REG - Card Factory PLC - Preliminary Results for year to 31 January 2021
10 June 2021
Card Factory plc ("Card Factory" or the "Group")
Preliminary results for the year ended 31 January 2021
Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its preliminary results for the year ended 31 January 2021 ('FY21').
Financial summary
Financial Metrics
Note
FY21
FY20
Change
Revenue
£285.1m
£451.5m
(36.9%)
Card Factory LFL sales
(i)
0.1%
(0.5%)
0.6 ppts
Underlying Profit before tax
(i)
(£15.2m)
£67.2m
(122.6%)
Profit before tax
(£16.4m)
£65.2m
(125.2%)
Underlying EBITDA
(i)
£47.0m
£125.9m
(62.7%)
Underlying Basic EPS
(i)
(3.7p)
15.7p
(123.6%)
Basic EPS
(4.0p)
15.1p
(126.4%)
Leverage (excl. lease liabilities)
(i)
2.3x
1.1x
Notes to table above:
i. See explanatory Note 1 "Alternative Performance Measures" for further information and definitions.
Summary of the financial period
· Store estate closed for an average of five months with significant impact on profitability
· Effective and swift action preserved cash, with £35m reduction in net debt in FY21
· Better than expected reopening performances after lockdowns one and two
· High growth in Card Factory online (+135.3% to £11.1m) and Getting Personal (+12.2% to £16.5m)
· Positive initial signs from early actions following the refreshed strategy launched in July 2020
· PBT guidance (Jan 2021) changed due to stock provision increase of £4.7m
Successful reopening following third lockdown from 12 April 2021
· Initial store sales performance exceeded previous reopening performances, albeit activity levels settled after initial pent up demand was satisfied
· Transaction volumes down on a two year basis in line with reduced market footfall; largely offset by increased spend per transaction
· Everyday Card and party ranges performing strongly
Successful refinancing provides necessary resources to invest in growth strategy
· New £225m debt facilities agreed May 2021, comprising:
o a £100m revolving credit facility (RCF), substantially on the same terms as the previous RCF, subject to revised financial covenants, intended to support the business as it returns to normalised leverage;
o a £75m term loan facility; and
o £50m Coronavirus Large Business Interruption Loan Scheme (CLBILS) facilities.
Darcy Willson-Rymer, Chief Executive Officer, commented:
"Since joining Card Factory in March 2021, I've been immensely encouraged by what I have seen and heard. We have successfully reopened our entire store estate following the third lockdown and delivered a reassuring performance in stores, whilst maintaining online momentum. Our powerful brand and unique business model means we are well placed to respond positively to the changing retail environment and to unlock the inherent potential in this business. The recent refinancing provides sufficient resources for us to do that by building on our excellent platform to drive future growth. I am excited about the opportunities ahead."
Preliminary results announcement
There will be a preliminary results webcast for analysts and investors today, starting at 9.30am, and available via https://webcasting.brrmedia.co.uk/broadcast/60a278288d9817323e2fc94e.
Those analysts who wish to attend are requested to contact Yasemin Balman of Tulchan Communications on the number provided below or by emailing cardfactory@tulchangroup.com. A copy of the webcast and accompanying presentation will be made available on the day via the Card Factory investor relations website: www.cardfactoryinvestors.com.
Enquiries
Card Factory plc via Tulchan Communications (below)
Darcy Willson-Rymer, Chief Executive Officer
Kris Lee, Chief Financial Officer
Tulchan Communications +44 (0) 207 353 4200
James Macey White / Elizabeth Snow cardfactory@tulchangroup.com
Explanatory notes
1. Alternative Performance Measures ("APMs") and other explanatory information
"EBITDA" is defined as earnings before interest, tax, depreciation and amortisation and represents profit for the
period before net finance expense, taxation, depreciation and amortisation.
"Leverage" is calculated as the ratio of Net Debt to Underlying EBITDA for the previous 12 months.
"Like-for-like" or "LFL" is defined as follows:
The Group defines Iike-for-Iike sales as the year-on-year growth in sales via Card Factory retail channels as follows:
· Card Factory Stores: "Store LFLs" consider stores that were open in both the current year and the comparative period. Sales are compared only for the equivalent c.55% of the year in which the applicable Card Factory stores were open for trading in FY21.
· Card Factory Online: made via the Card Factory website, www.cardfactory.co.uk;
· "Card Factory LFL" is defined as Like-for-like sales in stores plus sales from the Card Factory website. www.cardfactory.co.uk;
· Getting Personal: made via the separately branded personalised card and gift website, www.gettingpersonal.co.uk;
· Where 2 year LFLs are used, these compare FY22 with FY20, because there was no comparable trade during FY21.
Sales by Printcraft, the Group's printing division, to external third-party customers are excluded from any LFL sales measure.
"Net Debt" comprises total borrowings, overdrafts, lease liabilities reported under IFRS 16 Leases and the value of capitalised debt issues costs less cash.
"Underlying" The Group has chosen to present underlying profit and earnings measures. Transactions are categorised as non-underlying if the resulting underlying profit and earnings information is believed to assist comparison of year-on-year performance.
2. Cautionary Statement
This announcement contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein.
Card Factory plc ("Card Factory" or the "Group")
Preliminary results for the year ended 31 January 2021
CHAIRMAN'S STATEMENT
I would like to start by thanking our colleagues for the considerable fortitude and commitment that they have shown throughout the uncertainties of the last year. I am very proud of how they have responded and risen to the unprecedented challenges presented by the pandemic. Our priority remains the continued welfare of our customers and colleagues; we are grateful for the Government's Coronavirus Job Retention Scheme that helped us in supporting our team throughout this extraordinarily challenging period.
Card Factory has demonstrated strong resilience in the face of the wide-ranging impacts of the pandemic. Swift action was taken to preserve the Group's cash position and protect the balance sheet towards the start of the year and our careful cash management meant we ended the financial year with a £35m reduction in net debt. On behalf of the Board, I would like to thank our many partners and stakeholders who have continued to support the business.
Managing the impact of the pandemic
The closure of our stores for almost five months of the year affected key seasonal trading events, including Mother's Day and Christmas, had a very significant impact on the profitability of the business. The total lockdown of non-essential retail created a material step-up in online customer demand and we were pleased with how our two websites performed during the period, albeit recognising that we are at an early stage in the development of our digital offer.
The relaunch of cardfactory.co.uk on a new platform meant that we were better able to meet the increased demand, with a significantly improved customer experience including product range and additional new features. From December 2020, we further improved our digital platform with the launch of our new Card Factory app on iOS and then on Android, enhancing our new, highly competitive offer. Customers are embracing these apps, which accounted for 9% of online transactions by late May 2021, with the app generating 45% more repeat orders than our website.
Trading in the store estate recovered steadily following reopening after the first and second lockdowns, with transaction volumes outperforming UK retail footfall data. Footfall remained materially reduced, but was largely offset by customers choosing to buy more on each visit. We were particularly pleased with how our stores performed in October as we swiftly reacted to meet the increased customer demand to buy Christmas ranges early, accommodating the seasonal demand despite the significant disruption. Trading was also strong in December, but the November lockdown meant that the season overall was impacted as customers were able to shop the category in essential shops, that were able to trade, as well as on-line. Online demand has continued at above pre-pandemic levels but has slowed as stores reopened.
Our vertically integrated business model enabled us to identify and respond quickly to trends and satisfy customer demand. For example, lockdown humour ranges were made available online within five days of being designed, with great success. Our business model also allowed us to maintain our flexibility during the Christmas trading period; printing additional runs where necessary and avoiding overstocking as national and regional lockdowns came into effect.
Launch of our new strategy
In July 2020, we launched Card Factory's refreshed growth strategy. It is based on three pillars: a winning card-led proposition; being available in more places, however customers choose to shop; supported by a robust and scalable central model. While the overall future strategic direction for Card Factory is clear, the Board will be closely monitoring and assessing the impact of Covid-19 on the timing and phasing of the delivery of each element. Despite the challenges that the pandemic presented, we did make some important early progress against the strategy. As well as the relaunch of the cardfactory.co.uk website and accompanying app., we further optimised our card ranges and successfully implemented a number of price increases, given confidence in our ability to do so across the breadth of our categories.
Board appointments
We were delighted to welcome Darcy Willson-Rymer as our new Chief Executive on 8 March 2021. Darcy has excellent credentials and highly relevant experience to lead Card Factory through the next phase of our growth. We also welcomed Tripp Lane to the Board as a Non-Executive Director in April 2020.
Solid performance post re-opening
We continue to prioritise providing safe working and shopping environments in all our stores. After the third lockdown, which impacted the first two and half months of the financial year, including Valentine's and Mother's Days, we were delighted to welcome our customers back as trading restrictions began to ease across the UK and ROI from April 2021. The strong initial pent up demand has steadied and our performance since reopening has been in line with expectations. Our Everyday Card and party ranges have performed strongly, and although footfall remains reduced we are seeing evidence of customers shopping more evenly during the week and spending more per visit.
Successful refinancing
We were pleased to be able to recently announce a successful refinancing with our existing commercial banking syndicate. The increased bank facilities of £225m provides additional liquidity above the original £200m it replaced, and is for the same term through to 24 September 2023. The secured facilities provide Card Factory with the necessary financial resources to focus on its future growth strategy.
Summary
2020 was an unprecedented year for all businesses. For Card Factory in particular, key trading periods were significantly disrupted and a loss of over a third of the year's revenue inevitably had a very material impact on our financial performance. There were some challenging times for all, but I'm delighted at how the business and our colleagues navigated the consequences of the pandemic, which reflects on the robustness of the business. Our colleagues responded with great resilience ensuring our customers still received great service. We worked closely with our many stakeholders - suppliers, landlords, banking partners and the Government - to ensure that Card Factory can now confidently start to look forward to the future. I am certain that under Darcy's leadership we will take Card Factory forward, building on the strong platform that is already in place and deliver for all our stakeholders.
Paul Moody
Chairman
10 June 2021
CHIEF EXECUTIVE OFFICER'S REVIEW
This is my first CEO review since I joined Card Factory on 8 March 2021. I have long admired Card Factory both as a brand and for its market leadership. I believe that given our business model, customer offer and leading position in a substantial market, there is great potential to deliver value for all our stakeholders in the coming years.
Since joining, I have been impressed by the team, the strong culture across the business, and the affinity our customers have for the brand. The vertically integrated business model provides us with a distinct and valuable competitive advantage which we can use to improve how we serve our customers, offering great products at unbeatable prices through convenient and positive shopping experiences, whilst also delivering attractive financial returns. My focus is to ensure the business maximises its opportunities to deliver, with appropriate investment to provide a long term platform for sustainable growth.
One of my first priorities upon joining was the reopening of our stores across the UK and ROI from April and May 2021. I was encouraged by the store performance and it is clear from speaking to our customers just how much we have been missed. There are early indications that shoppers' habits have evolved with customers choosing to shop more evenly during the week, visiting less frequently but spending more. Clearly all retailers need a compelling online customer proposition, and we made some important progress in this regard through the last year. It remains an area of focus and opportunity for Card Factory, and something we that we will continue to invest in and develop. However - perhaps unlike other parts of the retail market - we are of the view that the majority of money spent on cards will still be in stores and on the High Street during the years ahead.
Card Factory launched a refreshed strategy in July 2020, aimed at extending and improving the customer offer, routes to market and its vertically integrated business model. The direction of travel that Card Factory needs to take is clear albeit we are currently assessing the impact of longer than expected lockdowns on the underlying elements and phasing of the strategy.
Overall, though, we remain focused on continuing to improve our customer experience and optimising our stores, using our data-led insight to respond to customer preferences for each particular store and maximise sales. We continue to monitor changes to customer behaviour to meet their needs and, following successful trials, have also continued to build on the initial price changes rolled out across the store estate during the year, with further premium ranges introduced and price increases implemented on additional card ranges from reopening of stores in April 2021. We have detailed plans in development across all channels to maximise all sales opportunities for Father's Day in June 2021 and the next key peak season of Christmas 2021.
Part of the important progress we made in the year with regard to our online offer was the launch of a new website and app. They provide the platform for further enhancements as we develop a wider omnichannel offer that allows us to put quality cards at great prices in the hands of customers wherever they choose to buy them. The preparations for our ERP implementation, on hold during the third lockdown, is now progressing well, with phase one now scheduled for October 2021. We expect this will further improve efficiency and replace multiple solutions, many of which are no longer supported and unreliable.
The recent successful refinancing provides the business with the necessary financial resources to focus on our future growth strategy. As previously announced, Card Factory intends to use its best efforts to raise net equity proceeds of £70m in due course, subject to independent advice and prevailing market conditions, to facilitate an early reduction of overall debt prepayments.
We are a much-loved retail brand with a business model that allows us to offer our customers outstanding value at a time and place that suits them. We can adapt quickly to new trends and changes to customer demand and deliver these products across a number of sales channels. Equally, there is still opportunity to strengthen the business to help it capitalise on the opportunities ahead. I am looking forward to leading the business through the next phase of its growth.
Darcy Willson-Rymer
Chief Executive Officer
10 June 2021
CHIEF FINANCIAL OFFICER'S REVIEW
The "FY21" accounting period refers to the year ended 31 January 2021 and the comparative period "FY20" refers to the year ended 31 January 2020.
The Group has chosen to present underlying profit and earnings measures; transactions are categorised as non-underlying if the resulting underlying profit and earnings information is believed to assist comparison of year-on-year performance.
Revenue
Total Group revenue during the year declined by 36.9% to £285.1m (FY20: £451.5m), driven by the impact on trading of Covid-19 related lockdowns:
FY21
£'m
FY20
£'m
Increase/
(Decrease)
Card Factory stores
251.9
429.0
(41.3%)
Online
27.6
19.4
42.0%
Retail partnerships
5.6
3.1
83.3%
Group
285.1
451.5
(36.9%)
Covid-19 led to a postponement of some planned new store openings in FY21; 9 new stores were opened, along with 15 store closures and 2 relocations, giving a net reduction of 6 stores during the year. This brought the total store estate to 1,016 stores at the year-end, including 14 stores in the Republic of Ireland. Going forward, store relocations will be an important driver of growth, with more modest new store roll outs.
The impact of the Covid-19 pandemic on consumer behaviour resulted in a significant boost to growth in business through our online channels.
Like-for-like ("LFL") sales growth was broken down as follows (LFL measure excludes periods where stores were closed due to lockdown):
FY21
FY20
Card Factory stores
(2.4%)
(0.7%)
Card Factory online
135.3%
14.8%
Card Factory LFL
0.1%
(0.5%)
Getting Personal
12.2%
(10.0%)
Ongoing improvements to the depth, quality and merchandising of our complementary non-card product offering led to a continuation of the mix shift to this category. In addition, the business has placed increased emphasis on its Everyday card offering, to ensure customers have the widest choice of card type and greeting messages. The full-year mix for FY21 was 51.1% single cards (FY20: 52.2%), 46.7% non-card (FY20 45.8%) and 2.2% boxed cards (FY20: 2.0%).
LFL Revenue from the Card Factory transactional website grew by 135.3% (FY20: 14.8%) as the impact of lockdown saw a significant increase in visitor numbers.
Performance at Getting Personal was also encouraging, with LFL annual revenue growing 12.2% (FY20: -10.0%), again driven by increased visitors to the site and strong conversion driving higher sales in both cards and gifting.
Underlying operating costs
Underlying cost of sales and operating expenses can be analysed as follows:
FY21 Underlying
FY21
£'m
FY21
% of revenue
% of revenue
(Increase) / Decrease
£
(Increase) / Decrease
Cost of goods sold
116.9
41.0%
(7.2 ppts)
23.4%
Store wages
59.7
20.9%
(1.5 ppts)
31.9%
Store property costs
9.6
3.4%
2.5 ppts
63.8%
Other direct expenses
18.3
6.4%
(1.3 ppts)
20.1%
Underlying cost of sales
204.5
71.7%
(7.5 ppts)
29.4%
Non-underlying FX loss
1.2
Total cost of sales
205.7
Operating expenses*
33.6
11.8%
(3.9 ppts)
6.1%
Depreciation, amortisation & impairment
53.3
18.7%
(7.6 ppts)
(6.0%)
Total underlying operating costs
86.9
30.5%
(11.5 ppts)
(0.9%)
Non-underlying items
-
Total operating costs
86.9
FY20 Underlying
FY20
£'m
FY20
% of revenue
Cost of goods sold
152.7
33.8%
Store wages
87.7
19.4%
Store property costs
26.5
5.9%
Other direct expenses
22.9
5.1%
Underlying cost of sales
289.8
64.2%
Non-underlying FX gain
(0.5)
Total cost of sales
289.3
Operating expenses*
35.8
7.9%
Depreciation, amortisation & impairment
50.3
11.1%
Total underlying operating costs
86.1
19.0%
Non-underlying impairment
2.5
Total operating costs
88.6
*excluding depreciation, amortisation and impairment
The overall ratio of cost of sales to revenue increased to 71.7% on an underlying basis (FY20: 64.2%). This increase was driven by the following movements in sub-categories and by the decline in LFL performance:
· Underlying cost of goods sold ("COGS"): principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight costs, carriage costs and warehouse wages. Product COGS (card and non-card) improved by 0.3 ppts at constant currency. However, an increase of £18.1m in stock provision resulted in an increase in overall COGS by 7.2 ppts. The introduction of technology to collate SKU level data has given us more visibility of individual product performance and, on the back of new product launches and more defined range management, we have decided that a large element of older stock (which includes an element of unsold stock due to Covid-19 store closures) will no longer be available for sale through the Group's channels. This gives us a much cleaner stock position and enables us to respond much more quickly to product performance. As a result we would not expect this increase in the stock provision to recur in future years.
· Store wages: includes wages and salaries (including bonuses) for store-based staff, together with national insurance contributions, apprenticeship levy, pension contributions, and overtime, holiday and sick pay, and is shown net of Government support through the Coronavirus Job Retention Scheme ("CJRS"). Wages before taking account of CJRS support rose slightly as a result of pay increases, including those influenced by the National Living Wage.
· Store property costs: within cost of sales relate to business rates and service charges, and benefits from UK government's business rates relief of £18.1m in FY21.
· Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point of sale costs, bank charges and pay per click expenditure. This cost category is largely variable in respect of the number of stores. The ratio of other direct expenses to revenue increased by 1.3 ppts as certain costs do not change in direct proportion with lower revenue from store closures, including premises insurance, electricity, maintenance, and rental of payment terminals.
· Underlying operating expenses: includes items such as support centre remuneration, the cost of store estate Regional and Area Managers, design studio costs and business insurance together with other central overheads and administration costs. FY21 includes full year costs for new warehousing facilities, offset by savings in storage costs within Other direct expenses. FY21 also saw further investment in IT infrastructure (including new hand held terminals and SAP), and Online support (including a new platform). Total operating expenses (excluding depreciation and amortisation) fell by 6.1% to £33.6m, representing an increase from 7.9% to 11.8% as a percentage of Covid-19 impacted revenue.
Depreciation and amortisation, including depreciation and impairment of right-of-use property lease assets, grew by 6.0% to £53.3m (FY20: £50.3m), largely driven by a lease impairment charge of £2.6m.
Underlying EBITDA
FY21
£'m
FY20
£'m
Increase/ (Decrease)
Underlying EBITDA
47.0
125.9
(62.7%)
Underlying EBITDA margin
16.5%
27.9%
(11.4 ppts)
The reduction in Underlying EBITDA reflects, in particular, the Covid-19 impacted sales performance, mitigated by strong cost control.
Net financing expense
Excluding interest charges pertaining to IFRS 16 Leases, net financing expense increased to £5.5m (FY20: £4.4m), due to the average effective interest rate being 0.44 ppts higher than in FY20 arising from Covid-related revisions to the facility. Including IFRS 16 Leases interest charges, the underlying net financing expense increased to £8.9m (FY20: £8.4m).
All Underlying
FY21
£'m
FY20
£'m
(Increase) /Decrease
Finance expense
Interest on loans
5.1
4.0
(27.5%)
Loan issue cost amortisation
0.4
0.3
(33.3%)
Loss on interest rate derivatives
-
0.1
100.0%
IFRS 16 Leases interest
3.4
4.0
15.0%
Net finance expense
8.9
8.4
(6.0%)
Profit before tax and non-underlying items
Underlying loss before tax for the financial year amounted to £15.2m (FY20: Underlying profit before tax £67.2m). Overall loss before tax for the financial year amounted to (£16.4m) (FY20: Profit before tax £65.2m).
The table below reconciles underlying profit before tax to the statutory profit before tax for both financial years:
FY21
£'m
FY20
£'m
Underlying profit before tax
(15.2)
67.2
Non-underlying items:
Cost of sales
Loss on foreign currency derivative financial instruments not designated as a hedge
(1.2)
0.5
Operating expenses
Impairment of goodwill
-
(2.5)
Profit before tax
(16.4)
65.2
Tax
The tax credit of £2.8m for the year represents a tax rate (credit) of 17.1% of loss before tax (FY20: £13.6m tax charge, 20.8% tax rate).
Earnings per share
Basic and diluted underlying losses per share for the year were (3.7p) (FY20: Underlying earnings per share 15.7p). After the non-underlying items described above, basic and diluted losses per share for the year were (4.0p) (FY20: Earnings per share 15.1p).
FY21
Adjusted
FY21 IFRS16
FY21
FY20
Adjusted
FY20 IFRS16
FY20
(Increase) /Decrease
Underlying Basic EPS
(3.9p)
0.2p
(3.7p)
15.4p
0.3p
15.7p
(123.6%)
Basic EPS
(4.2p)
0.2p
(4.0p)
14.8p
0.3p
15.1p
(126.4%)
Capital expenditure
Capital expenditure excluding IFRS 16 Leases right of use assets, amounted to £7.5m (FY20: £14.5m), principally in relation to new stores, supply chain investment and ERP implementation. Total capital expenditure, including right of use assets, amounted to £30.2m (FY20: £50.9m).
The Board anticipates capital expenditure in FY22 to be tightly controlled as it places stringent controls upon cash out flows in response to Covid-19 and postpones a large proportion of its new store roll out and relocation programme. However, the business still plans to invest in certain key strategic projects, including: e-commerce platforms, boosting online fulfilment capacity, SAP implementation and various process improvement investments that benefit from relatively short pay back periods.
Foreign exchange
With approximately half of its annual cost of goods sold expense relating to products paid for in US dollars, the Group takes a prudent but flexible approach to hedging the risk of exchange rate fluctuations. The Board adopts the policy of using a combination of vanilla forwards and structured options to hedge this exposure. The Group has used structured options and similar instruments to good effect for a number of years and the Board continues to view such instruments to be commercially attractive as part of a balanced portfolio approach to exchange rate risk management, even if cash flow hedge accounting may not be permitted in some instances.
At the year end, we had P&L cost of sales hedging in place for both FY22 and FY23 with anticipated effective P&L rates of c.$1.33, although this remains subject to significant shifts in the value of sterling, which could impact the structured trades that form part of the hedging portfolio, and the impact of future trading conditions on hedged cash flows. Structured trades represent approximately one third of hedges that are yet to mature.
Cash generation
In the year, the Group remained cash generative, driven by favourable working capital movements and relatively low ongoing capital expenditure requirements.
Net Debt & Covenants
As at 31 January 2021, net debt (including debt issue costs of £1.2m) amounted to £252.6m, analysed as follows:
FY21
Net Debt
£'m
FY21
Leverage
Multiple
FY20
Net Debt
£'m
FY20
Leverage
Multiple
Borrowings
Current liabilities
0.2
3.6
Non-current liabilities
118.8
144.0
Total borrowings
119.0
147.6
Lease liabilities
144.9
145.9
Capitalised debt costs
1.2
1.0
Gross debt
265.1
294.5
Less cash
(12.5)
(5.5)
Net Debt
252.6
289.0
Leverage
5.4x
2.3x
Remove lease liabilities
(144.9)
(145.9)
Net Debt excl. lease liabilities
107.7
143.1
Leverage excl. lease liabilities
2.3x
1.1x
Net debt excluding lease liabilities at the year-end represented 2.3 times Underlying EBITDA (FY20: 1.1 times).
The Group has renewed its financing facilities with its banking partners, which now comprise a £75m Term Loan, £50m CLBILS and a Revolving Credit Facility of £100m. Under revised covenant terms, the Group must achieve defined Net Debt and EBITDA targets, measured on a monthly basis until March 2022, following which the business will move to quarterly covenant tests of Interest Cover and Leverage.
Until the business has no outstanding CLBILS, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. Furthermore, the Group must use best efforts to raise £70m net equity by July 22, or alternatively to prepay £70m using funding from other subordinated sources
The facilities have an expiry date of 24 September 2023 (unchanged from the previous arrangement), with the RCF element being extendable by 1 year to 24 September 2024 if the Company achieves certain debt repayment milestones by 30 November 2021.
The reduction in Net Debt of £35m in FY21 is driven by deferrals of VAT (£19m) and property payments (£21m).
Dividends and capital structure
Dividends
Historically, the Board has adopted a progressive ordinary dividend policy for the Company, reflecting its strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Company's long-term growth and profitability. Following the outbreak of the Covid-19 pandemic, the Board suspended dividend payments and no dividends were declared in FY21 (FY20: 2.9p interim dividend, nil final dividend, 5.0p special dividend).
Currently, we do not expect to pay any dividends in relation to FY22. The terms of the Company's refinancing restrict the payment of dividends until certain de-leveraging milestones are achieved.
Capital structure
The Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long-term returns to shareholders.
Following the impact of Covid-19, the Board intends to prioritise de-levering the business, which will impact the distribution of cash to shareholders in the short-term, as reflected above. Given the inherent uncertainty around the recovery of the business following the extended lockdowns experienced to date, and the risk of any subsequent lockdowns that may be imposed in the future, the Board will consider various options to ensure the key stakeholders of the business are protected as much as possible in these uncertain times and will look to provide a further update on capital policy as trading conditions become clearer.
It should be noted that net debt at the half and full year period ends is lower than intra-year peaks, reflecting usual trading patterns and working capital movements.
Kris Lee
Chief Financial Officer
10 June 2021
Consolidated income statement
For the year ended 31 January 2021
2021
2020
Underlying
Non-underlying (note 2)
Total
Underlying
Non-underlying (note 2)
Total
Note
£'m
£'m
£'m
£'m
£'m
£'m
Revenue
285.1
-
285.1
451.5
-
451.5
Cost of sales
(204.5)
(1.2)
(205.7)
(289.8)
0.5
(289.3)
Gross profit
80.6
(1.2)
79.4
161.7
0.5
162.2
Operating expenses
(86.9)
-
(86.9)
(86.1)
(2.5)
(88.6)
Operating (loss)/profit
3,4
(6.3)
(1.2)
(7.5)
75.6
(2.0)
73.6
Finance expense
6
(8.9)
-
(8.9)
(8.4)
-
(8.4)
(Loss)/profit before tax
(15.2)
(1.2)
(16.4)
67.2
(2.0)
65.2
Taxation
7
2.6
0.2
2.8
(13.5)
(0.1)
(13.6)
(Loss)/profit for the year
(12.6)
(1.0)
(13.6)
53.7
(2.1)
51.6
Earnings per share
pence
pence
pence
pence
- Basic and diluted
9
(3.7)
(4.0)
15.7
15.1
All activities relate to continuing operations.
Consolidated statement of comprehensive income
For the year ended 31 January 2021
2021
2020
£'m
£'m
(Loss)/profit for the year
(13.6)
51.6
Items that are or may be recycled subsequently into profit or loss:
Cash flow hedges - changes in fair value
(1.9)
0.6
Cost of hedging reserve - changes in fair value
(0.1)
1.7
Cost of hedging reserve - reclassified to profit or loss
-
(0.1)
Tax relating to components of other comprehensive income
0.4
(0.4)
Other comprehensive (expense)/income for the period, net of income tax
(1.6)
1.8
Total comprehensive (expense)/income for the period attributable to equity shareholders of the parent
(15.2)
53.4
Consolidated statement of financial position
As at 31 January 2021
Note
2021
2020
£'m
£'m
Non-current assets
Intangible assets
10
320.3
319.8
Property, plant and equipment
11
36.8
41.6
Right of use assets
12
111.4
132.4
Deferred tax assets
5.3
2.7
Derivative financial instruments
-
0.5
473.8
497.0
Current assets
Inventories
36.4
54.4
Trade and other receivables
9.2
10.8
Tax receivable
0.5
-
Derivative financial instruments
0.1
1.1
Cash and cash equivalents
13
12.5
5.5
58.7
71.8
Total assets
532.5
568.8
Current liabilities
Borrowings
14
(0.2)
(3.6)
Lease liabilities
12
(39.4)
(40.7)
Trade and other payables
(57.4)
(45.0)
Tax payable
-
(6.5)
Derivative financial instruments
(2.8)
(1.0)
(99.8)
(96.8)
Non-current liabilities
Borrowings
14
(118.8)
(144.0)
Lease liabilities
12
(105.5)
(105.2)
Derivative financial instruments
(1.9)
(1.3)
(226.2)
(250.5)
Total liabilities
(326.0)
(347.3)
Net assets
206.5
221.5
Equity
Share capital
3.4
3.4
Share premium
202.2
202.2
Hedging reserve
(3.1)
(1.6)
Cost of hedging reserve
0.4
1.1
Reverse acquisition reserve
(0.5)
(0.5)
Merger reserve
2.7
2.7
Retained earnings
1.4
14.2
Equity attributable to equity holders of the parent
206.5
221.5
Consolidated statement of changes in equity
For the year ended 31 January 2021
Share capital
Share premium
Hedging reserve
Cost of hedging reserve
Reverse acquisition reserve
Merger reserve
Retained earnings
Total equity
£'m
£'m
£'m
£'m
£'m
£'m
£'m
£'m
At 31 January 2019
3.4
202.2
0.9
0.4
(0.5)
2.7
11.0
220.1
Total comprehensive income for the period
Profit or loss
-
-
-
-
-
-
51.6
51.6
Other comprehensive income
-
-
0.5
1.3
-
-
-
1.8
-
-
0.5
1.3
-
-
51.6
53.4
Hedging gains/(losses) and costs of hedging transferred to the cost of inventory
-
-
(3.6)
(0.8)
-
-
-
(4.4)
Deferred tax on transfers to inventory
-
-
0.6
0.2
-
-
-
0.8
Transactions with owners, recorded directly in equity
Share-based payment charges
-
-
-
-
-
-
0.5
0.5
Dividends (note 8)
-
-
-
-
-
-
(48.9)
(48.9)
Total contributions by and distributions to owners
-
-
-
-
-
-
(48.4)
(48.4)
At 31 January 2020
3.4
202.2
(1.6)
1.1
(0.5)
2.7
14.2
221.5
Total comprehensive expense for the period
Profit or loss
-
-
-
-
-
-
(13.6)
(13.6)
Other comprehensive expense
-
-
(1.5)
(0.1)
-
-
-
(1.6)
-
-
(1.5)
(0.1)
-
-
(13.6)
(15.2)
Hedging gains/(losses) and costs of hedging transferred to the cost of inventory
-
-
-
(0.7)
-
-
-
(0.7)
Deferred tax on transfers to inventory
-
-
-
0.1
-
-
-
0.1
Transactions with owners, recorded directly in equity
Share-based payment charges
-
-
-
-
-
-
0.8
0.8
Dividends (note 8)
-
-
-
-
-
-
-
-
Total contributions by and distributions to owners
-
-
-
-
-
-
0.8
0.8
At 31 January 2021
3.4
202.2
(3.1)
0.4
(0.5)
2.7
1.4
206.5
Consolidated cash flow statement
For the year ended 31 January 2021
Note
2021
2020
£'m
£'m
Cash inflow from operating activities
15
79.9
124.8
Corporation tax paid
(6.3)
(14.6)
Net cash inflow from operating activities
73.6
110.2
Cash flows from investing activities
Purchase of property, plant and equipment
11
(4.9)
(11.0)
Purchase of intangible assets
10
(2.6)
(3.5)
Proceeds from disposal of fixed assets
0.5
0.4
Net cash outflow from investing activities
(7.0)
(14.1)
Cash flows from financing activities
Interest paid
(8.4)
(8.0)
Repayment of bank borrowings
(25.6)
-
Payment of lease liabilities
(22.1)
(41.0)
Dividends paid
8
-
(48.9)
Net cash outflow from financing activities
(56.1)
(97.9)
Net increase/(decrease) in cash and cash equivalents
10.5
(1.8)
Cash and cash equivalents at the beginning of the year
2.0
3.8
Closing cash and cash equivalents
13
12.5
2.0
Accounting policies
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').
Basis of preparation
This preliminary announcement has been prepared in accordance with the recognition and measurement principles of international accounting standards in conformity with the requirements of the Companies Act 2006. It does not include all the information required for full annual accounts.
The financial information contained in this preliminary announcement does not constitute the company's statutory accounts for the years ended 31 January 2021 or 31 January 2020 but is derived from these accounts. Statutory accounts for the year ended 31 January 2020 have been delivered to the registrar of companies, and those for the year ended 31 January 2021 will be delivered to the registrar in due course. The auditor has reported on those accounts; the audit reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
Going concern basis of accounting
The Board continues to have a reasonable expectation that the Group has adequate resources to continue in operation for at least the next 12 months and that the going concern basis of accounting remains appropriate. The outbreak of the Covid-19 pandemic and the measures adopted by governments in our key markets to mitigate its spread have impacted the Group. These measures required the Group to close its retail outlets for over 5 months in total during FY21. This has negatively impacted the Group's financial performance during the year and also its liquidity position.
The Group renewed its financing facilities with its banking partners in May 2021 (see Note 14 for further detail), through which it has access to £225m of credit. As at 31 May 2021, the Group's net debt excluding lease liabilities was £111.9m.
The Group has prepared cashflow forecasts for the 12 months following the date of approval of these accounts which incorporate the new debt facility and related covenant measures. These forecasts are based on the approved budget and business plan and include the Board's assumptions on trading performance, including the extent and speed of the recovery of store sales following reopening, and the timing of cashflows including amounts where payment was deferred due to Covid-19. The Board's trading assumptions are cautious compared to the Group's actual experience since stores reopened and model a gradual recovery to pre-COVID levels. These forecasts indicate that the Group would have significant headroom within its agreed financing arrangements and would comfortably meet all covenant tests within those arrangements, and would be able to settle its liabilities as they fall due for the duration of the forecasts.
There is still uncertainty over how the future development of the pandemic will impact the Group's business and customer demand for its products. The Group has therefore modelled a number of severe but plausible downside scenarios involving further closures of its stores, including scenarios where government imposed lockdowns require a two-month closure during the winter period and a separate scenario where the Group's stores are closed for the whole of the peak trading month of December 2021. The impact of a December lockdown is the most severe and, in such a scenario, without assuming the availability of government support (including the coronavirus job retention scheme) during this period of enforced closure, the Board would be required to take mitigating actions to reduce costs, optimise the Group's cash flow and preserve liquidity, including laying off retail staff during the period of closure and deferring or cancelling any potential bonuses. Additional cost saving measures such as deferring non-essential capital expenditure, which have not been modelled, would also be available to the Group.
On the basis of these mitigating actions the sensitised forecast cashflows indicate that, even on the basis of full closure in December and no government support, the Group would continue to be able to operate within the terms of its facility and to settle its liabilities as they fall due for a period of at least 12 months from date of approval of these financial statements. Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient loan facility headroom and accordingly the accounts are prepared on a going concern basis.
Principal accounting policies
The preliminary announcement has been prepared using the accounting policies published in the Group's accounts for the year ended 31 January 2020 (available on the Company's website).
Underlying profit and earnings
The Group has chosen to present an underlying profit and earnings measure. Transactions are categorised as non-underlying if the resulting underlying profit and earnings information provides a more meaningful comparison of performance year-on-year. Underlying earnings is not a recognised profit measure under UK IFRS and may not be directly comparable with 'adjusted' profit measures reported by other companies. The reported non-underlying adjustments are as follows:
Net fair value remeasurement gains and losses on derivative financial instruments
The Group utilises foreign currency derivative contracts to manage the foreign exchange risk on US Dollar denominated purchases and interest rate derivative contracts to manage the risk on floating interest rate bank borrowings. Fair value gains and losses on such instruments are recognised in the income statement to the extent they are not hedge accounted under IFRS 9. Such gains and losses relate to future cash flows. In accordance with the commercial reasoning for entering into the agreements, these gains/losses are deemed not representative of the underlying financial performance in the year and presented as non-underlying items. Any gains or losses on maturity of such instruments are presented within underlying profit.
Impairment of goodwill
In the prior period goodwill attributable to the Getting Personal cash generating unit ('CGU') was been impaired (see note 10). The impairment was a non-cash charge to the income statement reflecting a reduction in future performance expectations of Getting Personal and was presented as a non-underlying item.
1 Segmental reporting
The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails greeting cards, dressing and gifts principally through an extensive UK store network, with a small number of stores in the Republic of Ireland, and also through our 3rd party retail partners. Card Factory revenue for the year was £268.6m (FY20: £436.8m). Getting Personal is an online retailer of personalised cards and gifts. Getting Personal revenue for the year was £16.5 million (FY20: £14.7 million).
Group revenue is almost entirely derived from retail customers. Average transaction value is low and products are transferred at the point of sale. Group revenue is presented as a single category subject to substantially the same economic factors that impact the nature, amount, timing and uncertainty of revenue and cash flows. Revenue from retail partnerships and non-retail customers were circa £6.6m in the year. Revenue from outside the UK is circa £3.8m of Group Revenue.
2 Non-underlying items
2021
2020
£'m
£'m
Cost of sales
(Loss)/profit on foreign currency derivative financial instruments not designated as a hedge
(1.2)
0.5
Operating expenses
Impairment of goodwill (note 10)
-
(2.5)
Further details of the non-underlying items are included in the principal accounting policies.
3 Operating loss/profit
Operating loss/profit is stated after charging/(crediting) the following items:
2021
2020
£'m
£'m
Staff costs (note 5)
90.9
122.1
Depreciation expense
- owned fixed assets (note 11)
9.2
9.6
- right of use assets (note 12)
39.9
38.9
Amortisation expense (note 10)
1.6
1.4
Impairment of right of use assets (note 12)
2.6
0.4
Profit on disposal of fixed assets
-
(0.3)
Foreign exchange gain
(0.3)
(1.5)
Impairment of goodwill (note 10)
-
2.5
Non-underlying items included in the above are detailed in note 2.
The operating loss for the year end 2021 includes circa £31.4 million in respect of government grants receivable under the Coronavirus Job Retention Scheme ("CJRS") and circa £18.1 million retail business rates relief. Under the CJRS, grant income may be claimed in respect of certain costs to the Group of furloughed employees. Business rates relief for the Group's entire store portfolio commenced 1 April 2020, with no business rates payable in respect of retail locations for the remained of the financial year.
The total fees payable by the Group to KPMG LLP and their associates during the period was as follows:
2021
2020
£'000
£'000
Audit of the consolidated and Company financial statements
34
23
Amounts receivable by the Company's auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
340
167
Other services closely related to the audit
25
7
Total fees
399
197
4 EBITDA
Earnings before interest, tax, depreciation and amortisation ("EBITDA") represents profit for the period before net finance expense, taxation, depreciation and amortisation.
2021
2020
Underlying
Non-underlying (note 2)
Total
Underlying
Non-underlying (note 2)
Total
Note
£'m
£'m
£'m
£'m
£'m
£'m
Operating (loss)/profit
(6.3)
(1.2)
(7.5)
75.6
(2.0)
73.6
Depreciation, amortisation and impairment
3
53.3
-
53.3
50.3
2.5
52.8
EBITDA
47.0
(1.2)
45.8
125.9
0.5
126.4
5 Employee numbers and costs
The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows:
2021
2020
Number
Number
Management and administration
425
429
Operations
9,322
9,213
9,747
9,642
The aggregate payroll costs of all employees including Directors were as follows:
2021
2020
£'m
£'m
Employee wages and salaries
78.0
109.1
Equity-settled share-based payment expense
0.8
0.5
Social security costs
5.9
6.7
Defined contribution pension costs
1.3
1.4
Total employee costs
86.0
117.7
Agency labour costs
4.9
4.1
Total staff costs
90.9
121.8
Total employee costs are presented net of £31.4m recovered through the coronavirus job retention scheme.
Key management personnel
The key management personnel of the Group comprise the Card Factory plc Board of Directors, the Executive Board and the Operating Board. Key management personnel compensation is as follows:
2021
2020
£'m
£'m
Salaries and short-term benefits
4.4
4.1
Equity-settled share-based payment expense
0.7
0.3
Social security costs
0.6
0.5
Defined contribution pension costs
0.1
0.1
5.8
5.0
6 Finance expense
2021
2020
£'m
£'m
Finance expense
Interest on bank loans and overdrafts
5.1
4.0
Amortisation of loan issue costs
0.4
0.3
Lease interest
3.4
4.0
Loss on interest rate derivative contracts
-
0.1
8.9
8.4
7 Taxation
Recognised in the income statement
2021
2020
£'m
£'m
Current tax (credit)/expense
Current year
(0.8)
13.5
Adjustments in respect of prior periods
0.1
-
(0.7)
13.5
Deferred tax (credit)/charge
Origination and reversal of temporary differences
(1.9)
-
Adjustments in respect of prior periods
0.1
-
Effect of change in tax rate
(0.3)
0.1
(2.1)
0.1
Total income tax (credit)/expense
(2.8)
13.6
The effective tax credit rate of 17.1% (2020: 20.8% tax charge) is lower than the standard rate of corporation tax in the UK principally due to expenses not deductible for tax purposes within the loss for the year. The tax charge is reconciled to the standard rate of UK corporation tax as follows:
2021
2020
£'m
£'m
Profit before tax
(16.4)
65.2
Tax at the standard UK corporation tax rate of 19.0% (2020: 19.0%)
(3.1)
12.4
Tax effects of:
Expenses not deductible for tax purposes
0.4
1.1
Adjustments in respect of prior periods
0.2
-
Effect of change in tax rate
(0.3)
0.1
Total income tax expense
(2.8)
13.6
Total taxation recognised through the income statement, other comprehensive income and through equity are as follows:
2021
2020
Current
Deferred
Total
Current
Deferred
Total
£'m
£'m
£'m
£'m
£'m
£'m
Income statement
(0.7)
(2.1)
(2.8)
13.5
0.1
13.6
Other comprehensive income
-
(0.4)
(0.4)
-
0.4
0.4
Equity
-
(0.1)
(0.1)
-
(0.8)
(0.8)
Total tax
(0.7)
(2.6)
(3.3)
13.5
(0.3)
13.2
8 Dividends
There were no dividends paid in the year and the Board is not recommending a final dividend in respect of the financial year ended 31 January 2021 (2020: no final dividend).
Dividends paid in the year:
Pence per share
2021
2020
£'m
£'m
Special dividend for the year ended 31 January 2020
5.0p
-
17.1
Interim dividend for the year ended 31 January 2020
2.9p
-
9.9
Final dividend for the year ended 31 January 2019
6.4p
-
21.9
Total dividends paid to shareholders in the year
-
48.9
9 Earnings per share
Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.
Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for the dilutive effect of potential ordinary shares. Potential ordinary shares represent employee share incentive awards and save as you earn share options.
The Group has chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying items to reflect the Group's underlying profit for the year. Underlying earnings is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.
2021
2020
(Number)
(Number)
Weighted average number of shares in issue
341,626,396
341,575,284
Weighted average number of dilutive share options
128,446
-
Weighted average number of shares for diluted earnings per share
341,754,842
341,575,284
£'m
£'m
Profit for the financial period
(13.6)
51.6
Non-underlying items
1.0
2.1
Total underlying profit for underlying earnings per share
(12.6)
53.7
pence
pence
Basic earnings per share
(4.0)
15.1
Diluted earnings per share
(4.0)
15.1
Underlying basic earnings per share
(3.7)
15.7
Underlying diluted earnings per share
(3.7)
15.7
10 Intangible assets
Goodwill
Software
Total
£'m
£'m
£'m
Cost
At 1 February 2020
328.2
14.1
342.3
Additions
-
2.6
2.6
Disposals
-
(3.0)
(3.0)
At 31 January 2021
328.2
13.7
341.9
Amortisation/impairment
At 1 February 2020
14.4
8.1
22.5
Amortisation in the period
-
1.6
1.6
Amortisation on disposals
-
(2.5)
(2.5)
At 31 January 2021
14.4
7.2
21.6
Net book value
At 31 January 2021
313.8
6.5
320.3
At 31 January 2020
313.8
6.0
319.8
Goodwill
Software
Total
£'m
£'m
£'m
Cost
At 1 February 2019
328.2
10.6
338.8
Additions
-
3.5
3.5
At 31 January 2020
328.2
14.1
342.3
Amortisation/impairment
At 1 February 2019
11.9
6.7
18.6
Amortisation in the period
-
1.4
1.4
Impairment in the period
2.5
-
2.5
At 31 January 2020
14.4
8.1
22.5
Net book value
At 31 January 2020
313.8
6.0
319.8
At 31 January 2019
316.3
3.9
320.2
Impairment testing
Goodwill in respect of the Getting Personal CGU was impaired to nil in the prior year. All remaining goodwill is in respect of the Card Factory CGU.
The recoverable amount has been determined based on value-in-use calculations. Value-in-use calculations are based on 5-year management forecasts and operating cash flows with a 0% (2020: 2%) terminal growth rate applied thereafter, representing management's estimate of the long term growth rate of the sector. Forecasts do not include new or additional revenue streams such as new stores and new retail partnerships, to reflect the value-in-use of the existing business.
The key assumptions used to forecast operating cash flows include: sales growth, based on historic performance and latest expectations; product mix; foreign exchange rates, based on hedges in place and market forecasts for unhedged items, the Group's current expectations in relation to operational costs; and the Covid-19 trading environment. The values assigned to each of these assumptions were determined based on historical performance of the CGU and expected future trends.
The forecast cash flows are discounted at a pre-tax discount rate of 12.0% (2020: 12.0%) calculated using the capital asset pricing model utilising available market data and compared to the published discount rates of comparable businesses.
No impairment loss was identified. The valuations indicate sufficient headroom such that a reasonably possible change to key assumptions would not result in an impairment of the related goodwill. Whilst the continued impact of Covid-19 remains uncertain, the Board do not anticipate that further short-term Covid-19 downsides will result in an impairment of the Card factory CGU.
11 Property, plant and equipment
Freehold property
Leasehold improvements
Plant, equipment, fixtures & vehicles
Total
£'m
£'m
£'m
£'m
Cost
At 1 February 2020
17.5
40.3
66.4
124.2
Additions
0.3
0.7
3.9
4.9
Disposals
-
(0.8)
(2.7)
(3.5)
At 31 January 2021
17.8
40.2
67.6
125.6
Depreciation
At 1 February 2020
3.5
32.4
46.7
82.6
Depreciation in the period
0.4
3.1
5.7
9.2
Depreciation on disposals
-
(0.7)
(2.3)
(3.0)
At 31 January 2021
3.9
34.8
50.1
88.8
Net book value
At 31 January 2021
13.9
5.4
17.5
36.8
At 31 January 2020
14.0
7.9
19.7
41.6
Freehold property
Leasehold improvements
Plant, equipment, fixtures & vehicles
Total
£'m
£'m
£'m
£'m
Cost
At 1 February 2019
17.5
38.1
59.2
114.8
Additions
-
2.6
8.4
11.0
Disposals
-
(0.4)
(1.2)
(1.6)
At 31 January 2020
17.5
40.3
66.4
124.2
Depreciation
At 1 February 2019
3.1
29.3
42.0
74.4
Provided in the period
0.4
3.4
5.8
9.6
Depreciation on disposals
-
(0.3)
(1.1)
(1.4)
At 31 January 2020
3.5
32.4
46.7
82.6
Net book value
At 31 January 2020
14.0
7.9
19.7
41.6
At 31 January 2019
14.4
8.8
17.2
40.4
12 Leases
The Group has lease contracts, within the definition of IFRS 16 leases, in relation to its entire store lease portfolio, some warehousing office locations, an office location 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. Assets, liabilities and the income statement expense in relation to leases are detailed below.
Right of use assets
Buildings
Motor Vehicles
Total
£'m
£'m
£'m
Cost
At 1 February 2020
324.5
1.3
325.8
Additions
22.2
0.6
22.8
Disposals
(30.4)
(0.3)
(30.7)
At 31 January 2021
316.3
1.6
317.9
Depreciation and impairment
At 1 February 2020
192.7
0.7
193.4
Depreciation in the period
39.5
0.4
39.9
Impairment in the period
2.6
-
2.6
Depreciation on disposals
(28.9)
(0.3)
(29.2)
Impairment on disposals
(0.2)
-
(0.2)
At 31 January 2021
205.7
0.8
206.5
Net book value
At 31 January 2021
110.6
0.8
111.4
At 31 January 2020
131.8
0.6
132.4
Buildings
Motor Vehicles
Total
£'m
£'m
£'m
Cost
At 1 February 2019
311.6
1.0
312.6
Additions
35.9
0.5
36.4
Disposals
(23.0)
(0.2)
(23.2)
At 31 January 2020
324.5
1.3
325.8
Depreciation and impairment
At 1 February 2019
176.1
0.6
176.7
Depreciation in the period
38.6
0.3
38.9
Impairment in the period
0.4
-
0.4
Depreciation on disposals
(22.3)
(0.2)
(22.5)
Impairment on disposals
(0.1)
-
(0.1)
At 31 January 2020
192.7
0.7
193.4
Net book value
At 31 January 2020
131.8
0.6
132.4
At 31 January 2019
135.5
0.4
135.9
Disposals and depreciation on disposals include fully depreciated right of use assets in respect of leases that expired but the asset remained in use whilst a lease renewal was negotiated.
Lease liabilities
2021
2020
£'m
£'m
Current lease liabilities
(39.4)
(40.7)
Non-current lease liabilities
(105.5)
(105.2)
Total lease liabilities
(144.9)
(145.9)
Rent concessions agreed in the year in response to Covid-19 were principally in respect of the timing of payments and did not significantly impact the total consideration payable in respect of leases. In accordance with the amendment to IFRS16 in respect of Covid-19 concessions, lease liabilities have not been re-measured in respect of Covid-19 concessions except to the extent the rent concession was agreed as part of a lease renewal or extension. Total lease liabilities remain consistent with prior periods as the deferral of lease payments in response to Covid-19 is offset by slight reductions in the total store portfolio and average lease term.
Lease expense:
Total lease related expenses
2021
2020
£'m
£'m
Depreciation expense on right of use assets
39.9
38.9
Impairment of right of use assets
2.6
0.4
Profit on disposal of fixed assets
(0.3)
(0.1)
Lease interest
3.4
4.0
Expense relating to short term and low value leases *
0.6
0.5
Expense relating to variable lease payments **
-
(0.3)
Total lease related income statement expense
46.2
43.4
* Contracts subject to the election not to apply the requirements of IFRS 16 to short-term or low value leases.
** A small proportion of the store lease portfolio are subject to an element of turnover linked variable rents that are excluded from the definition of a lease under IFRS 16.
13 Cash and cash equivalents
2021
2020
£'m
£'m
Cash at bank and in hand
12.5
5.5
Unsecured bank overdraft (note 14)
-
(3.5)
Net cash and cash equivalents
12.5
2.0
Group cash and cash equivalents held in bank accounts within the RCF facility described in note 14 are subject to a netting arrangement. At the prior year end £14.3m overdrawn Sterling balances were netted against £10.8m US dollar balances giving rise to a net £3.5m overdrawn balance within the RCF.
The Group's cash and cash equivalents are denominated in the following currencies:
2021
2020
£'m
£'m
Sterling
1.1
(9.3)
Euro
0.4
0.5
US dollar
11.0
10.8
12.5
2.0
14 Borrowings
2021
2020
£'m
£'m
Current liabilities
Unsecured bank loans and accrued interest
0.2
0.1
Unsecured bank overdraft
-
3.5
0.2
3.6
Non-current liabilities
Unsecured bank loans
118.8
144.0
Bank loans
Bank borrowings as at 31 January 2021 are summarised as follows:
Liability
Interest rate
Interest margin ratchet range
Repayment terms
£'m
%
%
31 January 2021
Unsecured bank loan
120.0
2.5 + LIBOR
1.00 - 2.50
£200m RCF (see below for renewed facility terms)
Accrued interest
0.2
The facility terminates on 24 September 2023
Debt issue costs
(1.2)
119.0
31 January 2020
Unsecured bank loan
145.0
1.65 + LIBOR
1.00 - 2.50
£200m RCF
Accrued interest
0.1
The facility terminates on 24 September 2023
Debt issue costs
(1.0)
144.1
In response to the first period of non-essential retail closures due to Covid-19, the Group previously announced on 6 May 2020, an agreement with its banks to enable continued full utilisation of the £200m Revolving Credit Facility ("RCF") to ensure the business had sufficient liquidity in the uncertain period. In order to do this, the Group had agreed three main covenant tests around; total net debt, cash burn and last twelve months EBITDA until June 2021, after which it was envisaged that the business would have a phased return back to existing covenant tests of EBITDA to Leverage and EBITDA to interest cover.
Following further periods of non-essential retail closures, on 21 May 2021 the Group renewed its financing facilities with its banking partners, which now comprise a £75m Term Loan, £50m CLBILS and a Revolving Credit Facility of £100m. Under revised covenant terms, the Group must achieve defined Net Debt and EBITDA targets, measured on a monthly basis until March 2022, following which the business will move to quarterly covenant tests of Interest Cover and Leverage. Covenant thresholds are phased to return to 2.5x leverage and 2x interest cover by January 2023. The facilities have an expiry date of 24 September 2023 (unchanged from the previous arrangement), with the RCF element being extendable by 1 year to 24 September 2024 if the Company achieves certain debt repayment milestones by 30 November 2021.
The facilities are structured to incentivise an early reduction of overall debt with fees of up to £5m payable if pre-payments are not made in line with specified dates from 30 November 2021 through until 30 July 2022. Subject to prevailing market conditions and upon taking independent advice, the Company intends to use its best efforts to raise net equity proceeds of £70m to facilitate these prepayments. The Company is also permitted, under the terms of the facilities, to prepay £70m using funding from other subordinated sources. In accordance with the terms of the CLBILS facilities, restrictions on payment of dividends will apply whilst the CLBILS facilities remain outstanding. Prepayments shall discharge the Term Loan facility and the CLBILS facilities pro-rata.
Until the business has no outstanding CLBILS, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. Furthermore, the Group must use best efforts to raise at least £70m (net) in equity before the 31 July 2022, or alternatively to prepay £70m using funding from other subordinated sources.
15 Notes to the cash flow statement
Reconciliation of operating profit to cash generated from operations
2021
2020
£'m
£'m
Profit before tax
(16.4)
65.2
Net finance expense
8.9
8.4
Operating profit
(7.5)
73.6
Adjusted for:
Depreciation and amortisation
50.7
49.9
Impairment of right of use assets
2.6
0.4
Goodwill impairment
-
2.5
Loss on disposal of fixed assets
-
(0.3)
Cash flow hedging foreign currency movements
(0.1)
0.2
Share-based payments charge
0.8
0.5
Operating cash flows before changes in working capital
46.5
126.8
Increase in receivables
2.2
(2.9)
Decrease/(increase) in inventories
18.0
14.2
(Decrease)/increase in payables
13.2
(13.3)
Cash inflow from operating activities
79.9
124.8
16 Analysis of net debt
At 1 February 2020
Cash flow
Non-cash changes
At 31 January 2021
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest (note 14)
(144.1)
25.6
(0.5)
(119.0)
Lease liabilities
(145.9)
22.1
(21.1)
(144.9)
Total debt
(290.0)
47.7
(21.6)
(263.9)
Debt costs capitalised
(1.0)
(0.6)
0.4
(1.2)
Cash and cash equivalents (note 13)
2.0
10.5
-
12.5
Net debt
(289.0)
57.6
(21.2)
(252.6)
Lease liabilities
145.9
(22.1)
21.1
144.9
Net debt excluding lease liabilities
(143.1)
35.5
(0.1)
(107.7)
At 1 February 2019
Cash flow
Non-cash changes
At 31 January 2020
£'m
£'m
£'m
£'m
Unsecured bank loans and accrued interest (note 14)
(143.8)
-
(0.3)
(144.1)
Lease liabilities
(151.2)
41.0
(35.7)
(145.9)
Total debt
(295.0)
41.0
(36.0)
(290.0)
Debt costs capitalised
(1.3)
-
0.3
(1.0)
Cash and cash equivalents (note 13)
3.8
(1.8)
-
2.0
Net debt
(292.5)
39.2
(35.7)
(289.0)
Lease liabilities
151.2
(41.0)
35.7
145.9
Net debt excluding lease liabilities
(141.3)
(1.8)
-
(143.1)
17 Subsequent events
Liquidity
On 21 May 2021 the Group renewed its financing facilities with its banking partners, which now comprise a £75m Term Loan, £50m CLBILS and a Revolving Credit Facility of £100m. Under revised covenant terms, the Group must achieve defined Net Debt and EBITDA targets, measured on a monthly basis until March 2022, following which the business will move to quarterly covenant tests of Interest Cover and Leverage. Covenant thresholds are phased to return to 2.5x leverage and 2x interest cover by January 2023. The facilities have an expiry date of 24 September 2023 (unchanged from the previous arrangement), with the RCF element being extendable by 1 year to 24 September 2024 if the Company achieves certain debt repayment milestones by 30 November 2021.
The facilities are structured to incentivise an early reduction of overall debt with fees of up to £5m payable if pre-payments are not made in line with specified dates from 30 November 2021 through until 30 July 2022. Subject to prevailing market conditions and upon taking independent advice, the Company intends to use its best efforts to raise net equity proceeds of £70m to facilitate these prepayments. The Company is also permitted, under the terms of the facilities, to prepay £70m using funding from other subordinated sources. In accordance with the terms of the CLBILS facilities, restrictions on payment of dividends will apply whilst the CLBILS facilities remain outstanding. Prepayments shall discharge the Term Loan facility and the CLBILS facilities pro-rata.
Until the business has no outstanding CLBILS, there will be a prohibition of any payment to shareholders by way of dividend or share buy-back. Furthermore, the Group must use best efforts to raise at least £70m (net) in equity before the 31 July 2022, or alternatively to prepay £70m using funding from other subordinated sources.
Store re-opening dates
In accordance with Government guidelines, we welcomed our colleagues and customers back into our stores in England and Wales (12 April), Scotland (26 April), Northern Ireland (30 April) and the Republic of Ireland (17 May).
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