REG - Card Factory PLC - Half-year Report
27/09/2022 07:00
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RNS Number : 7045A Card Factory PLC 27 September 2022
27 September 2022
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2022
Card Factory, the UK's leading specialist retailer of greeting cards, gifts,
wrap and bags, announces its interim results for the six months ended 31 July
2022 ('HY23').
Business highlights
· Card Factory LFL(1) revenue growth of +4.1% reflects the good
momentum within the business alongside the shift of customer spend back
towards the high street and reversal of lockdown effects.
o Store revenue grew 81.8%, +6.1% on a LFL(1) basis adjusted for lockdown
restrictions.
o Strong performance of everyday product with good growth in celebratory
life moments reflecting a return to more normal lifestyles post-pandemic.
o Cardfactory.co.uk sales were down year-on-year as customers returned to
the high street but remained up significantly in comparison to pre-pandemic
(+85.9% 3Y LFL).
· EBITDA of £43.8 million (HY22: £23.6 million) as the business
continued to be effective in managing inflationary headwinds through a
combination of efficiency measures and targeted price increases.
· PBT of £14.3 million (HY22: loss of £6.5 million), includes
£3.5 million of one-off benefits due to release of CJRS provision and
deferred fee accrual release associated with prior refinancing package.
· Operating cash flow of £19.7 million (HY22: £36.1 million)
reflects normalisation of working capital profile following Covid disruption -
payment of VAT deferrals, CJRS settlement and stock build for Christmas
season.
· Net debt (excluding lease liabilities) of £96.6 million (HY22:
£96.5 million), which is significantly reduced compared to a pre-pandemic
view (HY20: £170.3 million). Reflects £32.1 million of deferred rent and VAT
payments since HY22.
· Successfully completed refinancing providing liquidity headroom
to deliver strategy.
Financial summary
Financial Metrics HY23 HY22 Change FY22
Revenue £198.0m £116.9m 69.4% £364.4m
EBITDA £43.8m(2) £23.6m 85.6% £85.6m
Profit/(Loss) before tax £14.3m(2) (£6.5m) 320.0% £11.1m
Leverage (exc. Leases) 0.9x 1.6x (0.7x) 0.9x
Operating cash flow £19.7m £36.1m (45.4%) £113.6m
Basic EPS 3.4 pence (1.5 pence) 4.9 pence 2.4 pence
(1) For definitions of like-for-like (LFL) see notes below.
(2) EBITDA for HY23 includes one-off benefit associated with CJRS settlement
(£2.5 million). Profit before tax includes a further one-off benefit related
to deferred fees for previous financing facilities (£1.0 million).
Strategy update
· Omnichannel
o Opened six new stores in the Republic of Ireland and opened our first
small format trial store in central London, with a second opened since the end
of the period, as we increase our presence in under penetrated markets.
o New model store format rolled out to five locations to date as part of our
focus on evolving the customer store experience.
o Final preparations for Click & Collect trial launch in 84 stores.
· Complementary Categories
o Strong performance in complementary categories reflective of strategic
planning and range expansion work undertaken in the first half to grow our
share of an identified £5 billion UK market opportunity.
o Launched new ranges in licensed gifts and partyware, with range expansions
of flowers and alcohol on cardfactory.co.uk coming soon.
· Partnerships
o Completed research and sizing of international opportunities and have
identified new potential international markets in India and the Middle East.
Outlook:
· We remain mindful of the challenging economic backdrop; however
we believe our value proposition positions us well to navigate this.
· We expect to be able to continue to manage the known inflationary
pressures through a combination of targeted price increases and efficiency
measures; the business is hedged on both energy and currency beyond the
current financial year.
· Whilst we expect continued wage inflation going forward, benefits
from pricing actions will be more weighted towards H2 and into FY24.
· Considering the combination of good trading momentum in everyday
product, alongside market uncertainty around consumer behaviour through the
Christmas season due to the cost-of-living impact and based on the current
inflationary outlook, our expectations for the remainder of FY23 are
unchanged.
Darcy Willson-Rymer, Chief Executive Officer, commented:
"We are pleased to report a strong performance through the half which reflects
continued good momentum within the business, as well as the reversal of
lockdown trends with customers choosing to return to the high street. The
pronounced shift in spend back towards stores supports our continued
conviction in the value of our store estate within our customer proposition
and as an enabler in our omnichannel ambitions.
During the half, we have made good strategic progress as we focus on evolving
our customer proposition across different channels and taking it to new
markets. We recently opened stores in central London for the first time, with
two trial stores forming part of our strategy to increase our presence in
underpenetrated markets. We have also rolled our new model store format out to
include five stores as we focus on evolving the in store customer experience.
The inflationary pressures we are all facing into are well known, however the
pre-emptive actions we have taken, such as the fixing of energy costs until
September 2024 and targeted price increases, have helped to offset these.
Despite these ongoing challenges, we remain confident that our customers will
continue to want to celebrate life's moments and that value for money is
increasingly important to them. Card Factory offers great value for money
across a range of products and price points, and our experience so far this
year confirms how well this resonates with consumers.
Whilst we remain mindful of the challenging economic backdrop as we head
towards the Christmas season, we feel well placed to navigate this and retain
our focus on transitioning Card Factory to a market leading omnichannel
retailer of cards and gifts."
Interim results webcast
There will be an analyst presentation today at 10:00am at UBS, 5 Broadgate,
London, EC2M 2QS. We will also provide a live video webcast available via the
following link:
https://storm-virtual-uk.zoom.us/webinar/register/WN_1TutZ9jmRSy5eJ0Jz_oSmg
(https://storm-virtual-uk.zoom.us/webinar/register/WN_1TutZ9jmRSy5eJ0Jz_oSmg)
Those analysts who wish to join are requested to contact Yasemin Balman of
Tulchan Communications on the number provided below or by emailing
cardfactory@tulchangroup.com (mailto:cardfactory@tulchangroup.com) .
A copy of the webcast and accompanying presentation will be made available via
the Card Factory investor relations website: www.cardfactoryinvestors.com
(http://www.cardfactoryinvestors.com) .
Enquiries
Card Factory
plc
via Tulchan Communications (below)
Darcy Willson-Rymer, Chief Executive Officer
Kris Lee, Chief Financial Officer
Tulchan
Communications
+44 (0) 207 353 4200
James Macey White / Alison Lygo / Toby
Zeal cardfactory@tulchangroup.com
(mailto:cardfactory@tulchangroup.com)
This announcement contains certain forward-looking statements with respect to
the financial condition, results of operations, and businesses of Card Factory
plc. These statements and forecasts involve risk, uncertainty and
assumptions because they relate to events and depend upon circumstances that
will occur in the future. There are a number of factors that could cause
actual results or developments to differ materially from those expressed or
implied by these forward-looking statements. These forward-looking statements
are made only as at the date of this announcement. Nothing in this
announcement should be construed as a profit forecast. Except as required by
law, Card Factory plc has no obligation to update the forward-looking
statements or to correct any inaccuracies therein.
Alternative Performance Measures ("APMs") and other explanatory information
Introduction
In the reporting of the interim results and condensed consolidated interim
financial statements, the Directors have adopted various Alternative
Performance Measures ('APMs') of financial performance, position or cash flows
other than those defined or specified under International Financial Reporting
Standards ('IFRS'). These measures are not defined by IFRS and therefore may
not be directly comparable with other companies' APMs, including those in the
Group's industry. APMs should be considered in addition to IFRS measures and
are not intended to be a substitute for IFRS measurements.
Purpose
The Directors believe that these APMs provide additional useful information on
the performance and position of the Group and are intended to aid the user in
understanding the Group's results.
The APMs presented are consistent with measures used internally by the Board
and management for performance analysis, planning, reporting and incentive
setting purposes.
Definitions of the APMs used in this report are as follows:
"EBITDA" is earnings before interest, tax, depreciation, amortisation and
impairment charges. Earnings is equivalent to profit after tax calculated in
accordance with IFRS and each adjusting item is calculated in accordance with
the relevant IFRS. A reconciliation of EBITDA to operating profit is provided
in note 5 to the condensed consolidated interim financial statements. The
Group uses EBITDA as a measure of trading performance, as it usually closely
correlates to the Group's operating cash generation.
"Leverage" is the ratio of Net Debt to EBITDA for the previous 12 months. The
Group monitors and reports leverage as a key measure of its financing position
and performance. Leverage is also a key covenant defined within the Group's
financing facilities. A calculation of Leverage (both inclusive and exclusive
of lease liabilities) is provided in the Chief Financial Officer's review
below.
"Like-for-like" or "LFL" calculates the growth or decline in gross sales in
the current period versus a prior comparative period, excluding any sales
earned from new stores opened in the current period or closed since the
comparative period. LFL measures only consider the time period where stores
were open and trading in both the current and prior period (hence any periods
of lockdown in either period are excluded from both periods).
LFLs for the current period (HY23) in this report are either "one-year" (being
the comparison of HY23 to HY22) or "three-year" (being the comparison of HY23
to HY20, the last financial period with no lockdown impact). Comparative
figures for HY22 are all two-year comparisons to HY20. Unless otherwise
stated, LFL measures for the current period are one-year comparisons.
The Group defines Iike-for-Iike sales as the year-on-year growth in sales via
Card Factory retail channels as follows:
· Card Factory Stores: "Store LFLs" consider stores that were open in both
the current year and the comparative period.
· "Card Factory Online": made via the Card Factory website,
www.cardfactory.co.uk (http://www.cardfactory.co.uk) ;
· "Card Factory LFL" is defined as Like-for-like sales in stores plus
sales from the Card Factory website. www.cardfactory.co.uk
(http://www.cardfactory.co.uk) ;
· "Getting Personal": made via the separately branded personalised card and
gift website, www.gettingpersonal.co.uk (http://www.gettingpersonal.co.uk) ;
· "Online": like for like sales for Card Factory Online and Getting
Personal combined.
Sales by Printcraft, the Group's printing division, to external third-party
customers are excluded from any LFL sales measure.
"Net Debt" is calculated by subtracting the Group's cash and cash equivalents
from its borrowings. Net Debt is a key measure of the Group's balance sheet
strength, and is also a covenant in the Group's financing facilities. The
Group presents Net Debt both inclusive and exclusive of lease liabilities, but
focusses upon the value exclusive of lease liabilities, which is consistent
with the calculation used for covenant purposes.
"Percentage Movements" have been calculated before figures were rounded to
£0.1m.
BUSINESS UPDATE
Performance in the period
Card Factory has performed well through the first half of the year, even when
taking into account the reversal of lockdown measures and customers returning
to the high street. The pronounced shift in spend back towards stores that is
evident across the retail space, supports our continued conviction in the
value of our store estate within our customer proposition and as an enabler in
our omnichannel ambitions. Our stores delivered good LFL growth of 6.1%, when
adjusted for stores that were open in both the current year and the
comparative period.
Combined with continued growth in complementary categories, this improvement
was driven by our continued leadership in cards and the strong performance of
everyday product across cards, gifting, party and balloons. We continued to
see some mix shift from our first half occasion events (Valentine's Day,
Mother's Day and Father's Day) towards everyday ranges which typically
represent 70% of sales. We saw good growth in life moments, such as weddings
and christenings, as well as in cards with celebratory captions, reflecting a
return to more normalised lifestyles and social events following the pandemic.
This also demonstrates the success of our card strategy to meet customer
demand through both our strong value proposition and our focus on range
optimisation, including the full relaunch of our wedding card offer, leading
to a notable improvement in our year on year market share. Store transaction
numbers grew 9.4% on a LFL basis, marginally offset by a 3.1% reduction in
average basket value ("ABV") reflecting a return to more normalised shopping
habits following lockdown restrictions. Whilst ABV is down in the period, it
is still materially ahead of pre-Covid levels at +23.1% vs HY20.
We implemented targeted price increases as one part of our strategy to manage
inflationary pressures. We chose to protect our competitive entry price point
and focus on building greater value into price points across our pricing
architecture. We are pleased with how the pricing strategy has been executed,
with minimal impact on customer behaviour and only around half of the 4.1%
Card Factory LFL growth having been driven by price.
During the half we opened 14 stores and closed eight, taking us to a total of
1,026 stores. Openings have focused on increasing our presence in
underpenetrated markets, such as the Republic of Ireland and our first trial
stores in central London. The flexibility in our store portfolio has allowed
us to continue to adapt to changing footfall and customer shopping trends.
As would be expected, we saw some customers migrate away from shopping online
as stores reopened, which resulted in our online sales for the half being down
33.6% in comparison to last year. However, cardfactory.co.uk remains a
significantly larger business than it was before the pandemic and remained
positive on a LFL basis in Q2 despite the reopening of stores last year. This
is a result of the work the business has done to enhance the proposition,
replatforming the site to unlock greater product options and a better online
customer experience. Performance in Getting Personal was behind our
expectations.
Partnerships continued to perform well with a 46.6% increase in sales compared
to HY22.
Strategy update
Delivery of our "Opening Our New Future" growth strategy continues to progress
well as we transition Card Factory from being a store-led card retailer into a
market leading, omnichannel retailer of cards and gifts. We continue to
deliver on the strategy initiatives, specifically around omnichannel,
complementary categories and partnerships, with further milestones achieved
since the last update at the Full Year results in May.
Omnichannel
The pronounced shift in spend back towards stores that is evident across the
retail space, supports our continued conviction in the value of our store
estate within our customer proposition and as an enabler in our omnichannel
ambitions.
Milestones
· Delivery of our omnichannel strategy is about to begin with the
launch of our Click & Collect trial in 84 stores. As we test the
approach and understand consumer response, we will be able to ensure the
successful rollout of a full omnichannel offer in FY24 and beyond.
· Our digital investment has also continued with the completion of
the replatforming of cardfactory.co.uk which has opened up product and ranging
capability across our gifting categories.
· As the success of our omnichannel strategy relies on the strength
and breadth of our store estate, we continue to focus on the analysis of our
first five model stores. We are pleased with the progress of the initial
rollout and we will continue to evaluate performance and identify learnings as
we extend the model store format.
· By opening two small format trial stores in central London, as
well as six new stores in the Republic of Ireland, we continue with our plans
to diversify our store estate into underpenetrated markets.
Next Priorities
· Click & Collect trial to be launched across a total of 84
stores by end of FY23.
· New model store format extended in a further five stores by the
end of FY23.
· We are on course to deliver the second phase of our ERP
implementation in early 2023, after the Christmas peak. This will enable the
ability to view stock in all areas of the business and enable integration with
future partners both in the UK and internationally.
Complementary Categories
Strong performance in complementary categories reflective of the strategic
planning and range expansion work undertaken in the first half to grow our
share of an identified £5 billion UK market opportunity.
Milestones
· As the return of social events and celebrations continue
following the lifting of lockdown restrictions, we have seen strong
performance in balloons and party with +29% LFL in party sales.
· Due to the expansion of the range to meet a broader set of
customer needs, confectionery sales increased 98.3% LFL.
· We have launched new ranges in licensed gifts and partyware.
Next Priorities
· Expand our offer in confectionery, home accessories and toys, as
well as flowers and alcohol on cardfactory.co.uk.
UK and International Partnerships
We are continuing to analyse and identify new partnership opportunities with a
focus on building the right partnerships to grow the business.
Milestones
· Completed research and sizing of international opportunities,
working with Global Data. From this work we have identified new potential
international markets in India and the Middle East.
Next Priorities
· Develop pipeline of opportunities and build out internal
capabilities to support delivery in newly identified markets.
ESG progress
We have continued to make progress through our ESG strategy on developing and
delivering positive change across the business. We remain on track with our
efforts to reduce waste and improve the sustainability of our product ranges,
with 90% of products being free of single use plastic by the end of FY24. All
new card and gifts produced for Card Factory are now glitter free and by the
end of FY24 we expected to have sold through any existing stock containing
glitter.
Our focus on developing a diverse, inclusive and socially responsible culture
at Card Factory continues to be a priority for the management team and
supported through our progressive DE&I strategy. With the support and
extensive consultation of our colleagues, we continue to have a positive
impact on communities across the UK and the Republic of Ireland, alongside The
Card Factory Foundation.
Notable progress since the last update at the FY22 preliminary results in May
includes:
· Entered into partnership with the Woodland Trust to support their
work to protect, restore and create native woodland in the UK.
· Commenced work with energy consultancy to provide enhanced insight
and recommendations to reduce scope 1, 2 and 3 emissions.
· Commissioned a review of ESG structure and strategy to support
creation of future roadmap.
Receiving 'Best Place to Work' recognition following inclusion in Best
Companies 'UK's Top 10 Best Big Companies To Work For' and 'Retail's Top 10
Companies To Work For', Q2 league table.
Preparations for Christmas
While we continue to benefit from the agility provided by having our own UK
based production facility, we have put in place a number of actions to
mitigate against any potential supply chain disruption from Far East orders
and across UK ports by bringing forward ordering and delivery. Further
enhancements have also been made to store stock replenishment which will
increase availability of products for customers. We will also benefit from
having cleared through legacy stock created by pandemic disruption.
Recruitment of seasonal colleagues for the Christmas season has commenced, and
we are confident in our ability to meet staffing requirements for this
seasonal peak.
Current trading and Outlook
Trading in the second half to date remains encouraging, positive LFLs in line
with expectations.
Whilst we remain mindful of the challenging economic backdrop, as the consumer
impact of the cost-of-living crisis continues to develop, we believe our value
proposition positions us to navigate this well. We remain confident that our
customers will want to continue to celebrate life's moments, and that value
for money is increasingly important to them. Our customer proposition offers
great value for money across a range of products and price points, and our
experience so far this year confirms how well this resonates with consumers.
The first half demonstrated our ability to effectively manage inflationary
headwinds which has been achieved through a combination of management actions
including energy and currency hedging, increasing efficiency of our in-store
labour model and consolidation of inbound freight, alongside targeted price
increases. Whilst we expect continued wage inflation going forward, benefits
from pricing actions will come through more strongly in the second half of the
year which will see the gross margin return to more normalised levels.
Based on the current inflationary outlook, our expectations for the remainder
of FY23 are unchanged and we expect to be able to continue to manage the known
inflationary pressures through a continued combination of targeted price
changes and efficiency alongside our hedge position. We are well covered from
a hedging perspective on both energy costs and USD foreign exchange exposure,
which gives us good visibility on the shape of our cost base.
We remain comfortable with expectations for the full year, considering the
combination of good trading momentum in everyday product, alongside market
uncertainty around consumer behaviour through the Christmas season due to the
cost-of-living impact.
CHIEF FINANCIAL OFFICER'S REVIEW
The "HY23" accounting period refers to the six-months-ended 31 July 2022 and
the comparative period "HY22" refers to the six-months-ended 31 July 2021.
Comparisons provided in this review are to the equivalent period in the prior
financial year (HY22), unless otherwise stated. Like-for-like (LFL) sales
metrics exclude periods of store closure in either period and therefore only
compare sales for the time stores were open in both periods.
Revenue
The Group has performed well in the first half of the year; the first half
year with a full six months of trading since 2019. Sales have been
encouraging, with a strong LFL performance in Stores of +6.1% compared to
HY22. In Online, sales performance was down compared to HY22 as customers
returned to the high streets and lockdown trends gradually reversed, but
cardfactory.co.uk performed well with sales significantly ahead of the
pre-pandemic period.
Total Group revenue during the period increased by 69% to £198.0 million
(HY22: £116.9 million), predominantly due to the increased number of
available trading days in the period. Stores were closed for over two months
due to lockdown restrictions in HY22, compared to a full six months of trading
in HY23. However, LFL sales performance has been strong in Stores and we
believe this reflects good momentum and progress with our strategic
transition.
HY23 HY22 Increase/
£'m £'m (Decrease)
Card Factory stores 186.6 102.7 81.7%
Card Factory Online 4.0 5.7 (29.8%)
Getting Personal 4.0 6.2 (35.5%)
Retail partnerships 3.4 2.3 46.6%
Group 198.0 116.9 69.4%
Store transaction numbers grew 9.4% on an LFL basis compared to HY22,
partially offset by a small reduction in average basket values of 3.1%, which
we believe reflects a gradual return to pre-pandemic shopping habits following
the cessation of restrictions. Whilst ABV is down in the period, it is still
materially ahead of pre-Covid levels. We saw strong growth in complementary
categories, with the performance of our party and confectionery offer being
particularly pleasing. Everyday ranges performed strongly across both card and
complementary categories. Compared to HY22, we saw a slight mix shift from
complementary categories to card, with card comprising 49% of sales in the
period compared to 47% last year. However, mix has had a limited impact on
overall sales and margins, with growth being delivered by a combination of
targeted sales price increases and the increase in transactions noted above.
The Group's programme of new store openings and optimisation of the store
portfolio continues to be an important driver of sales growth. During HY23,
the Group opened 14 new stores and closed eight stores, in addition to one
relocation, giving a net increase in stores during the period of six. This
brings the Group's total store estate to 1,026 at 31 July 2022, including 20
stores in the Republic of Ireland. The new store openings included our first
central London store at Tottenham Court Road, and six new stores in the
Republic of Ireland.
The return of shoppers to the high street contributed to a reduction in
overall sales for our Online businesses of -33.4% LFL. We remain encouraged by
the performance of cardfactory.co.uk, where sales remain over 85.9% higher
than HY20 on an LFL basis. We believe this reflects the work done to improve
the range and online experience. Performance in Getting Personal was behind
expectations, with overall online revenue growth across Card Factory and
Getting Personal of -33.6% compared to HY22.
Retail partnerships sales increased 46.6% compared to HY22, which principally
reflects increased sales to The Reject Shop, our Australian partner.
LFL sales growth across each division is set out in the table below.
HY23 HY22
vs HY22 vs HY20 vs HY20
Card Factory stores 6.1% (4.2%) (7.2%)
Card Factory online (30.2%) 85.9% 167.9%
Card Factory LFL 4.1% (3.1%) (3.7%)
Getting Personal (36.7%) (35.1%) 6.9%
Operating costs
Cost of sales and operating expenses are set out in the tables below.
HY23 HY23 HY23 % £
£'m % of revenue (Increase) / Decrease (Increase) / Decrease
Cost of goods sold* 68.1 34.4% 0.6 ppts (66.4%)
Store wages 41.8 21.1% 4.6 ppts (39.2%)
Store property costs 12.2 6.2% (2.4 ppts) (171.3%)
Other direct expenses 10.2 5.2% 1.8 ppts (24.7%)
Cost of sales 132.2 66.8% 4.5 ppts (58.2%)
Operating expenses** 22.0 11.1% 4.1 ppts (24.1%)
Depreciation, amortisation & impairment 23.8 12.0% 8.2 ppts (1.0%)
Total operating expenses 45.8 23.1% 12.2 ppts (10.9%)
HY22 HY22 HY22
% of revenue
£'m
Cost of goods sold* 40.9 35.0%
Store wages 30.0 25.7%
Store property costs 4.5 3.8%
Other direct expenses 8.2 7.0%
Cost of sales 83.6 71.3%
Operating expenses** 17.7 15.2%
Depreciation, amortisation & impairment 23.6 20.2%
Total operating expenses 41.3 35.3%
*cost of goods sold includes foreign exchange gains/losses previously
described as non-underlying in HY22.
**excluding depreciation and amortisation.
Total cost of sales and operating expenses increased in absolute terms
compared to HY22 reflecting the impact of increased trading days and sales
growth on the Group's variable costs. However, the overall ratio of cost of
sales to revenue decreased to 66.8% (HY22: 71.3%) and the overall ratio of
operating costs to sales decreased to 23.1% (HY22: 35.3%).
The Group has been successful in mitigating incremental inflationary headwinds
during the period, through a combination of targeted price increases and
management actions to drive efficiencies, as described in further detail by
category below.
· Cost of goods sold ("COGS"): comprise the direct costs of goods
sold in the period (principally cost of raw materials, production costs,
finished goods purchased from third party suppliers, import duty, freight
costs, carriage costs and warehouse wages). In addition to the impact from the
increase in sales, product COGS in HY23 has been affected by increases in
freight and carriage costs as a result of global shipping cost increases and
the increase in energy prices on the cost of fuel. We have been successful in
mitigating these increases through economies of scale as sales volumes have
increased, as well as through direct action to consolidate shipping containers
where possible. We continue to benefit from a currency hedge which provides
protection against input price variances due to current weakness of Sterling
versus the US dollar. Our average achieved exchange rate is comparable to the
prior year. In addition, COGS includes £1.6 million of currency gains in
relation to the portion of our hedge portfolio that does not qualify for hedge
accounting (HY22: £0.2 million losses). When combined with price actions,
achieved product margins in the period are comparable with those achieved in
HY22 despite inflationary headwinds.
· Store wages: comprise all staff costs for store-based staff,
including employer taxes and contributions. Store wages in HY22 are shown net
of Coronavirus Job Retention Scheme (CJRS) support received in relation to
period of lockdown closure. In HY23, employee costs include a cumulative
one-off credit of £2.5 million relating to settlement of our CJRS position
with HMRC (see below). Excluding this credit, store wages costs for HY23 are
approximately 22.4% of revenue. This is lower than HY22 despite the
introduction of National Minimum Wage increases in April 2022, principally
reflecting productivity gains enabled by stores being open for the entire
period.
· Store property costs: principally comprise business rates and
service charges. Property costs for HY22 are stated net of business rates
relief available in that period. Costs have increased in HY23 reflecting the
cessation of these reliefs from April 2022, and the increase in size of the
store portfolio compared to the prior period.
· Other direct expenses: includes store opening costs, store
utility costs, waste disposal, store maintenance, point of sale costs, bank
charges and pay-per-click expenditure. This cost category is predominantly
variable in proportion to the number of stores and available trading days in
the period - both increased in the period compared to HY22 and as a result
absolute costs also increased. Other direct expenses increased as a percentage
of revenue in HY22 reflecting specific cost inflation headwinds, including
increased cost of pay-per-click expenditure.
· Operating expenses: includes remuneration for central and regional
management and business support functions, design studio costs and business
insurance together with other central overheads and administration costs. Such
salary costs, which typically represent 50-60% of total operating costs in a
given period, increased compared to the HY22 period due to no staff being on
furlough and following investment in our senior and support centre teams to
drive the strategy. Total operating expenses, before depreciation and
amortisation, increased by 24.1% from £17.7 million to £22.0 million,
representing a decrease from 15.2% to 11.1% as a percentage of revenue.
Depreciation and amortisation charges include depreciation in respect of
right-of-use assets, which predominantly relate to the Group's store
portfolio. Depreciation and amortisation in respect of the Group's plant,
equipment and software assets increased from £4.5 million in HY22 to £5.7
million in HY23, which includes a one-off impairment charge of £1.5 million
in respect of online platform development for Getting Personal. The impairment
reflects the development work that is no longer expected to form part of the
final solution once deployed.
This increase was largely offset by a reduction in depreciation in respect of
leases from £18.3 million to £17.4 million, which principally reflects
improved terms secured by the Group on expiry and renegotiation of lease
agreements.
As a result, total depreciation and amortisation charges for HY23 increased
slightly to £23.8 million (HY22: £23.6 million)
EBITDA
HY23 HY22 Increase/ (Decrease)
£'m £'m
EBITDA 43.8 23.6 85.6%
EBITDA margin 22.1% 20.2% 1.9 ppts
The increase in EBITDA reflects the increase in trading days and positive
sales performance described above, with a combination of price and
productivity actions combining to offset incremental inflationary pressures.
EBITDA for HY22 includes a £2.5 million one-off benefit relating to the
release of provisions following settlement of the Group's position in respect
of CJRS, which will not recur.
EBITDA for HY22 included £8.0 million of government grant income in respect
of Covid lockdown support. Excluding these benefits related to Covid support,
EBITDA margins for HY23 and HY22 were 21.0% and 13.3% respectively.
The Group continues to hold a provision in respect of Covid support reflecting
the amount received in excess of the value it reasonably expects to retain
under the terms of those grants. Following the utilisation and release of the
provision in respect of CJRS, the total provision value (in respect of
property grant income) was £7.4 million at 31 July 2022 (31 January 2022:
£12.2 million). The Group is actively seeking professional advice to settle
its position. See note 16 to the condensed consolidated interim financial
statements for further information.
We remain focussed on careful cost control and continue to expect to mitigate
known inflationary pressures for the remainder of the year. We are mindful of
the challenging economic backdrop and the developing cost of living crisis;
however believe the Group's value proposition positions us to navigate this
well.
Net financing expense
The interest charge pertaining to the Group's loan facilities, which are
described in more detail in note 13 to the condensed consolidated interim
financial statements, reduced to £5.7 million (HY22: £6.5 million). This
includes a one-off benefit of £1.0 million relating to the release of
deferred debt issue costs as part of the refinancing agreed in April 2022.
Interest payable on the Group's external loans was £3.1 million (HY22: £2.9
million). During the preceding two years the Group has had a strong focus on
cash management and leverage and concluded two refinancings in May 2021 and
April 2022. As a result, the average cost of the Group's debt in HY23 was
slightly higher than in HY22; however the average utilisation of debt drawn
was lower to offset this. This, in part, reflects the flexibility provided by
the RCF facility replacing term loans as part of the most recent refinancing
and careful management of our debt requirements.
IFRS 16 Leases interest charges were £2.0 million (HY22: £1.5 million).
HY23 HY22 (Increase) /Decrease
£'m £'m
Interest on loans 3.1 2.9 4.9%
Loan issue cost amortisation 0.6 2.1 (72.2%)
IFRS 16 Leases interest 2.0 1.5 35.9%
Total finance expense 5.7 6.5 (12.8%)
Profit before tax and tax charge
As a result of all of the factors described above, the profit before tax for
the period amounted to £14.3 million (HY22: Loss before tax of £6.5
million).
The tax charge in the income statement for HY23 of £2.8 million is based on
the expected effective tax rate for the full year of 19.6%.
Earnings per share
Basic earnings per share for the period was 3.4 pence (HY22: Loss per share of
1.5 pence), with diluted earnings per share of 3.3 pence (HY22: Diluted loss
per share of 1.5 pence).
HY23 HY22
Profit/(loss) after tax (£m) 11.5 (5.2)
Basic EPS (pence) 3.4p (1.5p)
Diluted EPS (pence) 3.3p (1.5p)
Capital expenditure
Capital expenditure in the period, excluding IFRS 16 right of use assets,
amounted to £5.6 million (HY22: £3.5 million), principally in relation to
the ongoing project to implement a new ERP system across the business, routine
investment in new and refitted stores, including model and central London
stores, and investment in our online capability and customer experience.
Additions to right of use assets, reflecting new and renewed leases in the
store portfolio in the period, were £20.9 million (HY22 £11.5 million).
Capital expenditure in FY23 continues to be tightly controlled, with key
project expenditure subject to approval by an internal committee. Spend has
increased in FY23, supported by the cessation of lockdown restrictions and a
return to a more normal trading pattern, principally to support key strategic
initiatives. The Group remains subject to restrictions under its banking
facilities (described in further detail below), which limit the total value of
capital expenditure that can be incurred each year. Whilst operating within
these limits, we anticipate continuing to support our strategy in the current
year by investing further in the next phase of our ERP implementation,
continuing the roll out of new stores, and building our e-commerce,
omnichannel and manufacturing capabilities.
Foreign exchange
Approximately half of the Group's annual cost of goods sold expense relates to
products that are purchased from overseas suppliers denominated in US dollars.
The Group has an established approach to hedging the risk of exchange rate
fluctuations, which adopts a conservative approach to risk but retains
flexibility to respond to both business and market events. The Board-approved
policy permits the use of a combination of vanilla forwards and structured
options to hedge the exposure over a rolling three-year period. The Group has
used structured options and similar instruments to good effect for a number of
years and the Board continues to view such instruments to be commercially
attractive as part of a balanced portfolio approach to exchange rate risk
management, even if cash flow hedge accounting may not be achievable or
permitted in some instances.
At the half year, the Group has commercial hedges in place covering 100% of
its anticipated exposure for the remainder of FY23 and for a substantial
majority of the anticipated exposure for FY24. The portfolio average rate for
these hedges is significantly ahead of current spot and forward rates across
both periods, reflecting the benefit of our flexible and proactive hedging
strategy in providing protection against adverse market conditions.
A proportion of the currency portfolio remains subject to future variation in
the value of sterling and the impact of future trading conditions on hedged
cash flows. If current GBPUSD rates are sustained over the next 18 months,
this could trigger knock-out barriers in structured trades placed when rates
were higher that form part of the hedging portfolio, with an adverse impact on
the level of hedging and the overall portfolio rate. Structured trades
represent approximately one third of hedges that are yet to mature. Beyond
FY24, we expect the Group's average hedged rate will be more closely aligned
with prevailing market exchange rates.
Cash generation
The Group's cash generation profile typically follows an annualised pattern,
with higher cash outflows in the first half of the year associated with lower
seasonal sales and investment in working capital preparing for the Christmas
period, with the inverse in the second half of the year as sales increase
during the Christmas season and stock levels are reduced.
During HY23 the Group generated positive operating cash flows (before lease
repayments) of £19.7 million (HY22: Operating cash outflow before lease
repayments of £36.1 million). This figure includes a working capital outflow
associated with the reversal of VAT deferrals plus the CJRS settlement in the
period and the build of inventory ahead of the Christmas season.
After taking into account lease repayments of £30.9 million, capital
expenditure of £5.6 million and debt repayments and service costs of £13.0
million, the net cash outflow for the period was £29.8 million (HY22: net
inflow of £8.2 million)
Net Debt & Covenants
HY23 HY23 HY22 HY22
Net Debt Leverage Net Debt Leverage
£'m Multiple £'m Multiple
Borrowings
Current liabilities 18.6 0.2
Non-current liabilities 84.9 114.6
Total borrowings 103.5 114.8
Add back capitalised debt issue costs 1.6 2.4
Gross debt (exc. Leases) 105.1 117.2
Lease liabilities 109.4 142.4
Gross debt (inc. leases) 214.5 259.6
Less cash (8.5) (20.7)
Net Debt (inc. Leases) 206.0 238.9
Leverage (inc. Leases) 1.9x 3.9x
Remove lease liabilities (109.4) (142.4)
Net Debt (exc. Leases) 96.6 96.5
Leverage (exc. Leases) 0.9x 1.6x
The Group focuses on Net Debt calculated to exclude lease liabilities, as this
reflects the way the Group's covenants are calculated within its financing
facilities.
The cash generation profile described above means Net Debt is typically higher
at half year than year-end dates. Net Debt excluding lease liabilities of
£96.6 million at 31 July 2022 is broadly in line with the equivalent figure
for 31 July 2021. This reflects a strong performance, with VAT and rent
deferrals reduced by £32.1 million during this period.
Leverage, calculated as Net Debt (excluding lease liabilities) divided by
EBITDA for a rolling 12-month period and expressed as a multiple, was 0.9
times at 31 July 2022 (HY22: 1.6 times). The Group maintains a longer-term
target of approximately 1.25 times on a pre-IFRS 16 basis (excluding leases).
On 21 April 2022, the Group agreed an updated and amended financing package
with its banking partners, which reduced the quantum and extended the term of
the Group's facilities.
The revised facilities comprise term loans of £30 million, CLBILS of £20
million and a RCF of £100 million. The aggregate value of the Group's
facilities therefore reduced to £150 million. The CLBILs facilities are
subject to an amortising repayment profile, with final maturity in September
2023.
The term loans are subject to an amortising repayment profile with final
maturity in September 2025. The RCF final maturity is in September 2025. The
interest rate attached to the CLBILs facilities is unchanged. The term loans
will attract a fixed margin of 500bps and the RCF margin remains based on a
ratchet between 275 and 450bps dependent upon the Group's leverage position.
The covenant package attached to the facilities remains based on quarterly
tests of interest cover and leverage. The Group must maintain interest cover
of 1.5x to 31 October 2023 and 1.75x thereafter, and maintain leverage of
below 3.75x to 31 October 2022, 3.0x to 31 October 2023, and 2.5x thereafter.
The requirement for the Group to use best efforts to raise £70 million of
equity proceeds to pay down debt has been removed.
The Group has complied with all covenant requirements during HY23.
See note 13 to the condensed consolidated interim financial statements for
further information in respect of the Group's debt facilities.
Dividends and capital structure
Historically, the Board has 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
and profitability.
Following the outbreak of the Covid pandemic the Board ceased payment of
dividends, and as noted above the terms of the Group's financing facilities
now prohibit dividend payments until certain elements of the Group's
facilities are repaid.
As a result, no dividends were paid in FY22. The Board does not propose
payment of an interim dividend in respect of HY23.
The Board is focused on maintaining a capital structure that is conservative
yet efficient in terms of providing long-term returns to shareholders.
As reported in May 2022, the Board intends to maintain a leverage ratio
(calculated as net debt excluding lease liabilities to EBITDA) of between 0.5
and 1.5 times. Provided leverage remains in this range, the Board envisages
recommencing dividend payments by the end of FY24, at which point the CLBILS
facilities will have been fully repaid. It is the Board intention, subject to
these conditions, maintaining an appropriate leverage ratio and achieving
financial performance in line with the strategic plan, to pay ordinary annual
dividends from this point based on a targeted dividend cover of 2.0 to 3.0
times the Group's consolidated post-tax profit.
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.
Other Information
VAT timing agreement
During HY23, the Group concluded an administrative change to align its VAT
payment quarters with its financial year. Previously, VAT payments were based
on calendar quarters. As a result of this change, the final VAT payment in
respect of FY23 will now be made in February 2023 rather than January 2023
under the previous payment schedule, with a consequent benefit to closing cash
and net debt for the current financial year.
CJRS settlement
In July 2022, HMRC formally concluded its investigation into the Group's CJRS
position following an unprompted disclosure made by the Group earlier in the
year and the Group made a £2.3 million payment in final settlement. As a
result of the settlement, provisions held in respect of the Group's CJRS
position have been released, resulting in a £2.5 million benefit to EBITDA in
HY23.
Kris Lee
Chief Financial Officer
27 September 2022
Consolidated income statement
For the six months ended 31 July 2022
Note Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31 January 2022
£'m £'m £'m
Revenue 198.0 116.9 364.4
Cost of sales (132.2) (83.6) (247.9)
Gross profit 65.8 33.3 116.5
Operating expenses (45.8) (41.3) (92.9)
Other income - 8.0 8.0
Operating profit 5 20.0 - 31.6
Finance expense 6 (5.7) (6.5) (20.5)
Profit/(loss) before tax 14.3 (6.5) 11.1
Taxation 7 (2.8) 1.3 (3.0)
Profit/(loss) for period 11.5 (5.2) 8.1
Earnings per share pence pence pence
- Basic 8 3.4 (1.5) 2.4
- Diluted 8 3.3 (1.5) 2.4
All activities relate to continuing operations.
Consolidated statement of comprehensive income
For the six months ended 31 July 2022
Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31 January 2022
£'m £'m £'m
Profit/(loss) for the period 11.5 (5.2) 8.1
Items that are or may be recycled subsequently into profit or loss:
Cash flow hedges - changes in fair value 7.8 1.2 4.1
Cost of hedging reserve - changes in fair value (0.4) (0.1) -
Tax relating to components of other comprehensive income (1.4) (0.2) (0.6)
Other comprehensive income/(expense) for the period, net of income tax 6.0 0.9 3.5
Total comprehensive income/(expense) for the period to equity shareholders of 17.5 (4.3) 11.6
the parent
Consolidated statement of financial
position
As at 31 July 2022
Note 31 July 2022 31 July 2021 31 January 2022
£'m £'m £'m
Non-current assets
Intangible assets 10 321.6 321.3 320.7
Property, plant and equipment 11 29.9 34.0 31.6
Right of use assets 12 101.4 104.3 98.5
Deferred tax assets 2.5 4.9 3.6
Derivative financial instruments 14 2.0 - 1.3
457.4 464.5 455.7
Current assets
Inventories 46.2 39.7 33.1
Trade and other receivables 18.4 6.4 8.1
Tax receivable - 2.1 -
Derivative financial instruments 14 8.2 - 0.8
Cash and cash equivalents 8.5 20.7 38.3
81.3 68.9 80.3
Total assets 538.7 533.4 536.0
Current liabilities
Borrowings (18.6) (0.2) (25.5)
Lease liabilities 12 (29.3) (38.7) (41.1)
Trade and other payables (76.8) (69.7) (71.7)
Provisions 16 (7.4) - (12.2)
Tax payable (4.4) - (1.5)
Derivative financial instruments 14 (0.1) (2.9) (0.2)
(136.6) (111.5) (152.2)
Non-current liabilities
Borrowings (84.9) (114.6) (85.5)
Lease liabilities 12 (80.1) (103.7) (78.7)
Derivative financial instruments 14 (0.3) (0.9) -
(165.3) (219.2) (164.2)
Total liabilities (301.9) (330.7) (316.4)
Net assets 236.8 202.7 219.6
Equity
Share capital 3.4 3.4 3.4
Share premium 202.2 202.2 202.2
Hedging reserve 6.9 (2.1) 1.3
Cost of hedging reserve (0.4) 0.1 -
Reverse acquisition reserve (0.5) (0.5) (0.5)
Merger reserve 2.7 2.7 2.7
Retained earnings 22.5 (3.1) 10.5
Equity attributable to equity holders of the parent 236.8 202.7 219.6
Consolidated statement of changes in
equity
For the six months ended 31 July 2022
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
Six months ended 31 July 2022
At 31 January 2022 3.4 202.2 1.3 - (0.5) 2.7 10.5 219.6
Total comprehensive income for the period
Profit or loss - - - - - - 11.5 11.5
Other comprehensive expense - - 6.3 (0.3) - - - 6.0
-- - 6.3 (0.3) - - 11.5 17.5
Hedging gains and losses and costs of hedging transferred to the cost of - - (0.9) (0.1) - - - (1.0)
inventory
Deferred tax on transfers to inventory - - 0.2 -- - - - 0.2
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 0.5 0.5
Dividends - - - - - - - -
Total contributions by and distributions to owners - - - - - - 0.5 0.5
At 31 July 2022 3.4 202.2 6.9 (0.4) (0.5) 2.7 22.5 236.8
Six months ended 31 July 2021
At 31 January 2021 3.4 202.2 (3.1) 0.4 (0.5) 2.7 1.4 206.5
Total comprehensive expense for the period
Profit or loss - - - - - - (5.2) (5.2)
Other comprehensive income - - 1.0 (0.1) - - - 0.9
- - 1.0 (0.1) - - (5.2) (4.3)
Hedging gains and losses and costs of hedging transferred to the cost of - - - (0.3) - - - (0.3)
inventory
Deferred tax on transfers to inventory - - - 0.1 - - - 0.1
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 0.7 0.7
Dividends - - - - - - - -
Total contributions by and distributions to owners - - - - - - 0.7 0.7
At 31 July 2021 3.4 202.2 (2.1) 0.1 (0.5) 2.7 (3.1) 202.7
Year ended 31 January 2022
At 31 January 2021 3.4 202.2 (3.1) 0.4 (0.5) 2.7 1.4 206.5
Total comprehensive income for the period
Profit or loss - - - - - - 8.1 8.1
Other comprehensive income - - 3.3 - - - 0.2 3.5
- - 3.3 - - - 8.3 11.6
Hedging gains and losses and costs of hedging transferred to the cost of - - 1.4 (0.5) - - - 0.9
inventory
Deferred tax on transfers to inventory - - (0.3) 0.1 - - - (0.2)
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 0.8 0.8
Dividends - - - - - - - -
Total contributions by and distributions to owners - - - - - - 0.8 0.8
At 31 January 2022 3.4 202.2 1.3 - (0.5) 2.7 10.5 219.6
Consolidated cash flow statement
For the six months ended 31 July 2022
Note Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31
January 2022
£'m £'m £'m
Cash inflow from operating activities 15 19.7 36.1 113.6
Corporation tax 0.1 - 0.1
Net cash inflow from operating activities 19.8 36.1 113.7
Cash flows from investing activities
Purchase of property, plant and equipment 11 (2.6) (1.3) (3.6)
Purchase of intangible assets 10 (3.0) (2.2) (3.3)
Net cash outflow from investing activities (5.6) (3.5) (6.9)
Cash flows from financing activities
Proceeds from bank borrowings 73.8 41.7 57.0
Interest paid (3.5) (2.9) (6.5)
Repayment of bank borrowings (80.7) (48.0) (65.0)
Other financing costs paid (0.7) - (8.7)
Payment of lease liabilities (30.9) (13.7) (54.5)
Interest in respect of lease liabilities (2.0) (1.5) (3.3)
Net cash outflow from financing activities (44.0) (24.4) (81.0)
Net (decrease)/increase in cash and cash equivalents (29.8) 8.2 25.8
Cash and cash equivalents at the beginning of the period 38.3 12.5 12.5
Closing cash and cash equivalents 8.5 20.7 38.3
Notes to the condensed consolidated 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.
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the 'Group').
2 Basis of preparation
These unaudited condensed consolidated interim financial statements ('interim
financial statements') for the six months ended 31 July 2022 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 United
Kingdom. The interim report was approved by the Board of Directors on 26
September 2022.
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 2022 ('Annual Report')
which have been prepared in accordance with UK-adopted international financial
reporting standards (UK IFRS) and applicable law.
The comparative figures for the financial year ended 31 January 2022 are an
extract from the Annual Report and are not the Group's statutory accounts for
that financial year within the meaning of section 434 of the Companies Act
2006. 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 2022 were approved by the Board of Directors on
2 May 2022 and delivered to the Registrar of Companies.
Significant judgements and sources of estimation uncertainty
The preparation of the interim financial statements in accordance with UK IFRS
requires the application of judgement in forming the Group's accounting
policies. It also requires the use of estimates and assumptions that affect
the reported amounts of assets, liabilities, income and expenses. Actual
results may subsequently differ from these estimates.
Estimates and assumptions are reviewed on an ongoing basis, with revisions
recognised in the period in which the estimates are revised and in any future
periods affected. Judgements are also reviewed on an ongoing basis to ensure
they remain appropriate.
There were no judgements made in the six months ended 31 July that had a
material effect on the Group's interim financial statements. During the
financial year ended 31 January 2022, the Group opted to cease presentation of
"underlying" measures in its financial statements. As a result, underlying
measures in respect of, and as they were presented in, comparative periods are
not repeated in these financial statements.
The review of estimates and assumptions in the period concluded that the key
sources of estimation uncertainty were the same as those applied to the
consolidated financial statements for the year ended 31 January 2022. In each
case, estimates were made using a consistent methodology, with inputs and
assumptions updated to reflect the Group's latest forecasts and prevailing
market conditions at the balance sheet date where appropriate.
Comparative information
The Group provides comparative financial information in these interim
financial statements for both the six months ended 31 July 2021 and the year
ended 31 January 2022. Where included within text, income statement
comparatives refer to the six months ended 31 July 2021 and balance sheet
comparatives are as at 31 January 2022, unless otherwise stated.
As noted above, during the financial year to 31 January 2022 the Group opted
to cease presentation of underlying measures in its financial statements.
Underlying amounts previously reported for historical periods are therefore
not repeated in these interim financial statements.
Going concern basis of accounting
The Board continues to have a reasonable expectation that the Group has
adequate resources to continue in operation for at least the next 12 months
and that application of the going concern basis of accounting remains
appropriate.
Following the cessation of the most severe restrictions associated with the
Covid-19 pandemic in the previous financial year, the Group has reopened its
stores and traded in line with the expectations of management. LFL sales in
certain periods have returned to pre-pandemic levels and, encouragingly, LFL
sales for the current interim period compared to the same period in the
previous year when stores were open are positive. See the Business Review and
Chief Financial Officer's Review in this report for more information regarding
trading in the first half of the year.
The Group renewed its financing facilities with its banking partners in April
2022, reducing the quantum of the facilities to £150 million and extending
the term of the Group's debt to September 2025 (see note 13). The first
repayments under these facilities fall due in January 2023. Until the CLBILs
and certain of the term loan facilities have been fully repaid, expected to be
by January 2024, the Group is prohibited from making distributions. Annual
capital expenditure is limited by the Group's financing arrangements until 31
January 2025.
The Group's most recent cash flow forecasts, which cover the period extending
12 months from the date these interim financial statements were approved,
indicate that the Group expects to have significant headroom within its agreed
financing arrangements, comfortably meet all covenant tests within those
arrangements, and would be able to settle its liabilities as they fall due for
the duration of the forecasts, including repayment of borrowings in line with
the amortising repayment schedule set out in the terms of the new facilities.
During the previous period, the Group prepared detailed forecast scenarios,
which considered the effects of further potential lockdowns on the financial
prospects of the Group. That analysis, explained in more detail in the Group's
Annual Report which was published on 3 May 2022, concluded that in the event
of further severe restrictions, the Group would be able to continue to meet
the covenant requirements in its financing facilities and thus maintain
sufficient liquidity to meet its liabilities as they fall due. On the basis
that the Group has traded in line with expectations since this analysis was
prepared, the conclusions remain unchanged. The likelihood that restrictions
such as those assumed in the analysis recur is considered to have reduced
during the period.
The Group has considered the impact of rising inflation levels in its cost
base, and also the potential impact of the cost of living crisis on consumer
behaviour and a corresponding reduction in LFL sales. As described in the
Chief Financial Officer's Review, the Group has successfully mitigated
inflationary impacts in the period to date. The Group benefits from a hedge in
respect of energy costs and currency requirements, providing protection
against current market movements, which extends beyond the period 12 months
from the date of approval of these interim financial statements. Whilst a
severe impact on consumer behaviour could result in reduced sales over that
period, it is expected that such a scenario would be less severe than the
'further lockdown' scenario described above.
Based on these factors, the Board has a reasonable expectation that the Group
has adequate resources and sufficient liquidity headroom, and accordingly
these interim accounts are prepared on the going concern basis.
3 Principal accounting policies
The interim financial statements have been prepared under the historical cost
convention except for certain assets and liabilities (principally 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 2022.
Amended standards and interpretations effective in the period do not have a
material effect on the Group's interim 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, with a small number of stores in the Republic of
Ireland, and also through 3(rd) party retail partners. Getting Personal is an
online retailer of personalised cards and gifts. The accounting policies
applied in preparing financial information for each of the Group's segments
are consistent with those applied in the preparation of the interim financial
statements. The information reviewed by the Board is consolidated, except that
revenue is shown separately for each segment.
Revenue for each segment, and a reconciliation to consolidated revenue, is
provided in the table below:
Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31
January 2022
£'m £'m £'m
Card Factory revenue 194.0 110.7 351.5
Getting Personal revenue 4.0 6.2 12.9
Consolidated revenue 198.0 116.9 364.4
Of which derived from customers in the UK 192.4 114.5 357.5
Of which derived from customers overseas 5.6 2.4 6.9
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 retail partnerships and non-retail
customers were circa £3.4 million in the period (HY22: £2.3 million).
Revenue from overseas reflects revenues earned from the Group's stores in the
Republic of Ireland and retail partners based outside the UK.
Of the Group's non-current assets, £3.0 million relates to assets based
outside of the UK, principally in relation to the Group's stores in the
Republic of Ireland.
5 EBITDA
EBITDA represents profit for the period before net finance expenses, taxation,
depreciation, amortisation, impairment of assets and gains or losses on
disposal of assets.
Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31 January 2022
£'m £'m £'m
Operating profit 20.0 - 31.6
Depreciation, amortisation and impairment 24.2 23.6 54.0
Gains on disposal (0.4) - -
EBITDA 43.8 23.6 85.6
6 Finance expense
Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31
January 2022
£'m £'m £'m
Finance expense
Interest on bank loans and overdrafts 3.1 2.9 6.8
Amortisation of debt issue costs 0.6 2.1 10.4
Lease interest 2.0 1.5 3.3
5.7 6.5 20.5
Amortisation of debt issue costs includes a one-off credit of £1.0 million,
arising as a result of the release of certain deferred fees as part of the
Group's refinancing concluded in April 2022. See note 13 for further detail.
7 Taxation
The tax charge for the interim period of £2.8 million has been calculated on
the basis of the estimated effective tax rate on profit before tax for the
full financial year to 31 January 2023, which has been assessed as 19.6%
(HY22: 19.2%).
8 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period
attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares
in issue for the period, adjusted for the dilutive effect of potential
ordinary shares. Potential ordinary shares represent share incentive awards
and save as you earn share options.
Six months ended 31 July 2022 Six months ended Year ended 31
31 July 2021 January 2022
(Number) (Number) (Number)
Weighted average number of shares in issue 342,098,789 341,654,476 341,770,579
Weighted average number of dilutive share options 1,449,318 2,194,059 1,843,537
Weighted average number of shares for diluted earnings per share 343,548,107 343,848,535 343,614,116
£'m £'m £'m
Profit/(loss) for the financial period 11.5 (5.2) 8.1
pence pence pence
Basic earnings/(loss) per share 3.4 (1.5) 2.4
Diluted earnings/(loss) per share 3.3 (1.5) 2.4
9 Dividends
The Directors have not declared an interim dividend for the period ended 31
July 2022. There were no dividends paid in the previous financial year ended
31 January 2022.
Whilst the Group's CLBILS and certain of its term loan facilities, as drawn at
31 July 2022, remain outstanding (see note 13), the Group is prohibited from
making distributions.
10 Intangible assets
Goodwill Software Total
£'m £'m £'m
Cost
At 1 February 2022 328.2 17.0 345.2
Additions - 3.0 3.0
Transfers - 0.6 0.6
Disposals - - -
At 31 July 2022 328.2 20.6 348.8
Amortisation and impairment
At 1 February 2022 14.4 10.1 24.5
Amortisation in the period - 1.2 1.2
Impairment in the period - 1.5 1.5
Amortisation on disposals - - -
At 31 July 2022 14.4 12.8 27.2
Net book value
At 31 July 2022 313.8 7.8 321.6
At 31 January 2022 313.8 6.9 320.7
11 Property, plant and equipment
Freehold property Leasehold improvements Plant, equipment, fixtures & vehicles Total
£'m £'m £'m £'m
Cost
At 1 February 2022 17.9 40.8 70.3 129.0
Additions 0.1 - 2.5 2.6
Transfers - (0.1) (0.5) (0.6)
Disposals - - -- -
At 31 July 2022 18.0 40.7 72.3 131.0
Depreciation and impairment
At 1 February 2022 4.4 37.3 55.7 97.4
Depreciation in the period 0.2 0.9 2.6 3.7
Depreciation on disposals - - - -
At 31 July 2022 4.6 38.2 58.3 101.1
Net book value
At 31 July 2022 13.4 2.5 14.0 29.9
At 31 January 2022 13.5 3.5 14.6 31.6
12 Leases
The Group has lease contracts, within the definition of IFRS 16 leases, in
relation to its entire store lease portfolio, some warehousing locations and
motor vehicles. Other contracts, including distribution contracts and IT
equipment, are deemed not to be a lease within the definition of IFRS 16 or
are subject to the election not to apply the requirements of IFRS 16 to
short-term or low value leases.
Right of use assets Buildings Motor Vehicles Total
£'m £'m £'m
Cost
At 1 February 2022 300.6 1.3 301.9
Additions 20.9 - 20.9
Disposals (24.0) - (24.0)
At 31 July 2022 297.5 1.3 298.8
Depreciation and impairment
At 1 February 2022 202.5 0.9 203.4
Depreciation in the period 17.6 0.2 17.8
Depreciation on disposals (23.8) - (23.8)
Impairment on disposals -- - -
At 31 July 2022 196.3 1.1 197.4
Net book value
At 31 July 2022 101.2 0.2 101.4
At 31 January 2022 98.1 0.4 98.5
Disposals and depreciation on disposals include fully depreciated right of use
assets in respect of expired leases where the asset remained in use whilst a
lease renewal was negotiated.
Lease liabilities Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31 January 2022
£'m £'m £'m
Current lease liabilities (29.3) (38.7) (41.1)
Non-current lease liabilities (80.1) (103.7) (78.7)
Total lease liabilities (109.4) (142.4) (119.8)
Lease expense Six months ended 31 July 2022 Six months ended 31 July 2021 Year ended 31 January 2022
£'m £'m £'m
Depreciation expense on right of use assets 17.8 18.3 37.4
Impairment of right of use assets - - 5.0
Profit on disposal of right of use assets (0.4) - -
Lease interest 2.0 1.5 3.3
Expense relating to short term and low value leases - 0.2 -
Expense relating to variable lease payments 0.1 0.1 0.2
Total lease related income statement expense 19.5 20.1 45.9
13 Analysis of net debt
Six months ended 31 July 2022 At 1 February 2022 Cash flow Non-cash changes At 31 July 2022
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (111.0) 7.0 0.5 (103.5)
Lease liabilities (119.8) 32.9 (22.5) (109.4)
Total debt (230.8) 39.9 (22.0) (212.9)
Debt costs capitalised (1.5) (0.7) 0.6 (1.6)
Cash and cash equivalents 38.3 (29.8) - 8.5
Net debt (194.0) 9.4 (21.4) (206.0)
Lease liabilities 119.8 (32.9) 22.5 109.4
Net debt excluding lease liabilities (74.2) (23.5) 1.1 (96.6)
Six months ended 31 July 2021 At 1 February 2021 Cash flow Non-cash changes At 31 July 2021
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (119.0) 6.3 (2.1) (114.8)
Lease liabilities (144.9) 13.7 (11.2) (142.4)
Total debt (263.9) 20.0 (13.3) (257.2)
Debt costs capitalised (1.2) (3.3) 2.1 (2.4)
Cash and cash equivalents 12.5 8.2 - 20.7
Net debt (252.6) 24.9 (11.2) (238.9)
Lease liabilities 144.9 (13.7) 11.2 142.4
Net debt excluding lease liabilities (107.7) 11.2 - (96.5)
Year ended 31 January 2022 At 1 February 2021 Cash flow Non-cash changes At 31 January 2022
£'m £'m £'m £'m
Unsecured bank loans and accrued interest (119.0) 8.0 - (111.0)
Lease liabilities (144.9) 57.8 (32.7) (119.8)
Total debt (263.9) 65.8 (32.7) (230.8)
Debt costs capitalised (1.2) (8.7) 8.4 (1.5)
Cash and cash equivalents 12.5 25.8 - 38.3
Net debt (252.6) 82.9 (24.3) (194.0)
Lease liabilities 144.9 (57.8) 32.7 119.8
Net debt excluding lease liabilities (107.7) 25.1 8.4 (74.2)
On 21 April 2022, the Group agreed an updated and amended financing package
with its banking partners, which reduced the quantum and extended the term of
the Group's debt facilities.
The revised facilities comprise term loans of £30 million, CLBILs of £20
million and a Revolving Credit Facility (RCF) of up to £100 million. The
aggregate value of the Group's facilities therefore reduced to £150 million
(previously £225 million, comprised of £75 million term loans, £50 million
CLBILs and £100 million RCF).
The CLBILs facilities are subject to an amortising repayment profile, with the
final repayments due in September 2023. The term loan facilities are also
subject to an amortising repayment profile with final maturity in September
2025. The RCF is available to draw to meet the Group's working capital
requirements as needed, with the final maturity also due in September 2025.
The first scheduled repayments under the term loan and CLBILs facilities occur
in January 2023.
The interest rates attached to the CLBILs facilities are unchanged. The term
loans attract a fixed margin of 500bps over compounded SONIA, and the RCF
margin remains based on a ratchet between 275 and 450bps over compounded SONIA
dependent upon the Group's leverage position, which is re-assessed for this
purpose quarterly.
The revised facilities require the Group to meet quarterly tests of interest
cover and leverage. The Group must maintain interest cover of 1.5x to 31
October 2023 and 1.75x thereafter. The Group must maintain leverage of below
3.75x to 31 October 2022, 3.0x to 31 October 2023 and below 2.5x thereafter.
The revised agreement removed the previous requirement for the Group to use
best efforts to raise up to £70 million of equity proceeds to pay down debt.
In addition to the financial covenants set out above, the agreement restricts
the value of capital expenditure permitted each year until 31 January 2025 and
prohibits the payment of distributions to shareholders until the CLBILs and
certain of the term loans have been repaid in full - expected to be in January
2024. The Group is also required to comply with customary reporting
requirements which are considered to be administrative in nature.
14 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 2022 31 July 2021 31 January 2022
£'m £'m £'m
Derivative assets
Non-current
Interest-rate contracts 0.3 - 0.3
Foreign exchange contracts 1.7 - 1.0
2.0 - 1.3
Current
Interest-rate contracts 0.7 -- 0.2
Foreign exchange contracts 7.5 - 0.6
8.2 - 0.8
Derivative liabilities
Current
Interest rate contracts - (0.5) -
Foreign exchange contracts (0.1) (2.4) (0.2)
(0.1) (2.9) (0.2)
Non-current
Interest rate contracts - (0.1) -
Foreign exchange contracts (0.3) (0.8) -
(0.3) (0.9) -
Net derivative financial instruments
Interest rate contracts 1.0 (0.6) 0.5
Foreign exchange contracts 8.8 (3.2) 1.4
9.8 (3.8) 1.9
15 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
31 July 2022 31 July 2021 31 January 2022
£'m £'m £'m
Profit before tax 14.3 (6.5) 11.1
Net finance expense 5.7 6.5 20.5
Operating profit 20.0 - 31.6
Adjusted for:
Depreciation and amortisation 22.7 23.6 49.1
Impairment of intangible assets 1.5 - 5.0
Loss/(profit) on disposal of fixed assets (0.4) - -
Cash flow hedging foreign currency movements (1.7) (0.3) (1.4)
Share-based payments charge 0.5 0.7 0.8
Operating cash flows before changes in working capital 42.6 24.0 85.1
(Increase)/decrease in receivables (10.3) 3.0 1.1
(Increase)/decrease in inventories (13.0) (3.3) 3.3
Increase/(decrease) in payables 5.2 12.4 11.9
Movement in provisions (4.8) - 12.2
Cash inflow from operating activities 19.7 36.1 113.6
16 Provisions
Covid-19-related support Total
£'m £'m
At 1 February 2022 12.2 12.2
Provisions utilised during the period (2.3) (2.3)
Provisions released during the period (2.5) (2.5)
At 31 July 2022 7.4 7.4
Covid-19-related support provisions reflect amounts received under one-off
schemes designed to provide support to businesses affected by Covid-19
restrictions, including lockdown grants and CJRS, in excess of the value the
Group reasonably believes it is entitled to retain under the terms and
conditions of those schemes. The provisions have been estimated based on the
Group's interpretation of the terms and conditions of the respective schemes
and, where applicable, independent professional advice. However, the actual
amount that will be repaid is not certain.
In July 2022, following an unprompted disclosure to HMRC and resulting
investigation, the Group made a payment of £2.3 million in final settlement
of its CJRS position. As a result of this settlement, the Group released a
further £2.5 million from the provision that is no longer expected to be
required, as the matter is now closed. This release has been recognised as a
one-off benefit in the income statement in the period.
The Group is taking steps to confirm amounts repayable and settle its
remaining positions. This exercise is expected to conclude within the next
financial year.
17 Principal risks and uncertainties
The principal risks and uncertainties facing the Group are materially
unchanged since the publication of the Annual Report (as published and
explained in more detail on pages 39 to 41 of the Group's Annual Report for
the year ended 31 January 2022) and are set out below for each category of
risk.
Financial Risks:
- Shipping
- Geopolitical Instability
- Finance & Treasury
Operational Risks:
- ERP Implementation
- IT Infrastructure and risk of IT/security disruption
- Retail partner exposure
- Loss of Key Personnel & Organisational Culture
- Supplier CSR breach
- Business Continuity
Strategic Risks:
- ESG Compliance and climate change risks
- Adapting to customer preferences
- Brand customer experience
- Investor relations
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 UK;
• 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
Darcy
Willson-Rymer
Kris Lee
Chief Executive Officer
Chief Financial Officer
27 September 2022
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 2022 which comprises the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the 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 2022 is not prepared, in all
material respects, in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK and the Disclosure Guidance and Transparency Rules
("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued 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.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the group to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the group will continue in operation.
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 UK-adopted international accounting standards.
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 for use in the UK.
In preparing the condensed set of financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
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. Our conclusion, including our conclusions relating to going concern,
are based on procedures that are less extensive than audit procedures, as
described in the Basis for conclusion section of this report.
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.
Nick Plumb
for and on behalf of KPMG LLP
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DA
27 September 2022
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