Annual Financial Report

RNS Number : 3127M

Card Factory PLC

27 April 2018

 

27 April 2018

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 2018 and Notice of the Company's 2018 Annual General Meeting.

The Annual General Meeting to which the notice relates is to be held at 11.00 a.m. on Thursday 31 May 2018 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 2018;

2.      Notice of 2018 Annual General Meeting; and

3.      Form of Proxy for the 2018 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 10 April 2018 (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 2018, 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 2018.

For further information:

Shiv Sibal, Company Secretary and Group General Counsel 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 24 to 27 of the Strategic Report and also page 45 of the Corporate Governance Report within the Annual Report and Accounts 2018 ("Annual Report").

Risk Type	Description	Mitigation
Our market Since 2017: No change	The Group continues to generate almost all of its revenue from the sale of greeting cards, dressings and gifts. Although the Group has a proven track record of understanding our customers, trends and tastes can change quickly and we may not be able to effectively predict and respond to this which could affect our sales, performance and reputation.	·      Regular customer and market research. ·      New experienced Commercial and Studio Directors will support product strategy and innovation and collaboration between design and buying teams. ·      Dedicated card buyer recruited. ·      Significant additional investment in marketing team to drive awareness and customer focus. ·      Investment in online teams supporting development of multiple sales channels to respond to changing consumer demands. ·      Strong focus on product innovation with designs regularly refreshed and new ranges introduced. ·      EPOS sales data from all stores driving design and purchasing decisions. ·      Weekly trading meetings driving better 'real-time' decision-making. ·      Vertically integrated model helps the Group position itself to quickly respond to changes in its markets with further investment evaluated continuously.
Competition Since 2017: Increased	Competition in our markets has intensified during the year particularly during key seasons with supermarkets and national value retailers at the forefront. Product choice and quality, store location and design, inventory, price and customer service remain key to differentiating our offering. As the quality, value and range we offer grows, our competitor group widens. Many of our significant competitors enjoy strong brand presence recognition, financial resources and purchasing economies of scale, any of which could give them a competitive advantage.	·      All key elements of competitor activity are closely monitored with a business programme now dedicated to our strategic approach to competition. ·      In-house design and print operations help innovate, differentiate and improve the quality and value of our offering. ·      Regular evaluation of further investment in our vertically integrated model which underpins our competitive position. ·      Significant additional investment in marketing team to drive awareness and customer focus. ·      Rigorous store selection process and performance reviews. ·      Continuous review of customer trends and behaviours supported by more targeted externally facilitated customer research.
Our brands Since 2017: No change	'Card Factory' and 'Getting Personal' are the Group's key brand assets. Protecting and enhancing them underpins our reputation. If we are unable to protect them or if we fail to sustain our appeal to our customers, our reputation and our sales and future prospects could be jeopardised.	·      Rigorous protection of our intellectual property, and guidance and education for our teams. ·      Investment in developing our retail colleagues through our new ACardemy programme. ·      Comprehensive review of our store estate and opportunities for improvement. ·      Annual market research confirming current perception of our brand and development opportunities. ·      All key elements of competitor activity are closely monitored with a business programme now in place dedicated to our strategic approach to competition. ·      In-house design and print operations help innovate, differentiate and improve the quality and value of our offering. ·      Further development and investment in processes that ensure product quality, safety and ethical production.
Our Strategy Since 2017: No change	The Group's four pillar strategy has been developed with the aim of achieving long-term value for our shareholders. If the strategy and vision for the business are not developed, communicated or delivered, performance could suffer. Strategy implementation requires careful prioritisation of resource to ensure a focus on those initiatives that drive long-term value.	·      Implementation of, and performance against, strategy monitored both at Board and senior management team level. ·      Annual Board and senior management team strategy review days. ·      Business objectives, and how we prioritise and communicate these are set in the context of our four pillar strategy and aligned with our Mission, Vision and Values. ·      Further significant investment in senior management team to ensure we have capacity and capability to deliver and develop our strategy. ·      Competitor analysis, customer and market research and enhanced EPOS sales data used to drive development of our offer.
Our supply chain Since 2017: No change	Third-parties, including many in the Far East, supply nearly all of our complementary non-card products, handcrafted greeting cards and certain raw materials. If they fail to satisfy orders it may affect the business or result in us having to find alternative suppliers, who may not be able to fulfil our needs. We are also exposed to changes in supplier dynamics and increases in raw material prices. Our supplier profile means we are subject to the risks of manufacturing and importing of goods from overseas including freight costs and duty, as well as supply interruption and reputational risk arising from supplier labour practices.	·      Strong relationships with key suppliers. ·      Continuously diversifying supplier base providing greater flexibility and reducing reliance on individual suppliers. ·      Periodic inspections and third-party facilitated technical and ethical audits of factories operated by major suppliers. ·      Sedex membership ('the Supplier Ethics Data Exchange'). ·      Further development and investment in processes that ensure product quality, safety and ethical production.
Culture and leadership Since 2017: New	As the Group has grown and transitioned from private equity ownership to being publically owned, it has experienced significant leadership change across its senior management team and retaining and developing the culture and people which have been the foundation of its success to date is critical to the Group's future growth.	·      The Group's Mission, Vision and Values have been defined by and communicated to our colleagues. ·      The Group's organisational structure has been reviewed and restructured. ·      The Group's leadership principles are being defined and will be cascaded throughout the business. ·      Both talent and management development programmes are now in place.
Key personnel Since 2017: Decreased	The Group's strategy and long‑term success depend on our ability to: implement succession plans for the senior management team; develop our colleagues; and invest in our teams to ensure we have the capacity and capability to grow.	·      Kris Lee succeeded Darren Bryant as CFO and has been through an extensive tailored induction. ·      Talent development programme instigated to support development of future leaders overseen by Group HR Director. ·      Further development for senior management team. ·      Leadership principles being defined and will be cascaded. ·      Senior management team bolstered by recruitment of Commercial Director, Supply Chain Director, Design Studio Director, Multi-Channel and Customer Director and IT Director. ·      The Group's remuneration policy (set out in the Directors' Remuneration Report on pages 51 to 66 of the Annual Report) is designed to ensure management incentives reflect the business, are aligned with its strategic objectives and support the long-term success of the Group for the benefit of all stakeholders.
Managing change Since 2017: Decreased	In the period since IPO, the Group has experienced significant change in its management team and in some of the systems and processes that will support its future growth and improve efficiency. The speed and management of these changes introduces a risk of management overload and 'business as usual' activities could be compromised.	·      Organisational design reviewed and restructured by CEO. ·      Alignment of key business programmes with strategic objectives within our Four Pillars. ·      Board receives regular updates on key business programmes to support challenge at the start of and during these programmes. ·      Additional Non-Executive Director recruited with significant experience of business change and transformation. ·      Senior management team bolstered by recruitment of Commercial Director, Supply Chain Director, Design Studio Director, Multi-Channel and Customer Director and IT Director. ·      Talent development programme instigated to support development of future leaders overseen by Group HR Director.
Finance and Treasury Since 2017: No change	Our financing arrangements and the fact that we source a significant proportion of our products from 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 our operations and performance. The CFO's Review on page 21 sets out in further detail the risk to the Group of exchange rate fluctuations.	·      Adequacy of current financing and cash generation and their ability to support delivery of Group strategy are regularly monitored by the CFO. ·      Treasury management processes and policy in place to govern cash management and manage exposure to foreign exchange and interest rate fluctuations including those resulting from the Brexit decision. ·      Treasury strategy reviewed and approved annually by the Board with periodic consultation between the CFO and the Audit and Risk Committee Chairman. ·      Foreign exchange and interest rate hedging contracts pre-approved directly by the CFO and communicated to the Board monthly. ·      CFO undertaking comprehensive review of cost base as part of our Business Efficiencies strategic pillar. ·      Further details of the Group's financial position are described in the CFO's Review on pages 20 to 23 and the Group's viability statement is in the Directors' Report on pages 70 and 71 of the Annual Report.
Business Continuity Since 2017: No change	Significant disruption to any part of our vertically integrated business model, in particular to our printing facility, Printcraft, our distribution centre or our design studio, could severely affect our ability to supply our stores and could force us to use third-parties which could be expensive and on onerous terms.	·      The Group's crisis management arrangements continue to be developed with guidance from the Audit and Risk Committee. ·      Multiple scenario crisis management exercise held during the year. ·      Report and recommendations provided to the Audit and Risk Committee. ·      Significant additional infrastructure investment in Printcraft mitigating power surge and fire risk. ·      Stock held across multiple locations to mitigate the risk of a catastrophic event at any one of our storage facilities. ·      Group IT systems are subject to specific disaster recovery arrangements. ·      The Group also maintains appropriate business interruption insurance cover.
Compliance Since 2017: No change	The number and complexity of legal and regulatory compliance requirements impacting the business continues to grow including: Modern Slavery Act, GDPR, Gender Pay Gap Reporting, Payment Practices and National Living and Minimum Wage. Compliance is time intensive and costly and failure to comply could lead to claims, penalties, damages, fines or reputational damage which, in some cases, are very material and could significantly impact the financial performance of the business.	·      Group's General Counsel and Company Secretary oversees compliance with the support of external advisers. Senior management team members liaise with him to ensure issues are identified and managed. ·      Key legislation trackers are in place with the Board receiving regular updates. ·      Additional investment in the Group's legal team. ·      Cross Group team supporting the Group's preparation for GDPR. ·      Senior management team members manage compliance of the Group's key operational teams with escalation and disciplinary action where needed. ·      Policies and procedures governing behaviours in all key areas, some addressing mandatory requirements and others adopted voluntarily.
Information Technology Since 2017: No change	Reliable, efficient and resilient IT systems across the Group, and particularly those supporting our retail operations and our vertically integrated model are critical to our success. Failure to adequately develop and maintain these or any prolonged system performance problems or cyber-attack could seriously affect our ability to implement the Group's strategy and to carry on the business and could render us liable to significant fines and reputational damage.	·      EPOS and contactless payment now in place across all of our stores. ·      New Group IT Director developing Group IT strategy. ·      Formal IT governance process adopted managed by IT steering group that has jurisdiction over all material IT projects. ·      Significant investment in IT infrastructure enhancing cyber security measures following a review and recommendations from Deloitte LLP. ·      Key IT risks are documented and agreed service levels for recovery of key business systems are in place.
Online Since 2017: No change	The Group's transactional websites, www.cardfactory.co.uk and www.gettingpersonal.co.uk remain relatively new and developing parts of the business but are critically one of our four strategic pillars. They operate in very competitive markets with relatively low barriers to entry. If they do not evolve to meet customers' expectations they may not deliver the anticipated revenue growth. This may also affect our reputation and customer perception of our brands.	·      Multi-Channel and Customer Director recruited to drive growth of www.cardfactory.co.uk ·      Significant investment in the Card Factory online team. ·      SLAs in place and monitored for fulfilment of orders. ·      Development in www.cardfactory.co.uk product ranges, choice and service. ·      Focus on leveraging Design Studio online team that will drive differentiation and product innovation. ·      Improvement in operations with a focus on customer service. ·      Factoring in device shift by consumers in development of our websites. ·      Monitoring consumer online behaviours and sentiment.

Directors' Responsibility Statement

The Annual Report and Accounts 2018 contains a responsibility statement by Karen Hubbard, Chief Executive Officer, and Kristian Lee, 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

Details of the only material transactions with related parties during the financial year ended 31 January 2018 are set out in note 28 of the financial statements on page 103 of the Annual Report.

 

END

 

 

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