Annual Financial Report

RNS Number : 9506X

Card Factory PLC

03 May 2019

 

3 May 2019

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 2019 and Notice of the Company's 2019 Annual General Meeting.

The Annual General Meeting to which the notice relates is to be held at 11.00 a.m. on Wednesday 5 June 2019 at the offices of Squire Patton Boggs, 6 Wellington Place, Leeds LS1 4AP.

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

1.      Annual Report and Accounts 2019;

2.      Notice of 2019 Annual General Meeting; and

3.      Form of Proxy for the 2019 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.morningstar.co.uk/uk/NSM

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 16 April 2019 (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 2019, 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 2019.

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 28 of the Strategic Report and also page 48 of the Corporate Governance Report within the Annual Report and Accounts 2019 ("Annual Report").

Risk Type	Description	Mitigation
Our market Since 2018: Increased	The Group continues to generate most of its revenue from the sale of greeting cards, dressings, balloons 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.	·      Increased the scope of customer and market research to support wider understanding of customer trends and to help us capture greater volume of card sales. ·      Commercial and Studio Directors working closely together to drive quality and value proposition and product innovation. ·      Investment in new platform for cardfactory.co.uk to support development of multi-channel offer responding to changing shopping habits and grow our customer base. ·      Structured, data-led, programme of redesigning categories on a rolling basis ensuring 'newness' in our ranges ·      More granular sales data driving purchasing decisions. ·      Continuous investment in vertical integration supporting our ability to respond to changes in its markets.
Increasing competition Since 2018: Increased	National value retailers and supermarkets continue to aggressively compete, particularly during key seasons. Product choice and quality, store location and design, inventory, price and customer service remain key to differentiating our offering. As we've evolved, our competitor group has widened and many of them enjoy strong brand recognition, financial resources, flexible retail space, purchasing economies of scale, more mature multi-channel capability and pricing flexibility, any of which could give them a competitive advantage.	·      Closely monitor competitor activity. ·      Increased scope of our market research. ·      Our design and print capability helps innovate, differentiate and improve the quality and value of our products. ·      Significant additional investment in our vertically integrated model underpins our competitive position. ·      Invested in new platform for cardfactory.co.uk. ·      Rigorous store selection process and performance reviews. ·      Strategic trials commenced to address competitive challenges and capture share of convenience market.
Protecting and promoting our brands Since 2018: 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 design teams. ·      Significant investments in colleague development programmes to underpin our 'customer first' approach. ·      Comprehensive store performance review programme in place to identify opportunities for improvement. ·      Widened scope of our customer and market research to understand brand perception. ·      Our design and print capability supports product innovation and differentiates us. ·      Further development and investment in processes that ensure product quality, safety and ethical production. Includes moving to a 'no audit no order' policy for all new suppliers.
Evolving our strategy Since 2018: Increased	Recent, well-publicised, examples of challenges for retailers, including the impact of widespread high street footfall decline, have emphasised the importance of evolving our strategy to reflect current market dynamics and customer shopping habits. The Group's current strategy aims to achieve long-term value for our shareholders in a balanced way, reflecting the interests of all key stakeholders. If the strategy and vision for the business are not developed, communicated or delivered, performance could suffer.	·      Strategic trials commenced to address competitive challenges and capture share of convenience and impulse markets. ·      The Board and senior management team take responsibility for the development and implementation of strategy. ·      Annual Board and senior management team strategy reviews took place during the year. ·      Business objectives are set in the context of our four pillar strategy and aligned with our Mission, Vision and Values. ·      A now, well-established, management team provide the capacity and capability to deliver and develop our strategy. ·      Strategy is communicated at our Engage Conference and cascaded throughout the business. ·      Performance measures in place and monitored for all key operational programmes underpinning delivery of our strategy.
Managing our supply chain Since 2018: 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. 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.	·      Maintain strong relationships with key suppliers increasingly with regular face-to-face meetings. ·      Continuously diversifying supplier base providing greater flexibility and reducing reliance on individual suppliers. ·      Third-party facilitated technical and ethical audits programme in place with a 'no audit no order' policy implemented for new suppliers. ·      Sedex membership ('the Supplier Ethics Data Exchange'). ·      Further development and investment in processes that ensure product quality, safety and ethical production. ·      'Top down bottom up' roll out of supplier terms across our key suppliers and all new suppliers. ·      Formally assessed impact of changes in tariffs in light of Brexit. ·      Forward purchased stock to mitigate potential inbound delays at ports as a result of Brexit.
Developing our culture and leadership Since 2018: No change	Retaining and developing the culture and people which have been the foundation of the Group's success is critical to the Group's future growth. Leadership changes in recent years across the whole of the senior management team have emphasised the challenge and importance of retaining management cohesion and showing leadership.	·      Effective leadership is one of the elements measured in determining part of the CEO's and CFO's annual bonuses. ·      Annual colleague engagement survey captured feedback on leadership and culture with action plans implemented to address specific issues. ·      Employee forums created to provide further voice on culture and leadership. ·      Pulse survey carried out to measure the impact of management change on specific teams. ·      Group's leadership principles have been cascaded throughout the business ·      The Group's Mission, Vision and Values now embedded across the Group.
Loss of key personnel Since 2018: No change	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. The failure to retain and develop our colleagues will harm our future prospects and result in increased costs for the business.	·      Focus on developing pipeline of future leaders with talent mapping and Talent Breakfasts in place. ·      Development programmes established to support future leaders. ·      Leadership principles defined and cascaded. ·      Senior management team now well established. ·      Group's remuneration policy (set out in the Directors' Remuneration Report on pages 57 to 63 of the Annual Report) designed to ensure management incentives reflect the business, its strategic objectives and support the long-term success of the Group for the benefit of all stakeholders. ·      Managing succession planning and integrating new team members are elements measured in determining part of the CEO's and CFO's annual bonuses.
Managing change Since 2018: Increased	The Group is continuing to implement significant change across the systems and processes that underpin its growth and efficiency. The speed and management of these changes introduces a risk of management overload and 'business as usual' activities could be compromised. In addition, the evolution of our strategy presents a risk that our ambition outweighs our current capacity to manage the change that goes with this.	·      Significant investment in programme management capability supporting key change projects eg new platform for cardfactory.co.uk. ·      New Digital Director appointed to lead the digitalisation of the business. ·      The Company's new Chairman has significant experience of managing change and strategy evolution. ·      Key business programmes aligned with strategic objectives in our Four Pillars. ·      Board receives regular progress updates throughout key business programmes to enable support and challenge. ·      New Central Operations Director appointed to lead several key retail change projects.
Finance and Treasury Since 2018: Increased	Our financing arrangements and the fact that we source most 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 of the Annual Report sets out in further detail the risk to the Group of exchange rate fluctuations.	·      Comprehensive costs tracking, including regular cost centre reviews, in place under our Business Efficiencies pillar. ·      Adequacy of current financing and cash flow and their ability to support delivery of Group strategy regularly monitored by the CFO. ·      Treasury management processes and policy in place to manage cash and exposure to foreign exchange and interest rate fluctuations including Brexit-related volatility. ·      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. ·      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 on pages 75 and 76 of the Annual Report.
Business Continuity Since 2018: 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.	·      IT resilience review carried out in 2018 to assess Groupwide back-up arrangements. Recommendations being implemented over the next year. ·      The Group's crisis management plan is in place with training to be rolled out over the next year. ·      Information security specific crisis management plan developed for testing. ·      Multiple scenario crisis management exercise scheduled to be held during the year. ·      Stock held across multiple locations to mitigate the risk of a catastrophic event at any one of our storage facilities. ·      The Group also maintains appropriate business interruption insurance cover.
Compliance Since 2018: No change	Legal and regulatory compliance requirements continue 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 support from external advisers. Senior management team members liaise with him to identify and manage issues. ·      Key legislation trackers are in place with the Audit and Risk Committee regularly updated. ·      GDPR compliance programme in place and monitored. ·      Ethical trading and anti-slavery policy adopted by the Board and rolled-out. ·      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 2018: No change	Reliable, efficient and resilient IT systems across the Group, and particularly those supporting our retail operations and vertically integrated model are critical to our success. Failure to develop and maintain these or any prolonged system performance problems or cyberattack 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.	·      IT resilience review carried out in 2018 to assess effectiveness of Group-wide back-up arrangements. Recommendations being implemented over the next year. ·      Review being conducted with external support to ensure IT strategy evolves with business strategy. ·      Formal IT governance process embedded and managed by IT steering group that prioritises and sanctions all material IT projects and aligns with strategic objectives. ·      Continued with scheduled investment in IT infrastructure enhancing cyber security. ·      Key IT risks are documented and agreed service levels for recovery of key business systems are in place.
Online Since 2018: No change	The Group's trading websites, www.cardfactory.co.uk and www.gettingpersonal.co.uk are developing and important parts of the business and part of our Online strategic pillar. They operate in very competitive markets with low barriers to entry. If we do not evolve our Online offering, meet customers' expectations and shopping preferences they may not deliver the anticipated revenue growth. This may also affect our reputation and customer perception of our brands.	·      Approved investment in new platform for cardfactory.co.uk to launch in late 2019. ·      Expanded product ranges and increased newness in designs. ·      Continue to innovate and test new propositions to understand customer appetite. ·      Appointed Group Digital Director to drive technology innovation, user experience and service. ·      New management team at Getting Personal. ·      In-house Design Studio online team driving differentiation and product innovation.

Directors' Responsibility Statement

The Annual Report and Accounts 2019 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 2019 are set out in note 28 of the financial statements on page 113 of the Annual Report.

 

END

 

 

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