactory Stores'
operating segment. Within the previous, aggregated segment, the assets
attributable to each of these lines of business was clearly identifiable given
the different nature of the sales platforms and customers to each. Goodwill of
£313.8 million was previously allocated to the cardfactory business within
the 'Card Factory' segment. Accordingly, upon amending the segmental analysis,
the allocation of assets to each CGU has not changed as the assets
attributable to the cardfactory Stores business were identifiable within the
previous Card Factory segment.
The total carrying amount of the cardfactory Stores group of CGUs for
impairment testing purposes, inclusive of liabilities that are necessarily
considered in determining the recoverable amount, at 31 January 2023 was
£315.5 million (2022: £295.0 million).
The recoverable amount has been determined based on a value-in-use
calculation. This value-in-use calculation is based on the Group's most recent
approved five-year strategic plan, to exclude any value from planned new
stores or initiatives, so as to assess the valuation of the assets in their
current state and condition.
The key assumptions used in determining the recoverable amount are:
· Future trading performance including sales growth, product mix,
material and operating costs;
· Foreign exchange rates applicable to the Group's purchases of
goods for resale;
· The terminal growth rate applied; and
· The discount rate.
The values assigned to the variables that underpin the Group's expectations of
future trading performance were determined based on historical performance and
the Group's expectations with regard to future trends. Where applicable,
amounts take into account the Group's hedges and fixed contracts, changes in
market prices and rates, and relevant industry and consumer data to inform
expectations around future trends.
The Group assumes a long-term GBPUSD exchange rate in line with published
forward curves at the balance sheet date, adjusted to reflect the value of
forward contracts in place. The fair value of these contracts is included in
the carrying amount.
A 0% (2022: 0%) terminal growth rate is applied beyond the five-year term of
the plan, representing a sensitised view of the Group's estimate of the
long-term growth rate of the sector. Whilst such long-term rates are
inherently difficult to benchmark using independent data, the Group's reverse
stress-testing of the goodwill impairment model indicated a significant
negative terminal decline would be required in order to eliminate the headroom
completely.
The forecast cash flows are discounted at a pre-tax rate of 12.0% (2022:
12.0%). The discount rate is derived from a calculation using the capital
asset pricing model to calculate cost of equity utilising available market
data. The discount rate is compared to the published discount rates of
comparable businesses and relevant industry data prior to being adopted.
No impairment loss was identified. The valuation indicates sufficient headroom
such that any reasonably possible change to the key assumptions would not
result in an impairment of the related goodwill.
Impairment Testing: Intangible assets not yet available for use
Both the Getting Personal and cardfactory Online CGUs include intangible
assets that are not yet available for use. Accordingly, an impairment test in
respect of these CGUs was carried out at 31 January 2023.
The total carrying amount of the Getting Personal and cardfactory Online CGUs
for impairment testing purposes, inclusive of liabilities that are necessarily
considered in determining the recoverable amount, at 31 January 2023 was not
material either individually or in aggregate. The value of intangible assets
not yet available for use included in the carrying amount was £3.5 million.
The key assumptions are consistent with those set out above in respect of the
goodwill impairment review, with the exception of foreign exchange rates which
are not significant to the analysis for these CGUs. To ensure the analysis
fairly reflected the expected value in use of the assets within each CGU, the
estimated future cash flows included all costs to complete the assets under
development and sales associated with those assets once deployed into use.
No impairment loss above that already recorded (above) in respect of either
CGU was identified. The cardfactory Online valuation indicated sufficient
headroom such that any reasonably possible change in assumptions would not
result in an impairment charge. The Getting Personal valuation headroom was
limited, reflecting the impairment charge recorded in respect of intangible
assets; however given the immaterial remaining carrying amount, any change in
assumptions would not materially change the impairment charge for the period.
10 Leases
The Group has lease contracts, within the definition of IFRS 16 Leases, in
relation to its entire store lease portfolio, some warehousing office
locations, an office location and motor vehicles. Other contracts, including
distribution contracts and IT equipment, are deemed not to be a lease within
the definition of IFRS 16 or are subject to the election not to apply the
requirements of IFRS 16 to short-term or low value leases. Accounting policies
for leases are detailed in note 1. Assets, liabilities and the income
statement expense in relation to leases are detailed below.
Right-of-use assets
Buildings Motor Vehicles Total
£'m £'m £'m
Cost
At 1 February 2022 300.6 1.3 301.9
Additions 39.4 0.2 39.6
Disposals (60.7) (0.7) (61.4)
Effect of foreign exchange rates - - -
At 31 January 2023 279.3 0.8 280.1
Depreciation and impairment
At 1 February 2022 202.5 0.9 203.4
Depreciation in the period 35.3 0.4 35.7
Impairment charges in the period 3.7 - 3.7
Impairment reversed in the period (2.4) - (2.4)
Depreciation on disposals (59.4) (0.7) (60.1)
Impairment on disposals (0.7) - (0.7)
Effect of foreign exchange rates - - -
At 31 January 2023 179.0 0.6 179.6
Net book value
At 31 January 2023 100.3 0.2 100.5
At 31 January 2022 98.1 0.4 98.5
Buildings Motor Vehicles Total
£'m £'m £'m
Cost
At 1 February 2021 316.3 1.6 317.9
Additions 29.7 0.1 29.8
Disposals (45.2) (0.4) (45.6)
Effect of foreign exchange rates (0.2) - (0.2)
At 31 January 2022 300.6 1.3 301.9
Depreciation and impairment
At 1 February 2021 205.7 0.8 206.5
Depreciation in the period 37.0 0.4 37.4
Impairment in the period 5.0 - 5.0
Depreciation on disposals (44.3) (0.3) (44.6)
Impairment on disposals (0.8) - (0.8)
Effect of foreign exchange rates (0.1) -- (0.1)
At 31 January 2022 202.5 0.9 203.4
Net book value
At 31 January 2022 98.1 0.4 98.5
At 31 January 2021 110.6 0.8 111.4
Disposals and depreciation/impairment on disposals includes fully depreciated
right-of-use assets where the lease term has expired, including amounts in
respect of leases that have expired but the asset remained in use whilst a new
lease was negotiated.
Impairment Testing: Store assets
Reflecting continued macro-economic uncertainty, cost inflation and the
existence of loss making stores within the portfolio, the Group considers that
an indicator of potential impairment exists in respect of the store portfolio
and, accordingly, an impairment review of the Group's store assets was
undertaken in the 2023 financial year.
For this purpose, each of the Group's stores is considered to be a CGU, with
each store's carrying amount determined by assessing the value of right-of-use
assets and property, plant and equipment insofar as they are directly
allocable to an individual store. The assessment of whether an indicator of
impairment may exist in respect of store assets is considered across the store
portfolio and not on a store-by-store basis. Accordingly, the store impairment
review considers all stores in the portfolio.
The recoverable amount of each store was determined based on the expected
future cash flows applicable to each store, assessed using a basis consistent
with the future cash flows used in the goodwill impairment test described in
note 9, but limited to the term of the current lease as assessed under IFRS
16. As a result, the key assumptions are also considered to be consistent with
those described in note 10, in addition to the allocation of central and
shared costs to individual stores insofar as such an allocation can be made on
a reasonable and consistent basis. Most such costs are allocated on the basis
of the relative sales of each individual store.
Application of these assumptions resulted in a net impairment charge of £1.3
million (2022: £5.0 million), comprised of impairment charges of £3.7
million (2022: £5.0 million) and the reversal of previous impairment charges
of £2.4 million (2022: £nil).
Having conducted scenario analysis, the Group does not consider any reasonably
possible change in the key assumptions would result in a material change to
the impairment charge.
Lease liabilities
2023 2022
£'m £'m
Current lease liabilities (27.3) (41.1)
Non-current lease liabilities (78.1) (78.7)
Total lease liabilities (105.4) (119.8)
Lease expense:
Total lease related expenses 2023 2022
£'m £'m
Depreciation expense on right-of-use assets 35.7 37.4
Impairment of right-of-use assets 1.3 5.0
Profit on disposal of fixed assets (0.5) -
Lease interest 4.5 3.3
Expense relating to short-term and low value leases(1) - -
Expense relating to variable lease payments(2) 0.2 0.2
Total lease related income statement expense 41.2 45.9
1 Contracts subject to the election not to apply the requirements of
IFRS 16 to short-term or low value leases.
2 A small proportion of the store lease portfolio are subject to an
element of turnover linked variable rents that are excluded from the
definition of a lease under IFRS 16.
11 Cash and cash equivalents
2023 2022
£'m £'m
Cash at bank and in hand 11.7 38.3
Cash presented as current assets in the balance sheet 11.7 38.3
Unsecured bank overdraft (1.8) -
Overdraft presented as current liabilities in the balance sheet (1.8) -
Net cash and cash equivalents 9.9 38.3
The Group manages its liquidity requirements on a Group-wide basis and
regularly sweeps and pools cash in order to optimise returns and / or ensure
the most efficient deployment of borrowing facilities in order to minimise
fees whilst maintaining sufficient short-term liquidity to meet its
liabilities as they fall due.
Cash in bank accounts and overdrafts are presented net where the Group has a
legal right to offset amounts - such as those with the same banking provider
or included in netting arrangements under its financing facilities.
The Group's cash and cash equivalents are denominated in the following
currencies:
2023 2022
£'m £'m
Sterling 0.2 21.5
Euro 4.8 1.4
US Dollar 4.9 15.4
9.9 38.3
12 Borrowings
2023 2022
£'m £'m
Current liabilities
Bank loans and accrued interest 48.3 25.5
Bank overdraft 1.8 -
Total current liabilities 50.1 25.5
Non-current liabilities
Bank loans 17.4 85.5
Current liabilities includes bank loans where the liability is due to be
settled in the next 12 months (such as scheduled repayments in respect of
secured term loans and CLBILs) or where the Group does not have an
unconditional right to defer repayment beyond 12 months (such as revolving
facilities subject to covenant requirements).
Bank loans
Bank borrowings as at 31 January 2023 are summarised as follows:
Liability Interest rate Interest margin
ratchet range
£'m %
%
31 January 2023
Secured term loans - Tranche 'A' 9.0 5.00 + SONIA -
Secured term loans - Tranche 'B' 18.8 5.50 +SONIA -
Secured CLBILs 16.1 See note -
Secured revolving credit facility 23.0 Margin + SONIA 2.75 - 4.50 Total facility size = £100 million
Accrued interest 0.2
Bank overdraft 1.8
Debt issue costs (1.4)
67.5
31 January 2022
Secured term loans 67.2 4.50 + SONIA - Interest rate increases 1.00% every six months
Secured CLBILs 44.8 See note. -
Secured revolving credit facility - Margin + SONIA 2.75 - 4.50 Total facility size = £100 million
Accrued interest 0.5
Debt issue costs (1.5)
111.0
On 21 April 2022, the Group agreed an updated and amended financing package
with its banking partners, which reduced the overall quantum and extended the
term of the Group's facilities.
The revised facilities comprised term loans of £30 million, CLBILS of £20
million and an RCF of £100 million. The CLBILS are subject to an amortising
repayment profile with final maturity in September 2023. The Term Loans are
set in two tranches, both with an amortising repayment profile. Tranche 'A'
has a final maturity in January 2024 and Tranche 'B' is coterminous with the
RCF in September 2025.
The Term Loan 'A' interest rate margin was 5.0% over SONIA, and the Term Loan
'B' interest rate margin was 5.5% over SONIA. The CLBILS facilities attract
interest rates of between 3.1% and 3.75% over SONIA or the Bank of England
Base Rate. The RCF, when drawn, is subject to an interest rate ratchet of
between 2.75% and 4.5% over SONIA based upon the Group's leverage position.
The revised Term Loan and CLBILS facilities were drawn in full from the
refinancing date, with the RCF drawn to replace the existing term loans and
CLBILs that were paid down. The RCF was subsequently drawn during the period
to support liquidity when needed and includes up to £17.5 million that can be
utilised as an overdraft facility on certain of the Group's bank accounts. The
full RCF remains available to draw on if required, with £75.2 million of
undrawn committed facilities available to the Group at the balance sheet date.
Total repayments in respect of the revised Term Loan and CLBILS facilities
during FY23 were £6.1 million.
At the balance sheet date, the Group remained subject to two financial
covenants, tested quarterly, in relation to leverage (ratio of net debt to
EBITDA) and interest cover (ratio of interest and rent costs to EBITDA).
Covenant thresholds are phased to return to 2.5x leverage and 1.75x interest
cover by January 2024. In addition, the terms of the facilities prevent the
Group from making any distributions to shareholders whilst the CLBILS and Term
Loan 'A' remain outstanding and places a limit on the total value of capital
expenditure the Group can make in each financial year to FY25. The Group
expects to be able to operate and have sufficient headroom within these
covenants to deliver its strategy.
Debt issue costs in respect of the April 2022 refinancing totalled £1.8
million and are being amortised to the income statement over the duration of
the revised facilities.
13 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
2023 2022
£'m £'m
Profit before tax 52.4 11.1
Net finance expense 11.4 20.5
Operating profit 63.8 31.6
Adjusted for:
Depreciation and amortisation 46.0 49.1
Impairment of right-of-use assets 1.3 5.0
Impairment of intangible assets 1.5 -
Gain on disposal of fixed assets (0.5) -
Cash flow hedging foreign currency movements 0.8 (1.4)
Share-based payments charge 1.7 0.8
Operating cash flows before changes in working capital 114.6 85.1
(Increase)/decrease in receivables (5.2) 1.1
(Increase)/decrease in inventories (12.2) 3.3
Increase/(decrease) in payables 15.4 11.9
Movement in provisions (4.8) 12.2
Cash inflow from operating activities 107.8 113.6
14 Analysis of net debt
At 1 February Cash flow Non-cash At 31 January
2022
changes
2023
£'m
£'m £'m £'m
Secured bank loans and accrued interest (note 12) (111.0) 51.4 (6.1) (65.7)
Lease liabilities (119.8) 57.0 (42.6) (105.4)
Total debt (230.8) 108.4 (48.7) (171.1)
Add: debt costs capitalised (1.5) (1.8) 1.9 (1.4)
Add: bank overdraft - (1.8) - (1.8)
Less: cash and cash equivalents 38.3 (26.6) - 11.7
Net debt (194.0) 78.0 (46.8) (162.6)
Lease liabilities 119.8 (57.0) 42.6 105.4
Net debt excluding lease liabilities (74.2) 21.1 (4.1) (57.2)
At 1 February Cash flow Non-cash At 31 January
2021
changes
2022
£'m
£'m £'m £'m
Secured bank loans and accrued interest (note 12) (119.0) 8.0 - (111.0)
Lease liabilities (144.9) 57.8 (32.7) (119.8)
Total debt (263.9) 65.8 (32.7) (230.8)
Add: debt costs capitalised (1.2) (8.7) 8.4 (1.5)
Less: cash and cash equivalents 12.5 25.8 - 38.3
Net debt (252.6) 82.9 (24.3) (194.0)
Lease liabilities 144.9 (57.8) 32.7 119.8
Net debt excluding lease liabilities (107.7) 25.1 8.4 (74.2)
Non-cash changes in respect of lease liabilities reflect changes in the
carrying amount of leases arising from additions, disposals and modifications.
15 Provisions
Covid-19-related support Property provisions Total
£'m £'m £'m
At 1 February 2021 - -
Provisions made during the year 12.2 12.2
At 31 January 2022 12.2 12.2
Transfer from contract liabilities - 2.5 2.5
Provisions utilised during the year (2.3) (0.9) (3.2)
Provisions released during the year (2.5) (0.9) (3.4)
Amounts provided during the year - 1.4 1.4
At 31 January 2023 7.4 2.1 9.5
Covid-19-related support provisions reflect amounts received under one-off
schemes designed to provide support to businesses affected by Covid-19
restrictions, including lockdown grants and CJRS, in excess of the value the
Group reasonably believes it is entitled to retain under the terms and
conditions of those schemes. The provisions have been estimated based on the
Group's interpretation of the terms and conditions of the respective schemes
and, where applicable, independent professional advice. However, the actual
amount that will be repaid is not certain.
In July 2022, following an unprompted disclosure to HMRC and resulting
investigation, the Group made a payment of £2.3 million in final settlement
of its CJRS position. As a result of this settlement, the Group released a
further £2.5 million from the provision that is no longer expected to be
required, as the matter is now closed. This release has been recognised as a
one-off benefit in the income statement in the period.
The remaining provision relates to covid-related lockdown grants and similar
support schemes. The Group is taking steps to confirm amounts repayable and
settle its positions. This exercise is expected to conclude within the next
financial year.
The Group maintains provisions in respect of its store portfolio to cover both
the estimated cost of restoring properties to their original condition upon
exit of the property and any non-lease components of lease contracts (such as
service charges) that may be onerous. Despite the size of the Group's store
portfolio, such provisions are generally small which is consistent with the
Group's experience of actual dilapidations and restoration costs. Such
provisions are usually made where the Group has a reasonable expectation that
the related property may be exited, or is at a higher risk of exiting, in the
near future. Accordingly such provisions are generally expected to be utilised
in the short-term. Amounts relating to property provisions, previously
recognised and presented within contract liabilities, have been reclassified
to provisions in the year. Comparative balances have not been reclassified as
the amounts are not considered material.
16 Subsequent events
Acquisition of SA Greetings Corporation (Pty) Limited
On 25 April 2023, the Group acquired 100% of the issued share capital of SA
Greetings Corporation (Pty) Ltd ("SA Greetings") a wholesaler and retailer of
greetings cards and gift packaging based in South Africa, for fixed cash
consideration of £2.5 million.
The acquisition enables the Group to access the South African card and gifts
market and is aligned with the Group's strategy to expand internationally. In
the future, we expect the acquisition to provide opportunities to develop the
Group's retail partnerships business, alongside the Group's production
capability and retail offer both in South Africa and the UK.
Given the short time between the acquisition date and the approval of these
condensed consolidated financial statements, the initial acquisition
accounting has not been completed and accordingly the full disclosures
required by IFRS 3 are not provided in these condensed consolidated financial
statements. The Group expects to initially conclude the accounting in time to
include these disclosures in its half year report for FY24.
In its unaudited management accounts for the year ended 28 February 2023, SA
Greetings reported revenue of £9.4 million, profit before tax of £0.2
million and net assets of £5.8 million (all figures converted using a GBPZAR
rate of 20:1).
Acquisition-related costs have been expensed to the income statement as
incurred, the value of such costs recognised in the year-ended 31 January 2023
was immaterial.
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