REG - Card Factory PLC - Interim Results to 31 July 2023
26/09/2023 07:00
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RNS Number : 5986N Card Factory PLC 26 September 2023
26 September 2023
Card Factory plc ("cardfactory" or the "Group")
Interim results for the six months ended 31 July 2023
Strong performance through HY24, driven by Stores and strategic progress.
cardfactory, the UK's leading specialist retailer of greeting cards, gifts and
celebration essentials, announces its interim results for the six months ended
31 July 2023 ('HY24').
Business highlights
· Group revenue of £220.8 million in HY24, up by 11.5% compared to
HY23, reflecting continued good momentum across the business, particularly in
the core Stores business.
o Revenue growth during the period was driven by cardfactory LFL(1) sales
growth of +10.0%.
o Store revenue saw strong growth at +10.5% LFL in HY24 reflecting the
resonance of our value and quality proposition; store range and layout
developments and the annualisation of targeted price increases.
o Strong growth in gifts and celebration essentials of +13.1% LFL was a key
driver of revenue growth in HY24 and builds on the continued greeting cards
revenue growth +7.7% LFL in HY24.
o As anticipated, cardfactory Online LFL sales were down 13.1% vs. HY23,
reflecting investment phase of this channel and the continued rebalancing of
retail sales between online and in Store across the sector.
o Positive progress in Partnerships with total revenue of £6.4 million,
including 23.5% increase from existing Partnerships to £4.2 million plus
£2.2 million from SA Greetings. New agreements signed with Matalan in the UK
and Liwa Trading Enterprises in the Middle East.
· Strong PBT growth of £10.4 million, up to £24.7 million
reflecting the strong trading performance growth in HY24. Adjusted PBT of
£22.1 million, an increase of £11.3 million compared to HY23, excluding
one-off gains in both periods.
· Strengthened balance sheet with a reduction in net debt
(excluding lease liabilities) to £71.9 million (HY23: £96.6 million) as a
result of operating cash generation and normalisation of working capital.
Financial summary2
Financial Metrics HY24 HY23 Change
Revenue £220.8m £198.0m 11.5%
EBITDA £51.1m £43.8m 16.7%
Profit Before Tax (PBT) £24.7m £14.3m 72.7%
Adjusted PBT3 £22.1m £10.8m 104.6%
Net Debt (exc. Leases) £71.9m £96.6m (25.6%)
Leverage (exc. Leases) 0.6x 0.9x (0.3x)
Cash from Operations £36.3m £19.7m 84.3%
Basic EPS 5.6 pence 3.4 pence 64.7%
Adjusted EPS(4) 5.0 pence 2.5 pence 100.0%
(1) For further information and definitions of Like-for-like (LFL) and other
alternative performance measures see Explanatory Notes (below) "Alternative
Performance Measures ("APMs").
(2) Figures include provisional post-acquisition trading results in respect of
SA Greetings
3 Adjusted PBT excludes impact of one-off items of £2.6 million gain on
purchase of SA Greetings in HY24 (HY23: £3.5 million of gains following
release of provision for CJRS settlement and refinancing).
(4) Adjusted EPS based on Adjusted PBT less tax at the effective tax rate for
the period.
Highlights of our strategic progress
· Channels
o Commenced rollout of Store Evolution Programme with positive initial
results.
o Completed the UK rollout of Click & Collect with early indications
this is contributing to in-Store revenue growth.
o 11 net new Stores opened in HY24 across the UK and the Republic of
Ireland.
o New customer service excellence programme introduced for all store
colleagues.
o New long-term master franchise agreement signed with Middle East-based
partner, Liwa and first four Stores opened in Abu Dhabi and Dubai since the
end of the period.
o New long-term partnership agreed with Matalan in the UK.
o Completed the acquisition of South African-based SA Greetings, supporting
our partnership strategy in the region.
· Categories
o Ongoing insight-led innovation and range development driving greeting card
revenue growth.
o Strong performance in gifts and celebration essentials reflecting the
introduction of new ranges, as well as expansion and refreshes of existing
ranges.
· ESG
o Completed a greenhouse gas emissions assessment across the business and
value chain, which has provided a clear picture of scope 1, 2 and 3 emissions.
o Updated sustainability strategy to support the mitigation of ESG-related
risks and identification of new opportunities across five focus areas:
Climate; Waste and Circularity; Protecting Nature; People and Equity; and
Governance.
Outlook:
· Strength of performance in the first half, together with our
current outlook for the second half, the Board is confident in delivering a
good outturn for the year.
· Trading since the August 2023 update has been in line with
Board's expectations.
· Given the combination of good trading momentum across the
business and the successful delivery against our strategic initiatives, we
remain confident in the long-term financial and operational targets set out at
our Capital Markets Strategy Update in May 2023.
Darcy Willson-Rymer, Chief Executive Officer, commented:
"We are delighted to announce a strong performance in the first six months of
this year."
"We continue to build the key foundations for growth through the delivery of
our 'Opening Our New Future' strategy. Our value and quality proposition and
the strength of our store estate resonates with customers and positions us
well to navigate the challenging economic backdrop in the run up to the
Christmas trading season. Continued leveraging of the insights gathered from
our investment in customer data is enabling us to evolve and optimise our
store formats and ranges across cards, gifts and celebration essentials, all
underpinned by our discipline in maintaining a resilient financial position."
"I would like to thank colleagues across the cardfactory business for their
ongoing dedication in delivering on our strategic building blocks of growth.
We continue to focus on the delivery of our long-term targets and in achieving
our ambition of becoming a market leading omnichannel retailer of cards and
gifts."
Interim results webcast
There will be a meeting for analysts and investors at 10 am on the morning of
the announcement in central London. We will also provide a live video webcast
of the presentation, available by registering via the following link:
https://storm-virtual-uk.zoom.us/webinar/register/WN_DBSqx1sWSDyTYfe2K8ObOQ
(https://storm-virtual-uk.zoom.us/webinar/register/WN_DBSqx1sWSDyTYfe2K8ObOQ)
Those analysts who wish to join in person are requested to contact Teneo on
the number provided below or by emailing cardfactory@teneo.com
(mailto:cardfactory@teneo.com) to receive full attendance details.
A copy of the webcast and accompanying presentation will be made available via
the cardfactory investor relations website: www.cardfactoryinvestors.com
(http://www.cardfactoryinvestors.com) .
Enquiries
Card Factory
plc
via Teneo (below)
Darcy Willson-Rymer, Chief Executive Officer
Matthias Seeger, Chief Financial Officer
Teneo
+44 (0) 207
353 4200
James Macey White / Jo Blackshaw
cardfactory@teneo.com
(mailto:cardfactory@teneo.com)
BUSINESS UPDATE
Performance in the period
A strong performance in the first half of the year was driven by the good
momentum across cardfactory, particularly in our core Stores business and
progress across our strategic building blocks of growth.
Our Store revenue, which represents 94% of total group revenue, grew strongly
at +10.5% LFL in HY24. This reflects developments to the breadth and depth of
store ranges, as well as improvements to merchandising layouts and the
annualisation of targeted price increases. In addition, both transactions and
average basket values increased compared to the same period last year. Our
strong value-for-money offer across both Everyday and Seasonal ranges has
continued to resonate with customers, with our offer across our Spring seasons
in particular landing well with customers through HY24. Highlights included
Valentine's Day +13.5% LFL and Fathers' Day +8.4% LFL.
The growing importance of gifts and celebration essentials has been a key
driver of growth in the first half of the year, with LFL revenue growth of
13.1%. This has been the result of focused range development and the
broadening of categories with the introduction of new ranges in stationery and
toys and the expansion of branded confectionery ranges. The growth in gifts
and celebration essentials builds on our continued strength in greetings
cards, where we have seen revenue growth of +7.7% in HY24 reflecting ongoing
insight-led innovation and range development. Our continued leadership in card
is reflected in the growth we have seen across a number of Everyday and
seasonal card ranges, including our Everyday male card range which saw +11.2%
LFL growth in the period, following a successful range change at the end of
February 2023 and an updated licensed offer. We have utilised customer data
and insight to inform our card pricing strategy to ensure the right balance of
targeted price increases whilst maintaining our long-standing value-for-money
credentials, through a combination of low entry price points and rotating
promotional offers.
As anticipated, cardfactory Online LFL sales were down -13.1% YOY in HY24 vs.
HY23, due to the investment phase of this channel and the continued
rebalancing of online/offline retail sales across the sector. Whilst we expect
Online performance to continue this trend through the second half of the year,
we will continue to invest in our digital offer and experience as part of our
omnichannel ambition.
Partnerships also continued to perform well in HY24 with total revenue of
£6.4 million. Excluding the contribution from newly-acquired SA Greetings,
Partnerships sales were up by +23.5% to £4.2m compared to HY23. In April 2023
we completed the acquisition of South Africa-based SA Greetings, supporting
our partnership strategy in the region by providing access to key wholesale
accounts through the Group's printing, merchandising and warehousing capacity.
Strategy update
Progress continues at pace on the delivery of our 'Opening Our New Future'
growth strategy which is transitioning cardfactory into an omnichannel
retailer of cards, gifts and celebration essentials in the UK and
internationally. Several significant strategy milestones were achieved in HY24
in line with the expectations we set out at our Capital Markets Strategy
Update in May 2023.
Stores
· Successfully commenced rollout of our Store Evolution Programme,
which is on track to achieve our targets. This consists of three components:
capex light space realignment completed in over 700 stores with the programme
due to be completed in 750 stores by the end of October 2023; display
reorganisation is progressing well with 24 stores now complete, with a further
five stores due to complete by Christmas 2023; and updated store design being
applied to new Stores and a select number of existing Stores in line with
current refit costs. Early results are showing increased customer satisfaction
and a positive revenue impact with the reduction in space allocated to cards
not adversely impacting category sales, while revenue growth resulted from
increased space seen in celebration essentials and gifting.
· Introduced a new customer service excellence programme for all
store colleagues, which focuses on enhanced customer interaction to enable
tailored service and product recommendations and upsell.
· Continued development of our store portfolio, with 1,043 Stores
across the UK and Republic of Ireland at the end of the half-year period. We
opened 11 net new Stores in HY24.
Leadership in card
· Ongoing insight-led innovation and range development continues to
deliver greetings card revenue growth of +7.7% LFL in the half-year.
· Updated approach to generating newness for customers through
increased refreshes of best-selling lines.
Gifts and celebration essentials
· Strong LFL growth in gifts and celebration essentials of +13.1%
reflects strategic developments and new ranges introduced in the first half of
the year.
· New ranges introduced in HY24 including stationery which saw
growth of +68.5% LFL following the range refresh and soft toys achieving
growth of +34.5% LFL including the introduction of Blue Nose Friends and Tatty
Teddy ranges.
· Strong performance also seen in confectionery which delivered a
+9.0% LFL growth from the expansion of our branded offering to include
Lindor, Haribo, Cadburys and Guylian.
Omnichannel and Online
· Nationwide UK rollout of Click & Collect, our first
omnichannel proposition, completed on 23rd April 2023.
· We are encouraged to see early indications that our omnichannel
proposition is contributing to Store revenue growth, with 9% of Click &
Collect customers making additional purchases when collecting their orders
in-store. Basket spend of these customers is typically 25% higher than our
average in-store basket spend.
· Investment in our Online platforms continues focused on
developing our online capability, platform performance and customer
experience.
· Work underway to clarify cardfactory online proposition and
marketing strategy.
Partnerships
· New long-term master franchise agreement signed with Middle East
based Liwa Trading Enterprises in April 2023. First four franchise Stores
opened in August and September 2023 in Abu Dhabi and Dubai with plans to open
around 36 Stores in total over the next five years.
· Agreed new long-term partnership with Matalan which will see
cardfactory cards and celebration essentials available across their entire UK
estate of 223 stores. Recently completed the first phase of the rollout to 22
Stores with the second phase now underway and due to complete by the end of
2023.
· Continue to progress conversations with other prospective
partners across our seven markets of interest.
· Completed the acquisition of South African-based SA Greetings in
April 2023. As well as an established retail estate of 28 Stores, this
supports our partnership strategy in the region by providing access to key
wholesale accounts through the Group's printing, merchandising and warehousing
capacity.
ESG progress
Since our last update in May, we have continued to make good progress on our
sustainability commitments and remain on-track to remove single-use plastic
from 90% of products sold and ensure all new gift wrap sold is 100% recyclable
by the end of FY25. We have also continued to reduce carbon emissions from our
operations and deliver on our plans to ensure we are a diverse, equitable and
inclusive employer and support our local communities.
As we continue the successful delivery of our 'Opening Our New Future' growth
strategy, we are evolving our approach to sustainability, expanding our scope
and working to embed this throughout our business. As a first step in this
process, in HY24 we have developed the first stage of an ambitious new
five-year ESG strategy: 'Delivering a Sustainable Future'. This strategy will
be our most comprehensive yet, with focus areas and commitments that mitigate
risk, address key material impacts, and provide differentiation and commercial
opportunity. This strategy will be delivered through a detailed action plan
which we are set to complete by the end of FY24 with clear metrics to deliver
on the commitments set over the next five years. We will provide an update on
the action plan in our Annual Report in May 2024.
Notable updates since the FY23 preliminary results in May 2023 include:
· Scope 1, 2 and 3 emissions assessment complete, with net-zero
goals to published in our Annual Report in May 2024.
· Materiality Assessment refresh completed to update and prioritise
material ESG impacts and risks, informing ESG focus and strategy.
· New, evidence based five-year 'Delivering a Sustainable Future'
ESG strategy published, focusing on five key areas: Climate; Waste and
Circularity; Protecting Nature; People and Equity; Governance.
Preparations for Christmas
We are well prepared for our key Christmas trading season. Our Christmas
programme has now launched and includes our first fully integrated marketing
campaign. New products include an expanded gift offer to provide customers
with new and exciting ranges in areas such as toys, food and confectionery,
and own label. As part of the space realignment project, we have continued to
optimise space to ensure the correct balance between Christmas card, Christmas
gifting and Christmas celebration essentials.
From a supply perspective, all stock has been manufactured in line with the
required delivery dates and there have been no issues with inbound logistics
for any stock manufactured overseas. Recruitment of seasonal colleagues for
the Christmas season has commenced and we are confident in our ability to not
only meet staffing requirements for this seasonal peak but to also provide
customers with an enhanced experience.
Current trading and outlook
Whilst we remain mindful of the challenging economic backdrop and the impact
of the cost-of-living crisis on discretionary spend, we continue to be
encouraged by the resilience of the celebration occasions market and the
growth opportunity it presents. Our experience in the first half of the year
confirms that our value and quality proposition across our card, gift and
celebration essential ranges continues to resonate well with customers.
Based on our performance in the first half and our outlook for the second
half, the Board is confident in delivering a good outturn for the year.
Trading since the August 2023 update has been in line with Board's
expectations.
Given the combination of good trading momentum across the business and the
successful delivery against our strategic initiatives, we remain confident in
the long-term financial and operational targets set out at our Capital Markets
Strategy Update in May 2023.
Group Financial Review
Financial Highlights
Against a continuing backdrop of challenging economic conditions for both
business and consumers, cardfactory has continued to demonstrate momentum in
sales and a strong financial performance in the six months ended 31 July 2023
(HY24).
The highlights of the period are as follows:
· Strong sales growth in Stores, with LFL sales of +10.5% (HY23:
+6.1%), of which one-third was driven by targeted price activity in prior
year, plus transaction gains and range development.
· Improved margins, with EBITDA for the six months of £51.1
million, £7.3 million ahead of the same period last year.
· Profit Before Tax of £24.7 million (HY23: £14.3 million).
Adjusted PBT of £22.1 million (HY23: £10.8 million) excludes one-off gain on
acquisition and represents a margin of 10.0%.
· Positive operating cash flows and reduction in net debt to £71.9
million, which has reduced by £24.7 million compared to the same time last
year.
· Investing to deliver our strategy with capital expenditure of
£15.3 million (HY23: £5.6 million).
· Acquisition of SA Greetings for fixed cash consideration of £2.5
million.
HY24 HY23 Change Change %
Revenue £220.8m £198.0m £22.8m 11.5%
EBITDA £51.1m £43.8m £7.3m 16.7%
EBITDA margin 23.1% 22.1% 1.0% 1 ppts
Profit Before Tax (PBT) £24.7m £14.3m £10.4m 72.7%
Adjusted PBT (1) £22.1m £10.8m £11.3m 104.6%
Adjusted PBT margin 10.0% 5.4% 4.6% 4.6 ppts
Basic earnings per share 5.6 pence 3.4 pence 2.2 pence 64.7%
Net debt (exc. Leases) £71.9m £96.6m (£24.7m) (25.6%)
Cash from Operations £36.3m £19.7m £16.6m 84.3%
Leverage 0.6x 0.9x (0.3x) (33.3%)
(1) Adjusted PBT excludes impact of one-off items of £2.6 million gain on
purchase of SA Greetings in HY24 (HY23: £3.5 million of gains following
release of provision for CJRS settlement and refinancing)
Financial Performance
Sales
Total Sales
HY24 HY23 Change
£m £m %
cardfactory Stores 208.6 186.6 11.7%
cardfactory Online 3.4 4.0 (15.0%)
Getting Personal 2.4 4.0 (40.0%)
Partnerships 6.4 3.4 88.2%
Group 220.8 198.0 11.5%
LFL Sales
HY24 HY23 Change %
cardfactory Stores +10.5% +6.1% +4.5 ppts
cardfactory Online -13.1% -30.2% +17.1 ppts
cardfactory LFL +10.0% +4.1% +5.9 ppts
Getting Personal -36.6% -36.7% +0.1 ppts
Total Group sales for HY24 were £220.8 million, an increase of £22.8 million
compared to the same period last year.
Our Stores remain the core of our business and the source of a significant
majority of our revenues. Like-for-like (LFL) sales in Stores were +10.5%
compared to last year, including the annualised impact of targeted pricing
actions taken in the second half of the prior financial year. Excluding this
price impact, LFL sales were underpinned by growth in transaction numbers and
our range development, particularly in gifts and celebration essentials.
Combined sales performance for our Spring seasons (Valentines, Father's Day,
Mother's Day) demonstrated positive LFL performance. This was supported by a
robust performance of our Everyday ranges, where we continue to focus on our
value-for-money offer.
Optimisation of the Store portfolio continues to be an important source of
sales growth. During HY24 we opened 18 new Stores and closed seven Stores,
including one relocation. This resulted in a net increase in the overall store
portfolio of 11 Stores. At 31 July 2023, our Store portfolio stood at 1,043
Stores, including 27 Stores in the Republic of Ireland and three central
London Stores.
As outlined at our Capital Markets Strategy Update in May 2023, our Online
businesses are in an investment phase as we build the technology
infrastructure to support future growth. We also continue to see a rebalancing
of online and offline sales as customers continued to return to the high
street. In this context, revenues for cardfactory.co.uk and
gettingpersonal.co.uk were both reduced compared to the same period last year
at £3.4 million (HY23: £4.0 million) and £2.4 million (HY23: £4.0 million)
respectively. We expect this trend in sales to continue through the remainder
of the current financial year, as we focus on our digital offer and experience
as part of our omnichannel ambitions.
We have driven good momentum in Partnerships, with the opening of the first
Middle East franchise store through our partner Liwa Trading Enterprises and
commencement of a full rollout to Matalan stores in the UK. Whilst these
activities are yet to make a significant financial contribution at the half
year, they represent important strategic milestones in our plan to grow
Partnerships sales. Our existing Partnerships performed well, with sales from
Partnerships increasing 23.5% when compared to HY23 to £4.2 million.
In addition, on 25 April 2023 we completed the acquisition of SA Greetings,
providing the Group with access to the South African card and gifting market.
SA Greetings is performing in line with our expectations and contributed £2.2
million of sales in the period between acquisition and the half year. We
will report SA Greetings as part of our Partnerships results going forward,
the majority of its revenue derived from sales to retail partners in South
Africa.
Gross Profit
HY24 HY24 HY23 HY23
£m % Sales £m % Sales
Group Sales 220.8 198.0
COGs (64.5) (29.2%) (63.4) (32.0%)
Product Margin - Constant Currency(1) 156.3 70.8% 134.6 68.0%
FX gains / losses (1.1) (0.5%) 1.9 1.0%
Product Margin 155.2 70.3% 136.5 69.0%
Store & Warehouse Wages (53.3) (24.1%) (48.3) (24.4%)
Property Costs (11.9) (5.4%) (12.2) (6.2%)
Other Direct Costs (8.7) (3.9%) (10.2) (5.2%)
Gross Profit 81.3 36.8% 65.8 33.2%
(1)Product margin calculated on a constant currency basis using a consistent
GBPUSD exchange rate across both periods. FX gains and losses reflect
conversion from the constant rate to prevailing market rates.
Gross profit for the Group, when compared to the same period last year,
increased by £15.5 million to £81.3 million, with a 3.6ppts improvement in
gross margin to 36.8%.
Inflationary pressure has begun to reduce in the period, aided by a
substantial reduction in international freight costs. The overall trend in
gross margin reflects our continued active management of the cost base, we
continue to see benefit from our longstanding energy hedge which will continue
until September 2024 at current levels.
Product margin includes the purchase price of goods, along with inbound
freight, carriage and packing. Calculated on a constant currency basis,
product margin improved 2.8ppts from 68.0% in HY23 to 70.8% in HY24. This
improvement largely reflects the annualised impact of targeted price increases
implemented last year on sales, as well as the reduction in freight rates
noted above. Product margin also benefitted from a reduction in stock
provisions as overall inventory levels continue to normalise following the
pandemic and our strong sales performance improves sell-through rates and
reduces the risk of inventory obsolescence. The income statement impact from
stock provisions was approximately £1.5 million during the period, improving
margin by approximately 0.7ppts.
The Group purchases approximately 50% of its total goods for resale in US
dollars and has a well-established hedging policy to manage the risk of
adverse fluctuations in market GBPUSD rates. In the six months ended 31 July
2023, we achieved an average rate of approximately £1:$1.31 on US dollar
purchases, slightly adverse to the rate achieved in the equivalent period last
year, reflecting the weakening of sterling in the period, but still
significantly ahead of the average market spot rate for the year.
Direct wages, including store and warehouse colleagues, include a 9.6%
increase in National Living Wage from April 2023 in addition to incremental
costs as we have invested in improving our pay and benefits offer to
colleagues. These increases were partially offset by productivity and
efficiency benefits. When taking into account the effect of strong LFL sales
improvement from the same Stores in the period, store and warehouse wages
reduced slightly as a percentage of sales. The prior year also included a
one-off £2.5 million benefit relating to settlement of our CJRS position,
which was equivalent to 1.3ppts.
Property costs reduced by 0.8ppts as a percentage of sales, as we begin to see
the benefit of an average reduction in the rateable value of our Store
portfolio from the start of the new rates year.
Other direct expenses include warehouse costs, Store opening costs, utilities,
maintenance, point of sale and pay-per-click expenditure. A large proportion
of costs in this category are variable in relation only to the size of the
Store portfolio and available trading days, meaning they fell as a percentage
of sales given the improved trading performance in the year. The Group has
benefitted from its long-term energy hedge which fixed commodity costs at FY22
levels. All of the Group's UK energy costs will continue to benefit from this
hedge until September 2024.
EBITDA & Operating Profit
HY24 HY24 HY23 HY23
£m % Sales £m % Sales
Group Sales 220.8 198.0
Gross Profit 81.3 36.8% 65.8 33.2%
Operating Expenses (30.2) (13.7%) (22.0) (11.1%)
EBITDA 51.1 23.1% 43.8 22.1%
Depreciation & Amortisation (5.1) (2.3%) (4.9) (2.5%)
Right-of-use asset depreciation (17.9) (8.1%) (17.4) (8.8%)
Impairment Charges - -- (1.5) (0.7%)
Operating Profit 28.1 12.7% 20.0 10.1%
Operating expenses (excluding depreciation and amortisation) include
remuneration for central and regional management, business support functions,
design studio costs and business insurance together with central overheads and
administration costs.
Total operating expenses increased by £8.2 million compared to the same
period last year, equivalent to 2.6ppts as a percentage of sales. This
predominantly reflects investment in our colleagues, with approximately £5
million of the increase in relation to staff costs. The annual pay award
effective in the period was higher than the prior year, reflecting the impact
of the cost of living crisis. As we reported at our Capital Markets Strategy
Update in May 2023, we have made significant progress in our plans to deliver
a pay and benefits model that is fit for cardfactory's future, with an
increase in median pay and significant benefits improvements which have
already had a positive impact on staff retention. We have invested in our
leadership and support capabilities, including in IT where technology is a key
enabler to our omnichannel ambitions.
The acquisition of SA Greetings added £1.4 million of operating costs in the
period.
Driven by the improved trading performance, effective management of
inflationary pressures and carefully targeted investment for growth, Group
EBITDA increased to £51.1 million in HY24.
Total depreciation and amortisation charges, including depreciation on
right-of-use assets which are predominantly related to our Store portfolio,
increased by £0.7 million compared to the same period last year.
Profit Before Tax
HY24 HY24 HY23 HY23
£m % Sales £m % Sales
Group Sales 220.8 198.0
Operating Profit 28.1 12.7% 20.0 10.1%
Gain on acquisition 2.6 1.2% - -
Finance Costs (6.0) (2.7%) (5.7) (2.9%)
Profit Before Tax 24.7 11.2% 14.3 7.2%
Adjusting items (2.6) (3.5)
Adjusted Profit Before Tax 22.1 10.8
Total finance costs at £6.0 million increased slightly from the prior period.
Market interest rates have risen sharply over the last 12 months - on 31 July
2023 the Sterling Overnight Index Average (SONIA) rate stood at 4.93%,
compared to 1.19% on the same day last year.
HY24 HY23
£m £m
Interest on loans 2.9 3.1
Loan issue cost amortisation 0.3 0.6
IFRS 16 Leases interest 2.8 2.0
Total Finance Expenses 6.0 5.7
Our facilities, described in further detail below, were renewed and updated in
April 2022 and provide much greater flexibility to the Group. This
flexibility, in combination with continued delivery of operating cash flows,
has enabled us to reduce levels of gross debt. Taken in conjunction with our
interest rate hedging programme, which has provided a degree of protection
from increases in market rates during FY24, the interest payable on our debt
facilities reduced compared to the previous year. The average cost of debt,
taking into account margin, indexation and the impact of hedging activity, in
the period was 6.6% (HY23: 5.6%).
The interest cost associated with our lease portfolio increased to £2.8
million, reflecting the increase in market interest rates.
We recognised a one-off benefit in relation to the SA Greetings acquisition,
due to the provisional fair value of the acquired net assets being £2.6
million greater than the consideration paid. See note 18 to the interim
consolidated financial statements for more information regarding the
acquisition.
As a result of the above factors, Profit Before Tax for the year was £24.7
million, up £10.4 million from £14.3 million for the previous year.
Adjusted Profit Before Tax, which excludes the impact of the gain on
acquisition, was £22.1 million, compared to £10.8 million in the same period
last year. See the "Alternative Performance Measures ("APMs") and other
explanatory information" section, below, for further information regarding
Adjusted Profit Before Tax and other alternative performance measures used by
the Group.
Taxation
In March 2023, the results of our latest business risk review were confirmed
with HMRC, at which we achieved a 'Low' risk rating in all of the categories
assessed.
The tax charge for the six months ended 31 July 2023 of £5.5 million is based
on the expected effective tax rate for the full year of 22.2%. This rate is
higher than the equivalent rate applied for the same period last year (19.6%)
largely due to increases in corporation tax rates effective from 1 April 2023.
The rate is slightly lower than the standard rate applicable to the current
financial year (24%) due to the impact of capital allowances.
The Group makes UK corporation tax payments under the 'Very Large' companies'
regime and thus pays its expected tax bill for the financial year in quarterly
instalments in advance. Corporation tax payments in the six months ended 31
July 2023 were £6.1 million.
Earnings per share
The net result for the period was a profit after tax of £19.2 million,
increased from £11.5 million in the same period last year. As a result, basic
earnings per share (EPS) for the period was 5.6 pence, with diluted EPS of 5.5
pence.
Adjusted EPS, which is based on earnings calculated by applying the effective
tax rate to Adjusted PBT for the period, was 5.0 pence for HY24 (HY23: 2.5
pence).
We remain focused on delivering value for shareholders via execution of our
strategy.
HY24 HY23
Profit after tax (£m) 19.2 11.5
Basic EPS (pence) 5.6 pence 3.4 pence
Diluted EPS (pence) 5.5 pence 3.3 pence
Cash flows
HY24 HY23
£m £m
Cash from Operating Activities 30.2 19.8
Cash used in Investing Activities (17.5) (5.6)
Cash used in Financing Activities (1.4) (44.0)
Net Cash Flow for period 11.3 (29.8)
Operating cash flows less lease repayments 10.3 (11.1)
Operating cash conversion 71.0% 45.0%
The Group continued to deliver positive cash performance in the six months
ended 31 July 2023, cash from operations (before lease repayments and tax) was
£36.3 million (HY23: £19.7 million) which contributed to an overall
reduction in net debt (see below).
The increase in operating cash flows reflects our improved trading performance
and the normalisation of our working capital profile as we have exited and
recovered from the effects of the Covid pandemic. The Group's trading pattern
is seasonal, with greater sales and thus cash inflows in the second half of
the year. The inverse is true in the first half, as stock builds ahead of the
key Christmas season. In that context the working capital outflow in the six
months ended 31 July 2023 of £17.1 million was in line with expectations and
improved by £5.8 million compared to the same period last year.
Operating cash conversion (which is cash from operations expressed as a
percentage of EBITDA for the period) was 71.0% (HY23: 45.0%).
Capital expenditure increased from £5.6 million to £15.3 million. Our
consistently positive operating cash performance and strengthening of the
balance sheet since the pandemic has enabled us to drive investment in the key
projects to help deliver our strategy which is covered in further detail
below. Total cash used in investing activities includes the £2.5 million
consideration paid in respect of the SA Greetings acquisition.
Cash generated from financing activities includes a net £24.7 million draw on
our debt facilities (HY23: £6.9 million of debt repayments) and £19.9
million of payments in respect of lease liabilities for the Store portfolio
(HY23: £30.9 million).
Lease repayments were significantly lower than the same period last year. FY23
represented the final year where we were making payments in respect of rents
deferred during the pandemic. Lease payments in the current year have thus
returned to a more normalised level.
Balance Sheet
Acquisition of SA Greetings
As reported in the FY23 preliminary results, on 25 April 2023 the Group
acquired 100% of the issued equity of SA Greetings Corporation (Pty) Ltd ("SA
Greetings") for fixed cash consideration of £2.5 million, funded from
existing cash reserves.
SA Greetings is the leading wholesaler of greetings cards and gift packaging
in South Africa. It also operates 24 'Cardies' retail stores with four further
stores operated by franchisees and owns and operates a roll wrap production
facility. Its head office and main warehouse are located in Johannesburg, with
sales offices in Durban and Cape Town.
The acquisition gives the Group immediate access to the South African market
via an established, successful business and expands cardfactory's global
presence in line with our strategy. We expect the acquisition to make a small
positive contribution to the Group's EBITDA and PBT in FY24 and look forward
to exploring the opportunities to support the development of the SA Greetings
business and enhance the Group's production, wholesale and retail offer in
both South Africa and the UK.
The Group has provisionally concluded the accounting for the acquisition and
recognised a gain on acquisition of £2.6 million. See note 18 to the
consolidated interim financial statements for more information.
Capital Expenditure
Total capital expenditure in the six months ended 31 July 2023 was £15.3
million, increased from £5.6 million in HY23 as we invested in both
infrastructure and growth projects.
During the six months ended 31 July 2023, we continued to invest in our
Group-wide ERP implementation, the second major phase of which successfully
went live in August 2023 and will deliver supply chain and inventory
management benefits.
Alongside investment in our Store Evolution Programme, we are also delivering
a network infrastructure upgrade, which is key to delivering future technology
projects in Store to enhance the omnichannel experience.
Ongoing investment in our Online platforms and digital experience remains a
key focus area.
Net Debt
HY24 Net Debt HY24 Leverage HY23 Net Debt HY23 Leverage
£m £m
Current borrowings 23.6 18.6
Non-current borrowings 74.8 84.9
Total Borrowings 98.4 103.5
Add back capitalised debt costs 1.0 1.6
Gross Bank Debt 99.4 105.1
Less cash 27.5 (8.5)
Net Debt (exc. Leases) 71.9 96.6
Leverage (exc. Leases) 0.6x 0.9x
Lease Liabilities 101.6 109.4
Net Debt (inc. Leases) 173.5 206.0
Leverage (inc. Leases) 1.5x 1.9x
The Group focuses on net debt excluding lease liabilities, this reflects the
way the Group's covenants are calculated in its financing facilities. During
the first six months of the year, growth in sales and profitability has
continued to drive positive operating cash flows and enabled continued
reduction in net debt, with a £24.7 million reduction year on year.
The Group's banking facilities and amounts drawn in the current and prior
periods are summarised in the table below:
Facility 31 July 2023 31 July 2022 31 January 2023
(HY24) (HY23) (FY23)
£11.25m Term Loan 'A' £4.6m £11.2m £9.0m
£18.75m Term Loan 'B' £18.8m £18.8m £18.8m
£20m CLBILs £8.2m £20.0m £16.1m
£100m Revolving Credit Facility(1) £60.0m £55.0m £23.0m
Overdraft facilities £7.2m -- £1.8m
Other Term Facilities £0.5m - -
Accrued interest £0.3m £0.1m £0.2m
Gross Bank Debt £99.4m £105.1m £68.9m
1 Overdraft facilities from part of, and to the extent utilised reduce
available commitment under, the £100 million RCF.
During the six months ended 31 July 2023, we have made repayments of £4.4
million in respect of term loans and £7.9 million in respect of the CLBILs
facilities. At 31 July 2023, the Group had undrawn committed facilities of
£33 million.
Following the half-year end, on 25 September 2023, the Group made the final
repayments in respect of the CLBILs facilities which are now fully
extinguished.
The Group's cash generation profile typically follows an annualised pattern,
cash outflows are higher in the first half of the year associated with lower
seasonal sales and investment in working capital ahead of the Christmas
season. The inverse is then usually true in the second half, as Christmas
sales led to reduced stock levels and higher cash inflows. As a result, net
debt at the end of the year is usually lower than the intra-year peak, which
typically occurs during the third quarter.
The Group continues to hold a provision of £7.4 million relating to the
potential overpayment of government support during the pandemic, with
reference to subsidy control limits. The Group is actively taking steps to
resolve its position.
Capital Structure & Distributions
The Board remains committed to maintaining a capital structure that is
conservative yet efficient in terms of providing long-term returns to
shareholders after allowing for investment to fund ongoing operational
requirements and strategic growth.
Although the CLBILs have been repaid following the half-year end, the Group
remains prohibited from making distributions under the terms of its financing
facilities until such time as tranche 'A' of the term loans is fully repaid.
Accordingly, there were no dividend payments made in either HY24 or the
preceding year.
The final maturity date for tranche 'A' of the term loans is 31 January 2024,
and accordingly the earliest that dividend payments will be considered is
during the FY25 financial year.
Consolidated income statement
For the six months ended 31 July 2023
Note Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Revenue 220.8 198.0 463.4
Cost of sales (139.5) (132.2) (302.7)
Gross profit 81.3 65.8 160.7
Operating expenses (53.2) (45.8) (96.9)
Operating profit 28.1 20.0 63.8
Gain on bargain purchase 18 2.6 - -
Finance expense 6 (6.0) (5.7) (11.4)
Profit Before tax 24.7 14.3 52.4
Taxation 7 (5.5) (2.8) (8.2)
Profit for period 19.2 11.5 44.2
Earnings per share pence pence pence
- Basic 8 5.6 3.4 12.9
- Diluted 8 5.5 3.3 12.8
All activities relate to continuing operations.
Consolidated statement of comprehensive income
For the six months ended 31 July 2023
Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Profit for the period 19.2 11.5 44.2
Items that are or may be recycled subsequently into profit or loss:
Exchange differences on translation of foreign operations 0.1 - (0.2)
Cash flow hedges - changes in fair value (3.4) 7.8 8.2
Cost of hedging reserve - changes in fair value 0.2 (0.4) (0.2)
Tax relating to components of other comprehensive income 0.8 (1.4) (1.2)
Other comprehensive (expense)/income for the period, net of income tax (2.3) 6.0 6.6
Total comprehensive income for the period attributable to equity shareholders 16.9 17.5 50.8
of the parent
Consolidated statement of financial
position
As at 31 July 2023
Note 31 July 2023 31 July 2022 31 January 2023
£m £m £m
Non-current assets
Intangible assets 10 331.0 321.6 326.3
Property, plant and equipment 11 40.8 29.9 32.2
Right of use assets 12 98.6 101.4 100.5
Deferred tax assets 2.9 2.5 2.1
Derivative financial instruments 15 0.7 2.0 0.5
474.0 457.4 461.6
Current assets
Inventories 13 49.5 46.2 45.3
Trade and other receivables 23.6 18.4 13.3
Tax receivable 0.9 - -
Derivative financial instruments 15 1.7 8.2 5.3
Cash at bank and in hand 27.5 8.5 11.7
103.2 81.3 75.6
Total assets 577.2 538.7 537.2
Current liabilities
Borrowings (23.6) (18.6) (27.1)
Lease liabilities 12 (26.0) (29.3) (27.3)
Trade and other payables (78.7) (76.8) (84.7)
Provisions 17 (9.2) (7.4) (9.5)
Tax payable - (4.4) -
Derivative financial instruments 15 (2.5) (0.1) (1.4)
(140.0) (136.6) (150.0)
Non-current liabilities
Borrowings (74.8) (84.9) (40.4)
Lease liabilities 12 (75.6) (80.1) (78.1)
Derivative financial instruments 15 (1.0) (0.3) (0.5)
(151.4) (165.3) (119.0)
Total liabilities (291.4) (301.9) (269.0)
Net assets 285.8 236.8 268.2
Equity
Share capital 3.4 3.4 3.4
Share premium 202.3 202.2 202.2
Hedging reserve 0.6 6.9 3.5
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 77.3 22.5 57.0
Equity attributable to equity holders of the parent 285.8 236.8 268.2
Consolidated statement of changes in
equity
For the six months ended 31 July 2023
Share capital Share premium Hedging reserve Cost of hedging reserve Reverse acquisition reserve Merger reserve Retained earnings Total equity
£m £m £m £m £m £m £m £m
Six months ended 31 July 2023
At 31 January 2023 3.4 202.2 3.5 (0.1) (0.5) 2.7 57.0 268.2
Total comprehensive expense for the period
Profit or loss - - - - - - 19.2 19.2
Other comprehensive expense - - (2.5) 0.1 - - 0.1 (2.3)
-- - (2.5) 0.1 - - 19.3 16.9
Hedging gains and losses and costs of hedging transferred to the cost of - - (0.5) - - - - (0.5)
inventory
Deferred tax on transfers to inventory - - 0.1 -- - - - 0.1
Transactions with owners, recorded directly in equity
Share-based payment charges - 0.1 - - - - 1.0 1.1
Dividends (note 9) - - - - - - - -
Total contributions by and distributions to owners - 0.1 - - - - 1.0 1.1
At 31 July 2023 3.4 202.3 0.6 - (0.5) 2.7 77.3 285.8
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 expense 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 (note 9) - - - - - - - -
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
Year ended 31 January 2023
At 31 January 2022 3.4 202.2 1.3 - (0.5) 2.7 10.5 219.6
Total comprehensive expense for the period
Profit or loss - - - - - - 44.2 44.2
Other comprehensive income - - 6.1 (0.1) - - 0.6 6.6
- - 6.1 (0.1) - - 44.8 50.8
Hedging gains and losses and costs of hedging transferred to the cost of - - (5.2) - - - - (5.2)
inventory
Deferred tax on transfers to inventory - - 1.3 - - - - 1.3
Transactions with owners, recorded directly in equity
Share-based payment charges - - - - - - 1.7 1.7
Dividends (note 9) - - - - - - - -
Total contributions by and distributions to owners - - - - - - 1.7 1.7
At 31 January 2023 3.4 202.2 3.5 (0.1) (0.5) 2.7 57.0 268.2
Consolidated cash flow statement
For the six months ended 31 July 2023
Note Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31
January 2023
£m £m £m
Cash from operations 16 36.3 19.7 107.8
Corporation tax paid (6.1) 0.1 (7.9)
Net cash inflow from operating activities 30.2 19.8 99.9
Cash flows from investing activities
Purchase of property, plant and equipment 11 (9.0) (2.6) (8.8)
Purchase of intangible assets 10 (6.3) (3.0) (9.4)
Acquisition of SA Greetings net of cash acquired 18 (2.2) - -
Net cash outflow from investing activities (17.5) (5.6) (18.2)
Cash flows from financing activities
Proceeds from bank borrowings 37.0 73.8 (6.2)
Interest paid (3.4) (3.5) 27.8
Repayment of bank borrowings (12.3) (80.7) (72.9)
Other financing costs paid - (0.7) (1.8)
Payment of lease liabilities (19.9) (30.9) (52.5)
Interest in respect of lease liabilities 6 (2.8) (2.0) (4.5)
Net cash inflow/(outflow) from financing activities (1.4) (44.0) (110.1)
Net increase/(decrease) in cash in the period 11.3 (29.8) (28.4)
Cash and cash equivalents at the beginning of the period 9.9 38.3 38.3
Exchange gains on cash and cash equivalents 0.2 - -
Closing cash and cash equivalents 21.4 8.5 9.9
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 2023 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 25
September 2023.
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 2023 ('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 2023 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 2023 were approved by the Board of Directors on
2 May 2023 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.
The review of estimates and assumptions in the period concluded that the key
sources of estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 January 2023. 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.
As part of this process, the Group amended assumptions in respect of inventory
provisions where sales data for the six months ended 31 July 2023 indicated a
lower provisioning requirement for certain categories of inventory than had
previously been applied. Changes to these assumptions reduced the value of
inventory provisions by approximately £1.1 million, compared to the provision
value had it been calculated using the previous assumptions. The total
inventory provision at 31 July 2023 was £12.3 million (see note 13).
Comparative information
The Group provides comparative financial information in these interim
financial statements for both the six months ended 31 July 2022 ('HY23') and
the year ended 31 January 2023 ('FY23'). Where included within text, income
statement comparatives refer to the six months ended 31 July 2022 and balance
sheet comparatives are as at 31 January 2023, unless otherwise stated.
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.
The Group has delivered a strong financial performance in the six months ended
31 July 2023, with encouraging sales momentum, improving profit margins and
positive operating cash generation. In additional, net debt levels have
continued to fall (compared to the equivalent period last year) and the Group
has reduced its leverage ratio year-on-year. See the Business Update and Group
Financial Review in this report for more information regarding trading in the
first half of the year.
The Group's current financing facilities (see note 14) extend to September
2025. The Board believes that the current facilities provide adequate headroom
for the Group to execute its strategic plan. At 31 July 2023, net debt
(excluding lease liabilities) was £71.9 million and the Group had £33.9
million of undrawn facilities.
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 facilities.
The UK Corporate Governance Code requires that an assessment is made of the
Group's ability to continue as a going concern for a period of at least 12
months from the signing of these financial statements; however it is not
specified how far beyond 12 months should be considered. For the purpose
of assessing the going concern assumption, the Group has prepared cash flow
forecasts for the 12 month period following the date of approval of these
accounts, which incorporate the Group's debt facilities and related covenant
measures.
These forecasts are extracted from the Group's approved budget and strategic
plan which covers a period of five years. At the half-year, the forecast has
been updated to reflect current performance and expectations for the remainder
of the current financial year. Given the strong performance in the six months
ending 31 July 2023, the Group's forecast for the 12 month period has improved
from that considered at the FY23 year-end.
Beyond the 12-month period, the Group has qualitatively considered whether any
factors (for example the timing of debt repayments, or longer-term trading
assumptions) indicate a longer period warrants consideration.
The results of this analysis were:
• The Group's base case forecasts indicate that the Group will continue to
trade profitably, generate positive operating cash flows and make scheduled
debt repayments whilst retaining substantial liquidity headroom against
current facility limits and meet all covenant requirements on the relevant
test dates in the 12 month period.
• Debt repayments continue in the 12 months following the going concern
period and the Group's current facilities expire in September 2025. The Board
currently expects the Group will be able to renew its facilities at a level
commensurate with its requirements from this point.
• In the Board's view, there are no other factors arising in the period
immediately following 12 months from the date of these accounts that warrant
further consideration.
• The Group performed a desktop review of the scenario analysis performed
for, and originally described on page 120 of, it's FY23 Annual Report &
Accounts. Given the improved performance in the six months ending 31 July
2023, headroom on all of the scenarios considered (which included a permanent
drop in sales, profitability and cash flows, or an acute, severe event
occurring in the peak Christmas season) had increased.
The Group also conducted a desktop review of the reverse stress test analysis
originally performed for the FY23 Annual Report & Accounts, which
considered the extent of sales loss or cost increase that would be required to
result in either a complete loss of liquidity headroom, or a covenant breach
during the period. Seasonality of the Group's cash flows, with higher
purchases and cash outflows over the summer to build stock for Christmas,
means liquidity headroom is at its lowest in September and October ahead of
the Christmas season. Conversely, covenant compliance is most sensitive early
in the year.
Updating the reverse stress test analysis to reflect actual performance in the
period to 31 July 2023 demonstrated that the level of sales loss or cost
increase required (either on a sustained basis or as a significant one-off
downside event) to result in a breach would require circumstances akin to a
pandemic lockdown for a period of several weeks, or other events with a
similar quantum of effect that would be unprecedented in nature. Accordingly,
such scenarios are not considered to be reasonably likely to occur. As with
the scenario analysis above, the stress test was conducted before considering
any potential benefit from available mitigating actions.
Over the preceding two years, the business has demonstrated a significant
degree of resilience and a proven ability to manage cash flows and liquidity
during a period of unprecedented economic downturn. Accordingly the Board
retains confidence that, were such a level of downturn to reoccur in the
assessment period, the Group would be able to take action to mitigate its
effects.
Based on these factors, the Board has a reasonable expectation that the Group
has adequate resources and sufficient 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 2023.
Amended standards and interpretations effective in the period do not have a
material effect on the Group's financial statements.
In the period the Group has early-adopted the requirements of Classification
of Liabilities as Current or Non-current and Non-current Liabilities with
Covenants (Amendments to IAS 1). These amendments clarify the treatment of
non-current liabilities with covenants attached to them - in particular, that
when assessing whether a liability with covenants is current or non-current,
an entity should classify a liability as non-current if it has the right to
defer settlement of an obligation for a period of at least 12 months from the
balance sheet date. Covenants shall affect this analysis only if the entity is
required to comply with the covenant on or before the end of the reporting
period.
Comparatives for the year ending 31 January 2023 in these financial statements
have been restated on the same basis.
The adoption of these amendments has had no other impact on the Group's
financial statements.
4 Segmental reporting and revenue
Following investment in the Group's people, systems and infrastructure to
support its strategy, the Group is organised into five main business areas
which meet the definition of an Operating segment under IFRS, those being
cardfactory Stores, cardfactory Online, Getting Personal, Partnerships and
Printcraft. Each of these business areas has a dedicated management team and
reports discrete financial information to the Board for the purpose of
decision making.
• cardfactory Stores retails greeting cards, celebration
accessories, and gifts principally through an extensive UK store network, with
a small number of Stores in the Republic of Ireland.
• cardfactory Online retails greetings cards, celebration
accessories, and gifts via its online platform.
• Getting Personal is an online retailer of personalised cards and
gifts.
• Partnerships sells greetings cards, celebration accessories and
gifts via a network of third party retail partners both in the UK and
overseas.
• Printcraft is a manufacturer of greetings cards and personalised
gifts, and sells the majority of its output intra-group to the Stores and
Online businesses.
The Group acquired SA Greetings on 25 April 2023 (see note 18). The results of
SA Greetings have been provisionally included in the Partnerships segment for
the six months ended 31 July 2023.
The accounting policies applied in preparing financial information for each of
the Group's segments are consistent with those applied in the preparation of
the consolidated financial statements. The Group's support centre and
administrative functions are run by the cardfactory Stores segment, with
operating costs recharged to other segments where they are directly
attributable to the operations of that segment.
The Board reviews revenue and EBITDA by segment, with the exception of
Printcraft by virtue of its operations being predominantly intra-group in
nature. Whilst only cardfactory Stores meets the quantitative thresholds in
IFRS to require disclosure, the Group's other trading segments are reported
below as the Group considers that this information is useful to stakeholders
in the context of the Group's 'Opening Our New Future' strategy.
Revenue and EBITDA for each segment, and a reconciliation to consolidated
operating profit, is provided in the table below:
Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Revenue:
cardfactory Stores 208.4 186.2 440.4
cardfactory Online 3.4 4.0 8.8
Getting Personal 2.4 4.0 8.5
Partnerships 6.4 3.4 5.0
Other 0.2 0.4 0.7
Consolidated Group revenue 220.8 198.0 463.4
Of which derived from customers in the UK 210.2 192.4 451.6
Of which derived from customers overseas 10.6 5.6 11.8
EBITDA:
cardfactory Stores 55.2 46.0 116.1
cardfactory Online (1.9) (0.9) (2.2)
Getting Personal (1.1) (0.4) (1.5)
Partnerships 1.5 1.2 1.4
Other (2.6) (2.1) (1.8)
Consolidated Group EBITDA 51.1 43.8 112.0
Consolidated Group depreciation, amortisation & impairment (24.0) (24.2) (48.7)
Consolidated Group gain on disposal 1.0 0.4 0.5
Consolidated Group Operating Profit 28.1 20.0 63.8
The "Other" column principally reflects central overheads and Printcraft sales
to third parties.
Group revenue is almost entirely derived from retail customers. Average
transaction value is low and products are transferred at the point of sale.
Group revenue is presented as a single category as, by segment, revenues are
subject to substantially the same economic factors that impact the nature,
amount, timing and uncertainty of revenue and cash flows.
Revenue from overseas reflects revenue earned from i) the Group's Stores in
the Republic of Ireland, ii) the Group's wholesale and retail activities in
South Africa (via its SA Greetings subsidiary), and iii) from other retail
partners based outside of the UK.
5 EBITDA
Earnings before interest, tax, depreciation, amortisation and impairment
charges (EBITDA) represents profit for the period before net finance expense,
taxation, depreciation, amortisation and impairment of assets.
Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Operating profit 28.1 20.0 63.8
Depreciation, amortisation and impairment 24.0 24.2 48.7
Gain on disposal (1.0) (0.4) (0.5)
EBITDA 51.1 43.8 112.0
6 Finance expense
Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Finance expense
Interest on bank loans and overdrafts 2.9 3.1 6.0
Amortisation of debt issue costs 0.3 0.6 0.9
Lease interest 2.8 2.0 4.5
6.0 5.7 11.4
7 Taxation
The tax charge for the six months ending 31 July 2023 has been calculated on
the basis of the estimated effective tax rate on Profit Before Tax for the
full financial year to 31 January 2024, which has been assessed as 22.2%
(HY23: 19.6%).
The estimated effective tax rate is lower than the standard rate of
corporation tax in the UK applicable for the period (24%), principally due to
deductions for capital allowances being greater than the equivalent
depreciation charge for the period.
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 2023 Six months ended 31 July 2022 Year ended 31 January 2023
(Number) (Number) (Number)
Weighted average number of shares in issue 342,701,920 342,098,789 342,328,622
Weighted average number of dilutive share options 4,586,823 1,449,318 1,604,107
Weighted average number of shares for diluted earnings per share 347,288,743 343,548,107 343,932,729
£m £m £m
Profit for the financial period 19.2 11.5 44.2
pence pence pence
Basic earnings per share 5.6 3.4 12.9
Diluted earnings per share 5.5 3.3 12.8
9 Dividends
The Directors have not declared an interim dividend for the period ended 31
July 2023. There were no dividends paid in the previous financial year ended
31 January 2023.
Whilst the Group's CLBILS and certain of its term loan facilities, as drawn at
31 July 2023, remain outstanding, the Group is prohibited from making
distributions.
10 Intangible assets
Goodwill Software & Other intangible assets Total
£m £m £m
Cost
At 1 February 2023 328.2 26.0 354.2
Additions - 6.3 6.3
Transfers - - -
At 31 July 2023 328.2 32.3 360.5
Amortisation and impairment
At 1 February 2023 14.4 13.5 27.9
Amortisation in the period - 1.6 1.6
Impairment in the period - - -
At 31 July 2023 14.4 15.1 29.5
Net book value
At 31 July 2023 313.8 17.2 331.0
At 31 January 2023 313.8 12.5 326.3
11 Property, plant and equipment
Freehold property Leasehold improvements Plant, equipment, fixtures & vehicles Total
£m £m £m £m
Cost
At 1 February 2023 18.6 40.8 78.2 137.6
Additions 0.7 0.2 8.1 9.0
Acquisition of SA Greetings (note 18) 2.7 - 0.4 3.1
Disposals - - -- -
At 31 July 2023 22.0 41.0 86.7 149.7
Depreciation and impairment
At 1 February 2023 4.9 39.0 61.5 105.4
Depreciation in the period 0.2 0.6 2.7 3.5
Depreciation on disposals - - - -
At 31 July 2023 5.1 39.6 64.2 108.9
Net book value
At 31 July 2023 16.9 1.4 22.5 40.8
At 31 January 2023 13.7 1.8 16.7 32.2
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 2023 279.3 0.8 280.1
Additions 15.0 0.8 15.8
Disposals (23.6) (0.6) (24.2)
Acquisition of SA Greetings 1.5 - 1.5
Effect of foreign exchange rates 0.1 - 0.1
At 31 July 2023 272.3 1.0 273.3
Depreciation and impairment
At 1 February 2023 179.0 0.6 179.6
Depreciation in the period 18.7 0.2 18.9
Depreciation on disposals (22.9) (0.6) (23.5)
Impairment on disposals -(0.3) - (0.3)
At 31 July 2023 174.5 0.2 174.7
Net book value
At 31 July 2023 97.8 0.8 98.6
At 31 January 2023 100.3 0.2 100.5
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 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Current lease liabilities (26.0) (29.3) (27.3)
Non-current lease liabilities (75.6) (80.1) (78.1)
Total lease liabilities (101.6) (109.4) (105.4)
Lease expense Six months ended 31 July 2023 Six months ended 31 July 2022 Year ended 31 January 2023
£m £m £m
Depreciation expense on right of use assets 18.9 17.8 35.7
Impairment of right of use assets - - 1.3
Profit on disposal of right of use assets (1.0) (0.4) (0.5)
Lease interest 2.8 2.0 4.5
Expense relating to short term and low value leases - - -
Expense relating to variable lease payments 0.1 0.1 0.2
Total lease related income statement expense 20.8 19.5 41.2
13 Inventories
31 July 2023 31 July 2022 31 January 2023
£m £m £m
Finished Goods 48.4 45.3 44.7
Work in progress 1.1 0.9 0.6
49.5 46.2 45.3
Inventories are stated net of provisions totalling £12.3 million (FY23:
£16.1 million. HY23: £18.5 million). The value of inventories written down
in the period was £6.6 million.
The cost of inventories recognised as an expense and charged to cost of sales
in the period, net of movements in provisions, was £65.6 million (HY23:
£61.3 million).
14 Analysis of net debt
Six months ended 31 July 2023 At 1 February 2023 Cash flow Non-cash changes At 31 July 2023
£m £m £m £m
Unsecured bank loans and accrued interest (65.7) (21.7) (4.9)* (92.3)
Lease liabilities (105.4) 21.3 (17.5) (101.6)
Total debt (171.1) (0.4) (22.4) (193.9)
Debt costs capitalised (1.4) - 0.4 (1.0)
Bank overdraft (1.8) (4.3) - (6.1)
Cash and cash equivalents 11.7 15.8 - 27.5
Net debt (162.6) 11.1 (22.0) (173.5)
Lease liabilities 105.4 (21.3) 17.5 101.6
Net debt excluding lease liabilities (57.2) (10.2) (4.5) (71.9)
*Non-cash changes include bank loans and interest acquired as a result of the
acquisition of SA Greetings (see note 18).
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)
Year ended 31 January 2023 At 1 February 2022 Cash flow Non-cash changes At 31 January 2023
£m £m £m £m
Unsecured bank loans and accrued interest (111.0) 51.4 (6.1) (65.7)
Lease liabilities (119.8) 57.0 (42.6) (105.4)
Total debt (230.8) 108.4 (48.7) (171.1)
Debt costs capitalised (1.5) (1.8) 1.9 (1.4)
Bank overdraft - (1.8) - (1.8)
Cash and cash equivalents 38.3 (26.6) - 11.7
Net debt (194.0) 78.2 (46.8) (162.6)
Lease liabilities 119.8 (57.0) 42.6 105.4
Net debt excluding lease liabilities (74.2) 21.2 (4.2) (57.2)
The Group's banking facilities, when agreed in April 2022, comprised term
loans of £30 million (Term Loan 'A' of £11 million and Term Loan 'B' of £19
million), CLBILs of £20 million and a Revolving Credit Facility (RCF) of up
to £100 million.
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
occurred in January 2023. At 31 July 2023, the Group had made total repayments
of £6.6 million in respect of Term Loan A, and £11.8 million in respect of
the CLBILs facilities. Following the balance sheet date, on 25 September 2023,
the Group made the final repayments due in respect of the CLBILs facilities,
which are now fully extinguished.
The Term Loan 'A' interest rate margin was 5.0% over SONIA, and the Term Loan
'B' interest rate margin was 5.5% over SONIA. The CLBILS facilities attract
interest rates of between 3.1% and 3.75% over SONIA or the Bank of England
Base Rate. The RCF, when drawn, is subject to an interest rate ratchet of
between 2.75% and 4.5% over SONIA based upon the Group's leverage position.
The Term Loan and CLBILS facilities were drawn in full from the refinancing
date, with the RCF drawn to replace the existing term loans and CLBILs that
were paid down. The RCF was subsequently drawn during the period to support
liquidity when needed and includes up to £17.5 million that can be utilised
as an overdraft facility on certain of the Group's bank accounts. The full RCF
remains available to draw on if required, with £33.9 million of undrawn
committed facilities available to the Group at the balance sheet date.
At the balance sheet date, the Group remained subject to two financial
covenants, tested quarterly, in relation to leverage (ratio of net debt to
EBITDA) and interest cover (ratio of interest and rent costs to EBITDA).
Covenant thresholds are phased to return to 2.5x leverage and 1.75x interest
cover by January 2024.
In addition, the terms of the facilities prevent the Group from making any
distributions to shareholders whilst the CLBILS and Term Loan 'A' remain
outstanding and places a limit on the total value of capital expenditure the
Group can make in each financial year to FY25. The Group expects to be able to
operate and have sufficient headroom within these covenants to deliver its
strategy.
The Group's cash generation profile typically follows a seasonal pattern, with
higher cash outflows in the first half of the year associated with lower
seasonal sales and investment in working capital ahead of the Christmas
season. The inverse is then usually true in the second half, as Christmas
sales lead to reduced stock levels and higher cash inflows. As a result, net
debt at the end of both the half year and at the year-end is usually lower
than the intra-year peak, which typically occurs during the third quarter.
15 Financial instruments
Financial instruments carried at fair value are measured by reference to the
following fair value hierarchy:
• Level 1: quoted prices in active markets for identical assets or
liabilities
• Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices); and
• Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Derivative financial instruments are carried at fair value and measured under
a level 2 valuation method. Valuations are provided by the instrument
counterparty.
31 July 2023 31 July 2022 31 January 2023
£m £m £m
Derivative assets
Non-current
Interest-rate contracts 0.2 0.3 0.2
Foreign exchange contracts 0.5 1.7 0.3
0.7 2.0 0.5
Current
Interest-rate contracts 0.8 0.7 1.1
Foreign exchange contracts 0.9 7.5 4.2
1.7 8.2 5.3
Derivative liabilities
Current
Interest rate contracts - - -
Foreign exchange contracts (2.5) (0.1) (1.4)
(2.5) (0.1) (1.4)
Non-current
Interest rate contracts - - (0.2)
Foreign exchange contracts (1.0) (0.3) (0.3)
(1.0) (0.3) (0.5)
Net derivative financial instruments
Interest rate contracts 1.0 1.0 1.1
Foreign exchange contracts (2.1) 8.8 2.8
(1.1) 9.8 3.9
16 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations:
31 July 2023 31 July 2022 31 January 2023
£m £m £m
Profit Before Tax 24.7 14.3 52.4
Gain on bargain purchase (2.6) - -
Net finance expense 6.0 5.7 11.4
Operating profit 28.1 20.0 63.8
Adjusted for:
Depreciation and amortisation 24.0 22.7 46.0
Impairment of right-of-use assets - 1.5 1.3
Impairment of intangible assets - - 1.5
Gain on disposal of fixed assets (1.0) (0.4) (0.5)
Cash flow hedging foreign currency movements 1.3 (1.7) 0.8
Share-based payments charge 1.0 0.5 1.7
Operating cash flows before changes in working capital 53.4 42.6 114.6
Decrease in receivables (8.5) (10.3) (5.2)
Increase in inventories (0.4) (13.0) (12.2)
(Decrease)/increase in payables (7.9) 5.2 13.3
Movement in provisions (0.3) (4.8) (2.7)
Cash from Operations 36.3 19.7 107.8
Changes in working capital differ from the absolute amounts shown in the
consolidated statement of financial position due to the impact of balances
acquired as part of the transaction to acquire SA Greetings (see note 18). The
net cash outflow in respect of acquisition consideration net of cash balances
acquired of £2.2 million is included in cash used in investing activities in
the consolidated cash flow statement.
17 Provisions
Six months ended 31 July 2023 Covid-19-related support Property Provision Total
£m £m £m
At 1 February 2023 7.4 2.1 9.5
Transfer from contract liabilities - - -
Provisions utilised during the period - (0.1) (0.1)
Provisions released during the period - (0.4) (0.4)
Provisions provided during the period - 0.2 0.2
At 31 July 2023 7.4 1.8 9.2
Six months ended 31 July 2022 Covid-19-related support Property Provision Total
£m £m £m
At 1 February 2022 12.2 - 12.2
Transfer from contract liabilities -- - -
Provisions utilised during the period (2.3) - (2.3)
Provisions released during the period (2.5) - (2.5)
Provisions provided during the period - - -
At 31 July 2022 7.4 - 7.4
Year ended 31 January 2023 Covid-19-related support Property Provision Total
£m £m £m
At 1 February 2022 12.2 - 12.2
Transfer from contract liabilities - 2.5 2.5
Provisions utilised during the year (2.3) (0.9) (3.2)
Provisions released during the year (2.5) (0.9) (3.4)
Provisions provided during the year - 1.4 1.4
At 31 January 2023 7.4 2.1 9.5
Covid-19-related support provisions reflect amounts received under one-off
schemes designed to provide support to businesses affected by Covid-19
restrictions, including lockdown grants and CJRS, in excess of the value the
Group reasonably believes it is entitled to retain under the terms and
conditions of those schemes. The provisions have been estimated based on the
Group's interpretation of the terms and conditions of the respective schemes
and, where applicable, independent professional advice. However, the actual
amount that will be repaid is not certain.
In July 2022, following an unprompted disclosure to HMRC and resulting
investigation, the Group made a payment of £2.3 million in final settlement
of its CJRS position. As a result of this settlement, the Group released a
further £2.5 million from the provision that is no longer expected to be
required, as the matter is now closed. This release has been recognised as a
one-off benefit in the income statement in the period.
The remaining provision relates to covid-related lockdown grants and similar
support schemes. The Group is taking steps to confirm amounts repayable and
settle its positions.
The Group maintains provisions in respect of its Store portfolio to cover both
the estimated cost of restoring properties to their original condition upon
exit of the property and any non-lease components of lease contracts (such as
service charges) that may be onerous. Despite the size of the Group's Store
portfolio, such provisions are generally small which is consistent with the
Group's experience of actual dilapidations and restoration costs. Such
provisions are usually made where the Group has a reasonable expectation that
the related property may be exited, or is at a higher risk of exiting, in the
near future. Accordingly such provisions are generally expected to be utilised
in the short-term. Amounts relating to property provisions, previously
recognised and presented within contract liabilities, were reclassified to
provisions in the year ended 31 January 2023. Comparative balances have not
been reclassified as the amounts were not considered material.
18 Business Combinations
Business combinations are accounted for using the acquisition method. The
identifiable assets acquired and liabilities assumed are recognised at their
fair values at the acquisition date.
Acquisition-related costs totalling £0.2 million have been expensed and
included within operating expenses in the Consolidated Income Statement.
Acquisition of SA Greetings Corporation (Pty) Ltd
On 25 April 2023, the Group acquired 100% of the share capital of SA Greetings
Corporation (Pty) Ltd and its subsidiaries, which trade as SA Greetings.
SA Greetings is a wholesaler and retailer of greeting cards and gift packaging
based in South Africa, and the acquisition gives the Group access to the South
African cards and gifts market, expanding the international partnerships
business, and provides opportunities to grow and develop the business through
synergies with the Group's existing range, production and supply chain.
The total cash consideration for the transaction was £2.5M, all of which paid
on the acquisition date, with no further contingent or deferred consideration
payable.
The purchase price allocation was prepared on a provisional basis in
accordance with IFRS 3 with the fair values of the assets and liabilities set
out below:
Fair value
£m
Non-current assets 4.7
Intangible assets -
Property, plant & equipment 3.0
Right-of-use assets 1.6
Deferred tax assets 0.1
Current assets 5.9
Inventories 3.8
Trade & other receivables 1.8
Cash at bank and in hand 0.3
Total assets 10.6
Current liabilities (4.1)
Borrowings (1.5)
Lease liabilities (0.8)
Trade & other payables (1.8)
Tax payable -
Contingent liabilities (0.1)
Non-current liabilities (1.4)
Borrowings (0.6)
Lease liabilities (0.8)
Total liabilities (5.5)
Net assets 5.1
Note - figures in the above table may not fully cast due to rounding.
The gross contractual amounts receivable for trade & other receivables is
£2.1 million and, at the acquisition date, the group's best estimate of the
contractual cash flows not expected to be collected is £0.3 million.
The adjustments made to the assets and liabilities included in the acquiree's
local financial records in arriving at the provisional fair values required by
IFRS 3 were:
• Removing non-identifiable assets of £0.1 million in respect of
pre-existing goodwill.
• Converting the local financial records from IFRS for SMEs to full
IFRS by recognising and measuring the acquiree's lease liabilities as defined
in IFRS 16, as if the leases were a new lease at the acquisition date (£1.6
million adjustment to right-of-use assets and lease liabilities). No
adjustments were required to reflect lease terms that were favourable or
unfavourable to market terms.
• A fair value adjustment to recognise a contingent liability (£0.1
million) in relation to a legal process that remains in progress. A
corresponding contingent asset has not been recognised.
The fair value of the assets and liabilities acquired is £5.1M, which is
higher than the fair value of the consideration paid of £2.5M, therefore a
gain on bargain purchase of £2.6M has been recognised in the Consolidated
Income Statement in the period.
The fair values in the table above are provisional and remain subject to
finalisation. In particular, independent valuations of certain items of
property, plant and equipment remain in progress at 31 July 2023. The Group
expects to conclude the assessment of fair values ahead of publishing its
preliminary results for the FY24 financial year.
SA Greetings Corporation (Pty) Ltd contributed revenue of £2.2 million and a
loss of £0.3 million to the Group's profit after tax for the period between
the date of acquisition and the reporting date.
If the acquisition of SA Greetings Corporation (Pty) Ltd had been completed on
the first day of the financial year, Group revenues for the period to 31 July
2023 would have been £223.1M and Group profit after tax would have been
£16.7M. SA Greetings has a similar seasonal trading pattern to the rest of
the Group and generates the majority of its sales and profits in the second
half of the financial year.
19 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 58 to 62 of the Group's Annual Report for
the year ended 31 January 2023) and are set out below for each category of
risk.
Financial Risks:
• Geopolitical Instability
Operational Risks:
• ERP Implementation
• IT Infrastructure and risk of IT/security disruption
• Retail partner exposure
• Supplier CSR breach
• Business Continuity
Strategic Risks:
• ESG Compliance and climate change risks
• Adapting to customer preferences
• Brand customer experience
The Board also consider that these risks are the principal risks and
uncertainties affecting the remainder of the current financial year, with the
exception of ERP Implementation where the risk has reduced following the
implementation of the second major phase of this project in August 2023.
20 Related party transactions
The Group has taken advantage of the exemptions contained within IAS 24
'Related Party Disclosures' from the requirement to disclose transactions
between Group companies as these have been eliminated on consolidated.
A full listing of the Group's subsidiary undertakings is provided in the 2023
Annual Report and Accounts on page 147. Since 31 January 2023, the Group has
added five new subsidiaries, in connection with the acquisition of SA
Greetings, as set out below:
• CF SA Holdings (Pty) Limited - holding company
• SA Greetings Corporation (Pty) Limited - holding company
• SA Greetings (Pty) Limited - trading company
• CNA Properties (Baragwanath) (Pty) Ltd - property company
• Funny Paper (Pty) Ltd - dormant
The Group owns 100% of each of these entities, all of which are incorporated
in South Africa at the registered address 2 Aeroton Road, Aeroton,
Johannesburg, Gauteng 2001.
The key management personnel of the Group comprise the Card Factory plc Board
of Directors, the Executive Board and the Senior Leadership Team. Disclosures
relating to remuneration of key management personnel are included in note 5 of
the 2023 Annual Report and Accounts financial statements. Further details of
Directors' remuneration are set out in the Directors' Remuneration Report of
the Annual Report and Accounts on pages 74 to 97. Directors of the Company and
their immediate families control 0.02% of the ordinary shares of the Company.
There were no other related party transactions in the period.
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 United
Kingdom;
• 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
Matthias Seeger
Chief Executive Officer Chief
Financial Officer
26 September 2023
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 2023 which comprises consolidated income statement, consolidated
statement of comprehensive income, consolidated statement of financial
position, consolidated statement of changes in equity, consolidated cash flow
statement and related 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 2023 is not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 (Revised), "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued for use in the
United Kingdom. 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. 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.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with UK adopted IFRSs. The condensed set of financial
statements included in this half-yearly financial report has been prepared in
accordance with UK adopted International Accounting Standard 34, "Interim
Financial Reporting".
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 to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410 (Revised), however future events or conditions may cause the
entity to cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company'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 company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. 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 paragraph of
this report.
Use of the review report
This report is made solely to the Company in accordance with International
Standard on Review Engagements (UK) 2410 issued by the Financial Reporting
Council. Our work has been undertaken so that we might state to the Company
those matters we are required to state to it in an independent review 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 formed.
Mazars LLP
Chartered Accountants
One St Peter's Square
Manchester
M2 3DE
26 September 2023
Alternative Performance Measures ("APMs") and other explanatory information
In the reporting of the preliminary results and condensed consolidated
financial statements, the Directors have adopted various Alternative
Performance Measures ('APMs') of financial performance, position or cash flows
other than those defined or specified under International Financial Reporting
Standards ('IFRS').
These measures are not defined by IFRS and therefore may not be directly
comparable with other companies' APMs, including those in the Group's industry
or that appear to have similar titles or labels. APMs should be considered in
addition to IFRS measures and are not intended to be a substitute for IFRS
measurements.
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.
The table below sets out the APMS used in this report, with further
information regarding the APM, and a reconciliation to the closest IFRS
equivalent measure, below.
Sales APMs Like-for-Like Sales (LFL)
Profitability APMs EBITDA
Adjusted Profit Before Tax (PBT)
Adjusted Earnings per Share (EPS)
Financial Position APMs Net Debt
Leverage
Cash Flow APMS Operating Cash Conversion
Sales APMs
LFL Sales
Closest IFRS Equivalent: Revenue
Like-for-like or LFL calculates the growth or decline in gross sales in the
current period versus a prior comparative period.
For Stores, LFL measures exclude any sales earned from new Stores opened in
the current period or closed since the comparative period and only consider
the time period where Stores were open and trading in both the current and
prior period.
LFL measures for product lines or categories, where quoted, are calculated
using the same principles.
LFL measures for our Online businesses (cardfactory.co.uk and
gettingpersonal.co.uk) compare gross sales for the current and comparative
period made through the respective Online platform.
All LFL measures in this report compare HY24 to HY23, unless otherwise stated.
In addition, the Group reports combined Like-for-Iike sales measures for
certain components of the business as follows:
"cardfactory LFL" is defined as Like-for-like sales in Stores plus
Like-for-like sales from the cardfactory website www.cardfactory.co.uk;
"Online": Like-for-like sales for cardfactory.co.uk and gettingpersonal.co.uk
combined.
Sales by Printcraft, the Group's printing division, to external third-party
customers and Partnerships sales are excluded from any LFL sales measure.
Reconciliation of Revenue to LFL Sales
cardfactory Stores cardfactory Online cardfactory Getting Personal
£m £m LFL £m
£m
Revenue HY24 208.6 3.4 212.0 2.4
VAT 40.4 0.8 41.2 0.6
Adjustment for Stores not open in both periods (4.6) - (4.6) -
LFL Sales HY24 244.4 4.2 248.6 3.0
Revenue HY23 186.6 4.0 190.6 4.0
VAT 36.2 0.8 37.0 0.8
Adjustment for Stores not open in both periods (1.6) - (1.6) -
LFL Sales HY23 221.2 4.8 226.0 4.8
LFL Sales Growth +10.5% -13.1% +10.0% -36.6%
Note percentages are calculated based on absolute figures before rounding.
Profitability APMs
EBITDA
Closest IFRS Equivalent: Operating Profit 1
1 Whilst operating profit is not defined formally in IFRS, it is considered
a generally accepted accounting measure.
EBITDA is earnings before interest, tax, gains or losses on disposal,
depreciation, amortisation and impairment charges. Earnings is equivalent to
profit after tax calculated in accordance with IFRS and each adjusting item is
calculated in accordance with the relevant IFRS.
The Group uses EBITDA as a measure of trading performance, as it usually
closely correlates to the Group's operating cash generation.
Reconciliation of EBITDA to Operating Profit
HY24 HY23
£m £m
Operating Profit 28.1 20.0
Add back:
Depreciation 22.4 21.5
Amortisation 1.6 1.2
Gains on disposal (1.0) (0.4)
Impairment charges - 1.5
EBITDA 51.1 43.8
Adjusted PBT
Closest IFRS Equivalent: Profit Before Tax
Adjusted PBT is Profit Before Tax adjusted to exclude the effect of
transactions that, in the opinion of the Directors, are one-off in nature and
as such are not expected to recur in future period and could distort the
impression of future performance trends based on the current year results. The
Group uses Adjusted PBT to assess its performance on an underlying basis
excluding these items and believe measures adjusted in this manner provide
additional information about the impact of unusual or one-off items on the
Group's performance in the period.
In the six months ended 31 July 2023, the Directors have identified the
following items that they believe to meet the definition of 'one-off' for this
purpose:
· The provisional gain on bargain purchase related to the
acquisition of SA Greetings of £2.6 million.
The following items are taken into account in arriving at Adjusted PBT for the
equivalent period last year (HY23):
· A £2.5 million benefit arising as a result of releasing
provisions no longer required following settlement of the Group's CJRS
position with HMRC.
· A £1.0 million benefit arising as a result of the refinancing of
the Group's debt facilities in April 2022.
Reconciliation of Adjusted PBT to Profit Before Tax
HY24 HY23
£m £m
Profit Before Tax 24.7 14.3
Add back / (Deduct):
Acquisition gain (2.6) -
CJRS settlement - (2.5)
Refinancing benefit - (1.0)
Adjusted PBT 22.1 10.8
Adjusted EPS
Closest IFRS Equivalent: Basic Earnings per Share
Adjusted EPS calculates Earnings per Share with an amended earnings figure
adjusted to exclude the effect of transactions that, in the opinion of the
Directors, are one-off in nature and as such are not expected to recur in
future period and could distort the impression of future performance trends
based on the current year results.
The calculation applies the effective tax rate for the period (determined by
dividing the tax charge by Profit Before Tax for the period), to Adjusted PBT
(as calculated above) to determine an adjusted earnings figure. No adjustments
are made to the weighted average number of shares used in the EPS calculation.
The Group uses Adjusted EPS to assess performance and shareholder value on a
basis excluding one-off transactions; and believe measures adjusted in this
manner provide additional information about the impact of unusual or one-off
transactions on the Group's performance in the period.
Reconciliation of Adjusted EPS to Basic EPS.
HY24 HY23
Weighted average number of shares in issue (A) 342,701,920 342,098,789
Profit for the period (B) £19.2m £11.5m
Basic EPS (B)/(A) 5.6 pence 3.4 pence
Adjusted PBT £22.1m £10.8m
Effective tax rate 22.2% 19.6%
Tax charge on Adjusted PBT (£4.9m) (£2.1m)
Adjusted Profit for the period (C) £17.2m £8.7m
Adjusted EPS (C)/(A) 5.0 pence 2.5 pence
Financial Position APMs
Net Debt
Closest IFRS Equivalent: No equivalent; however is calculated by combining
IFRS measures for Cash and Borrowings.
Net Debt is calculated by subtracting the Group's cash and cash equivalents
from its gross borrowings (before debt-issue costs). 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.
Calculation of Net Debt
HY24 HY23
£m £m
Current Borrowings 23.6 18.6
Non-Current Borrowings 74.8 84.9
Add back Debt Issue Costs 1.0 1.6
Gross Borrowings 99.4 105.1
Cash (27.5) (8.5)
Net Debt (exc. Leases) 71.9 96.6
Lease Liabilities 101.6 109.4
Net Debt (inc. Leases) 173.5 206.0
Leverage
Closest IFRS Equivalent: No equivalent; however, is calculated with reference
to Net Debt and EBITDA, which are reconciled to relevant IFRS measures in this
section.
Leverage is the ratio of Net Debt to EBITDA for the previous 12 months
expressed as a multiple. The Group monitors and reports leverage as a key
measure of its financing position and as an assessment of the Group's ability
to manage and repay its debt position. Leverage is also a covenant defined
within the Group's financing facilities.
The Group targets a longer-term Leverage ratio of around 0.5x to 1.5x when
calculated across a financial year. As described in the Group Financial Review
, the Group's cash flows and earnings are materially affected by seasonality,
with higher sales and cash flows in the second half of the year linked to the
Christmas season. As a result, net debt levels are lower and Leverage improved
at the year end, after the Christmas season.
Calculation of Leverage
HY24 HY23
£m £m
Net Debt (as calculated above) 71.9 96.6
EBITDA for H1 (as calculated above) 51.1 43.8
EBITDA for H2 of prior year 71.2 62.0
EBITDA (last 12 months) 122.3 105.8
Leverage 0.6x 0.9x
Cash Flow APMs
Operating Cash Conversion
Closest IFRS Equivalent: No equivalent; however is calculated with reference
to Cash from Operating Activities (an IFRS measure) and EBITDA, which is
reconciled to Operating Profit in this section.
Operating cash conversion is Cash from operations (calculated as cash from
operating activities before corporation tax payments) per the cash flow
statement prepared in accordance with IFRS divided by EBITDA and expressed as
a percentage.
Calculation of Operating Cash Conversion
HY24 HY23
£m £m
Cash from Operations 36.3 19.7
EBITDA 51.1 43.8
Operating Cash conversion 71.0% 45.0%
Other Financial Calculation Information
Unless otherwise stated, amounts in this report are presented in Pound
Sterling (GBP), and have been rounded to the nearest £0.1 million.
Information in tables or charts may not add down or across, or calculate
precisely, due to rounding.
Percentage movements, where provided, are based on amounts before they were
rounded to the nearest £0.1 million.
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