REG - Card Factory PLC - Half-year Report
25 September 2018
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2018
Growing sales despite a challenging consumer environment; special dividend announced
Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its interim results for the six months ended 31 July 2018.
Financial highlights
Financial Metric
H1 FY19
H1 FY18
Change
Revenue
£185.3m
£179.6m
3.2%
Card Factory like-for-like sales*
(0.2%)
3.1%
(3.3 ppts)
Underlying EBITDA*
£29.9m
£32.8m
(8.9%)
Underlying operating profit*
£24.5m
£27.7m
(11.6%)
Operating profit
£29.0m
£24.6m
17.9%
Underlying profit before tax*
£22.7m
£26.3m
(13.9%)
Profit before tax
£27.2m
£23.2m
17.2%
Underlying Basic EPS*
5.31 pence
6.19 pence
(14.2%)
Basic EPS
6.38 pence
5.45 pence
17.1%
Leverage*
1.76 x
1.50 x
· The Board continues to expect underlying EBITDA for the full year to be in the range of £89m to £91m
· Interim dividend of 2.9 pence (FY18: 2.9 pence)
· Special dividend of 5.0 pence per share (FY18: 15.0 pence), a return of £17.1m to shareholders; consistent with our capital policy
· A total of £295.4m returned to shareholders via dividends since IPO in May 2014
* See explanatory Note 2 "Alternative Performance Measures" for further information and definitions
Business highlights
Strategic progress in a challenging consumer environment:
1. Like-for-like sales
· Overall H1 FY19 sales impacted by lower high street footfall in a weak consumer environment, leading to:
- Weaker sales of Everyday ranges, but;
- Strong seasonal performance; Valentine's Day, Mother's Day and Father's Day ranges each delivered record sales; with
- Strong growth in sales from Card Factory online; and
- Further growth in average spend driven by continuing improvements to the quality and range of both card and complementary non-card products coupled with better utilisation of space in store.
· All stores on the new EPOS platform.
2. Continuing new store roll out
· 25 net new UK stores opened in the period, bringing total UK estate to 940.
· Seven trial stores in the Republic of Ireland, including one opened in the half year.
· Strong pipeline of new store opportunities - on track to deliver approximately 50 net new UK openings by the year end and solid pipeline for FY20.
3. Delivering business efficiencies
· Underlying EBITDA margin of 16.1% (H1 FY18: 18.3%) reflects like-for-like sales performance, the annualisation of prior year operational investment and cost headwinds - most notably foreign exchange and national living wage, amounting to a combined c.£4.0m - and the effect of business efficiencies delivered.
· On track to deliver planned business efficiencies for goods, supply chain, retail operations and property costs, with further efficiency initiatives planned going forward.
4. Development of complementary online sales channels
· Card Factory website delivered sales growth of c.85% and is on track to be profitable this year.
· Trading performance at Getting Personal remains challenging, with increased price competition and rising costs of customer acquisition impacting the business.
In addition, trials are underway to extend Card Factory's market penetration, including:
· Retail partnerships: opportunities are being assessed and worked through with potential partners to offer Card Factory branded cards. One small trial is already underway.
· Franchising: one trial franchised unit will open in November 2018.
· Concessions: Two concession units opened this month with an additional four in the process of being fitted out.
Karen Hubbard, Chief Executive Officer, commented:
"We have delivered solid interim results with overall sales growth, despite the weak consumer environment and particularly challenging footfall across the high street, driven by various factors. Profitability was impacted by lower like-for-like sales, but we continue to largely mitigate the headwinds we face through various business efficiencies.
"Despite this difficult consumer backdrop, we have seen record numbers for Valentine's Day, Mother's Day and Father's Day both in terms of volume and value. This strong seasonal performance gives us confidence for the key Christmas trading period.
"Our business model remains highly cash generative and, further to previous guidance, we are pleased to be announcing another special dividend of 5.0 pence per share, which is consistent with our capital policy. Combined with a 2.9 pence per share interim dividend, this means we will have returned almost £300m to shareholders since our IPO in May 2014.
"As expected, trading in recent weeks has remained challenging given the weak consumer environment, but we have seen continued growth in average spend and improved performance of redesigned Everyday ranges. The Board is confident that the Group will continue to make further strategic progress on new initiatives.
"We remain positive about the growth prospects for the business over the medium term."
Interim results presentation
A presentation for analysts will be held today starting at 10.00am at UBS Limited, 5 Broadgate, London EC2M 2QS. If you would like to register for attendance then please contact Nessyah Hart at MHP Communications on 0203 128 8156 or cardfactory@mhpc.com.
Enquiries
Card Factory plc +44 (0) 203 128 8100
Karen Hubbard, Chief Executive Officer
Kris Lee, Chief Financial Officer
MHP Communications +44 (0) 203 128 8100
Simon Hockridge / Giles Robinson / Tim Rowntree
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2018
Chief Executive's Report
Overview
Card Factory has had a solid first half to the financial year, generating growth in total revenue despite a difficult consumer environment with lower footfall across the high street. Overall sales growth has been delivered from new store openings and also from strong online growth from Cardfactory.co.uk, although Getting Personal continues to face a challenging competitive environment.
Our like-for-like performance has impacted profitability, as have the ongoing cost headwinds of foreign exchange and national living wage, but we continue to implement business efficiencies to ensure we retain our industry-leading EBITDA margins.
We continue to generate cash, allowing us to return £17.1m of surplus cash to shareholders via a special dividend, the fourth such distribution we will have made since IPO in May 2014.
We have a clear strategy underpinned by four pillars of growth, whilst also seeking new growth opportunities. The underlying card market remains large and resilient with Card Factory well established as the clear market leader. The substantial barriers to entry built over the past decade through significant investment provide us with a clear strategic advantage. We remain vigilant to the competition from card and non-card retailers and will continue to adapt and evolve our proposition to changes in the market, whilst monitoring and combatting potential new entrants - which we are well practised at doing since Card Factory's inception more than 20 years ago.
Our focus in the medium term will be on continuing to deliver on our four strategic pillars, develop and evolve our product offering for customers and enhance our vertical integration across the business to strengthen our ability to grow both revenue and profit, whilst pursuing other new growth opportunities, some of which are outlined above.
Our progress in relation to each of the four strategic pillars is summarised below:
1. Continue to grow like-for-like sales
As previously reported, sales performance in the first half was affected by extreme weather conditions, which impacted high street footfall, and continued consumer caution across the UK. The business is not immune to such trends and our like-for-like sales performance was impacted correspondingly.
Strong performances are clearly evident where we have stepped up the focus and activity in designing new ranges, using the industry-leading skills of our own Design Studio. This is reflected in the record sales for the Group from our Valentine's Day, Mother's Day and Father's Day seasonal ranges and gives us confidence on the prospective performance of sales in the key Christmas period.
Whilst the performance of Everyday ranges, as a whole, has been disappointing, we have also seen an improvement in performance as a result of redesigned ranges. We continued to improve our range availability and utilisation of space in store and maintained our competitive price position.
Excluding cardfactory.co.uk, like-for-like sales performance for our store network was down 0.7% (H1 FY18: up 3.0%) with consistently strong growth in average spend offsetting in part the transaction volume reduction. Like-for-like sales for Card Factory as a whole fell by 0.2% (H1 FY18: up 3.1%) due to growth of c.85% from the cardfactory.co.uk website.
2. Continue to roll out profitable new stores
In the first half we opened 25 net new UK stores (H1 FY18: 30) bringing the total UK estate to 940 stores as at 31 July 2018, in addition to seven trial stores in the Republic of Ireland. The contribution to overall Group revenue growth from net new store openings was slightly lower than in the first half last year as a result of later opening dates and fewer new stores.
We remain on track to deliver approximately 50 net new UK stores in the current financial year, having opened a further six net new UK stores since the half year point. Over one third of our new UK stores were in retail parks; this category continues to perform ahead of expectations, and provides further store estate diversity.
3. Continue to focus on delivering business efficiencies
The Group continues to deliver its ongoing programme of business efficiencies as part of its strategy to uphold best-in-class margins, whilst maintaining value for our customers by holding our low price points. This approach is particularly important in light of recent high street footfall weakness and the impact of foreign exchange and national living wage headwinds.
Targeted efficiencies include improving vertical integration, supply chain development, store productivity and other business efficiencies, including rent reductions, improved buying terms and loss prevention. Looking forward, while the recent levels of foreign exchange cost headwinds are set to ease, mitigation is planned for ongoing increases in national living wage, electricity and card transaction fees. The potential for further Sterling weakness in the medium term is also a consideration, albeit the short-term impact is managed via the Group's hedging policy.
4. Increase penetration of the complementary online market
The online personalised card market segment, estimated to be in excess of £100m, remains an attractive, niche market. Cardfactory.co.uk is currently under-represented with a share of less than 1% of this market, but continues to see strong sales growth as a result of the strategy implemented over the past 12 months. This strategy is clearly resonating with customers, who are responding well to the proposition and we are seeing growing sales volumes and positive feedback as we continue to refresh and update our product offering - increasing the range of personalised and non-personalised ranges across both card and non-card - and enhancing the shopping experience in order to help our customers celebrate life moments.
Our rate of online sales growth at cardfactory.co.uk was c.85%; we continue to target new customers by leveraging our high street presence whilst ensuring our investment delivers profitable sales growth.
Trading performance at Getting Personal remains challenging, with increased price competition and rising costs of customer acquisition impacting the business. Year-on-year sales were down 8.5% (H1 FY18: up 5.0%). However, we have recruited a new Digital Director for the Group who is now providing further direction for the business.
While Getting Personal is currently in a period of transition, we remain optimistic that we will deliver continuing growth in revenue and profit from the Card Factory online channel into the medium term, with better engagement, product offering and service levels for our customers, whilst continuing to develop improved customer navigation.
Investment for the future
In the previous year, we invested in systems, infrastructure and people, including a number of new senior management appointments in order to support the enlarged business, enable future growth and underpin the Group's ability to realise its full potential.
In store, we continue to increase the proportion of customers using contactless payments and we will upgrade c.10% of our stores with mobile POS technology in advance of the Christmas season; this will reduce queues, improve customer experience and ultimately help to optimise sales.
We also continue to invest in our two online propositions and in our unique, vertically integrated, supply chain, to ensure that we maintain our competitive advantage.
Revenue
Total revenue during the period grew by 3.2% to £185.3m (H1 FY18: £179.6m):
H1 FY19
£'m
H1 FY18
£'m
Increase / (Decrease)
Card Factory
178.6
172.3
3.7%
Getting Personal
6.7
7.3
(8.5%)
Group
185.3
179.6
3.2%
Growth in like-for-like sales by retail channel, calculated on a calendar week basis, can be broken down as follows:
H1 FY19
H1 FY18
Card Factory stores
(0.7%)
3.0%
Card Factory online
84.6%
29.8%
Card Factory combined
(0.2%)
3.1%
Getting Personal
(8.5%)
5.0%
Total online combined
1.9%
7.3%
Operating costs
Underlying cost of sales and operating expenses continue to be a key focus and are broken down as follows:
H1 FY19
H1 FY18
£ Increase
£'m
% of revenue
£'m
% of revenue
Cost of goods sold
59.5
32.1%
56.9
31.7%
4.5%
Store wages
35.8
19.3%
33.7
18.8%
6.0%
Store property costs
33.6
18.1%
32.3
18.0%
4.1%
Other direct expenses
9.5
5.2%
8.1
4.5%
19.0%
Cost of sales
138.4
74.7%
131.0
73.0%
5.7%
Operating expenses*
17.0
9.2%
15.8
8.7%
7.3%
*excluding depreciation and amortisation
The overall ratio of cost of sales to revenue increased to 74.7% on an underlying basis (H1 FY18: 73.0%) with the following movements in sub-categories:
· Cost of goods sold: principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight and carriage costs and warehouse wages. The increase in this cost ratio principally reflects foreign exchange headwinds. Whilst the business has always been well hedged in line with policy, the sustained weakness of sterling in relation to US dollar has, as expected, had further impact in the half year; this is explained in more detail below. The shift in product mix from card to complementary non-card was smaller than in the previous half year and the margin impact was more than offset by product sourcing improvements.
· Store wages: includes wages and salaries for store based staff, together with bonuses, national insurance, pension contributions, overtime, holiday and sick pay. This cost has increased as expected as new stores have been opened and pay increases (reflecting national living wage) awarded. The increase in the cost ratio reflects these factors, with some mitigation as a result of steps taken to reduce tasks in store and to manage hours more effectively.
· Store property costs: consists principally of store rents (net of rental incentives), business rates and service charges. This cost has increased in absolute terms as new stores have been opened but as a ratio of revenue is broadly in line. We continue to target improvements in our overall rent roll as we reach break points or expiries on existing leases.
· Other direct expenses: includes electricity costs, store opening and utility costs, waste disposal, store maintenance, point of sale costs, bank charges and pay per click expenditure. This cost category is largely variable for existing stores and increases with new store openings. The ratio of other direct expenses has increased by 0.7ppts to 5.2% (H1 FY18 4.5%) due to an increasing proportion of debit/credit card transactions and increased merchant fees thereon, point of sale costs and a rise in electricity costs, reduced in part by business efficiencies such as LED lighting.
Total underlying operating expenses (excluding depreciation and amortisation) in the first half increased to £17.0m (H1 FY18: £15.8m). These costs include items such as head office salaries and remuneration, costs for regional and area managers, design studio costs and insurance, together with other central overheads and administration costs. The £1.2m increase in operating expenses reflects investment in EPOS, amongst other IT projects, Card Factory online and the first-half year impact of other operational investments made in the previous year to support future growth and underpin the Group's ability to realise its full potential.
Depreciation and amortisation increased slightly from £5.1m to £5.4m.
Net finance expense
The underlying net financing expense increased to £1.8m (H1 FY18: £1.4m) due to higher average debt levels and a slight increase in the average interest rate.
Profit before tax
As a consequence of the above factors, underlying profit before tax reduced by 13.7% to £22.7m (H1 FY18: £26.3m). The table below reconciles underlying profit before tax to the statutory profit before tax:
H1 FY19
H1 FY18
Increase / (Decrease)
£'m
£'m
Underlying profit before tax
22.7
26.3
(13.9%)
Non-underlying items:
Cost of sales
Gain / (loss) on foreign currency derivative financial instruments not designated as a hedge
4.5
(2.8)
Operating expenses
Non-underlying operating expenses
-
(0.3)
Statutory profit before tax
27.2
23.2
17.2%
Taxation
The Group's underlying effective tax rate of 19.7% (H1 FY18: 19.7%) remains close to the current headline rate of corporation tax.
Earnings per share
Earnings per share increased by 17.1% to 6.38 pence (H1 FY18: 5.45 pence).
Underlying basic earnings per share decreased by 14.2% to 5.31 pence (H1 FY18: 6.19 pence). Excluding the c.£4.0m impact of foreign exchange and national living wage, underlying basic earnings per share would have increased by approximately 5%.
Capital expenditure
Capital expenditure of £5.6m (H1 FY18: £6.6m) included investment of £1.5m in new printing equipment and £0.6m (H1 FY18 £2.1m) in order to complete the migration of our store estate on to our PCMS EPOS platform. Our expectation is that capital expenditure will run at around £14m per annum over the medium term.
Foreign exchange
With approximately half of the Group's cost of goods sold expense relating to products sourced in US dollars, the Group takes a prudent but flexible approach to hedging the risk of exchange rate fluctuations.
As disclosed in previous announcements, we have continued to face foreign exchange gross margin pressure due to the fall in the value of Sterling and its impact on our average US dollar hedge rates over time. The effective exchange rate applicable to H1 FY19 underlying profit is c.$1.35, which compares to c.$1.50 in H1 FY18 and c.$1.38 in the full year FY18.
At the date of this announcement, the Group has hedged all of its foreign exchange requirement for the remainder of FY19 and a large proportion of FY20, giving expected effective exchange rates of c.$1.35 for FY19 and FY20. This protects the Group from short-term exchange rate volatility.
The Group's expected effective exchange rates are subject to movements on transactions yet to be hedged for FY20 and timing variances in respect of structured options that can't be hedge accounted.
Underlying EBITDA
The underlying EBITDA margin of the Group decreased to 16.1% (H1 FY18: 18.3%), and can be broken down as follows:
H1 FY19
£'m
H1 FY18
£'m
Increase/
(Decrease)
Underlying EBITDA
Card Factory
29.4
31.8
(7.6%)
Getting Personal
0.5
1.0
(52.8%)
Group
29.9
32.8
(8.9%)
Underlying EBITDA margin
Card Factory
16.5%
18.5%
(2.0 ppts)
Getting Personal
6.9%
13.3%
(6.4 ppts)
Group
16.1%
18.3%
(2.2 ppts)
The reduction in Card Factory underlying EBITDA reflects the impact of foreign exchange, national living wage, card payment charges, electricity and our investment in strengthening our competitive position by maintaining our low price points.
Further to our recent trading update, provided on 9 August 2018, the Board continues to expect underlying EBITDA for the year to be in the range of £89m to £91m. Our key Q4 trading will be critical in determining the final result, but we believe we are well positioned for the important Christmas trading season.
The reduction in Getting Personal underlying EBITDA is due to the 8.5% fall in sales and the rising cost of customer acquisition.
Cash generation
The Group has a business model which is highly cash generative due to its strong operating margins, limited working capital absorption and relatively low capital expenditure requirements. Cash generation in the half year improved due to a planned reduction in stock levels in the period and favourable working capital timing differences.
Dividends
The Board has declared an interim ordinary dividend of 2.9p per share (FY18: 2.9p).
In addition, the Board is pleased to declare a special dividend of 5.0p per share, equating to a special return to shareholders of £17.1m.
Both the interim ordinary dividend and the special dividend will be paid on 14 December 2018 to shareholders on the register at close of business on 9 November 2018. We will, at that point, have returned a total of 86.6p per share (£295.4m) to shareholders since IPO in May 2014 - equivalent to over 38% of the IPO price.
Net debt
As at 31 July 2018, before deduction of capitalised debt costs, net debt totalled £159.8m (31 July 2017: £146.0m, 31 January 2018: £161.3m).
As at 31 July
2018
£'m
2017
£'m
Borrowings
Current liabilities
0.1
-
Non-current liabilities
164.6
149.4
Total borrowings
164.7
149.4
Add: debt costs capitalised
0.3
0.6
Gross debt
165.0
150.0
Less cash
(5.2)
(4.0)
Net debt
159.8
146.0
Net debt at 31 July 2018 represented 1.76x underlying EBITDA for the 12 months ended on that date, compared with 1.50x at 31 July 2017 and 1.26x at 31 July 2016.
Dividend and capital policies
Since IPO, the Board has consistently adopted a progressive ordinary dividend policy for the Company, reflecting its strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Company's long-term growth. It remains the Board's intention, subject to, inter alia, available distributable profits, to pay annual ordinary dividends based on a targeted ordinary dividend cover of between 1.5 and 2.5 times the Company's underlying consolidated post-tax profit. Over the short to medium-term we expect to be at around the middle of the cover range.
Over the medium-term, the Board expects to maintain leverage broadly in the range of 1.0 to 2.0 times net debt to underlying EBITDA (excluding the impact of IFRS 16). It should be noted that net debt at the half and full year period ends is lower than intra year peaks, reflecting usual trading patterns and working capital movements. In line with this, over the short to medium term the Board currently expects to target year-end net debt/underlying EBITDA of approximately 1.7 times (excluding the impact of IFRS 16). Reflecting the highly cash generative nature of the business, absent any material investments, the Board expects to generate surplus cash which it will return to shareholders; currently the Board expects to return surplus cash on an annual basis.
Outlook
We continue to experience a weak consumer environment and we don't foresee this changing in the short term, however we have a solid business plan centered on refreshed ranges and a strong value proposition for the Christmas season.
As reported, we have experienced cost headwinds, but the foreign exchange headwind will be removed in FY20 if we assume a steady state of currency with the majority of the year currently hedged, with significant plans already in place to mitigate the increase in National Living Wage.
Taking into account the above, the Board's current expectation is that underlying EBITDA for the year will be in the range of £89m to £91m. Our key Q4 trading period will of course be critical in determining the final result for the year, but we believe we are well positioned to deliver a good performance in our important Christmas trading season.
We remain as convinced as ever of the strong growth prospects for the business.
Karen Hubbard
Chief Executive Officer
25 September 2018
Notes
1. Background information
Card Factory is the UK's leading specialist retailer of greeting cards, dressings and gifts. It focuses on the value and mid-market segments of the UK's large and resilient greeting cards market, and also offers a wide range of complementary products associated with card giving occasions. Card Factory principally operates through its nationwide chain of over 900 Card Factory stores, as well as through its online offerings: www.cardfactory.co.uk and www.gettingpersonal.co.uk.
The Group's clear strategy is focused on four pillars of growth:
- continuing to grow like-for-like sales;
- continuing to roll out profitable new stores;
- continuing to focus on delivering business efficiencies; and
- increasing penetration of the complementary online market.
Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily through organic growth into a market-leading value retailer with a nationwide presence. The Group's stores are in a wide range of locations including on high streets in small towns through to major cities, shopping centre developments, out-of-town retail parks and factory outlet centres.
Since 2005, Card Factory has developed a vertically integrated business model with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sq. ft. This model differentiates the Group from its competitors by significantly reducing costs and adding value to customers in terms of both price and quality.
In the financial year ended 31 January 2018, the Group reported revenue growth of 6.0% to £422.1m (FY17: £398.2m) and underlying EBITDA reduction of 4.6% to £94.0m (FY17: £98.5m) at a margin of 22.3% (FY17: 24.7%).
2. Alternative Performance Measures ("APMs") and other explanatory information
"EBITDA" is defined as earnings before interest, tax, depreciation and amortisation and represents profit for the period before net finance expense, taxation, depreciation and amortisation.
"Leverage" is calculated as the ratio of net debt to underlying EBITDA for the previous 12 months.
"Underlying" profit figures exclude costs principally relating to mark-to-market movements on derivatives not designated as a hedging relationship. The non-underlying profit in the period principally relates to future foreign exchange transactions that cannot be hedge accounted.
"Like-for-like" is defined as follows:
The Group defines Card Factory store Iike-for-Iike ('LFL') sales as the year-on-year growth in sales for Card Factory stores which have been opened for a full year, calculated on a calendar week basis. The reported LFL sales figure excludes sales:
· made via the Card Factory website, www.cardfactory.co.uk;
· made via the separately branded personalised card and gift website, Getting Personal, www.gettingpersonal.co.uk;
· by Printcraft, the Group's printing division, to external third-party customers; and
· from stores closed for all or part of the relevant period (or the prior year comparable period).
Card Factory stores are included in the reported LFL figures for each week of trading after having been open for 52 weeks.
"Total Card Factory LFLs" are reported including the impact of the Card Factory website.
The Group defines Getting Personal LFL sales as the year-on-year growth in sales for the Getting Personal website, calculated on a calendar week basis.
"Percentage Movements" - Percentage changes have been calculated before figures were rounded to £0.1m.
3. Cautionary Statement
This announcement is based on information from unaudited management accounts and contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.
Condensed consolidated income statement
For the six months ended 31 July 2018
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
Underlying
Non-underlying (note 6)
Total
Underlying
Non-underlying (note 6)
Total
Underlying
Non-underlying (note 6)
Total
Note
£'m
£'m
£'m
£'m
£'m
£'m
£'m
£'m
£'m
Revenue
4
185.3
-
185.3
179.6
-
179.6
422.1
-
422.1
Cost of sales
(138.4)
4.5
(133.9)
(131.0)
(2.8)
(133.8)
(297.0)
(7.6)
(304.6)
Gross profit/(loss)
46.9
4.5
51.4
48.6
(2.8)
45.8
125.1
(7.6)
117.5
Operating expenses
(22.4)
-
(22.4)
(20.9)
(0.3)
(21.2)
(41.7)
(0.3)
(42.0)
Operating profit/(loss)
24.5
4.5
29.0
27.7
(3.1)
24.6
83.4
(7.9)
75.5
Financial income
7
-
-
-
-
-
-
0.1
-
0.1
Financial expense
7
(1.8)
-
(1.8)
(1.4)
-
(1.4)
(3.0)
-
(3.0)
Net financing expense
(1.8)
-
(1.8)
(1.4)
-
(1.4)
(2.9)
-
(2.9)
Profit/(loss) before tax
22.7
4.5
27.2
26.3
(3.1)
23.2
80.5
(7.9)
72.6
Taxation
8
(4.5)
(0.9)
(5.4)
(5.2)
0.6
(4.6)
(15.8)
1.5
(14.3)
Profit/(loss) for the period
18.2
3.6
21.8
21.1
(2.5)
18.6
64.7
(6.4)
58.3
Earnings per share
pence
pence
pence
pence
pence
pence
- Basic
9
5.31
6.38
6.19
5.45
18.94
17.08
- Diluted
9
5.31
6.38
6.19
5.45
18.94
17.08
All activities relate to continuing operations.
Condensed consolidated statement of comprehensive income
For the six months ended 31 July 2018
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Profit for the period
21.8
18.6
58.3
Items that are or may be reclassified subsequently to profit or loss:
Cash flow hedges - changes in fair value
7.4
(2.2)
(7.2)
Cash flow hedges - reclassified to profit or loss
-
(1.6)
(1.5)
Cost of hedging reserve - changes in fair value
0.7
-
-
Cost of hedging reserve - reclassified to profit or loss
(0.3)
-
-
Tax relating to components of other comprehensive income
(1.5)
0.7
1.7
Other comprehensive income/(expense) for the period, net of tax
6.3
(3.1)
(7.0)
Total comprehensive income for the period attributable to equity shareholders of the parent
28.1
15.5
51.3
Condensed consolidated statement of financial position
As at 31 July 2018
Note
31 July 2018
31 July 2017
31 January 2018
£'m
(restated - note 19)
£'m
(restated - note 19)
£'m
Non-current assets
Intangible assets
11
331.7
330.8
331.6
Property, plant and equipment
12
40.0
39.9
40.0
Deferred tax assets
0.6
1.3
1.9
Other receivables
0.7
0.7
0.8
Derivative financial instruments
15
1.1
-
0.2
374.1
372.7
374.5
Current assets
Inventories
56.8
59.9
51.5
Trade and other receivables
27.5
26.5
16.6
Derivative financial instruments
15
1.6
1.6
0.3
Cash and cash equivalents
13
5.2
4.0
3.6
91.1
92.0
72.0
Total assets
465.2
464.7
446.5
Current liabilities
Borrowings
(0.1)
-
(14.9)
Trade and other payables
(58.5)
(53.9)
(37.7)
Tax payable
(5.7)
(4.3)
(5.5)
Derivative financial instruments
15
-
(1.3)
(7.0)
(64.3)
(59.5)
(65.1)
Non-current liabilities
Borrowings
(164.6)
(149.4)
(149.6)
Trade and other payables
(10.7)
(10.7)
(10.0)
Derivative financial instruments
15
(0.2)
(1.2)
(3.4)
(175.5)
(161.3)
(163.0)
Total liabilities
(239.8)
(220.8)
(228.1)
Net assets
225.4
243.9
218.4
Equity
Share capital
16
3.4
3.4
3.4
Share premium
16
202.2
202.2
202.2
Hedging reserve
1.6
(1.1)
(5.0)
Cost of hedging reserve
0.2
(0.3)
(0.3)
Reverse acquisition reserve
(0.5)
(0.5)
(0.5)
Merger reserve
2.7
2.7
2.7
Retained earnings
15.8
37.5
15.9
Equity attributable to equity holders of the parent
225.4
243.9
218.4
Condensed consolidated statement of changes in equity
For the six months ended 31 July 2018
Six months ended 31 July 2018
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 2018 (restated - see note 19)
3.4
202.2
(5.0)
(0.3)
(0.5)
2.7
15.9
218.4
Opening reserves adjustment (see note 19)
-
-
0.6
0.2
-
-
(0.3)
0.5
At 1 February 2018
3.4
202.2
(4.4)
(0.1)
(0.5)
2.7
15.6
218.9
Total comprehensive income for the period
Profit or loss
-
-
-
-
-
-
21.8
21.8
Other comprehensive income
-
-
6.0
0.3
-
-
-
6.3
-
-
6.0
0.3
-
-
21.8
28.1
Transactions with owners, recorded directly in equity
Share based payment charges
-
-
-
-
-
-
0.3
0.3
Dividends (note 10)
-
-
-
-
-
-
(21.9)
(21.9)
Total contributions by and distributions to owners
-
-
-
-
-
-
(21.6)
(21.6)
At 31 July 2018
3.4
202.2
1.6
0.2
(0.5)
2.7
15.8
225.4
Six months ended 31 July 2017
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 1 February 2017 (restated - see note 19)
3.4
201.9
2.0
(0.3)
(0.5)
2.7
40.3
249.5
Total comprehensive income for the period
Profit or loss
-
-
-
-
-
-
18.6
18.6
Other comprehensive expense
-
-
(3.1)
-
-
-
-
(3.1)
-
-
(3.1)
-
-
-
18.6
15.5
Transactions with owners, recorded directly in equity
Issue of shares (note 16)
-
0.3
-
-
-
-
-
0.3
Taxation on share based payments recognised in equity
-
-
-
-
-
-
0.1
0.1
Dividends (note 10)
-
-
-
-
-
-
(21.5)
(21.5)
Total contributions by and distributions to owners
-
0.3
-
-
-
-
(21.4)
(21.1)
At 31 July 2017 (restated - see note 19)
3.4
202.2
(1.1)
(0.3)
(0.5)
2.7
37.5
243.9
Year ended 31 January 2018
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 1 February 2017 (restated - see note 19)
3.4
201.9
2.0
(0.3)
(0.5)
2.7
40.3
249.5
Total comprehensive income for the period
Profit or loss
-
-
-
-
-
-
58.3
58.3
Other comprehensive expense
-
-
(7.0)
-
-
-
-
(7.0)
-
-
(7.0)
-
-
-
58.3
51.3
Transactions with owners, recorded directly in equity
Issue of shares (note 16)
-
0.3
-
-
-
-
-
0.3
Share based payment charges
-
-
-
-
-
-
(0.1)
(0.1)
Dividends (note 10)
-
-
-
-
-
-
(82.6)
(82.6)
Total contributions by and distributions to owners
-
0.3
-
-
-
-
(82.7)
(82.4)
At 31 January 2018 (restated - see note 19)
3.4
202.2
(5.0)
(0.3)
(0.5)
2.7
15.9
218.4
Condensed consolidated cash flow statement
For the six months ended 31 July 2018
Note
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Cash inflow from operating activities
17
36.2
27.6
89.7
Corporation tax paid
(5.6)
(8.8)
(17.0)
Net cash inflow from operating activities
30.6
18.8
72.7
Cash flows from investing activities
Purchase of property, plant and equipment
12
(4.9)
(5.5)
(10.6)
Purchase of intangible assets
11
(0.7)
(1.1)
(2.5)
Interest received
-
-
0.1
Net cash outflow from investing activities
(5.6)
(6.6)
(13.0)
Cash flows from financing activities
Proceeds from bank borrowings
15.0
19.9
20.0
Interest paid
(1.6)
(1.2)
(2.7)
Proceeds from new shares issued
16
-
0.3
0.3
Dividends paid
10
(21.9)
(21.5)
(82.9)
Net cash outflow from financing activities
(8.5)
(2.5)
(65.3)
Net increase/(decrease) in cash and cash equivalents
16.5
9.7
(5.6)
Cash and cash equivalents at the beginning of the year
(11.3)
(5.7)
(5.7)
Closing cash and cash equivalents
13
5.2
4.0
(11.3)
Notes to the interim financial statements
1 General information
Card Factory plc (the 'Company') is a public limited company incorporated in the United Kingdom. The Company is domiciled in the United Kingdom and its registered office is Century House, Brunel Road, 41 Industrial Estate, Wakefield WF2 0XG.
2 Basis of preparation
These unaudited condensed consolidated interim financial statements ('interim financial statements') for the six months ended 31 July 2018 comprise the Company and its subsidiaries (together referred to as the 'Group'). The interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the European Union. The interim report was approved by the Board of Directors on 25 September 2018.
These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 January 2018 ('Annual Report') which have been prepared in accordance with IFRSs as adopted by the European Union ('EU IFRS'). The comparative figures for the financial year ended 31 January 2018 are an extract from the Annual Report and are not the Group's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report was (i) unqualified, (ii) did not contain an emphasis of matter paragraph and (iii) did not contain any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2018 were approved by the Board of Directors on 9 April 2018 and delivered to the Registrar of Companies. The auditor's review report for the six month period ended 31 July 2018 is attached.
Significant judgements and estimates
The preparation of the interim financial statements requires the use of judgements, estimates and assumptions that affect the application of the Group's accounting policies and reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The significant judgements and key sources of estimation uncertainty were consistent with those applied to the consolidated financial statements for the year ended 31 January 2018. Judgements relating to foreign currency hedge accounting are now in respect of IFRS 9 accounting policies as explained in note 19 to these interim financial statements.
Going concern
Taking into account current and anticipated trading performance, current and anticipated levels of borrowings and the availability of borrowing facilities and exposures to and management of the financial risks detailed in the Annual Report, the Board is of the opinion that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, the interim financial statements continue to be prepared on a going concern basis.
3 Principal accounting policies
The financial statements have been prepared under the historical cost convention except for derivative financial instruments which are stated at their fair value. The accounting policies are consistent with those applied in the consolidated financial statements for the year ended 31 January 2018 except in respect of accounting policy amendments on adoption of International Financial Reporting Standards effective in the current period.
Amendments to International Financial Reporting Standards effective in the current period
· IFRS 9 Financial Instruments
· Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (Amendments to IFRS 4)
· IFRS 15 Revenue from Contracts with Customers
· Clarifications to IFRS 15 Revenue from Contracts with Customers
· Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
· Transfers of Investment Property (Amendments to IAS 40)
· Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IFRS 1)
· Annual Improvements to IFRS 2014-2016 Cycle (Amendments to IAS 28)
· IFRIC 22 Foreign Currency Transactions and Advance Consideration
The impact on the financial statements of adoption of IFRS 9 is detailed in note 19 to these interim financial statements.
IFRS 15 introduces principles to recognise revenue by allocation of the transaction price to performance obligations and is effective for accounting periods commencing on or after 1 January 2018. Adoption of the measurement and recognition principles under IFRS 15 has no impact on the values reported in these interim financial statements.
There is no impact on the values reported in these interim financial statements from adoption of the other amendments to International Financial Reporting Standards effective in the current period.
EU Endorsed International Financial Reporting Standards in issue but not yet effective
· IFRS 16 Leases
· Prepayment Features with Negative Compensation Amendments to IFRS 9
IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019). IFRS 16 will replace IAS 17 and related interpretations and requires entities to apply a single lessee accounting model, with lessees recognising right-of-use-assets and lease liabilities on balance sheet for all applicable leases. In addition, the nature of expenses related to those leases will change because IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for the right-of-use assets and an interest expense relating to lease liabilities.
Substantially all of the operating lease commitments disclosed in note 22 of the Annual Report for the year ended 31 January 2018 would meet the definition of a lease under IFRS 16. Based on an initial assessment of the potential impact on its consolidated financial statements the Group intends to apply a full retrospective application of the standard. Historic lease data has been collated and cash flow data is being constructed in preparation for transition to the new standard and to enable the full impact assessment to be completed.
New and revised International Financial Reporting Standards or interpretations effective for future periods that are currently awaiting EU endorsement
The future impact on the financial statements of new standards and amendments awaiting EU endorsement is currently being assessed but is not expected to have a material impact on the financial statements.
4 Segmental reporting and revenue
The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails greeting cards, dressing and gifts principally through an extensive UK store network. Getting Personal is an online retailer of personalised cards and gifts. Getting Personal does not meet the quantitative thresholds of a reportable segment as defined in IFRS 8. Consequently the results of the Group are presented as a single reportable segment.
Group revenue is almost entirely derived from retail customers. Average transaction value is low and products are transferred at the point of sale. Group revenue is presented as a single category subject to substantially the same economic factors that impact the nature, amount, timing and uncertainty of revenue and cash flows. Revenue from non-retail customers and revenue from outside the UK are both less than 1% of Group Revenue.
5 Underlying EBITDA
Underlying earnings before interest, tax, depreciation and amortisation ("EBITDA") represents underlying profit for the period before net finance expense, taxation, depreciation and amortisation.
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Underlying operating profit
24.5
27.7
83.4
Depreciation and amortisation
5.4
5.1
10.6
Underlying EBITDA
29.9
32.8
94.0
6 Non-underlying items
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Cost of sales
Gain/(loss) on foreign currency derivative financial instruments not designated as a hedge
4.5
(2.8)
(7.6)
Operating expenses
Other non-underlying operating expenses
-
(0.3)
(0.3)
The Group has chosen to present an underlying profit and earnings measure. The Group believes that underlying profit and earnings information enables shareholders to make more meaningful comparisons of performance year-on-year. Underlying earnings is not a recognised profit measure under EU IFRS and may not be directly comparable with 'adjusted' profit measures reported by other companies. The reported non-underlying adjustments are as follows:
Net fair value remeasurement gains and losses on derivative financial instruments
The Group utilises foreign currency derivative contracts to manage the foreign exchange risk on US Dollar denominated purchases and interest rate derivative contracts to manage the risk on floating interest rate bank borrowings. Fair value gains and losses on such instruments are recognised in the income statement to the extent they are not hedge accounted. Where such gains and losses relate to future cash flows, these are deemed not representative of the underlying financial performance in the year and presented as non-underlying items in accordance with the commercial reasoning for entering into the agreements. Any gains or losses on maturity of such instruments are presented within underlying profit to the extent the gain or loss is not recognised in the hedging reserve or cost of hedging reserve.
Other non-underlying operating expenses
In January 2017, Card Factory plc announced the retirement and succession of the Chief Financial Officer. Costs attributable to the recruitment of a new Chief Financial Officer and dual remuneration costs during the handover period were presented as a non-underlying item in the prior year.
7 Finance income and expense
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Finance income
Bank interest received
-
-
(0.1)
Finance expense
Interest on bank loans and overdrafts
1.6
1.2
2.6
Amortisation of loan issue costs
0.1
0.1
0.2
Fair value loss on interest rate derivative contracts
0.1
0.1
0.2
1.8
1.4
3.0
Net finance expense
1.8
1.4
2.9
8 Taxation
The tax charge on underlying profit before tax for the interim period has been calculated on the basis of the estimated effective tax rate on underlying profit before tax for the full year to 31 January 2019 of 19.7% (six months ended 31 July 2017 19.7%, year ended 31 January 2018 19.7%).
9 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for the dilutive effect of potential ordinary shares. Potential ordinary shares represent share incentive awards and save as you earn share options.
The Group has chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying items to reflect the Group's underlying profit for the year. Underlying earnings is not a recognised profit measure under EU IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
Number
Number
Number
Weighted average number of shares in issue
341,505,537
341,058,641
341,260,105
Weighted average number of dilutive share options
2,387
75,766
37,572
Weighted average number of shares for diluted earnings per share
341,507,924
341,134,407
341,297,677
£'m
£'m
£'m
Profit for the financial period
21.8
18.6
58.3
Non-underlying items
(3.6)
2.5
6.4
Total underlying profit for underlying earnings per share
18.2
21.1
64.7
pence
pence
pence
Basic earnings per share
6.38
5.45
17.08
Diluted earnings per share
6.38
5.45
17.08
Underlying basic earnings per share
5.31
6.19
18.94
Underlying diluted earnings per share
5.31
6.19
18.94
10 Dividends
The Directors have declared an interim dividend of 2.9 pence per share for the period ended 31 July 2018 which equates to £10.2 million and a special dividend of 5.0 pence per share which equates to £17.1 million. Both dividends will be paid on 14 December 2018 to shareholders on the register at the close of business on 9 November 2018. The interim and special dividend were approved by the Board on 25 September 2018 and, as such, have not been included as a liability as at 31 July 2018.
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
Pence per share
Pence per share
Pence per share
Dividends declared not yet paid at 31 July 2018:
Special dividend for the year ended 31 January 2019
5.0p
-
-
Interim dividend for the year ended 31 January 2019
2.9p
-
-
7.9p
-
-
Dividends paid:
Final dividend for the year ended 31 January 2018
6.4p
-
-
Special dividend for the year ended 31 January 2018
-
-
15.0p
Interim dividend for the year ended 31 January 2018
-
-
2.9p
Final dividend for the year ended 31 January 2017
-
6.3p
6.3p
6.4p
6.3p
24.2p
Total dividends
14.3p
6.3p
24.2p
Six months ended 31 July 2018
Six months ended 31 July 2017
Year ended 31 January 2018
£'m
£'m
£'m
Dividends declared not yet paid at 31 July 2018:
Special dividend for the year ended 31 January 2019
17.1
-
-
Interim dividend for the year ended 31 January 2019
9.9
-
-
27.0
-
-
Dividends paid:
Final dividend for the year ended 31 January 2018
21.9
-
-
Special dividend for the year ended 31 January 2018
-
-
51.2
Interim dividend for the year ended 31 January 2018
-
-
9.9
Final dividend for the year ended 31 January 2017
-
21.5
21.5
21.9
21.5
82.6
Dividend equivalents paid under long-term incentive schemes
-
-
0.3
Total dividends
48.9
21.5
82.9
11 Intangible assets
Goodwill
Software
Total
£'m
£'m
£'m
Cost
At 1 February 2018
328.2
8.9
337.1
Additions
-
0.7
0.7
At 31 July 2018
328.2
9.6
337.8
Amortisation
At 1 February 2018
-
5.5
5.5
Amortisation in the period
-
0.6
0.6
At 31 July 2018
-
6.1
6.1
Net book value
At 31 July 2018
328.2
3.5
331.7
At 31 January 2018
328.2
3.4
331.6
12 Property, plant and equipment
Freehold property
Leasehold improvements
Plant, equipment, fixtures & vehicles
Total
£'m
£'m
£'m
£'m
Cost
At 1 February 2018
17.4
35.8
52.6
105.8
Additions
-
1.2
3.7
4.9
Disposals
-
(0.2)
(0.3)
(0.5)
At 31 July 2018
17.4
36.8
56.0
110.2
Depreciation
At 1 February 2018
2.7
26.4
36.7
65.8
Depreciation in the period
0.2
1.7
2.9
4.8
Disposals
-
(0.2)
(0.2)
(0.4)
At 31 July 2018
2.9
27.9
39.4
70.2
Net book value
At 31 July 2018
14.5
8.9
16.6
40.0
At 31 January 2018
14.7
9.4
15.9
40.0
13 Cash and cash equivalents
31 July 2018
31 July 2017
31 January 2018
£'m
£'m
£'m
Cash at bank and in hand
5.2
4.0
3.6
Unsecured bank overdraft
-
-
(14.9)
Net cash and cash equivalents
5.2
4.0
(11.3)
14 Analysis of net debt
Six months ended 31 July 2018
At 1 February 2018
Cash flow
Non-cash changes
At 31 July 2018
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest
(149.6)
(15.0)
(0.1)
(164.7)
Cash and cash equivalents (note 13)
(11.3)
16.5
-
5.2
Total net debt
(160.9)
1.5
(0.1)
(159.5)
Six months ended 31 July 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)
Year ended 31 January 2018
At 1 February 2017
Cash flow
Non-cash changes
At 31 January 2018
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest
(129.4)
(20.0)
(0.2)
(149.6)
Cash and cash equivalents (note 13)
(5.7)
(5.6)
-
(11.3)
Total net debt
(135.1)
(25.6)
(0.2)
(160.9)
At the period end date, Group borrowing facilities consisted of a £200 million revolving credit facility ('RCF') terminating 26 June 2020 with an additional £100 million accordion. Borrowings under the facility attract interest at LIBOR plus a margin in the range 1.0% to 2.0%, subject to a leverage ratchet (LIBOR plus 1.40% at 31 July 2018). The facilities are subject to financial covenants typical to an arrangement of this nature.
Subsequent to the period end, the Group has entered into a replacement £200 million RCF which terminates on 31 October 2023. The new facility also has an additional £100 million accordion and attracts the same rate of interest for leverage levels in line with the Group's capital structure policy.
15 Financial instruments
Financial instruments carried at fair value are measured by reference to the following fair value hierarchy:
- Level 1: quoted prices in active markets for identical assets or liabilities
- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value and measured under a level 2 valuation method. Valuations are provided by the instrument counterparty.
31 July 2018
31 July 2017
31 January 2018
£'m
£'m
£'m
Derivative assets
Non-current
Interest rate contracts
0.2
-
0.2
Foreign exchange contracts
0.9
-
-
1.1
-
0.2
Current
Foreign exchange contracts
1.6
1.6
0.3
Derivative liabilities
Current
Interest rate contracts
-
(0.1)
-
Foreign exchange contracts
-
(1.2)
(7.0)
-
(1.3)
(7.0)
Non-current
Foreign exchange contracts
(0.2)
(1.2)
(3.4)
Net derivative financial instruments
Interest rate contracts
0.2
(0.1)
0.2
Foreign exchange contracts
2.3
(0.8)
(10.1)
2.5
(0.9)
(9.9)
16 Share capital and share premium
31 July 2018
31 July 2017
31 January 2018
Share capital
(Number)
(Number)
(Number)
Allotted, called up and fully paid ordinary shares of one pence:
At the start of the period
341,459,281
340,844,864
340,844,864
Shares issued in relation to share based payments
90,025
612,262
614,417
At the end of the period
341,505,537
341,457,126
341,459,281
£'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
202.2
201.9
201.9
Shares issued in relation to share based payment
-
0.3
0.3
At the end of the period
202.2
202.2
202.2
17 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
31 July 2018
31 July 2017
31 January 2018
£'m
£'m
£'m
Profit before tax
27.2
23.2
72.6
Net finance expense
1.8
1.4
2.9
Operating profit
29.0
24.6
75.5
Adjusted for:
Depreciation and amortisation
5.4
5.1
10.6
Loss on disposal of fixed assets
0.1
0.1
0.2
Cash flow hedging foreign currency movements
0.1
(2.6)
(3.4)
Share based payments charge/(credit)
0.3
-
(0.1)
Operating cash flows before changes in working capital
34.9
27.2
82.8
(Increase)/decrease in receivables
(10.7)
(8.1)
3.0
Increase in inventories
(4.7)
(8.5)
(0.1)
Increase in payables
16.7
17.0
4.0
Cash inflow from operating activities
36.2
27.6
89.7
18 Principal risks and uncertainties
The Board and the senior management team are collectively responsible for managing risks and uncertainties across the Group. In determining the Group's risk appetite and how risks are managed, the Board, Audit and Risk Committee and the senior management team look to ensure an appropriate balance is achieved which enables the Group to achieve its strategic and operational objectives and facilitates the long-term success of the Group.
The Group's Audit and Risk Committee is responsible for reviewing the Group's risk management framework and ensuring that it enables the Committee and the Board to carry out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity.
The principal risks and uncertainties which could have a material impact on the Group's performance over the remaining six months of the financial year and beyond, and which could cause actual results to differ materially from expected and historical results are as follows:
- Changes in consumer demands and market trends
- Increased competition
- Damage to brand and reputation
- Success of, or inability to implement, Group strategy
- Supply chain and product sourcing
- Retaining and developing the culture of the business
- Senior management succession implementation, colleague development and retention of key personnel
- Managing business initiatives and change alongside 'business' as usual activities
- Treasury and financial risk
- Business continuity and response to major incidents
- Compliance with legal requirements, standards and regulations
- Maintenance and development of IT systems
- Development of the Group's online business
The Board considers that these principal risks and uncertainties affecting the Group (as published and explained in more detail on pages 24 to 27 of the Group's Annual Report for the year ended 31 January 2018) remain unchanged.
19 Transition to IFRS 9 Financial Instruments
IFRS 9 'Financial Instruments' is effective for periods beginning on or after 1 January 2018 and has been adopted by the Group in the year. IFRS 9 sets out requirements for recognising and measuring financial assets and financial liabilities and replaces IAS 39 'Financial Instruments: Recognition and Measurement'. The impact on the consolidated financial statements of the Group is detailed below.
Classification of financial assets
IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and the cash flow characteristics of the assets.
IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss. The standard eliminates the existing IAS 39 categories of held to maturity, loans and receivables and available for sale. The new classification requirements do not impact the accounting for the Group's financial assets.
Impairment of financial assets
IFRS 9 replaces the incurred loss model in IAS 39 with a forward-looking 'expected credit loss' model. The new impairment model will apply to financial assets measured at amortised cost. Revenue from retail customers represents over 99% of Group revenues and consequently trade and other receivables measured at amortised cost are not material to the financial statements. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses.
Cash and cash equivalents
Cash and cash equivalents are held at banks with a strong credit rating and are not subject to any period of notice. The Group typically maintains a low value of cash and cash equivalents and often a net overdrawn cash position as part of its RCF funding arrangement. There is no impact on the values reported in the financial statements from adopting IFRS 9 in respect of expected credit losses.
Classification of financial liabilities
IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities. The classification requirements of IFRS 9 do not impact the financial statements.
Hedge accounting
On initial adoption of IFRS9, the Group may choose as its accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9. The Group has chosen to apply the new requirements of IFRS 9.
IFRS 9 requires the Group to ensure that hedge accounting relationships are aligned with the Group's risk management objectives and strategy and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. IFRS 9 also introduces new requirements on rebalancing hedge relationships and prohibiting voluntary discontinuation of hedge accounting. Under the new model, it is possible that more risk management strategies may qualify for hedge accounting, though eligibility for hedge accounting of the Group's existing hedging activities have been assessed as unchanged.
Foreign exchange hedge accounting
The Group utilises foreign currency derivative contracts and US Dollar denominated cash balances to manage the foreign exchange risk on US Dollar denominated inventory purchases. The Group designates only the change in the fair value of the spot element of forward currency contracts as the hedging instrument in cash flow hedging relationships. Under IAS 39, the change in fair value of the forward element of the forward currency contract ('forward points') was recognised immediately in profit or loss (presented as a non-underlying item, see note 6 to these interim financial statements).
On adoption of IFRS 9, the Group has elected to separately account for the forward points as a cost of hedging. Consequently, changes in forward points are recognised in other comprehensive income and accumulated in a cost of hedging reserve as a separate component within equity and subsequently recognised into the hedged inventory purchase value. The Group has not applied the transitional option to retrospectively apply this treatment.
In accordance with the requirements of IFRS 9, the Group has amended the accounting policy in respect of cash flow hedge accounting. Gains or losses recognised in other comprehensive income in respect of a cash flow hedge of a forecast transaction that results in the recognition of a non-financial asset or liability are included in the initial measurement of the asset or liability. The previous accounting policy, under IAS 39, recognised such gains or losses in profit or loss in the same period or periods during which the hedged forecast transaction, or a resulting asset or liability, affects profit or loss, but did not recognise the gain or loss in the initial measurement of a resulting asset or liability.
Interest rate hedge accounting
The Group utilises interest rate derivative contracts to manage the risk on floating rate bank borrowings. The Group designates only the change in the fair value of the intrinsic element of interest rate caps as the hedging instrument in cash flow hedging relationships. Under IAS 39, the change in fair value of the time value element of the interest rate cap was recognised immediately in profit or loss (presented as a non-underlying item until the date of the hedged cash flow, see note 6 to these interim financial statements).
On adoption of IFRS 9, the Group has elected to separately account for the time value as a cost of hedging. Consequently, changes in time value are recognised in other comprehensive income and accumulated in a cost of hedging reserve as a separate component within equity and reclassified to profit or loss on the date of the hedged cash flow. IFRS 9 mandates retrospective application of this treatment.
Transition
The impact on the financial statements from the adoption of IFRS 9 is detailed below. The amendments to hedge accounting policies detailed above are applied prospectively except for the mandated retrospective application of the time value element of interest rate cap hedges. Consequently the comparative period is restated solely in respect of hedge accounting for the time value element of interest rate caps. Other adjustments on transition to IFRS 9 are presented as an adjustment to opening reserves at 31 January 2018.
Restatement
31 January 2018
31 July 2017
31 January 2017
£'m
£'m
£'m
Consolidated statement of financial position and consolidated
statement of changes in equity
Equity
Cost of hedging reserve
(0.3)
(0.3)
(0.3)
Retained earnings
0.3
0.3
0.3
-
-
-
Movements in the cost of hedging reserve in respect of interest rate hedges from 31 January 2017 to 31 July 2017 and 31 January 2018 were less than £0.1m. Consequently the consolidated income statement and the consolidated statement of comprehensive income are not restated.
Opening Reserves Adjustment
31 January 2018
£'m
Consolidated statement of financial position and consolidated
statement of changes in equity
Deferred tax
(0.2)
Tax payable
0.1
Inventory
0.6
Net Assets
0.5
Equity
Hedging reserve
0.6
Cost of hedging reserve
0.2
Retained earnings
(0.3)
0.5
Responsibility statement of the Directors in respect of the half-yearly financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;
• the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
By order of the Board
Karen Hubbard Kris Lee
Chief Executive Officer Chief Financial Officer
25 September 2018
Independent review report to Card Factory plc
Conclusion
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2018 which comprises the consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of changes in equity, the condensed consolidated cash flow statement and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.
Nicola Quayle (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DW
25 September 2018
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR FKQDPOBKDNCB
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