Final Results

RNS Number : 3641I

Card Factory PLC

25 March 2015

 

Card Factory plc ("Card Factory" or the "Group")

Preliminary results for the year ended 31 January 2015

Another record year

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its preliminary results for the year ended 31 January 2015. 

Financial Highlights

·   Revenues up 8.1% to £353.3m (FY14: £326.9m)

·   Like-for-like (LFL) sales up +1.8% (FY14: +3.1%)

·   Underlying EBITDA growth of 9.6% to £88.2m (FY14: £80.4m)

·   Underlying operating profit growth of 8.9% to £79.4m (FY14: £72.9m)

·   Significant reduction in leverage - year end net debt of £103.6m, equivalent to less than 1.2x underlying historic EBITDA

·   Full year dividend of 6.8p (£23.2m in total), payable as to 2.3p as an interim dividend and 4.5p as a final dividend

Note

Underlying profit figures exclude costs relating to the IPO, the costs of the senior debt refinancing and mark-to-market movements on derivatives not designated as a hedging relationship.  Underlying EBITDA is defined in note 4 of the attached preliminary results.

Statutory results

·   Statutory profit before tax of £42.7m (FY14: £30.1m) reflects pre-IPO financing charges and £22.8m (FY14: £1.9m) of non-underlying expenses principally relating to charges associated with the IPO and senior debt refinancing

·   Total reported net debt reduced significantly to £101.4m (FY14: £346.9m), being net debt of £103.6m (FY14: £355.3m) less capitalised debt costs of £2.2m (FY14: £8.4m), again reflecting the IPO and senior debt refinancing transactions

Business Highlights

·   Further progress on all four pillars of the Group's growth strategy:

1.   Like-for-like sales growth in existing stores

·   Successful introduction of new card and non-card ranges and merchandising initiatives

·   Like-for-like growth of 1.8%, despite strong prior year comparative;  slightly lower H2 like-for-like reflects selective localised pricing strategies, ongoing expected decline in the lower margin Christmas box card segment and competitor promotions

2.   Continuing new store roll out

·   51 net new stores opened in the year, bringing total estate to 764 at year end

·   Strong pipeline of further new opportunities for FY16 - remain confident of delivering approximately 50 net new openings in the year

3.   Delivering business efficiencies

·   Improvement in strong underlying EBITDA margins to 25.0% (FY14: 24.6%), notwithstanding incremental costs associated with being a public company

·   Continued rollout of EPOS system - now in over 50% of the store estate, with benefits already being seen

4.   Development of complementary online sales channels

·   Excellent year of growth in relatively small but fast growing area

·   Revenue at Getting Personal increased by 23.1% to £15.5m and EBITDA increased by 67.6% to £2.8m

·   Completion of IPO in May 2014

·   Completion of £200m debt refinancing, significantly reducing interest costs

·   Continued investment in the Board, management team and employees

Richard Hayes, Chief Executive Officer, commented:

"It is pleasing to report another record year for Card Factory in terms of both revenue and profit.  Our team has once again delivered on each element of our growth strategy, cementing our position as the UK's leading specialist greeting cards retailer.  Our unique, vertically integrated model remains a real point of difference and a source of long-term competitive advantage in what is a very resilient market.  

"I would like to thank all of our employees across the Group.  As we continue to expand and grow their ongoing commitment and support is greatly appreciated.

"Overall, we are in an excellent position and we remain confident of our future prospects.  We will continue to strongly defend our market leading position, whilst maintaining our focus on delivering best-in-class margins."

Preliminary results presentation

A presentation for analysts will be held today starting at 9.30am at UBS Limited, 100 Liverpool Street, London EC2M 2RH, the entrance of which is accessed via Broadgate Circle.  If you would like to register for attendance then please contact Jennifer Iveson at MHP Communications on 0203 128 8204 or [e-mail].

Enquiries

Card Factory plc                                                                                [phone]

Richard Hayes, Chief Executive Officer

Darren Bryant, Chief Financial Officer

MHP Communications                                                                  [phone]

John Olsen                        

Simon Hockridge

Notes

1.    Background information

Card Factory is the UK's leading specialist retailer of greeting cards, dressing and gifts. It focuses on the value and mid-market segments of the UK's large and resilient greeting cards market, and also offers a wide range of other quality products, including small gifts, party products and gift dressings, at affordable prices. Card Factory principally operates through its nationwide chain of over 750 Card Factory stores, as well as through its online offerings: www.gettingpersonal.co.uk (which sells personalised cards and gifts) and www.cardfactory.co.uk (which sells a selection of the products available in Card Factory stores).

Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily through organic growth into a market-leading value retailer with a nationwide presence. The Group's stores are in a wide range of locations including on high streets in small towns through to major cities, shopping centre developments, out-of-town retail parks and factory outlet centres.

Over the last 10 years, Card Factory has developed a vertically integrated business model with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sq. ft. This model differentiates the Group from its competitors by significantly reducing external costs and adding value to customers in terms of both price and quality, underpinning the Group's motto: "compare the quality, compare the price".

2.    Like-for-like definition

The Group defines like-for-like sales as the year-on-year growth in sales for Card Factory stores which have been opened for a full year, calculated on a calendar week basis.  As such, this reported like-for-like sales figure excludes sales:

·   relating to Card Factory stores that have not yet been open for a full 52 weeks;

·   from the recently established Card Factory transactional website, www.cardfactory.co.uk;

·   made via the separately branded personalised card and gift website, Getting Personal, www.gettingpersonal.co.uk;

·   by Printcraft, the Group's printing division, to external third-party customers; and

·   from stores closed for all or part of the relevant period (or the prior year comparable period).

As highlighted in the IPO prospectus, like-for-like sales growth in the year ended 31 January 2014 benefitted to a small degree from the administration of a competitor in May 2012.

3.    Calculation of percentage movements

Percentage changes have been calculated before figures were rounded to £0.1m.

4.    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 2015

CHAIRMAN'S STATEMENT

Card Factory achieved an important milestone in 2014 with its successful listing on the London Stock Exchange in May, followed by inclusion in the FTSE 250 in September.  These were significant steps for a business only formed in 1997.

Throughout this past year, and despite the inevitable distractions that an IPO can bring, the Group continued to deliver its successful strategy, focused on four pillars of growth:

·   growing like-for-like sales in existing stores;

·   rolling out profitable new stores;

·   focusing on delivering business efficiencies; and

·   increasing penetration of the complementary online market.

Our management team is well-established and has a strong track record of consistent delivery against each of these strategic priorities.  As a consequence, Card Factory has further enhanced its status as the UK's market-leading specialist retailer of greeting cards, dressings and gifts, and is building an increased online presence through its relatively young but fast growing, online operations.

The Group continues to generate best-in-class margins and excellent free cashflow, benefiting significantly from its unique vertically integrated business model.  Given this continuing strong performance, the Board is recommending a total dividend of 6.8p per share, giving a dividend cover of 2.5x based on adjusted proforma earnings, comprising an interim dividend of 2.3p per share together with a final dividend of 4.5p per share.  As indicated at the time of the IPO, we are paying a dividend for the full 2015 financial year, as opposed to for the period since IPO.

The Board has also considered further the capital structure of the Group and continues to recognise the benefits of financial leverage, whilst also wanting to ensure sufficient flexibility to invest in the growth of the business.  Over the medium term, the Board expects to maintain a leverage ratio broadly in the range of 1.0 to 2.0 times net debt to underlying EBITDA.  To the extent there is surplus capital within the business, having considered investment opportunities and other cash requirements, the Board expects to return that capital to shareholders. 

Overall the Group has performed in line with the Board's expectations at the time of listing.  As we approach our first anniversary as a public company, I am confident that this track record of success will continue in the years ahead.

Geoff Cooper

Chairman

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

Card Factory has had another record year, generating strong growth in both revenues and profits, as well as successfully completing the initial public offering of the Company.

As set out in the IPO prospectus, the Group intends to continue with its successful and proven strategy to further enhance its status as the UK's market-leading specialist retailer of greeting cards, dressings and gifts.  

Our strategy is to maintain the Group's clearly differentiated value proposition, focusing on four pillars of growth.  Good progress has been made with each of these:

1.    Continue to grow like-for-like sales in existing stores

The Group has a strong track record of consistently delivering like-for-like sales growth whilst maintaining our core value proposition.  This is highlighted by the performance in the past five financial years with annual like-for-like sales growth ranging from +1.4% to +3.2%, and averaging +2.5%.  The Board continues to target medium term like-for-like sales in line with this five year historic average.

A number of factors have contributed to this consistent like-for-like performance, including the introduction of various new merchandising initiatives; continuous improvements to the overall product quality and ranges for both card and non-card products; and further market share gains as stores mature.  Our best-in-class Design Studio, established almost a decade ago and now comprising a team of some fifty strong, is an important contributor to a number of these factors and to the continued success of the Group as a whole.

In FY15, Card Factory's like-for-like store sales grew by +1.8% despite a strong prior year comparative of +3.1%.   This growth remained within the recent historic range but was slightly below the five year historic average reflecting a number of factors in the second half of the year, including higher than normal levels of promotional activity from established competitors, our own investment in localised pricing strategies, and the continuing decline of the relatively small, lower margin Christmas box card segment.  

2.    Continue to roll out profitable new stores

In addition to growth in like-for-like sales from existing stores, the Group's established new store roll out programme remains an important driver of sales growth for the business.

In the year under review, 51 net new stores were opened, bringing the total estate to 764 stores as at 31 January 2015.  Nine stores were relocated during the period.

We are pleased with the quality of our new store openings and their performance to date and we remain disciplined in considering the terms of new leases and renewals, regularly rejecting new opportunities if forecast returns are not considered satisfactory. 

We are confident that our proposition, which is focused on value, can continue to be successful in a wide range of locations nationwide.  This true versatility of our model is reflected in the performance of our existing estate with less than 1% of our stores loss making, delivering an aggregate loss of less than £0.1m at store contribution level.  In addition, we continue to perform well against established and newer competitors, with the majority of our openings in the year being in locations where established competitors already trade.

The Board remains confident of the potential to expand the store portfolio to up to 1,200 stores in total.  As we continue our successful roll-out, in a market which remains highly fragmented, we expect to continue to grow our share of the market with gains from a wide range of competitors, both large and small.

3.    Continue to focus on delivering business efficiencies

The Group is focused on achieving efficiencies, particularly through its vertically integrated business model, and has consistently delivered some of the best operating profit margins in the retail sector over a number of years.  These high margins have been slightly improved in FY15 notwithstanding the incremental recurring operating costs associated with being a listed company.

The Board continues to focus on maintaining and, where possible, improving these margins through an ongoing focus on cost control, leveraging investments in both people and infrastructure, further improving the supply chain and general economies of scale whilst at the same time balancing these with ongoing investment in the business to drive future growth.

During the year, Card Factory has continued to roll out its new electronic point of sale ("EPOS") system which was deployed in over 50% of the estate as at 31 January 2015.  Each new store is now fitted with the new EPOS system from the date of opening and the Board anticipates that the balance of the existing estate will be converted to the new EPOS system within the next two years. 

The Group is already utilising this new system for data mining and for both strategic and operational planning and expects a wide range of benefits to be delivered over the medium term. 

Having invested significantly in the Group's IT infrastructure over the past five years, we created a new role of Chief Information Officer in 2014 and expanded our wider IT team.  We will continue to make incremental additions to this team in order to maximise returns on these infrastructure investments.

A more detailed cost breakdown is given in the Chief Financial Officer's review below.

4.    Increase penetration of the complementary online market

The Group is a relatively new entrant in the complementary online market segments for personalised online card and non-card products.  Getting Personal, acquired in FY12, currently represents the majority of the Group's online revenues with a focus on personalised gifts and other non-card products.

Getting Personal has made excellent progress in the year with revenues growing by over 23% to £15.5m and EBITDA increasing by two thirds to £2.8m.  This extremely strong profit growth is particularly pleasing given that EBITDA more than doubled in FY14. 

This performance has been driven by a combination of new product development, improved marketing and the recent relaunch of the website (www.gettingpersonal.co.uk) to more effectively cater for the growing use of smartphones and tablet devices. 

Paul McCrudden, EMEA Head of Content Marketing at Twitter, joined the Group as a Non-Executive Director in December 2014 and brings a wealth of digital marketing experience which will be particularly helpful as we continue to develop our online activities over the medium term.

Having only entered the online market in FY12, the Group is making good progress in this relatively new area of our business with EBITDA of this division more than trebling over the past two years and EBITDA margin improving significantly.  We have a number of further growth initiatives underway and in planning and are optimistic about the future growth prospects of this division over the medium term.  We continue to target double digit revenue growth but with such tough comparatives we would not necessarily expect the revenue and profit growth seen in FY15 to continue at the same rate in the coming financial year, particularly in the second half.

Board, management team and employees

During the year we expanded and strengthened our Board with the appointment of Geoff Cooper as Non-Executive Chairman, Octavia Morley as Senior Independent Non-Executive Director and David Stead and Paul McCrudden as Independent Non-Executive Directors.

We have also strengthened and expanded the capabilities of our operational management team with the appointments of Tim Lloyd (Property Director), John Nother (Chief Information Officer) and Shiv Sibal (General Counsel and Company Secretary). 

Shortly after the year end, we announced the resignation of Graeme Coulthard as a Non-Executive Director of the Company.  Following the reduction in their shareholding to below 20%, the Charterhouse funds were obliged to procure Graeme's resignation as a Director of the Company and the relationship agreement entered into prior to IPO was automatically terminated.  We would like to thank Graeme, as well as other members of the Charterhouse team, for the constructive support and challenge provided throughout the time from their investment in 2010.  We wish them well for the future.

Finally, and most importantly, we would also like to thank all our employees for their support and commitment throughout this period which saw the Group continue to expand and grow, delivering another record year of revenue and profit generation and maintaining our position as the clear market leader. 

Summary and outlook

The continued strong performance of the Group and the additional profile from our successful flotation has clearly led to increased focus on the greeting cards sector.  We saw a slight increase in competition in the second half of the year, particularly in the final Christmas quarter.  Whilst clearly no company is immune to such competition, the impact on our overall performance was limited and the Group has continued to take market share and strengthen its competitive position.

Our strong value proposition, underpinned by our unique vertically integrated model, remains highly differentiated.  In addition, each year we continue to innovate and develop new products and ranges to further strengthen our retail proposition.  We have made good progress in FY15 and we expect this momentum to continue in the year ahead. 

The Group continues to have a strong pipeline of additional new store opportunities and remains confident of opening a total of approximately 50 net new stores in the new financial year, in line with the average historic opening rate over the last decade.  

In the period since 31 January 2015 the Group has continued to trade in line with the Board's expectations.

We remain highly confident in the Group's future prospects, and in its ability to continue to grow sales profitably and to increase market share consistently over the medium term.

Richard Hayes

Chief Executive Officer

24 March 2015

CHIEF FINANCIAL OFFICER'S REVIEW

The "FY15" accounting period refers to the year ended 31 January 2015 and the comparative period "FY14" refers to the year ended 31 January 2014.

Revenues

Total group revenues during the year grew by 8.1% to £353.3m (FY14: £326.9m), a similar growth rate to the prior year, with both of the Group's businesses contributing to this increase.

The Card Factory business grew revenue by 7.5% to £337.8m (FY14: £314.3m).  A total of 51 net new stores were added during the year.  Like-for-like sales in existing stores grew by 1.8%, notwithstanding a strong prior year comparative of +3.1%. 

Both single cards and non-card products contributed to this like-for-like sales growth, with a particularly strong performance in non-card as a number of new ranges were introduced into store.  The relatively small, lower margin Christmas box cards segment continued to decline and this was particularly relevant in the second half of the year given the seasonal weighting of these sales.  As a consequence, there was a marginal mix shift to non-card, the full year mix being 57.9% single cards (FY14: 59.1%), 39.9% non-card (FY14: 38.5%) and 2.2% Christmas Box Cards (FY14: 2.4%).

Getting Personal revenues grew by 23.1% to £15.5m (FY14: £12.6m).  Revenue growth was strong throughout the year, particularly in the second half, as a number of strategic initiatives bore fruit.  Whilst the growth prospects of this business remain strong, it has less of an established track record than the Card Factory store network.  The rate of growth can therefore be less consistent and the business will clearly be facing much tougher comparatives in the year ahead.

Operating costs

Cost of sales and operating expenses continued to be well controlled and can be analysed as follows:

	FY15			FY14			Increase
	£'m	% of revenue		£'m	% of revenue		£'m	%
Cost of goods sold	110.3	31.2%		102.0	31.2%		8.3	8.2%
Store wages	57.3	16.2%		52.9	16.2%		4.4	8.3%
Store property costs	56.7	16.1%		53.7	16.4%		3.0	5.7%
Other direct expenses	15.7	4.4%		14.7	4.5%		1.0	6.4%
Cost of sales	240.0	67.9%		223.3	68.3%		16.7	7.5%
Operating expenses*	25.1	7.1%		23.2	7.1%		1.9	8.1%

                *excluding depreciation and amortisation

The overall ratio of cost of sales to revenue improved marginally to 67.9% on an underlying basis (FY14: 68.3%) with the following movements in sub-categories:

·   Cost of goods sold: principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight costs, carriage costs and warehouse wages.  The ratio of cost of goods sold to revenue remained consistent with the prior year, notwithstanding the slight mix shift to Getting Personal and non-card products in the Card Factory business.

·   Store wages: includes wages and salaries (including bonuses) for store based staff, together with National Insurance, pension contributions, overtime, holiday and sick pay.  This cost increased as new stores opened but remained consistent as a ratio of revenue.

·   Store property costs:  consists principally of store rents (net of rental incentives), business rates and service charges.  This cost also increased as new stores opened but reduced slightly as a ratio of revenue.  Many of the Group's existing stores remain on leases taken out before the recession when the property market was stronger and the Company's covenant was weaker.  The improvement in this cost ratio reflects changes to these factors for both new stores and breaks and expiries on existing leases.   There remains the potential for further cost savings in this area but these potential savings are not certain and will not necessarily be realised in a straight line trajectory.

·   Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point of sale costs, card charges and pay per click expenditure.  This cost category is largely variable in respect of existing stores and increases with new store openings.  The ratio of other direct expenses to revenue remained broadly consistent with the benefits of various business efficiency initiatives having offset cost pressures in other areas, in particular utility costs and card charges, the latter impacted by the increased use of payment cards by customers as the EPOS conversion project continued.

Operating expenses (excluding depreciation and amortisation) include items such as head office remuneration, costs relating to regional and area managers, design studio costs and insurance together with other central overheads and administration costs.  The Group has invested heavily in central infrastructure and people in recent years to support the ongoing planned growth.  Total operating expenses (excluding depreciation and amortisation) increased to £25.1m (FY14: £23.2m).  This cost line remained at 7.1% of revenue as economies of scale and business efficiencies offset additional recurring operating costs now being incurred following the Company's flotation in May 2014.  As this transaction occurred part way through FY15, in the coming financial year these recurring IPO related operating costs will annualise and increase this cost line as a full year charge is recognised and also as further LTIP awards are made, as the associated share based payment charge is amortised to the Income Statement over the three year vesting period.  We also propose to introduce a new SAYE share scheme for employees during the coming financial year.

Depreciation and amortisation increased from £7.5m to £8.8m reflecting significant one-off investments made in recent years, in particular, the expansion of the central distribution centre, the relocation and expansion of our printing division, Printcraft, and the initial phases of the EPOS rollout and conversion project.

Underlying EBITDA and Operating Profit

The underlying EBITDA margin of the Group improved to 25.0% (FY14: 24.6%).

Both of the Group's retail brands, Card Factory and Getting Personal, performed well, with the EBITDA margin of Getting Personal improving considerably as a result of improved marketing effectiveness and increasing economies of scale:

				Increase
	FY15 £'m	FY14 £'m		£'m	%
Underlying EBITDA
Card Factory	85.4	78.7		+£6.7m	+8.4%
Getting Personal	2.8	1.7		+£1.1m	+67.6%
Group	88.2	80.4		+£7.8m	+9.6%
Underlying EBITDA margin
Card Factory	25.3%	25.1%		+0.2ppts
Getting Personal	18.0%	13.2%		+4.8ppts
Group	25.0%	24.6%		+0.4ppts

The Group's underlying operating margin improved slightly to 22.5% (FY14: 22.3%), despite the higher depreciation charge referred to above.  

Excluding the incremental recurring operating costs associated with the IPO, underlying EBITDA and operating margins improved by 0.7ppts and 0.5ppts respectively.

As expected, whilst there is some seasonality in our business, the Group continued to deliver positive operating profit in each month of the year.

IPO and senior debt refinancing

The IPO of the Company was completed with formal unconditional admission to the Official List and to trading on the London Stock Exchange on 20 May 2014 and a senior debt refinancing was completed on 30 May 2014.  Given the change in capital structure as a result of both of these events, a year-on-year comparison of financing costs, profit before tax and profit after tax is not meaningful.

Following the IPO and refinancing, proforma opening senior debt of approximately £160m consisted of £180m senior debt and approximately £20m of cash (after all anticipated transaction costs).  The new debt facility of £200m also included a £20m revolving credit facility.  The fees and expenses of this debt refinancing which totalled £2.6m have been capitalised and will be amortised to the Income Statement over the five year term of the new senior debt facility in accordance with accounting standards.  Debt costs capitalised in relation to the previous senior debt facility of £7.7m were written off as a non-cash, non-underlying item at the same time.  The new senior term loan and revolving credit facility are subject to a margin ratchet dependent upon leverage levels with interest currently charged at 2.00% above LIBOR and 1.75% above LIBOR respectively.  A £100m LIBOR swap at 0.795% provides interest rate protection until 31 October 2015.

Net financing costs

Net financing costs in the period include approximately four months with the previous capital structure with higher levels of leverage, a significant proportion of accrued loan note interest and a higher weighted average interest cost. 

Had the IPO and senior debt refinancing completed on 31 January 2014, the net financing costs expensed in the Income Statement in the year would have totalled approximately £5.4m (including a non-cash charge of c £0.5m of amortising debt costs), rather than the underlying net financing expense of £13.9m reported.

Statutory results

As mentioned above, as a consequence of the IPO and refinancing completed during the period, statutory results differ materially from the underlying results and can be reconciled as follows:

	FY15 £'m	FY14 £'m
Underlying profit before tax	65.5	32.0
Losses on foreign exchange derivatives	(0.1)	(1.9)
not designated as a hedge
IPO costs	(3.8)	-
Residual management equity share based payment	(11.2)	-
Refinanced debt issue cost amortisation	(7.7)	-
Statutory profit before tax	42.7	30.1

Further detail on the non-underlying reconciling items is set out in Note 1 of the attached preliminary results.

Capital expenditure and working capital

Capital expenditure totalled £10.1m in the year of which £2.6m related to the EPOS rollout.  In the prior year, capital expenditure totalled £12.0m of which £5.3m related to one-off strategic projects, principally EPOS and the building of a fourth warehouse and a new Head Office.

The Board anticipates that, in the coming year, annual recurring capital expenditure will continue to run at approximately £8m per annum, similar to the recent historic level, with further budgeted expenditure of approximately £4m allocated for one-off strategic projects, the largest of which continues to be the ongoing EPOS conversion project.

There was a slight cash inflow of £1.1m from working capital movements in the year (FY14: £0.6m).

Strong financial position

The Group remains highly cash generative.

As at 31 January 2015, net debt (excluding debt issue costs of £2.2m) had reduced to approximately £103.6m, analysed as follows:

	£'m
Borrowings
Current liabilities	14.5
Non-current liabilities	155.9
Total borrowings	170.4
Add: debt costs capitalised	2.2
Gross debt	172.6
Less cash	(69.0)
Net debt	103.6

Net debt at the year end represented less than 1.2 times underlying EBITDA.

Dividends

As stated at the time of the IPO, we expect to maintain a progressive dividend policy which reflects the Company's strong earnings potential and cash generative characteristics, while allowing us to retain sufficient capital to fund ongoing operating requirements and invest in the Company's long term growth plans. 

For the year ending 31 January 2015, the Board is recommending a total dividend of 6.8p per share, giving a dividend cover of 2.5 times based on adjusted proforma earnings of 16.85p per share.  This dividend has been calculated as if the IPO and senior debt refinancing had completed on 31 January 2014.

This dividend comprises an interim dividend which the Directors are declaring of 2.3p per share together with a final dividend which the Directors are recommending of 4.5p per share.  The final dividend will, subject to shareholders' approval at the Company's first Annual General Meeting on 27 May 2015, be paid alongside the interim dividend on 5 June to shareholders on the register on 1 May.

Capital structure

As stated at the time of the IPO, the Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long term returns to shareholders.  The Board has considered further the capital structure of the Group and continues to recognise the benefits of financial leverage, whilst also wanting to ensure that the Company has sufficient flexibility to invest in the growth of the business.

Over the medium term, the Board expects to maintain leverage broadly in the range of 1.0 to 2.0 times net debt to underlying EBITDA.  Given that the business does see working capital swings through the cycle, at times the net debt position of the Company may fall outside the above range.  It should be noted that, at the year end, net debt is typically lower than the average for the previous 12 months given the particularly strong cash generation during the Christmas period.

To the extent there is surplus capital within the business, the Board expects to return that capital to shareholders.  The Board will consider the most appropriate method of returning such surplus cash from time to time, taking into account, amongst other things, views of shareholders and the liquidity of the shares.

Darren Bryant

Chief Financial Officer

24 March 2015

Consolidated income statement

For the year ended 31 January 2015

			2015				2014
		Underlying	Non-underlying (note 1)	Total		Underlying	Non-underlying (note 1)	Total
	Note	£'m	£'m	£'m		£'m	£'m	£'m
Revenue		353.3	-	353.3		326.9	-	326.9
Cost of sales		(240.0)	(0.1)	(240.1)		(223.3)	(1.9)	(225.2)
Gross profit/(loss)		113.3	(0.1)	113.2		103.6	(1.9)	101.7
Operating expenses		(33.9)	(15.0)	(48.9)		(30.7)	-	(30.7)
Operating profit/(loss)	3	79.4	(15.1)	64.3		72.9	(1.9)	71.0
Financial income	6	0.3	-	0.3		0.5	-	0.5
Financial expense	6	(14.2)	(7.7)	(21.9)		(41.4)	-	(41.4)
Net financing expense		(13.9)	(7.7)	(21.6)		(40.9)	-	(40.9)
Profit/(loss) before tax		65.5	(22.8)	42.7		32.0	(1.9)	30.1
Taxation	7	(14.4)	4.9	(9.5)		(12.1)	0.4	(11.7)
Profit/(loss) for the year		51.1	(17.9)	33.2		19.9	(1.5)	18.4
Earnings per share		pence		pence		pence		pence
- Basic and diluted	9	16.3		10.6		8.1		7.5

Consolidated statement of comprehensive income

For the year ended 31 January 2015

		2015		2014
		£'m		£'m
Profit for the year		33.2		18.4
Items that are or may be recycled subsequently into profit or loss:
Effective portion of changes in fair value of cash flow hedges		7.0		(1.0)
Net change in fair value of cash flow hedges recycled to profit or loss		0.2		-
Tax relating to components of other comprehensive income		(1.4)		0.2
Other comprehensive income/(expense) for the period, net of income tax		5.8		(0.8)
Total comprehensive income for the period attributable to equity shareholders of the parent		39.0		17.6

Consolidated statement of financial position             

As at 31 January 2015

	Note	2015		2014
		£'m		£'m
Non-current assets
Intangible assets		331.0		331.2
Property, plant and equipment		38.2		36.7
Deferred tax assets		0.2		1.2
Other receivables		1.2		1.5
		370.6		370.6
Current assets
Inventories		41.5		39.3
Trade and other receivables		17.7		17.6
Derivative financial instruments		5.8		0.3
Cash and cash equivalents		69.0		40.7
		134.0		97.9
Total assets		504.6		468.5
Current liabilities
Borrowings		(14.5)		(21.3)
Trade and other payables		(35.3)		(31.8)
Tax payable		(5.2)		(4.9)
Derivative financial instruments		(0.1)		(0.9)
		(55.1)		(58.9)
Non-current liabilities
Borrowings		(155.9)		(366.3)
Trade and other payables		(10.7)		(11.8)
Derivative financial instruments		-		(0.4)
		(166.6)		(378.5)
Total liabilities		(221.7)		(437.4)
Net assets		282.9		31.1
Equity
Share capital		3.4		2.5
Share premium		201.6		-
Hedging Reserve		5.0		(0.8)
Reverse acquisition reserve		(0.5)		(0.5)
Merger reserve		2.7		2.7
Retained earnings		70.7		27.2
Equity attributable to equity holders of the parent		282.9		31.1

Consolidated statement of changes in equity           

For the year ended 31 January 2015

	Share capital	Share premium	Hedging reserve	Reverse acquisition reserve	Merger reserve	Retained earnings	Total equity
	£'m	£'m	£'m	£'m	£'m	£'m	£'m
At 1 February 2013	2.5	-	-	(0.5)	2.7	8.8	13.5
Total comprehensive income for the year
Profit or loss	-	-	-	-	-	18.4	18.4
Other comprehensive income	-	-	(0.8)			-	(0.8)
	-	-	(0.8)	-	-	18.4	17.6
At 31 January 2014	2.5	-	(0.8)	(0.5)	2.7	27.2	31.1
Total comprehensive income for the year
Profit or loss	-	-	-	-	-	33.2	33.2
Other comprehensive income	-	-	5.8	-	-	-	5.8
	-	-	5.8	-	-	33.2	39.0
Transactions with owners, recorded directly in equity
Issue of shares - net of issue costs	0.9	201.6	-	-	-	-	202.5
Share based payment charges	-	-	-	-	-	10.3	10.3
Total contributions by and distributions to owners	0.9	201.6		-	-	10.3	212.8
At 31 January 2015	3.4	201.6	5.0	(0.5)	2.7	70.7	282.9

Consolidated cash flow statement

For the year ended 31 January 2015

	Note	2015		2014
		£'m		£'m
Cash inflow from operating activities	10	84.9		79.1
Corporation tax paid		(9.6)		(12.1)
Net cash inflow from operating activities		75.3		67.0
Cash flows from investing activities
Purchase of property, plant and equipment		(9.2)		(10.6)
Purchase of intangible assets		(0.9)		(1.4)
Payment of deferred consideration		(0.8)		(0.5)
Interest received		0.3		0.5
Net cash outflow from investing activities		(10.6)		(12.0)
Cash flows from financing activities
Proceeds from bank borrowings		177.4		159.7
Interest paid		(8.6)		(108.7)
Repayment of borrowings		(293.6)		(129.8)
Payment of finance lease liabilities		(0.1)		(0.2)
Proceeds from new shares issued		88.5		-
Net cash outflow from financing activities		(36.4)		(79.0)
Net increase/(decrease) in cash and cash equivalents		28.3		(24.0)
Cash and cash equivalents at the beginning of the year		40.7		64.7
Closing cash and cash equivalents		69.0		40.7

 

Notes to the financial statements

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

The financial information contained in this preliminary announcement does not constitute the company's statutory accounts for the year ended 31 January 2015 within the meaning of section 435 of the Companies Act 2006 (the "Act") but is derived from those accounts. Statutory accounts for the year ended 31 January 2015 will be delivered to the registrar in due course. The auditor has reported on those accounts. Their reports were (i) unqualified, (ii) did not included 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.

Impact of the Group restructure prior to the Initial Public Offering

On 20 May 2014, Card Factory plc was admitted to trading on the London Stock Exchange. In preparation for the Initial Public Offering, the Group was restructured. On 30 April 2014 Card Factory plc (formerly CF Listco Limited, incorporated on 17 April 2014 for the purpose of the restructure) acquired 100% of the share capital of CF Topco Limited in a share for share exchange, thereby inserting Card Factory plc as the parent company of the Group. The shareholders of CF Topco Limited became 100% owners of the enlarged share capital of Card Factory plc.

By applying the principles of reverse acquisition accounting, the Group financial statements are presented as if Card Factory plc had always owned CF Topco Limited. Comparative figures for the year ended 31 January 2014 are the consolidated results of CF Topco Limited, adjusted to reflect the statutory share capital, share premium and merger reserve of Card Factory plc at the point of the restructure, thereby creating a reverse acquisition reserve.

The statutory accounts of CF Topco Limited for the year ended 31 January 2014 were prepared in accordance with UK GAAP. The historical financial information published in the initial public offering prospectus ('IPO prospectus'), dated 15 May 2014, presents the consolidated financial statements of CF Topco Limited for the years ended 31 January 2014, 31 January 2013 and 31 January 2012, prepared in accordance with EU IFRS and applying IFRS 1 'First time adoption of International Financial Reporting Standards'. The historical financial information published in the IPO prospectus includes details of the transition, reconciling UK GAAP to EU IFRS.

Underlying profit and earnings

The Group has chosen to present an underlying profit and earnings measure. The Group believes that underlying profit and earnings provides additional useful information for shareholders. Underlying earnings is not a recognised profit measure under EU 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 U.S. 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 IAS 39. Such gains and losses relate to future cash flows. In accordance with the commercial reasoning for entering into these agreements, the 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 to the extent the gain or loss is not recognised in the hedging reserve.

IPO costs

In May 2014, Card Factory plc floated on the London Stock Exchange. Non-recurring IPO related costs totalled £5.3 million of which £3.8 million was charged to the income statement and £1.5 million was recognised within share premium as costs directly related to the issue of new shares.

Residual management equity share based payment

On admission to the London Stock Exchange, shares with a fair value of £9.8 million were issued at nominal value in relation to residual management equity as detailed in the IPO prospectus. Employer national insurance of £1.4 million was incurred on the issue of the shares. These non-recurring share based payments are presented as a non-underlying item in the income statement.

Refinanced debt issue cost amortisation

Debt issue costs not yet amortised totalling £7.7 million were expensed to the income statement when the related bank borrowings were repaid and re-financed on 30 May 2014.

1          Non-underlying items

	2015		2014
	£'m		£'m
Cost of sales
Loss on foreign currency derivative financial instruments not designated as a hedge	(0.1)		(1.9)
Operating expenses
IPO costs	(3.8)		-
Residual management equity share based payment	(11.2)		-
	(15.0)		-
Net finance expense
Refinanced debt issue cost amortisation (note 6)	(7.7)		-

2          Segmental reporting

The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails greeting cards, dressings and gifts in the UK through an extensive store network. Getting Personal is an online retailer of personalised cards and gifts. Getting Personal does not meet the quantitative thresholds of a reportable segment as defined in IFRS 8. Consequently the results of the Group are presented as a single reportable segment. Revenues outside of the UK are not significant at less than £0.1million.

The Chief Operating Decision Maker is the Board of Directors. Internal management reports are reviewed by the Board of Directors on a monthly basis. Performance of segments is assessed based on a number of financial and non-financial KPI's including EBITDA (as defined in note 4) and profit before tax.

3          Operating profit

Operating profit is stated after charging/ (crediting) the following items:

	2015		2014
	£'m		£'m
Employee costs (note 5)	95.0		75.8
Depreciation expense
- owned fixed assets	7.7		6.4
- assets held under finance lease	-		0.1
Amortisation expense	1.1		1.0
Operating lease rentals:
- land and buildings	34.6		32.9
- plant, equipment and vehicles	0.5		0.4
Foreign exchange (gain)/loss	-		(1.9)

4          Underlying EBITDA

Underlying earnings before interest, tax, depreciation and amortisation ("EBITDA") represents underlying profit for the period before net finance expense, taxation, depreciation and amortisation.

	2015		2014
	£'m		£'m
Underlying operating profit	79.4		72.9
Depreciation and amortisation	8.8		7.5
Underlying EBITDA	88.2		80.4

5          Staff numbers and costs

The average number of people employed by the Group (including directors) during the year, analysed by category, was as follows:

	2015		2014
	Number		Number
Management and administration	289		270
Operations	8,908		8,333
	9,197		8,603

The aggregate payroll costs of all employees including Directors were as follows: 

	2015		2014
	£'m		£'m
Wages and salaries	79.0		71.9
Equity-settled share based payment expense	10.3		-
Social security costs	5.4		3.8
Defined contribution pension costs	0.3		0.1
	95.0		75.8

The equity settled share based payment expense includes £9.8m in relation to residual management equity recognised as a non-underlying expense. Social security costs include £1.4m relating to residual management equity presented as a non-underlying expense.

6              Finance income and expense

	2015		2014
	£'m		£'m
Finance income
Bank interest received	(0.3)		(0.5)
Finance expense
Interest on bank loans and overdrafts	8.5		9.5
Amortisation of loan issue costs	9.0		1.9
Interest on loan notes	4.3		29.9
Interest on deferred consideration	0.1		0.1
	21.9		41.4
Net finance expense	21.6		40.9

Amortisation of loan issue costs include £7.7 million expensed to the income statement on the repayment of borrowings as part of a refinancing on 30 May 2014 and are presented as non-underlying, see note 1.

7              Taxation

Recognised in the income statement

	2015		2014
	£'m		£'m
Current tax expense
Current year	10.6		11.4
Adjustments in respect of prior periods	(0.7)		(0.7)
	9.9		10.7
Deferred tax (credit)/expense
Origination and reversal of temporary differences	(0.5)		0.2
Adjustments in respect of prior periods	0.1		0.6
Effect of change in tax rate	-		0.2
	(0.4)		1.0
Total income tax expense	9.5		11.7

The effective tax rate of 22.3% (2014: 38.9%) is higher than the standard rate of corporation tax in the UK. The tax charge is reconciled to the standard rate of UK corporation tax as follows:

	2015		2014
	£'m		£'m
Profit before tax	42.7		30.1
Tax at the standard UK corporation tax rate of 21.32% (2014: 23.16%)	9.1		7.0
Tax effects of:
Interest expense not deductible for tax purposes	-		4.2
Other expenses not deductible for tax purposes	1.1		0.6
Non-taxable income	(0.1)		(0.2)
Adjustments in respect of prior periods	(0.6)		(0.1)
Effect of change in tax rate	-		0.2
Total income tax expense	9.5		11.7

The effective tax rate was higher in the prior year principally due to non-deductible interest costs in relation to shareholder loan notes. Shareholder loan notes were part repaid in October 2013 and the remaining balance settled by share exchange in May 2014 prior to the IPO. Furthermore, under a new thin capitalisation agreement approved in the year, shareholder loan note interest for the period October 2013 to May 2014 is now fully deductible giving rise to a £0.7 million non-underlying current period tax credit on interest accrued to 31 January 2014.

8          Dividends

The Board is recommending a total dividend in respect of the financial year ended 31 January 2015 of 6.8 pence per share, resulting in a total dividend of £23.2 million. The total dividend comprises an interim dividend which the Directors are declaring of 2.3 pence per share and a proposed final dividend of 4.5 pence per share.  The final dividend will, subject to shareholders' approval at the Annual General Meeting on 27 May 2015, be paid alongside the interim dividend on 5 June 2015 to shareholders on the register at the close of business on 1 May 2015. No liability is recorded in the financial statements in respect of the dividends as they were not approved at the balance sheet date.

No dividends have been paid in the year (2014: £nil).

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.

The weighted average number of shares for the prior period reflects the weighted average number of ordinary shares of CF Topco Limited, multiplied for a 1:50 share split effected on the reverse acquisition as described in the basis of preparation.

Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for the dilutive effect of potential ordinary shares. Potential ordinary shares represent share incentive awards granted to employees in the period.

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.

	2015		2014
	(Number)		(Number)
Weighted average number of shares in issue	312,568,527		245,635,000
Weighted average number of dilutive share options	15,919		-
Weighted average number of shares for diluted earnings per share	312,584,446		245,635,000

	£'m		£'m
Profit for the financial year	33.2		18.4
Non-underlying items	17.9		1.5
Total underlying profit for underlying earnings per share	51.1		19.9

	pence		pence
Basic earnings per share	10.6		7.5
Diluted earnings per share	10.6		7.5
Underlying basic earnings per share	16.3		8.1
Underlying diluted earnings per share	16.3		8.1

10        Notes to the cash flow statement

Reconciliation of operating profit to cash generated from operations.

	2015		2014
	£'m		£'m
Profit before tax	42.7		30.1
Net finance expense	21.6		40.9
Operating profit	64.3		71.0
Adjusted for:
Depreciation and amortisation	8.8		7.5
Cash flow hedging foreign currency losses	0.4		-
Share based payments charge	10.3		-
Operating cash flows before changes in working capital	83.8		78.5
Decrease in receivables	0.7		0.5
Increase in inventories	(2.2)		(4.7)
Increase in payables	2.6		4.8
Cash inflow from operating activities	84.9		79.1

 

END

 

 

FR EAPDLAFESEFF