REG - Card Factory PLC - Interim results for six months to 31 July 2021
28 September 2021
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2021
Results in line with expectations
Business review successfully completed - transformation underway to omni-channel model
to deliver sustainable revenue and profit growth
Target over £600m of sales by FY 2026
Card Factory, the UK's leading specialist retailer of greeting cards and complementary products, announces its
interim results for the six months ended 31 July 2021 ('HY22') and an update on its long-term strategy.
Business highlights
· Strategy and business review successfully completed - transformation to an omni-channel model will position business for future growth
· Results in line with the Board's expectations, reflecting the impact of 10+ weeks of store closures across the UK and Republic of Ireland during lockdown in the period
· Store footfall levels below pre-pandemic levels but outperforming high street averages, demonstrating strength of brand and customer proposition. Increased average basket value across multiple categories, offsetting reduction in transaction volumes given reduced footfall
· Online performing well, albeit with a slight reduction in demand as stores re-opened as anticipated
· Continued investment planned to drive future growth
· Group remains cash generative, with operating cash flow of £36.1m (HY21: £25.2m), driven by improved trading performance, favourable working capital movements and capex light model
· Net debt (excluding lease liabilities) reduced to £96.5m from £107.7m as at 31 January 2021, continued focus on maintaining conservative yet efficient capital structure
Financial summary
Financial Metrics
Note
HY22
HY21
Change
Revenue
£116.9m
£100.5m
16.3%
Card Factory LFL sales (traded days v FY20)
(i)
(3.7%)
1.6%
(5.3 ppts)
Profit before tax
(£6.5m)
(£22.2m)
70.7%
EBITDA
(i)
£23.6m
£7.8m
202.6%
Basic EPS
(1.5p)
(5.2p)
70.7%
Net Debt (excl. lease liabilities)
(i)
£96.5m
£143.9m
(32.9%)
Notes to table above:
i. See explanatory Note 1 "Alternative Performance Measures" for further information and definitions.
Darcy Willson-Rymer, Chief Executive Officer, commented:
"Since joining the Group one of my priorities has been to review the business and its growth strategy. Having recently completed that process, I remain extremely excited about the opportunities available to Card Factory.
"The delivery of the growth strategy set out in July 2020 - and the broader retail environment itself - has obviously been impacted by Covid-19. However, it is clear that the right way forward is to transition Card Factory from being a store led card retailer into a market leading, omni-channel retailer of cards and gifts. Whilst cards will remain the largest part of our business in terms of total contribution, we will substantially increase our focus on the complementary gifting and party markets, enhancing our customer offer and significantly increasing the size of our addressable market. The successful delivery of our strategy will be achieved by putting the customer at the heart of everything we do - ensuring that we provide outstanding value and quality across all our products and services, available however our customers want to shop.
"Although there remains some uncertainty about the speed of the post-pandemic market recovery in the short term, I firmly believe in both the resilience of the card and gifting markets and the fact that the majority of customer spend will remain in stores for the years to come. We look forward to successfully executing our strategy to transition Card Factory into a market leading omni-channel retailer of cards and gifts, delivering sustainable revenue and profit growth and driving value for all our stakeholders."
Revised long-term guidance
The Group set long-term financial targets at the Capital Markets Day in July 2020. Given the impact of the Covid-19 pandemic, and in particular the second and third UK lockdowns which were not envisaged at the time of the Capital Markets Day, those targets are no longer valid and have been replaced. The new long-term guidance is as follows:
- revenues in excess of £600 million for FY26, of which the Company expects approximately 20 per cent. to come from online & multi-channel and retail partnerships.
- expected shift in product and channel mix, alongside investment to result in PBT margin trending towards 17% over the longer term.
Interim results webcast
There will be an interim results webcast for analysts and investors today, starting at 10.00am, and registration is available via the link here.
Those analysts who wish to attend by telephone are requested to contact Yasemin Balman of Tulchan Communications on the number provided below or by emailing cardfactory@tulchangroup.com.
A copy of the webcast and accompanying presentation will be made available on the day via the Card Factory investor relations website: 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 / Elizabeth Snow / Victoria Boxall cardfactory@tulchangroup.com
Card Factory plc ("Card Factory" or the "Group")
Interim results for the six months ended 31 July 2021
BUSINESS UPDATE
Card Factory's growth strategy
Following the appointment of Darcy Willson-Rymer in March 2021 as Chief Executive, Darcy has led a full review of the business and strategy. Following this review the Board has broadened its ambition and vision for the Group, which is now focused on making Card Factory the UK's most successful omni-channel retailer of cards and gifts with a strong international presence - with a clear shift in focus from being a product led business to a customer focused business.
There are multiple opportunities for Card Factory to capitalise upon as it works towards this ambition. These opportunities include increasing its ranges in the complementary party and gift categories; development into omni-channel retail to improve the customer experience; further geographical expansion in the UK, Republic of Ireland and - in due course - internationally; and broadening the target market to capture spend from less price sensitive customers. All of these opportunities have been incorporated in the refreshed strategy, building on the strategy set out last year, whilst focusing on offering customers unrivalled quality, value, choice, convenience and experience.
Implementation of the strategy will enable the Group to adapt effectively to underlying structural changes in consumer behaviour. The majority of customer spend on cards and gifts across the market is currently made in store, and we are highly confident that this trend will continue. As such, a successful omni-channel offering not only requires growth in online distribution channels and delivery of products to customers, but a complementary, strong store portfolio.
Card Factory is uniquely placed to capitalise upon the growth opportunities available because of its vertically integrated business model. This model is fully differentiated, robust, and highly scalable.
The strategy remains based around three pillars:
1. Increasing breadth of product offering: Transformation to an omni-channel retailer of cards and gifts with a leadership in cards and increasing presence in complementary categories
· While continuing to be a card-led retailer in a stable UK market where 76% of adults are card givers, Card Factory will meet shopper demand by providing materially expanded complementary gifting and party ranges, across store and online channels. The product range expansion will enable Card Factory to better serve the large gifting and party market, worth £40bn per annum in the UK, capturing more customer spend and increasing average basket value. In addition to new complementary categories such as confectionary and stationery, existing card ranges will be broadened by the introduction of new contemporary categories. As we increase our focus on complementary, higher value, lower margin products and basket mix shifts accordingly, we anticipate a reduction in the Group's percentage margin, which is reflected in our revised long-term guidance;
· Use new data capabilities, including through the rollout of the Group's new ERP platform in Q4 2021, to understand and respond rapidly to changing shopper habits and preferences. Among other benefits, this will enable Card Factory to gain better insight on price elasticity, enabling it to evolve its pricing approach whilst maintaining high levels of customer satisfaction;
· Continue to invest in the Card Factory brand, with emphasis on the Group's quality and value focus, to increase shopper awareness and improve trust; and
· Build upon Card Factory's ESG policy to be recognised as a socially and environmentally responsible business. We will be a positive contributor in the communities we are present in.
2. Create a full omni-channel offer: Improving availability and access to our products, however customers choose to shop; enhancing convenience and experience for shoppers
· Transform the business from a predominantly store-driven retail model to a full omni-channel offer that uses new and existing infrastructure to become the first card and gifting retailer to provide a seamless physical and online shopper experience. This will provide access to card, gift and personalised products anytime, anywhere, through Card Factory's stores, website, apps and click & collect and home delivery services; allowing Card Factory to significantly increase its online market share while strengthening its store estate sales;
· By providing an improved omni-channel service, Card Factory will enhance the shopper experience and access to its offer by being the first specialised card and gifting brand to combine an effective digital proposition with its store estate;
· Multiple actions have been identified to leverage our existing assets and capabilities with modest, disciplined investment and accelerate the transformation to a full omni-channel offer and the growth of online, including near term investment to provide access to an extended product range, support and services online; increase the range of shipping options to home or store; enable customers to access the brand and offer on the move, via apps and instore; increase fulfilment capacity, accuracy and speed to deliver; enable customers to self-serve throughout the journey, supported by AI experience (recommendations, personalisation, notifications, live chat) and create an enterprise set of business capabilities to open new channels, categories, audiences and territories...at lower cost and at speed;
· The store portfolio will be optimised to ensure Card Factory has profitable stores in high footfall locations, with 100 net new stores added to the existing portfolio of over 1000 stores across the UK and Republic of Ireland, by FY2026. The Group will target under penetrated areas, including London, the Republic of Ireland, and areas of high footfall, including retail parks. The store optimisation programme will continue with locations selected based on profitability and returns. The low lease lengths across the store portfolio provide additional flexibility and optionality, ensuring an effective overall store portfolio; and
· The partnership model will allow Card Factory to reach more UK shoppers for minimal investment in additional convenient locations that meet the growing demand for impulse buying. International partnerships will allow Card Factory to expand into new markets that show attractive characteristics for entry and disruption. The partnership strategy will deploy different operating models at differentiated margins.
3. A robust and scalable central model that continues to provide Card Factory with a distinct competitive advantage
· Card Factory's vertically integrated business model will remain a unique point of difference, affording great flexibility to respond to market changes and enabling efficient, high-quality design and production at attractive margins, supporting online channel growth and retail partners with lower costs per unit.
Completion of successful re-financing
As previously announced on 21 May 2021, Card Factory completed a £225m refinancing during the period. The facilities are structured to incentivise an early reduction of overall debt, with fees of up to £5m payable if pre-payments are not made in line with specified dates by 30 November 2021 through until 30 July 2022. The Company is permitted to facilitate these repayments through the issue of new equity or by using funding from subordinated debt sources. The Company continues to evaluate the options available to the Group and will update further as appropriate.
Performance in the period
Notwithstanding the impact of the COVID-19 pandemic and the challenges and uncertainties that the retail sector has faced during the period, the business performed well in the first half. We have continued to provide our customers great products at excellent value despite the unprecedented pressures. This is testament to the hard work and dedication of everyone associated with Card Factory.
High street footfall remains below pre-pandemic levels, impacting transaction volumes with Springboard reporting footfall for HY22 (from April 2021) being down 27.4% on a LFL basis compared to HY20. Average basket value has increased by 27.8% to substantially offset the decline in transaction volumes. This is due primarily to consumers spending more across fewer shopping trips.
We have continued our estate review and the evolution of our store portfolio, with a focus on higher footfall locations and store profitability. The net number of stores increased by three stores during the period to 1,019. LFL store revenue declined by 7.2% in the period compared to HY20 (HY21 -4.4% compared to HY20).
Online sales performed strongly compared to HY20, i.e., pre-COVID-19, with revenues increasing by 50.2% compared to HY20 (HY21 +64.4% compared to HY20). As a result of stores being open for a larger proportion of HY22 compared to HY21, total HY22 online revenue declined by 10.3% and net transactions by 8%, with a 20.7% decline in gettingpersonal.co.uk revenues offset in part by a 4.8% increase in revenue from cardfactory.co.uk and 5% increase in average basket value.
HY22
£'m
HY21
£'m
Increase/
(Decrease)
www.cardfactory.co.uk
5.7
5.4
4.8%
www.gettingpersonal.co.uk
6.2
7.9
(20.7%)
Total online revenue
11.9
13.3
(10.3%)
The partnership channel performed well with revenue LFL growth of 17.8% during the period with revenue of £2.3m in HY22 (£1.9m HY21), and the total number of locations growing to 908 from 894. Card Factory's performance at Aldi was strong and remained resilient during lockdown, while our contract with Aldi was also successfully renewed. However, Card Factory's performance at TRS and Matalan was impacted by Covid-19 related trading restrictions. During the period we made targeted investments which will support the business towards its long-term growth targets. Investments during the period include IT infrastructure upgrades, including investment in respect of the ERP implementation, sortation and packing equipment, initial investment in marketing capability and select store openings. We will continue to invest across the business as we deliver against our refreshed strategy. Our focus remains on providing excellent customer service and satisfaction by ensuring customers can buy what they want in the way which is most convenient to them, thereby increasing customer spend and retention and accelerating revenue and profit growth. We are highly confident that delivery of our refreshed strategy will ensure we are in the best position to exploit the multiple growth opportunities available.
Preparations for Christmas
The senior leadership team has made further enhancements to preparations for the upcoming Christmas season, including introduction of auto replenishment for complementary ranges, early launch of seasonal staff recruitment, introduction of additional warehouse shifts to meet seasonal demand. We have completed store-by-store analysis to ensure that product ranges are located and displayed in a way that provides our customers with the safest and most effective way for them to shop. Further contingency planning has been undertaken to maximise sales in when stock gaps inevitably occur due to the reported supply chain capacity issues, and potential driver and worker shortfalls, including maximising opportunities through Printcraft.
Current trading and outlook
We are satisfied with trading since the period end, with better-than-expected performance driven by improvements across all areas of the business. Online is trading in-line with our expectations and in store footfall and transaction volumes continue to recover, albeit transaction volumes remain 21.9% below pre-pandemic levels. Average basket value remains higher than pre-pandemic levels, with basket mix reflecting our broader product offering, offsetting lower footfall. LFL trading post period end for the 7 weeks to 19 September is -3.6% and -6.3% versus the equivalent period in FY21 and FY20 respectively.
Notwithstanding short-term uncertainty around the speed of the market recovery the well-publicised disruption that is being seen in the supply chain, shortage of staff heading into Christmas, increasing freight costs, increased energy costs and adverse product mix, we remain cautiously positive about the second half of FY22.
We have worked extensively to make sure we are as well prepared as possible for the forthcoming Christmas period to minimise the potential disruption from driver and labour shortages. We will continue to invest across our channels, widening the range of products available online and in store, and ensuring the online platform and order fulfilment capacity is able to scale to support future growth. In addition, we will continue to develop our customer insight tools to ensure that we continue to deliver best in class shopper experience and customer satisfaction.
In the longer term we strongly believe in the resilience and stability of the card market, which is well insulated from market headwinds, and the potential for the Group within the gifting segment, worth £40bn in the UK. The Board remains confident that the refreshed growth strategy will deliver sustainable revenue and profit growth, resulting in revenues in excess of £600m by 2026, through better serving our customers and securing higher customer spend. We remain committed to maximising shareholder value in a sustainable manner as we deliver against the implementation of our strategy.
CHIEF FINANCIAL OFFICER'S REVIEW
The HY22 accounting period refers to the six months ended 31 July 2021 and the comparative period "HY21" refers to the six months ended 31 July 2020.
Revenue
Total Group revenue during the period increased by 16.3% to £116.9m (HY21: £100.5m), driven by the impact on trading of Covid-19 related lockdowns:
HY22
£'m
HY21
£'m
Increase/
(Decrease)
Card Factory stores
102.7
85.3
20.4%
Online
11.9
13.3
(10.3%)
Retail partnerships
2.3
1.9
17.8%
Group
116.9
100.5
16.3%
Like-for-like ("LFL") sales growth is broken down below (LFL measure excludes periods where stores were closed due to lockdown). Due to the impact of Covid-19, HY20 has been used as the comparative sales period for both HY22 and HY21 LFLs. Store sales are compared only for the days when each Card Factory store was open for trade:
HY22 (cf HY20)
HY21 (cf HY20)
Card Factory stores
(7.2%)
(4.4%)
Card Factory online
167.9%
153.6%
Card Factory LFL
(3.7%)
1.6%
Getting Personal
6.9%
31.8%
Ongoing improvements to the depth, quality and merchandising of our complementary product offering led to a continuation of the mix shift to this category. In addition, the business has placed increased emphasis on its Everyday card offering, to ensure customers have the widest choice of card type and greeting messages. The half-year mix for HY22 was 47.3% single cards (HY21: 52.9%), 52.7% complementary product (HY21 47.1%).
Revenue from the Card Factory transactional website grew by 167.9% (HY21: 153.6%) versus HY20 as the impact of lockdown saw a significant increase in visitor numbers.
Performance at Getting Personal was also encouraging, with revenue growing 6.9% (HY21: 31.8%) versus HY20, driven by customers increasing shopping online during mandatory store closures, driving higher sales in both cards and gifting.
Operating costs
Cost of sales and operating expenses can be analysed as follows:
HY22
HY22
£'m
HY22
% of revenue
% of revenue
(Increase) / Decrease
£
(Increase) / Decrease
Cost of goods sold
40.9
35.0%
0.8 ppts
(13.6%)
Store wages
30.0
25.7%
(2.1 ppts)
(26.6%)
Store property costs
4.5
3.8%
3.1 ppts
34.8%
Other direct expenses
8.2
7.0%
1.5 ppts
3.5%
Cost of sales
83.6
71.3%
3.4 ppts
(11.3%)
Operating expenses*
17.7
15.2%
2.3 ppts
(1.1%)
Depreciation, amortisation & impairment
23.6
20.2%
5.3 ppts
7.8%
Total operating costs
41.3
35.3%
7.7 ppts
4.4%
HY21
HY21
£'m
HY21
% of revenue
Cost of goods sold
36.0
35.8%
Store wages
23.7
23.6%
Store property costs
6.9
6.9%
Other direct expenses
8.5
8.5%
Total cost of sales
75.1
74.7%
Operating expenses*
17.6
17.5%
Depreciation, amortisation & impairment
25.6
25.5%
Total operating costs
43.2
43.0%
*excluding depreciation, amortisation and impairment
The overall ratio of cost of sales to revenue decreased to 71.3% (HY21: 74.7%). This decrease was driven by the following movements in sub-categories:
· Cost of goods sold ("COGS"): principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight costs, carriage costs and warehouse wages. Product COGS (card and complementary product) improved by 0.8 ppts at constant currency.
· Store wages: includes wages and salaries (including bonuses) for store-based staff, together with national insurance contributions, apprenticeship levy, pension contributions, and overtime, holiday and sick pay, and is shown net of Government support through the Coronavirus Job Retention Scheme ("CJRS")
· Store property costs: within cost of sales relate to business rates and service charges, and benefits from UK government's business rates relief of circa 5 months in HY22 and 4 months in HY21.
· 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 largely variable in respect of the number of stores. The ratio of other direct expenses to revenue decreased by 1.5 ppts as certain costs do not change in direct proportion with revenue impact from store closures, including premises insurance, electricity, maintenance, and rental of payment terminals.
· Operating expenses: includes items such as support centre remuneration, the cost of store estate Heads of Retail and Regional Managers, design studio costs and business insurance together with other central overheads and administration costs. Total operating expenses (excluding depreciation and amortisation) increased by 1.1% to £17.7m, representing a decrease from 17.5% to 15.2% as a percentage of Covid-19 impacted revenue.
· Depreciation and amortisation, including depreciation and impairment of right-of-use property lease assets, decreased by 7.8% to £23.6m (HY21: £25.6m).
Other Income
£8.0m of Government grants received in respect of non-essential retail closure periods has been presented as Other Income within the income statement.
EBITDA
HY22
HY21
Increase/ (Decrease)
EBITDA (£m)
23.6
7.8
202.6%
EBITDA margin (%)
20.2
7.8
12.4 ppts
The increase in EBITDA largely reflects the impact from Covid-19, and the different lengths of lockdowns in the periods.
National Living Wage cost increases, investment in IT support and increases in headcount and platform costs for Card Factory Online also all impacted EBITDA.
The business is likely to continue to face increasing National Living Wage costs amongst other cost pressures.
Net financing expense
Excluding interest charges pertaining to IFRS 16 Leases, net financing expense increased to £5.0m (HY21: £2.7m), due to the loan issue costs of the renewed financing facilities and accelerated amortisation of loan issue costs on the previous facility. Including IFRS 16 Leases interest charges, the net financing expense increased to £6.5m (HY21: £4.4m).
HY22
£'m
HY21
£'m
(Increase) /Decrease
Finance expense
Interest on loans
2.9
2.6
(11.5%)
Loan issue cost amortisation
2.1
0.1
(2000.0%)
IFRS 16 Leases interest
1.5
1.7
11.8%
Net finance expense
6.5
4.4
(47.7%)
Profit before tax
Loss before tax for the period amounted to £6.5m (HY21: Loss before tax £22.2m).
Tax
The tax credit of £1.3m for the period represents a tax rate (credit) of 19.2% of loss before tax (HY21: £4.5m tax credit, 20.2% tax rate (credit)).
Earnings per share
Basic and diluted losses per share for the period were (1.5p) (HY21: Losses per share 5.2p).
HY22
HY21
(Increase) /Decrease
Basic EPS
(1.5p)
(5.2p)
(70.7%)
Capital expenditure
Capital expenditure excluding IFRS 16 Leases right of use assets, amounted to £3.5m (HY21: £3.5m), principally in relation to new stores, supply chain investment and ERP implementation. Total asset additions, including right of use assets, amounted to £15.0m (HY21: £17.2m).
The Board continues to exercise tight control over capital expenditure in FY22 as part of cash controls in response to Covid-19, including postponing a large proportion of its new store roll out and relocation programme. However, the business still plans to invest in certain key strategic projects, including e-commerce platforms, boosting online fulfilment capacity, SAP implementation and various process improvement investments that benefit from relatively short pay back periods.
Foreign exchange
With approximately half of its annual cost of goods sold expense relating to products paid for in US dollars, the Group takes a prudent but flexible approach to hedging the risk of exchange rate fluctuations. The Board adopts the policy of using a combination of vanilla forwards and structured options to hedge this exposure. 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 permitted in some instances.
At the year end, we had P&L cost of sales hedging in place for both FY22 and FY23 with anticipated effective P&L rates of c.$1.33, although this remains subject to significant shifts in the value of sterling, which could impact the structured trades that form part of the hedging portfolio, and the impact of future trading conditions on hedged cash flows. Structured trades represent approximately one third of hedges that are yet to mature.
Cash generation
In the period, the Group remained cash generative, driven by favourable working capital movements and relatively low ongoing capital expenditure requirements.
Net Debt & Covenants
As at 31 July 2021, net debt (including debt issue costs of £2.4m) amounted to £238.9m, analysed as follows:
HY22
Net Debt
£'m
HY22
Leverage
Multiple
HY21
Net Debt
£'m
HY21
Leverage
Multiple
Borrowings
Current liabilities
0.2
1.5
Non-current liabilities
114.6
173.6
Total borrowings
114.8
175.1
Lease liabilities
142.4
146.2
Capitalised debt costs
2.4
1.4
Gross debt
259.6
322.7
Less cash
(20.7)
(32.6)
Net Debt
238.9
290.1
Leverage
10.0x
37.7x
Remove lease liabilities
(142.4)
(146.2)
Net Debt excl. lease liabilities
96.5
143.9
Leverage excl. lease liabilities
4.1x
18.4x
There was a reduction in deferrals in the period to £32.7m, comprising £7.25m VAT and £25.5m net property arrears on a legal obligation basis at 31 July 2021, (31 January 2021: £40.0m comprising £19.0m and £21.0m respectively).
The Group renewed its financing facilities with its banking partners, which now comprise a £75m Term Loan, £50m CLBILS facilities and a Revolving Credit Facility of £100m. Under revised covenant terms, the Group must achieve defined Net Debt and EBITDA targets, measured on a monthly basis until March 2022, following which the business will move to quarterly covenant tests of Interest Cover and Leverage (pre IFRS 16 Leases).
Until the business has no outstanding amounts under the Term Loan and CLBILS facilities, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. The facilities are structured to incentivise an early reduction of overall debt, with fees of up to £5m payable if pre-payments are not made in line with specified dates by 30 November 2021 through until 30 July 2022. The Company is permitted to facilitate these repayments through the issue of new equity or by using funding from subordinated debt sources. The Company continues to evaluate the options available to the Group and will update further as appropriate.
The facilities have an expiry date of 24 September 2023 (unchanged from the previous arrangement), with the RCF element being extendable by 1 year to 24 September 2024 if the Company achieves certain debt repayment milestones by 30 November 2021 or 30 July 2022.
Going Concern
The Group has modelled a number of severe but plausible downside scenarios involving further closures of its stores, including scenarios where government imposed lockdowns require a three-month closure during the winter period including where the Group's stores are closed for the whole of the peak trading month of December 2021.
On the basis of implementing a number of mitigating actions, the sensitised forecast cash-flows indicate that, even on the basis of full closure for the three months, the Group would continue to be able to operate within the terms of its facility and to settle its liabilities as they fall due for a period of at least 12 months from date of approval of these financial statements. Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient loan facility headroom and accordingly the accounts are prepared on a going concern basis.
For further details of the basis of preparation; see Note 2 to the interim financial statements, below.
Dividends and capital structure
Dividends
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-19 pandemic, the Board suspended dividend payments and no dividends were declared in HY22 (HY21: nil).
Currently, we do not expect to pay any dividends in relation to FY22. The terms of the Company's refinancing restrict the payment of dividends until the £75m Term Loan and £50m CLBILS facilities have been repaid.
Capital structure
The Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long-term returns to shareholders.
Given the inherent uncertainty around the recovery of the business following the extended lockdowns experienced to date, and the risk of any subsequent lockdowns that may be imposed in the future, the Board will consider various options to ensure the key stakeholders of the business are protected as much as possible in these uncertain times and will look to provide a further update on capital policy as trading conditions and the outlook become clearer.
Kris Lee
Chief Financial Officer
28 September 2021
Explanatory notes
1. 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 EBITDA for the previous 12 months.
"Like-for-like" or "LFL" is defined as follows:
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. Due to the impact of Covid-19, HY20 has been used as the comparative sales period for both HY22 and HY21 LFLs. Sales are compared only for the days when Card Factory stores were open for trade;
· Card Factory Online: made via the Card Factory website, 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;
· Getting Personal: made via the separately branded personalised card and gift website, www.gettingpersonal.co.uk;
Sales by Printcraft, the Group's printing division, to external third-party customers are excluded from any LFL sales measure.
"Net Debt" comprises total borrowings, overdrafts, lease liabilities reported under IFRS 16 Leases and the value of capitalised debt issues costs less cash.
2. Cautionary Statement
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.
Consolidated income statement
For the six months ended 31 July 2021
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31 January 2021
Note
£'m
£'m
£'m
Revenue
116.9
100.5
285.1
Cost of sales
(83.6)
(75.1)
(205.7)
Gross profit
33.3
25.4
79.4
Operating expenses
(41.3)
(43.2)
(86.9)
Other income
3
8.0
-
-
Operating loss
-
(17.8)
(7.5)
Finance income
6
-
-
-
Finance expense
6
(6.5)
(4.4)
(8.9)
Net finance expense
(6.5)
(4.4)
(8.9)
Loss before tax
(6.5)
(22.2)
(16.4)
Taxation
7
1.3
4.5
2.8
Loss for the period
(5.2)
(17.7)
(13.6)
Earnings per share
pence
pence
pence
- Basic
8
(1.5)
(5.2)
(4.0)
- Diluted
8
(1.5)
(5.2)
(4.0)
All activities relate to continuing operations.
Consolidated statement of comprehensive income
For the six months ended 31 July 2021
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31 January 2021
£'m
£'m
£'m
Loss for the period
(5.2)
(17.7)
(13.6)
Items that are or may be recycled subsequently into profit or loss:
Cash flow hedges - changes in fair value
1.2
(0.6)
(1.9)
Cost of hedging reserve - changes in fair value
(0.1)
0.2
(0.1)
Cost of hedging reserve - reclassified to profit or loss
-
-
-
Tax relating to components of other comprehensive income
(0.2)
0.1
0.4
Other comprehensive income/(expense) for the period, net of income tax
0.9
(0.3)
(1.6)
Total comprehensive expense for the period attributable to equity shareholders of the parent
(4.3)
(18.0)
(15.2)
Consolidated statement of financial position
As at 31 July 2021
Note
31 July 2021
31 July 2020
31 January 2021
£'m
£'m
£'m
Non-current assets
Intangible assets
10
321.3
319.5
320.3
Property, plant and equipment
11
34.0
39.1
36.8
Right of use assets
12
104.3
124.9
111.4
Deferred tax assets
4.9
2.6
5.3
Derivative financial instruments
14
-
0.5
-
464.5
486.6
473.8
Current assets
Inventories
39.7
57.6
36.4
Trade and other receivables
6.4
7.2
9.2
Tax receivable
2.1
4.4
0.5
Derivative financial instruments
14
-
0.8
0.1
Cash and cash equivalents
20.7
32.6
12.5
68.9
102.6
58.7
Total assets
533.4
589.2
532.5
Current liabilities
Borrowings
(0.2)
(1.5)
(0.2)
Lease liabilities
12
(38.7)
(41.1)
(39.4)
Trade and other payables
(69.7)
(61.5)
(57.4)
Derivative financial instruments
14
(2.9)
(1.2)
(2.8)
(111.5)
(105.3)
(99.8)
Non-current liabilities
Borrowings
(114.6)
(173.6)
(118.8)
Lease liabilities
12
(103.7)
(105.1)
(105.5)
Derivative financial instruments
14
(0.9)
(1.4)
(1.9)
(219.2)
(280.1)
(226.2)
Total liabilities
(330.7)
(385.4)
(326.0)
Net assets
202.7
203.8
206.5
Equity
Share capital
3.4
3.4
3.4
Share premium
202.2
202.2
202.2
Hedging reserve
(2.1)
(2.1)
(3.1)
Cost of hedging reserve
0.1
1.1
0.4
Reverse acquisition reserve
(0.5)
(0.5)
(0.5)
Merger reserve
2.7
2.7
2.7
Retained earnings
(3.1)
(3.0)
1.4
Equity attributable to equity holders of the parent
202.7
203.8
206.5
Consolidated statement of changes in equity
For the six months ended 31 July 2021
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 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 expense
-
-
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 inventory
-
-
-
(0.3)
-
-
-
(0.3)
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 (note 9)
-
-
-
-
-
-
-
-
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
Six months ended 31 July 2020
At 31 January 2020
3.4
202.2
(1.6)
1.1
(0.5)
2.7
14.2
221.5
Total comprehensive expense for the period
Profit or loss
-
-
-
-
-
-
(17.7)
(17.7)
Other comprehensive income
-
-
(0.5)
0.2
-
-
-
(0.3)
-
-
(0.5)
0.2
-
-
(17.7)
(18.0)
Hedging gains and losses and costs of hedging transferred to the cost of inventory
-
-
-
(0.3)
-
-
-
(0.3)
Deferred tax on transfers to inventory
-
-
-
0.1
-
-
-
0.1
Transactions with owners, recorded directly in equity
Share-based payment charges
-
-
-
-
-
-
0.5
0.5
Dividends (note 9)
-
-
-
-
-
-
-
-
Total contributions by and distributions to owners
-
-
-
-
-
-
0.5
0.5
At 31 July 2020
3.4
202.2
(2.1)
1.1
(0.5)
2.7
(3.0)
203.8
Year ended 31 January 2021
At 31 January 2020
3.4
202.2
(1.6)
1.1
(0.5)
2.7
14.2
221.5
Total comprehensive expense for the period
Profit or loss
-
-
-
-
-
-
(13.6)
(13.6)
Other comprehensive income
-
-
(1.5)
(0.1)
-
-
-
(1.6)
-
-
(1.5)
(0.1)
-
-
(13.6)
(15.2)
Hedging gains and losses and costs of hedging transferred to the cost of inventory
-
-
-
(0.7)
-
-
-
(0.7)
Deferred tax on transfers to inventory
-
-
-
0.1
-
-
-
0.1
Transactions with owners, recorded directly in equity
Share-based payment charges
-
-
-
-
-
-
0.8
0.8
Dividends (note 9)
-
-
-
-
-
-
-
-
Total contributions by and distributions to owners
-
-
-
-
-
-
0.8
0.8
At 31 January 2021
3.4
202.2
(3.1)
0.4
(0.5)
2.7
1.4
206.5
Consolidated cash flow statement
For the six months ended 31 July 2021
Note
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31
January 2021
£'m
£'m
£'m
Cash inflow from operating activities
15
36.1
25.2
79.9
Corporation tax paid
-
(6.2)
(6.3)
Net cash inflow from operating activities
36.1
19.0
73.6
Cash flows from investing activities
Purchase of property, plant and equipment
11
(1.3)
(2.6)
(4.9)
Purchase of intangible assets
10
(2.2)
(0.9)
(2.6)
Proceeds from disposal of fixed assets
-
0.5
0.5
Net cash outflow from investing activities
(3.5)
(3.0)
(7.0)
Cash flows from financing activities
Proceeds from bank borrowings
41.7
29.5
-
Interest paid
(4.4)
(2.9)
(8.4)
Repayment of bank borrowings
(48.0)
-
(25.6)
Payment of lease liabilities
(13.7)
(12.0)
(22.1)
Net cash outflow from financing activities
(24.4)
14.6
(56.1)
Net increase in cash and cash equivalents
8.2
30.6
10.5
Cash and cash equivalents at the beginning of the period
12.5
2.0
2.0
Closing cash and cash equivalents
20.7
32.6
12.5
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.
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 2021 ('HY22') comprise the Company and its subsidiaries (together referred to as the 'Group'). The interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules of the UK's Financial Conduct Authority. The interim report was approved by the Board of Directors on 27September 2021.
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 2021 ('Annual Report') which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The comparative figures for the financial year ended 31 January 2021 are an extract from the Annual Report and are not the Group's statutory accounts for that financial year within the meaning of section 435 of the Companies Act 2006. In the Annual Report the Group presented non-underlying items separately on the face of the consolidated income statement. The presentation of the income statement has been changed such that non-underlying items are no longer presented separately. 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 2021 were approved by the Board of Directors on 10 June 2021 and delivered to the Registrar of Companies. The auditor's review report for the six month period ended 31 July 2021 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 2021.
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 the going concern basis of accounting remains appropriate. The outbreak of the Covid-19 pandemic and the measures adopted by governments in our key markets to mitigate its spread have impacted the Group. These measures required the Group to close its retail outlets from the start of the year until the 12 April 2021 when stores in England and Wales were able to recommence trading, with later re-opening dates for the other devolved UK administrations and the Republic of Ireland. This has negatively impacted the Group's financial performance and its liquidity position.
The Group renewed its financing facilities with its banking partners in May 2021 (see Note 13 for further detail), through which it had access to £225m of credit. This has reduced subsequently to £217m of credit with the repayment of £8m in July 2021. As at 31 July 2021, the Group's net debt excluding lease liabilities was £96.5m.
The Group has prepared cashflow forecasts for the 12 months following the date of approval of these interim financial statements which incorporate the new debt facility and related covenant measures. These forecasts are based on the approved budget and business plan and include the Board's assumptions on trading performance, including the extent and speed of the recovery of store sales following reopening, and the timing of cashflows including amounts where payment was deferred due to Covid-19. The Board's trading assumptions are cautious compared to the Group's actual experience since stores reopened and model a gradual recovery to pre-COVID levels. These forecasts indicate that the Group would have significant headroom within its agreed financing arrangements and would 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.
There is still uncertainty over how the future development of the pandemic will impact the Group's business and customer demand for its products. The Group has therefore modelled a number of severe but plausible downside scenarios involving further closures of its stores, including scenarios where government imposed lockdowns require a three-month closure during the winter period including where the Group's stores are closed for the whole of the peak trading month of December 2021.
In preparing the reasonable worst-case scenario, the Group has reflected the following sensitivities in preparing the reasonable worst-case scenario:
(i) the only restriction on the Group's ability to trade will be full closure of the Group's store estate in the UK and Republic of Ireland between 1 December 2021 and 28 February 2022;
(ii) full re-opening of all stores on 1 March 2022, with a temporary uplift in sales, as seen on the reopening of stores following all three prior lockdowns;
(iii) an increase in the Group's retail partnership and online sales for the period of full closure of the Group's store estate, as seen in all three prior lockdowns, with such sales returning back immediately to normalised levels on 1 March 2022;
(iv) the UK CJRS and business rate support schemes and the equivalent schemes in the Republic of Ireland being available to cover the full period of closure, on the same terms as during previous periods of lockdown.
(v) that there is no further wave of pandemic infection, involving new strains or otherwise, that lead to forced closure or the imposition of material restrictions on the ability of the Company to trade; and
(vi) further to the re-opening of all stores on 1 March 2022, operating margins are expected to remain consistent with pre COVID-19 levels
With this worse-case scenario the Board would be required to take mitigating actions to reduce costs, optimise the Group's cash flow and preserve liquidity, including making savings on variable costs that are associated with opening its stores, including the costs incurred paying seasonal workers, annual bonuses, electricity costs and bank charges on transactions in stores;.
On the basis of these mitigating actions the sensitised forecast cash-flows indicate that, even on the basis of full closure for the three month period, the Group would continue to be able to operate within the terms of its facility and to settle its liabilities as they fall due for a period of at least 12 months from date of approval of these financial statements. Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient loan facility headroom and accordingly the accounts are prepared on a going concern basis.
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 2021.
Amended standards and interpretations effective in the year do not have a material effect on the Group's financial statements
£8.0m of Government grants received in respect of non-essential retail closure periods has been presented as Other Income within the income statement.
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 our 3rd party retail partners. Card Factory revenue for the six months to 31 July 2021 was £110.7m (six months to 31 July 2020: £92.6m). Getting Personal is an online retailer of personalised cards and gifts. Getting Personal revenue for the six months to 31 July 2021 was £6.2m (six months to 31 July 2020: £7.9m)
Group revenue is almost entirely derived from retail customers. Average transaction value is low and product 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 £2.7m in the period. Revenue from outside the UK is circa £1.3m of Group Revenue.
5 EBITDA
Earnings before interest, tax, depreciation and amortisation ("EBITDA") represents profit for the period before net finance expense, taxation, depreciation, amortisation and impairment of assets.
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31 January 2021
£'m
£'m
£'m
Operating loss
-
(17.8)
(7.5)
Depreciation, amortisation and impairment
23.6
25.6
53.3
EBITDA
23.6
7.8
45.8
6 Finance expense
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31
January 2021
£'m
£'m
£'m
Finance expense
Interest on bank loans and overdrafts
2.9
2.6
5.1
Amortisation of debt issue costs
2.1
0.1
0.4
Lease interest
1.5
1.7
3.4
6.5
4.4
8.9
Amortisation of debt issue costs in the period include £1.1 million in relation to previous loan facilities, expensed to the income statement on completion of a renewed financing facility.
7 Taxation
The tax charge on profit before tax for the interim period has been calculated on the basis of the estimated effective tax rate on profit before tax for the full year to 31 January 2022 of 19.2% (six months ended 31 July 2020 20.2%, year ended 31 January 2021 17.1%).
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 2021
Six months ended
31 July 2020
Year ended 31
January 2021
(Number)
(Number)
(Number)
Weighted average number of shares in issue
341,654,476
341,626,396
341,626,396
Weighted average number of dilutive share options
2,194,059
-
128,446
Weighted average number of shares for diluted earnings per share
343,848,535
341,626,396
341,754,842
£'m
£'m
£'m
Profit for the financial period
(5.2)
(17.7)
(13.6)
pence
pence
pence
Basic earnings per share
(1.5)
(5.2)
(4.0)
Diluted earnings per share
(1.5)
(5.2)
(4.0)
9 Dividends
The Directors have not declared an interim dividend for the period ended 31 July 2021. There were no dividends paid in the previous financial year ended 31 January 2021.
10 Intangible assets
Goodwill
Software
Total
£'m
£'m
£'m
Cost
At 1 February 2021
328.2
13.7
341.9
Additions
-
2.2
2.2
At 31 July 2021
328.2
15.9
344.1
Amortisation and impairment
At 1 February 2021
14.4
7.2
21.6
Amortisation in the period
-
1.2
1.2
At 31 July 2021
14.4
8.4
22.8
Net book value
At 31 July 2021
313.8
7.5
321.3
At 31 January 2021
313.8
6.5
320.3
11 Property, plant and equipment
Freehold property
Leasehold improvements
Plant, equipment, fixtures & vehicles
Total
£'m
£'m
£'m
£'m
Cost
At 1 February 2021
17.8
40.2
67.6
125.6
Additions
-
0.4
0.9
1.3
Disposals
-
(0.1)
0.0
(0.1)
At 31 July 2021
17.8
40.5
68.4
126.8
Depreciation and impairment
At 1 February 2021
3.9
34.8
50.1
88.8
Depreciation in the period
0.2
1.3
2.6
4.1
Depreciation on disposals
-
(0.1)
0.0
(0.1)
At 31 July 2021
4.1
36.0
52.7
92.8
Net book value
At 31 July 2021
13.7
4.5
15.8
34.0
At 31 January 2021
14.0
5.3
17.5
36.8
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 2021
316.3
1.6
317.9
Additions
11.5
-
11.5
Disposals
(23.5)
(0.1)
(23.6)
At 31 July 2021
304.3
1.5
305.8
Depreciation and impairment
At 1 February 2021
205.7
0.8
206.5
Depreciation in the period
18.1
0.2
18.3
Depreciation on disposals
(22.6)
-
(22.6)
Impairment on disposals
(0.7)
-
(0.7)
At 31 July 2021
200.5
1.0
201.5
Net book value
At 31 July 2021
103.8
0.5
104.3
At 31 January 2021
110.6
0.8
111.4
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 2021
Six months ended 31 July 2020
Year ended 31 January 2021
£'m
£'m
£'m
Current lease liabilities
(38.7)
(41.1)
(39.4)
Non-current lease liabilities
(103.7)
(105.1)
(105.5)
Total lease liabilities
(142.4)
(146.2)
(144.9)
Rent concessions agreed in the prior year in response to Covid-19 were principally in respect of the timing of payments and did not significantly impact the total consideration payable in respect of leases. Rent concessions agreed in the current year include a combination of timing and total consideration impacts. In accordance with the amendment to IFRS16 in respect of Covid-19 concessions, lease liabilities have not been re-measured in respect of Covid-19 concessions except to the extent the rent concession was agreed as part of a lease renewal or extension.
Lease expense
Six months ended 31 July 2021
Six months ended 31 July 2020
Year ended 31 January 2021
£'m
£'m
£'m
Depreciation expense on right of use assets
18.3
19.9
39.9
Impairment of right of use assets
-
0.2
2.6
Profit on disposal of right of use assets
-
(0.2)
(0.3)
Lease interest
1.5
1.7
3.4
Expense relating to short term and low value leases
0.2
0.2
0.6
Expense relating to variable lease payments
0.1
-
-
Total lease related income statement expense
20.1
21.8
46.2
13 Analysis of net debt
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)
Six months ended 31 July 2020
At 1 February 2020
Cash flow
Non-cash changes
At 31 July 2020
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest
(144.1)
(29.5)
(1.5)
(175.1)
Lease liabilities
(145.9)
12.0
(12.3)
(146.2)
Total debt
(290.0)
(17.5)
(13.8)
(321.3)
Debt costs capitalised
(1.0)
(0.5)
0.1
(1.4)
Cash and cash equivalents
2.0
30.6
-
32.6
Net debt
(289.0)
12.6
(13.7)
(290.1)
Lease liabilities
145.9
(12.0)
12.3
146.2
Net debt excluding lease liabilities
(143.1)
0.6
(1.4)
(143.9)
Year ended 31 January 2021
At 1 February 2020
Cash flow
Non-cash changes
At 31 January 2021
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest
(144.1)
25.6
(0.5)
(119.0)
Lease liabilities
(145.9)
22.1
(21.1)
(144.9)
Total debt
(290.0)
47.7
(21.6)
(263.9)
Debt costs capitalised
(1.0)
(0.6)
0.4
(1.2)
Cash and cash equivalents
2.0
10.5
-
12.5
Net debt
(289.0)
57.6
(21.2)
(252.6)
Lease liabilities
145.9
(22.1)
21.1
144.9
Net debt excluding lease liabilities
(143.1)
35.5
(0.1)
(107.7)
Following multiple periods of prolonged non-essential retail closures, the Group renewed its financing facilities with its banking partners on 21 May 2021, to comprise a £75m Term Loan, £50m CLBILS facilities and a Revolving Credit Facility of £100m. Under revised covenant terms, the Group must achieve defined Net Debt and EBITDA targets, measured on a monthly basis until March 2022, following which the business will move to quarterly covenant tests of Interest Cover and Leverage. Covenant thresholds are phased to return to 2.5x leverage and 2x interest cover by January 2023. The facilities have an expiry date of 24 September 2023 (unchanged from the previous arrangement), with the RCF element being extendable by 1 year to 24 September 2024 if the Company achieves certain debt repayment milestones by 30 November 2021.
Until the business has no outstanding amounts under the term loan and CLBILS facilities, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. The facilities are structured to incentivise an early reduction of overall debt, with fees of up to £5m payable if pre-payments are not made in line with specified dates by 30 November 2021 through until 30 July 2022. The Company is permitted to facilitate these repayments through the issue of new equity or by using funding from subordinated debt sources. The Company continues to evaluate the options available to the Group and will update further as appropriate.
In accordance with the terms of the agreement, the Group has made repayments of £4.8m against the £75m Term Loan and £3.2m against the CLBILS in recognition of £8.0m Government grants received in respect of non-essential retail closure periods.
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 2021
31 July 2020
31 January 2021
£'m
£'m
£'m
Derivative assets
Non-current
Foreign exchange contracts
-
0.5
-
-
0.5
-
Current
Foreign exchange contracts
-
0.8
0.1
Derivative liabilities
Current
Interest rate contracts
(0.5)
(0.9)
(0.7)
Foreign exchange contracts
(2.4)
(0.3)
(2.1)
(2.9)
(1.2)
(2.8)
Non-current
Interest rate contracts
(0.1)
(1.0)
(0.6)
Foreign exchange contracts
(0.8)
(0.4)
(1.3)
(0.9)
(1.4)
(1.9)
Net derivative financial instruments
Interest rate contracts
(0.6)
(1.9)
(1.3)
Foreign exchange contracts
(3.2)
0.6
(3.3)
(3.8)
(1.3)
(4.6)
15 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
31 July 2021
31 July 2020
31 January 2021
£'m
£'m
£'m
Profit before tax
(6.5)
(22.2)
(16.4)
Net finance expense
6.5
4.4
8.9
Operating profit
0.0
(17.8)
(7.5)
Adjusted for:
Depreciation and amortisation
23.6
25.4
50.7
Impairment of right of use assets
-
0.2
2.6
Loss/(profit) on disposal of fixed assets
-
0.1
0.0
Cash flow hedging foreign currency movements
(0.3)
-
(0.1)
Share-based payments charge
0.7
0.5
0.8
Operating cash flows before changes in working capital
24.0
8.4
46.5
Decrease/(increase) in receivables
3.0
3.8
2.2
(Increase)/decrease in inventories
(3.3)
(3.2)
18.0
Increase/(decrease) in payables
12.4
16.2
13.2
Cash inflow from operating activities
36.1
25.2
79.9
16 Principal risks and uncertainties
With the exception of the recent increases in labour, energy and supply chain risks, 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 40 to 42 of the Group's Annual Report for the year ended 31 January 2021) and are set out below for each category of risk, from highest risk to lowest.
Financial Risks:
- Impact of Coronavirus
- Geopolitical Instability
- Finance & Treasury
Operational Risks:
- ERP Implementation
- IT Infrastructure and risk of IT/security disruption
- HR Compliance
- Loss of Key Personnel & Organisational Culture
- Supplier CSR breach
- Business Continuity
Strategic Risks:
- ESG Compliance and climate change risks
- Adapting to customer preferences
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 for use in 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
28 September 2021
Independent review report to Card Factory plc
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 2021 which comprises the condensed 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 31st July 2021 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").
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 latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and the next annual financial statements will be 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.
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.
Nick Plumb (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
1 Sovereign Square
Sovereign Street
Leeds
LS1 4DW
28 September 2021
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