REG - Card Factory PLC - Half-year Report <Origin Href="QuoteRef">CARDC.L</Origin> - Part 2
26/09/2017 07:06
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auditor and delivered to the registrar of companies. The report was
(i) unqualified, (ii) did not contain an emphasis of matter paragraph and
(iii) did not contain any statement under section 498 of the Companies Act
2006. The statutory accounts for the year ended 31 January 2017 were approved
by the Board of Directors on 27 March 2017 and delivered to the Registrar of
Companies. The auditor's review report for the six month period ended 31 July
2017 is attached.
Significant judgements and estimates
The preparation of the interim financial statements requires the use of
judgements, estimates and assumptions that affect the application of the
Group's accounting policies and reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates. The
significant judgements and key sources of estimation uncertainty were
consistent with those applied to the consolidated financial statements for the
year ended 31 January 2017.
Going concern
Taking into account current and anticipated trading performance, current and
anticipated levels of borrowings and the availability of borrowing facilities
and exposures to and management of the financial risks detailed in the Annual
Report, the Board is of the opinion that there is a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the foreseeable future, a period of not less than 12 months from the date of
this report. Accordingly, the interim financial statements continue to be
prepared on a going concern basis.
3 Principal accounting policies
The financial statements have been prepared under the historical cost
convention except for derivative financial instruments which are stated at
their fair value.
The accounting policies are consistent with those applied in the consolidated
financial statements for the year ended 31 January 2017. Amendments to
International Financial Reporting Standards effective in the current period do
not have a significant impact on the interim financial statements.
Amendments to International Financial Reporting Standards effective in the
current period (not yet EU endorsed)
• Recognition of deferred tax assets for unrealised losses (Amendments to
IAS 12)
• Disclosure initiative (Amendments to IAS 7)
• Annual Improvements to IFRS 2014-2016 cycle (Amendments to IFRS 12)
EU Endorsed International Financial Reporting Standards in issue but not yet
effective
• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers
IFRS 9 'Financial instruments' will supersede IAS 39 and is effective for
accounting periods commencing on or after 1 January 2018. IFRS 9 is not
expected to have a significant impact on the financial statements in respect
of classification and measurement of the financial assets and financial
liabilities of the Group or impairment of the Group's financial assets.
Adopting the hedging requirements of IFRS 9 would require an amendment to the
accounting policy in respect of cash flow hedge accounting. Gains or losses
recognised in other comprehensive income in respect of a cash flow hedge of a
forecast transaction that results in the recognition of a non-financial asset
or liability would be required to be included in the initial measurement of
the asset or liability. The current accounting policy recognises such gains or
losses in profit or loss in the same period or periods during which the hedged
forecast transaction, or a resulting asset or liability affects profit or
loss, but does not recognise the gain or loss in the initial measurement of a
resulting asset or liability. Such a change in accounting policy would be
applied prospectively under the transitional arrangements of IFRS 9. Foreign
exchange gains recognised in the hedging reserve totalling £0.3 million (31
July 2016 £1.8 million, 31 January 2017 £2.7 million) would have been
recognised in inventory were IFRS 9 hedge accounting policies effective in
those periods, with no impact on profit or loss. Other amendments to
accounting policies in respect of hedge accounting under IFRS 9 would not have
a significant impact on the financial statements and the Group's designated
hedging relationships under IAS 39 would qualify as continuing hedging
relationships under IFRS 9.
IFRS 15 'revenue from contracts' introduces principles to recognise revenue by
allocation of the transaction price to performance obligations and is
effective for accounting periods commencing on or after 1 January 2018.
Adoption of the standard is not expected to have a significant impact on the
financial statements.
New and revised International Financial Reporting Standards or interpretations
effective for future periods that are currently awaiting EU endorsement
include IFRS 16 Leases (effective for annual periods beginning on or after 1
January 2019). IFRS 16 will replace IAS 17 and related interpretations and
requires entities to apply a single lessee accounting model, with lessees
recognising right of use assets and lease liabilities on balance sheet for all
applicable leases. The majority of the operating lease commitments disclosed
in note 22 of the Annual Report for the year ended 31 January 2017 would meet
the definition of a lease under IFRS 16. The Group continues to assess the
impact of adopting the standard under the different options available on
transition.
4 Segmental reporting
The Group has two operating segments trading under the names Card Factory and
Getting Personal. Card Factory retails cards and gifts in the UK principally
through an extensive store network. Getting Personal is an online retailer of
personalised cards and gifts. Getting Personal does not meet the quantitative
thresholds of a reportable segment as defined in IFRS 8. Consequently the
results of the Group are presented as a single reportable segment. Revenues
outside the UK are not significant at less than £0.1 million. Card Factory
opened its first store in the Republic of Ireland in July 2017.
5 Underlying EBITDA
Underlying earnings before interest, tax, depreciation and amortisation
("EBITDA") represents underlying profit for the period before net finance
expense, taxation, depreciation and amortisation.
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
£'m £'m £'m
Underlying operating profit 27.7 29.0 87.8
Depreciation and amortisation 5.1 5.2 10.7
Underlying EBITDA 32.8 34.2 98.5
6 Non-underlying items
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
£'m £'m £'m
Cost of sales
Loss on foreign currency derivative financial instruments not designated as a hedge (2.8) (0.1) (0.6)
Operating expenses
Loss on disposal of redundant EPOS assets - - (0.9)
Accelerated depreciation on EPOS assets - - (0.2)
Other non-underlying operating expenses (0.3) (0.3) (0.4)
(0.3) (0.3) (1.5)
Net finance expense
Loss on interest rate derivative financial instruments not designated as a hedge - (0.2) (0.2)
The Group has chosen to present an underlying profit and earnings measure. The
Group believes that underlying profit and earnings provides additional useful
information for shareholders. Underlying earnings is not a recognised profit
measure under EU IFRS and may not be directly comparable with 'adjusted'
profit measures reported by other companies. The reported non-underlying
adjustments are as follows:
Net fair value remeasurement gains and losses on derivative financial
instruments
The Group utilises foreign currency derivative contracts to manage the foreign
exchange risk on US Dollar denominated purchases and interest rate derivative
contracts to manage the risk on floating interest rate bank borrowings. Fair
value gains and losses on such instruments are recognised in the income
statement to the extent they are not hedge accounted under IAS 39. Where such
gains and losses relate to future cash flows, these are deemed not
representative of the underlying financial performance in the year and
presented as non-underlying items in accordance with the commercial reasoning
for entering into the agreements. Any gains or losses on maturity of such
instruments are presented within underlying profit to the extent the gain or
loss is not recognised in the hedging reserve.
EPOS asset disposals and accelerated depreciation
In the prior year the decision was taken to upgrade Electronic point of sale
('EPOS') software implemented in recent years with a replacement system
offering enhanced capabilities. The resulting loss on disposal of redundant
assets and accelerated depreciation arising on assets to be replaced in
advance of their original estimated useful economic life were considered a
one-off event and not representative of underlying performance for the year.
As such they were presented as a non-underlying item.
Other non-underlying operating expenses
In January 2016, Card Factory plc announced the retirement and succession of
the Chief Executive Officer. Costs attributable to the recruitment of the new
CEO and dual remuneration costs during the handover period were presented as a
non-underlying item. In January 2017, Card Factory plc announced the
retirement and succession of the Chief Financial Officer. Costs attributable
to the recruitment of a new CFO and dual remuneration costs during the
handover period are presented as a non-underlying item.
7 Finance income and expense
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
£'m £'m £'m
Finance income
Bank interest received - - (0.1)
Finance expense
Interest on bank loans and overdrafts 1.2 1.3 2.6
Amortisation of loan issue costs 0.1 0.1 0.2
Fair value loss on interest rate derivative contracts 0.1 0.2 0.2
1.4 1.6 3.0
Net finance expense 1.4 1.6 2.9
Where fair value losses on interest rate derivative contracts relate to a
future cash flow these are presented as a non-underlying item, see note 6.
8 Taxation
The tax charge on underlying profit before tax for the interim period has been
calculated on the basis of the estimated effective tax rate on underlying
profit before tax for the full year to 31 January 2018 of 19.7% (six months
ended 31 July 2016 20.4%, year ended 31 January 2017 20.7%).
9 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares
in issue for the period, adjusted for the dilutive effect of potential
ordinary shares. Potential ordinary shares represent share incentive awards
and save as you earn share options.
The Group has chosen to present an alternative earnings per share measure,
with profit adjusted for non-underlying items to reflect the Group's
underlying profit for the year. Underlying earnings is not a recognised profit
measure under EU IFRS and may not be directly comparable with 'adjusted'
profit measures used by other companies.
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
Number Number Number
Weighted average number of shares in issue 341,058,641 340,752,254 340,798,812
Weighted average number of dilutive share options 75,766 346,121 171,016
Weighted average number of shares for diluted earnings per share 341,134,407 341,098,375 340,969,828
£'m £'m £'m
Profit for the financial period 18.6 21.5 65.7
Non-underlying items 2.5 0.5 1.8
Total underlying profit for underlying earnings per share 21.1 22.0 67.5
pence pence pence
Basic earnings per share 5.45 6.30 19.26
Diluted earnings per share 5.45 6.29 19.25
Underlying basic earnings per share 6.19 6.45 19.81
Underlying diluted earnings per share 6.19 6.45 19.80
10 Dividends
The Directors have declared an interim dividend of 2.9 pence per share for the
period ended 31 July 2017 which equates to £9.9 million and a special dividend
of 15.0 pence per share which equates to £51.2 million. Both dividends will be
paid on 15 December 2017 to shareholders on the register at the close of
business on 10 November 2017. The interim and special dividend were approved
by the Board on 26 September 2017 and, as such, have not been included as a
liability as at 31 July 2017.
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
Pence per share Pence per share Pence per share
Dividends declared not yet paid at 31 July 2017:
Special dividend for the year ended 31 January 2018 15.0p - -
Interim dividend for the year ended 31 January 2018 2.9p - -
17.9p - -
Dividends paid:
Final dividend for the year ended 31 January 2017 6.3p - -
Special dividend for the year ended 31 January 2017 - - 15.0p
Interim dividend for the year ended 31 January 2017 - - 2.8p
Final dividend for the year ended 31 January 2016 - 6.0p 6.0p
6.3p 6.0p 23.8p
24.2p 6.0p 23.8p
Six months ended 31 July 2017 Six months ended 31 July 2016 Year ended 31 January 2017
£'m £'m £'m
Dividends declared not yet paid at 31 July 2017:
Special dividend for the year ended 31 January 2018 51.2 - -
Interim dividend for the year ended 31 January 2018 9.9 - -
61.1 - -
Dividends paid:
Final dividend for the year ended 31 January 2017 21.5 - -
Special dividend for the year ended 31 January 2017 - - 51.1
Interim dividend for the year ended 31 January 2017 - - 9.6
Final dividend for the year ended 31 January 2016 - 20.4 20.4.44…
21.5 20.4 81.1
82.6 20.44. 81.1
11 Intangible assets
Goodwill Software Total
£'m £'m £'m
Cost
At 1 February 2017 328.2 6.4 334.6
Additions - 1.1 1.1
At 31 July 2017 328.2 7.5 335.7
Amortisation
At 1 February 2017 - 4.4 4.4
Provided in the period - 0.5 0.5
At 31 July 2017 - 4.9 4.9
Net book value
At 31 July 2017 328.2 2.6 330.8
At 31 January 2017 328.2 2.0 330.2
12 Property, plant and equipment
Freehold property Leasehold improvements Plant, equipment, fixtures & vehicles Total
£'m £'m £'m £'m
Cost
At 1 February 2017 17.4 32.1 47.1 96.6
Additions - 2.3 3.2 5.5
Disposals - (0.2) (0.1) (0.3)
At 31 July 2017 17.4 34.2 50.2 101.8
Depreciation
At 1 February 2017 2.3 23.3 31.9 57.5
Provided in the period 0.2 1.6 2.8 4.6
Disposals - (0.1) (0.1) (0.2)
At 31 July 2017 2.5 24.8 34.6 61.9
Net book value
At 31 July 2017 14.9 9.4 15.6 39.9
At 31 January 2017 15.1 8.8 15.2 39.1
13 Cash and cash equivalents
31 July 2017 31 July 2016 31 January 2017
£'m £'m £'m
Cash at bank and in hand 4.0 3.4 3.0
Unsecured bank overdraft - - (8.7)
Net cash and cash equivalents 4.0 3.4 (5.7)
14 Analysis of net debt
Six months ended 31 July 2017 At 1 February 2017 Cash flow Non-cash changes At 31 July 2017
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (129.4) (19.9) (0.1) (149.4)
Cash and cash equivalents (note 13) (5.7) 9.7 - 4.0
Total net debt (135.1) (10.2) (0.1) (145.4)
Six months ended 31 July 2016 At 1 February 2016 Cash flow Non-cash changes At 31 July 2016
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (134.2) 10.0 (0.1) (124.3)
Cash and cash equivalents (note 13) 11.3 (7.9) - 3.4
Total net debt (122.9) 2.1 (0.1) (120.9)
Year ended 31 January 2017 At 1 February 2016 Cash flow Non-cash changes At 31 January 2017
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (134.2) 5.0 (0.2) (129.4)
Cash and cash equivalents (note 13) 11.3 (17.0) - (5.7)
Total net debt (122.9) (12.0) (0.2) (135.1)
Group borrowing facilities consist of a £200 million revolving credit facility
('RCF') terminating 26 June 2020 with an additional £100 million accordion.
Borrowings under the revised facility attract interest at LIBOR plus a margin
in the range 1.0% to 2.0%, subject to a leverage ratchet (LIBOR plus 1.25% at
31 July 2017). The facilities are subject to financial covenants typical to an
arrangement of this nature.
15 Financial instruments
Financial instruments carried at fair value are measured by reference to the
following fair value hierarchy:
- Level 1: quoted prices in active markets for identical assets or
liabilities
- Level 2: inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices); and
- Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value and measured under
a level 2 valuation method. Valuations are provided by the instrument
counterparty.
31 July 2017 31 July 2016 31 January 2017
£'m £'m £'m
Derivative assets
Non-current
Interest rate contracts - - 0.1
Foreign exchange contracts - 0.7 0.5
- 0.7 0.6
Current
Foreign exchange contracts 1.6 3.9 3.5
Derivative liabilities
Current
Interest rate contracts (0.1) (0.2) (0.1)
Foreign exchange contracts (1.2) - (0.6)
(1.3) (0.2) (0.7)
Non-current
Foreign exchange contracts (1.2) - (0.2)
16 Share capital and share premium
31 July 2017 31 July 2016 31 January 2017
Share capital (Number) (Number) (Number)
Allotted, called up and fully paid ordinary shares of one pence:
At the start of the period 340,844,864 340,696,235 340,696,235
Shares issued in relation to share based payments 612,262 148,629 148,629
At the end of the period 341,457,126 340,844,864 340,844,864
£'m £'m £'m
Share capital
At the start of the period 3.4 3.4 3.4
Shares issued in relation to share based payments - - -
At the end of the period 3.4 3.4 3.4
£'m £'m £'m
Share premium
At the start of the period 201.9 201.6 201.6
Shares issued in relation to share based payment 0.3 0.3 0.3
At the end of the period 202.2 201.9 201.9
17 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
31 July 2017 31 July 2016 31 January 2017
£'m £'m £'m
Profit before tax 23.2 27.0 82.8
Net finance expense 1.4 1.6 2.9
Operating profit 24.6 28.6 85.7
Adjusted for:
Depreciation and amortisation 5.1 5.2 10.9
Loss on disposal of fixed assets 0.1 0.1 1.1
Cash flow hedging foreign currency movements (2.6) (0.2) (0.2)
Share based payments charge - 0.3 0.2
Operating cash flows before changes in working capital 27.2 34.0 97.7
(Increase)/decrease in receivables (8.1) (11.9) 1.1
(Increase)/decrease in inventories (8.5) 4.0 (1.0)
Increase in payables 17.0 11.8 1.6
Cash inflow from operating activities 27.6 37.9 99.4
18 Principal risks and uncertainties
The Board and the senior management team are collectively responsible for
managing risks and uncertainties across the Group. In determining the Group's
risk appetite and how risks are managed, the Board, Audit and Risk Committee
and the senior management team look to ensure an appropriate balance is
achieved which enables the Group to achieve its strategic and operational
objectives and facilitates the long-term success of the Group.
The Group's Audit and Risk Committee is responsible for reviewing the Group's
risk management framework and ensuring that it enables the Committee and the
Board to carry out a robust assessment of the principal risks facing the
Group, including those that would threaten its business model, future
performance, solvency or liquidity.
The principal risks and uncertainties which could have a material impact on
the Group's performance over the remaining six months of the financial year
and beyond, and which could cause actual results to differ materially from
expected and historical results are as follows:
- Changes in consumer demands and market trends
- Increased competition
- Damage to brand and reputation
- Success of, or inability to implement, Group strategy
- Inability to find suitable locations for new stores
- Supply chain and product sourcing
- Attracting, motivating and retaining key personnel
- Managing business initiatives and change alongside business as
usual activities
- Treasury and financial risk
- Business continuity and response to major incidents
- Compliance with legal requirements, standards and regulations
- Maintenance and development of IT systems
- Development of the Group's online business
The Board considers that these principal risks and uncertainties affecting the
Group (as published and explained in more detail on pages 23 to 26 of the
Group's Annual Report for the year ended 31 January 2017) remain unchanged.
Responsibility statement of the Directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
• the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
By order of the Board
Karen Hubbard Kris Lee
Chief Executive Officer Chief Financial Officer
26 September 2017
Independent review report to Card Factory plc
Conclusion
We have been engaged by the company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
July 2017 which comprises the consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
statement of financial position, the condensed consolidated statement of
changes in equity, the condensed consolidated cash flow statement and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 July 2017 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted by the EU and the Disclosure Guidance and Transparency Rules ("the
DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the condensed
set of financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our
engagement to assist the company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the company
those matters we are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Nicola Quayle (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DW
26 September 2017
This information is provided by RNS
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