Annual Financial Report and Notice of AGM

RNS Number : 1644L

Card Factory PLC

23 April 2015

 

23 April 2015

Card Factory plc

Annual Financial Report and Notice of AGM

Card Factory plc ("Card Factory" or the "Company") announces that it has published its Annual Report and Accounts for the year ended 31 January 2015 and Notice of the Company's 2015 Annual General Meeting.

The Annual General Meeting to which the notice relates is to be held at 10.00 a.m. on Wednesday 27 May 2015 at the offices of Linklaters LLP, One Silk Street, London EC2Y 8HQ.

Copies of the documents listed below have today been posted to shareholders:

1.        Annual Report and Accounts 2015;

2.        Notice of 2015 Annual General Meeting; and

3.        Form of Proxy for the 2015 Annual General Meeting.

A copy of each of these documents has also been submitted to the UK Listing Authority via the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do.

These documents will also be accessible later today via the Company's investor relations website www.cardfactoryinvestors.com.

Card Factory's preliminary results announcement on 25 March 2015 (which is available via the Company's investor relations website referred to above) included, in addition to the preliminary financial results for the year ended 31 January 2015, information on important events that occurred during the year and their impact on those financial results. That information, together with the information set out in the Appendix below is provided in compliance with the requirements of DTR6.3.5(2)(b). This information is not a substitute for reading the full Annual Report and Accounts for the year ended 31 January 2015.

For further information:

Shiv Sibal, Company Secretary Card Factory plc

Tel: [phone]

ENDS

APPENDIX

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Card Factory group (the "Group") are set out below, together with details of how these are currently mitigated. For further information on how the Group manages risk, see pages 20 to 25 of the Strategic Report and also pages 40 to 41 of the Corporate Governance Report within the Annual Report and Accounts 2015.

Risk	Description	Mitigation
Market	The Group generates almost all of its revenue from the sale of greeting cards, dressings and gifts, which may be subject to changing customer tastes and trends. For example, consumers could reduce their purchases of physical greeting cards or increasingly make use of e-cards and other electronic communications instead of buying physical cards. Additionally, there is a risk that the Group may not be able to effectively predict and respond to changing consumer demands and market trends.	The Group benefits from the ingrained culture of giving greeting cards in the UK and performs regular consumer research to review these trends. The Group has continued to invest significantly in its in-house design capability and designs a significant proportion of its products. Designs are continuously being refreshed as the Group moves through its key trading seasons. Detailed sales analysis guides design and purchasing decisions. Additionally, the Group has invested in its commercial finance and buying teams which analyse sales data and consumer research to ensure these are taken into account in buying decisions. This provides the Group with a strong platform from which to approach its third-party suppliers in sufficient time to ensure the Group has new products on sale in time to meet customer demand. The combination of these activities and the continuing benefits of its vertically integrated model help the Group position itself to respond to changes in the markets in which it operates.
Competition	The greeting cards sector is highly competitive, including with respect to product selection and quality, store location and design, inventory, price and customer service. The Group competes with a wide range of retailers that offer competing products of varying quality and price. Some of our competitors, particularly supermarkets, general merchandise discounters and stationery retailers, may have greater market presence, name recognition, financial resources and purchasing economies of scale, any of which could give them a competitive advantage.	The Group's in-house design and print operations help maintain and improve the quality of our offering and the value the Group delivers to our customers. This strong focus on product development helps to strengthen our specialist proposition with a large proportion of our product range being redesigned each year. Competitor activity is closely monitored including locations, price points, promotional activity, product choice and quality. When considered appropriate, local pricing strategies are rapidly implemented to protect the Group's competitive position. The Group continuously reviews individual store performance and customer trends, for example by analysing like-for-like sales. The Group also conducts regular consumer surveys and market research. The Group regularly invests in and monitors the functions, systems and people that combine to support our vertically integrated business model which underpins our competitive position.
Our brands	The "Card Factory" and "Getting Personal" brands are important assets of the Group. If the Group is unable to protect its brand names or there is an event which materially damages the reputation of our brands and/or the Group fails to sustain its appeal to our customers, this could have an adverse impact on our sales and future prospects.	The Group regularly reviews customer trends and competitor activity, and conducts consumer surveys so it can understand our customers' perception of the Group's brands. The Group has a dedicated quality control function that works closely with our internal design and print divisions and third-party suppliers to ensure product quality and safety. Where possible, the Group seeks formal legal protection of its brands and designs and brand protection is the subject of increased focus with the support of external advisers. The Group has appointed a General Counsel to the senior management team to enable the Group to further develop its brand and design protection strategy.
Business strategy	Our business strategy has been developed with the aim of achieving long-term value for our shareholders. The Board recognises that if the strategy of and vision for the business are inappropriately developed, communicated or delivered there could be an adverse impact on our business and its prospects.	The implementation of and performance against Group strategy are regularly reviewed at Board and senior management team level. Competitor analysis, consumer research and increasingly EPOS data are being used to bring additional focus to the development of the Group's retail proposition and product mix to ensure customer satisfaction and experience are maintained and where possible enhanced, these being central to the sustainability of our strategy.
Store portfolio expansion	Growth in the Group's sales and profits over the period will depend on our ability to find suitable locations for new stores which, when trading, will have a positive impact on the profitability of the Group. Competition among retailers for store sites and our ability to acquire them on acceptable terms are key to the Group achieving its growth objectives. The Group's ability to support this growing portfolio through our operational infrastructure (including our production and distribution capabilities and our supplier base), financial systems and managerial controls and procedures will be critical to the Group's success as it continues to grow.	Management undertakes a formalised appraisal process for new location opportunities which includes an assessment of potential store sales and profitability. This process is well established and has been undertaken for each of the identified sites in the Group's new store roll-out plan. The result of this exercise is stored in a database of new store opportunities which is continually updated and refreshed. Regular commercial analysis is conducted on new stores to assess their performance including any cannibalisation impact where a particular location has multiple stores in close proximity. The Group carefully monitors developments in the real estate market and looks to adjust its strategy where a change may adversely affect the potential profitability of a proposed new location. The significant investments that have been made to date into the Group's operational capabilities support the current portfolio expansion strategy in the UK.
Sourcing/supply chain	The Group relies on third-parties, including many in the Far East, for the supply of nearly all of our non-card products, our handcrafted greeting cards and raw materials. Any failure by them to satisfy orders on acceptable terms (including as to scale and timing) may adversely affect our business or result in us having to seek alternative suppliers, who may not be able to fulfil our requirements. The Group is also exposed to changes in supplier dynamics and vulnerable to increases in the prices of raw materials. The international nature of the Group's supplier base means it is also subject to the risks of manufacturing and importing of goods from overseas including, but not limited to, freight costs and duty as well as the risk of interruptions in supply and reputational risk arising from the labour practices of suppliers.	The Group maintains strong relationships with its principal suppliers. The Group's strategy is to continuously develop and broaden its supplier base, where appropriate, to help mitigate the risk of the failure of any one supplier. The Group carries out inspections and audits of the factories operated by our major suppliers either by visiting them periodically or using external companies. The external audits carried out on our behalf provide us with reports on the condition and capacity of the supplier's operations which we can then act upon as appropriate. External audits of suppliers are conducted and the Group is a member of Sedex (the Supplier Ethics Data Exchange). The Group has a dedicated quality control function that tests samples of our products and also inspects products on arrival and before they are delivered to our stores.
Key Personnel	The successful implementation of the Group's strategy and the success of our business in general depend on our ability to continue to attract, motivate and retain management and employees. We also rely on our in-house design team to design nearly all of the cards and non-card merchandise. The loss of or inability to attract key members of these teams could adversely affect our business.	The aim of the Group's remuneration policy is to attract, retain and motivate high calibre senior management and to focus them on the delivery of the Group's strategic and business objectives, to promote a strong and sustainable performance culture, to incentivise high growth and to align the interests of Executive Directors and members of the senior management team with those of Shareholders through encouraging equity ownership. In promoting these objectives the policy aims to ensure that no more than is necessary is paid and with remuneration structured so as to adhere to the principles of good corporate governance and appropriate risk management. Where necessary to support the implementation of its strategy, the Group has supplemented its teams by recruitment across all of its functions including recent senior management hires of a Chief Information Officer and General Counsel/Company Secretary. The Nomination Committee has discussed the development of a formal succession plan for the Executive Directors and members of the senior management team. Details of the Group's remuneration policy are set out in the Directors' Remuneration Report on pages 51 to 59 of the Annual Report and Accounts 2015.
Finance and Treasury	Our funding arrangements and the fact that the Group sources the majority of its non-card merchandise, as well as certain raw materials used in the production and printing of its greeting cards, from suppliers located in the Far East mean that a lack of appropriate levels of covenant headroom and/or cash resources in the Group, or significant variations in interest or exchange rates, could have an impact on the Group's operations and performance.	The Group's current financing arrangements provide the Group with appropriate financial support to underpin the delivery of its growth strategy for the foreseeable future. Following the Group's IPO, its cash generative nature has continued to reduce net debt levels without adversely affecting cash resources available to the Group. The Group has clear treasury management processes and a Group treasury policy in place to govern cash management strategies and to manage any exposure to fluctuations in currency exchange and interest rates. All foreign exchange and interest rate contracts are pre-approved directly by the Chief Financial Officer and communicated to the Board monthly. All cash deposits are with reputable banks and are placed to balance the flexibility needed by the Group with its cash assets with the desire to obtain a competitive return on deposits. Further details of the Group's financial position are described in the Chief Financial Officer's review in the Strategic Report section on pages 18 and 19 of the Annual Report and Accounts 2015.
Business Continuity	Any major disruption to any of the parts of our vertically integrated business model, in particular to the Group's in-house printing facility, Printcraft, and its design studio, could severely affect the Group's ability to supply its stores which would, in turn, affect the performance of the business. Disruption to any of these functions could also force us to use third-party providers and this could be expensive and may be on onerous terms.	A business continuity plan has been developed which highlights the processes currently in place across the Group and where these can be further developed and improved. The plan will be regularly reviewed to ensure it evolves with and remains suitable for the Group. The plan identifies the steps that need to be taken to ensure minimum disruption to the Group's trading activities in the event of any major incident or interruption affecting the Group's key systems and facilities. In addition to the matters specifically addressed in the business continuity plan, the Group also holds stock across multiple locations to mitigate the risk to the business of a catastrophic event at any one of our storage facilities. Excess stocks of key lines are also held in separate locations. The Group also maintains appropriate business interruption insurance cover.
Compliance	Many aspects of the Group's business and operations are governed by legislation, regulations and other standards and rules in areas including, but not limited to, corporate governance, the listing and trading of our shares, employment, product quality, trading, the environment, health and safely, bribery and data protection. Any failure to comply with these could lead to penalties, fines, damages claims or reputational damage which could, in turn, have an impact on the financial performance of the business.	The Group has a range of policies and procedures in place within the business governing behaviours in all key areas, some of which address mandatory requirements and some which the Group has adopted voluntarily. These are regularly reviewed and updated and include a whistle-blowing procedure and helpline that ensures colleagues can raise any concerns in complete confidence. Responsibility for managing and monitoring compliance within each of the Group's key operational teams sits with the relevant member of the senior management team. The Group has appointed a combined General Counsel and Company Secretary to oversee and co-ordinate compliance in the Group as a whole with the senior management team being required to liaise with him and external advisers to ensure that potential issues are identified and managed. In addition, the responsibility for compliance by the Group with governance and listing requirements sits with General Counsel and Company Secretary.
Information Technology	The Group is dependent on reliable and efficient information technology (IT) systems and processes. These include all systems and processes supporting our retail operations (both physical and online), our head office function and our in-house design and printing operations. A failure to adequately maintain the Group's IT systems or any prolonged system performance problems could seriously affect our ability to implement the Group's strategy and to carry on the business.	In early 2014, the Group appointed a Group Chief Information Officer to further develop and oversee the implementation of the Group's IT strategy and to ensure it is aligned with the long-term strategy of the Group as a whole. The Group's IT strategy is reviewed regularly to ensure it supports the day-to-day operational needs of the business. IT strategy and governance generally form part of the Audit and Risk Committee's remit for review. The continuing rollout of EPOS systems across the Group's store network is a core part of the Group's IT strategy to continue the rollout plan in line with expectations. The Group's principal IT risks are documented and agreed service levels for recovery of key business systems are in place and form part of the Group's overall business continuity plan.
Online	The Group's online presence in the personalised greeting card and gift market, principally via our Getting Personal transactional website, is relatively new to our business. There can be no assurance that our transactional websites will compete effectively in a very competitive market with relatively low barriers to entry. If the Group fails to develop our transactional websites in line with changing customer tastes and evolving technology, they may not deliver the anticipated growth in sales. This may also adversely impact our reputation and our customers' perception of our brands.	Development of the Group's online offering is one of our four growth pillars. Following the acquisition of Getting Personal in 2011, the Group has further developed the extensive in-house web development capabilities that were acquired with that business. Responsibility for review and development of online strategy has been given to a steering group chaired by the Group's Chief Information Officer and whose members include the Group's Chief Executive Officer, Getting Personal's Managing Director and other key members of the senior management team. The steering group has responsibility for developing all areas of the strategy from technical delivery to the strength of the online retail proposition and customer experience. The online strategy also forms part of the Group's wider IT strategy to ensure it remains aligned with the Group's overall technology goals.

Directors' Responsibility Statement

The Annual Report and Accounts 2015 contains a responsibility statement by Richard Hayes, Chief Executive Officer, and Darren Bryant, Chief Financial Officer, by order of the Board in the following form:

"We confirm that to the best of our knowledge:

·     the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·     the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position and performance, business model and strategy."

Related Party Transactions

The only material transactions with related parties during the financial year ended 31 January 2015 were:

·     the Relationship Agreement entered into between the Company and the Charterhouse Funds;

·     the Underwriting Agreement entered into between the Company and the Principal Shareholder; and

·     the following transactions (further details of which are set out in note 28 of the financial statements on page 103 of the Annual Report and Accounts 2015):

Transactions with Key Management Personnel

The key management personnel of the Group comprise the Card Factory plc Board of Directors and the Operational Board. Disclosures relating to remuneration of key management personnel are included in note 6 of the financial statements. Further details of Directors' remuneration are set out in the Directors' Remuneration Report on pages 50 to 65 of the Annual Report and Accounts 2015. Directors of the Company control 6.4% of the ordinary shares of the Company;

Charterhouse General Partners (IX) Limited, as general partner of funds managed by it, controlled 17.8% of the ordinary share capital on the date the financial statements were approved (41.3% immediately following the IPO) and were represented on the Board of Directors by Graeme Coulthard, Non-Executive Director, prior to his resignation on 3 February 2015. The total aggregate fee for Director services payable to Charterhouse was £45,000 per annum (pre IPO: £40,000 per annum);

Settlement of shareholder loan notes

In May 2014, as detailed in the IPO prospectus, the Company issued 50.7 million ordinary shares at market value in full settlement of all outstanding 14% loan notes totalling £114.0 million which included settlement of the loan notes amounts due to related parties; and

Residual management equity

In May 2014, as detailed in the IPO prospectus, the Company issued 4.375 million ordinary shares at nominal value in relation to residual management equity. Included in this amount were 1.875 million shares issued to Darren Bryant, Chief Financial Officer and 1.875 million shares to other key management personnel who are not Directors of Card Factory plc.

Further details of the Relationship Agreement and the Underwriting Agreement are set out in the Directors' Report on page 69 of the Annual Report and Accounts 2015.

 

END

 

 

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