Half-year Report

RNS Number : 7045A

Card Factory PLC

27 September 2022

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

Interim results for the six months ended 31 July 2022

Card Factory, the UK's leading specialist retailer of greeting cards, gifts, wrap and bags, announces its interim results for the six months ended 31 July 2022 ('HY23').

Business highlights

· Card Factory LFL¹ revenue growth of +4.1% reflects the good momentum within the business alongside the shift of customer spend back towards the high street and reversal of lockdown effects.

o Store revenue grew 81.8%, +6.1% on a LFL¹ basis adjusted for lockdown restrictions.

o Strong performance of everyday product with good growth in celebratory life moments reflecting a return to more normal lifestyles post-pandemic.

o Cardfactory.co.uk sales were down year-on-year as customers returned to the high street but remained up significantly in comparison to pre-pandemic (+85.9% 3Y LFL).

· EBITDA of £43.8 million (HY22: £23.6 million) as the business continued to be effective in managing inflationary headwinds through a combination of efficiency measures and targeted price increases.

· PBT of £14.3 million (HY22: loss of £6.5 million), includes £3.5 million of one-off benefits due to release of CJRS provision and deferred fee accrual release associated with prior refinancing package.

· Operating cash flow of £19.7 million (HY22: £36.1 million) reflects normalisation of working capital profile following Covid disruption - payment of VAT deferrals, CJRS settlement and stock build for Christmas season.

· Net debt (excluding lease liabilities) of £96.6 million (HY22: £96.5 million), which is significantly reduced compared to a pre-pandemic view (HY20: £170.3 million). Reflects £32.1 million of deferred rent and VAT payments since HY22.

· Successfully completed refinancing providing liquidity headroom to deliver strategy.

Financial summary

Financial Metrics	HY23	HY22	Change	FY22
Revenue	£198.0m	£116.9m	69.4%	£364.4m
EBITDA	£43.8m ²	£23.6m	85.6%	£85.6m
Profit/(Loss) before tax	£14.3m ²	(£6.5m)	320.0%	£11.1m
Leverage (exc. Leases)	0.9x	1.6x	(0.7x)	0.9x
Operating cash flow	£19.7m	£36.1m	(45.4%)	£113.6m
Basic EPS	3.4 pence	(1.5 pence)	4.9 pence	2.4 pence

¹ For definitions of like-for-like (LFL) see notes below.

² EBITDA for HY23 includes one-off benefit associated with CJRS settlement (£2.5 million). Profit before tax includes a further one-off benefit related to deferred fees for previous financing facilities (£1.0 million).

Strategy update

· Omnichannel

o Opened six new stores in the Republic of Ireland and opened our first small format trial store in central London, with a second opened since the end of the period, as we increase our presence in under penetrated markets.

o New model store format rolled out to five locations to date as part of our focus on evolving the customer store experience.

o Final preparations for Click & Collect trial launch in 84 stores.

· Complementary Categories

o Strong performance in complementary categories reflective of strategic planning and range expansion work undertaken in the first half to grow our share of an identified £5 billion UK market opportunity.

o Launched new ranges in licensed gifts and partyware, with range expansions of flowers and alcohol on cardfactory.co.uk coming soon.

· Partnerships

o Completed research and sizing of international opportunities and have identified new potential international markets in India and the Middle East.

Outlook:

· We remain mindful of the challenging economic backdrop; however we believe our value proposition positions us well to navigate this.

· We expect to be able to continue to manage the known inflationary pressures through a combination of targeted price increases and efficiency measures; the business is hedged on both energy and currency beyond the current financial year.

· Whilst we expect continued wage inflation going forward, benefits from pricing actions will be more weighted towards H2 and into FY24.

· Considering the combination of good trading momentum in everyday product, alongside market uncertainty around consumer behaviour through the Christmas season due to the cost-of-living impact and based on the current inflationary outlook, our expectations for the remainder of FY23 are unchanged.

Darcy Willson-Rymer, Chief Executive Officer, commented:

"We are pleased to report a strong performance through the half which reflects continued good momentum within the business, as well as the reversal of lockdown trends with customers choosing to return to the high street. The pronounced shift in spend back towards stores supports our continued conviction in the value of our store estate within our customer proposition and as an enabler in our omnichannel ambitions.

During the half, we have made good strategic progress as we focus on evolving our customer proposition across different channels and taking it to new markets. We recently opened stores in central London for the first time, with two trial stores forming part of our strategy to increase our presence in underpenetrated markets. We have also rolled our new model store format out to include five stores as we focus on evolving the in store customer experience.

The inflationary pressures we are all facing into are well known, however the pre-emptive actions we have taken, such as the fixing of energy costs until September 2024 and targeted price increases, have helped to offset these. Despite these ongoing challenges, we remain confident that our customers will continue to want to celebrate life's moments and that value for money is increasingly important to them. Card Factory offers great value for money across a range of products and price points, and our experience so far this year confirms how well this resonates with consumers.

Whilst we remain mindful of the challenging economic backdrop as we head towards the Christmas season, we feel well placed to navigate this and retain our focus on transitioning Card Factory to a market leading omnichannel retailer of cards and gifts."

Interim results webcast

There will be an analyst presentation today at 10:00am at UBS, 5 Broadgate, London, EC2M 2QS. We will also provide a live video webcast available via the following link:

https://storm-virtual-uk.zoom.us/webinar/register/WN_1TutZ9jmRSy5eJ0Jz_oSmg

Those analysts who wish to join are requested to contact Yasemin Balman of Tulchan Communications on the number provided below or by emailing cardfactory@tulchangroup.com .

A copy of the webcast and accompanying presentation will be made available via the Card Factory investor relations website: www.cardfactoryinvestors.com .

Enquiries

Card Factory plc via Tulchan Communications (below)

Darcy Willson-Rymer, Chief Executive Officer

Kris Lee, Chief Financial Officer

Tulchan Communications +44 (0) 207 353 4200

James Macey White / Alison Lygo / Toby Zeal cardfactory@tulchangroup.com

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.

Alternative Performance Measures ("APMs") and other explanatory information

Introduction

In the reporting of the interim results and condensed consolidated interim financial statements, the Directors have adopted various Alternative Performance Measures ('APMs') of financial performance, position or cash flows other than those defined or specified under International Financial Reporting Standards ('IFRS'). These measures are not defined by IFRS and therefore may not be directly comparable with other companies' APMs, including those in the Group's industry. APMs should be considered in addition to IFRS measures and are not intended to be a substitute for IFRS measurements.

Purpose

The Directors believe that these APMs provide additional useful information on the performance and position of the Group and are intended to aid the user in understanding the Group's results.

The APMs presented are consistent with measures used internally by the Board and management for performance analysis, planning, reporting and incentive setting purposes.

Definitions of the APMs used in this report are as follows:

"EBITDA" is earnings before interest, tax, depreciation, amortisation and impairment charges. Earnings is equivalent to profit after tax calculated in accordance with IFRS and each adjusting item is calculated in accordance with the relevant IFRS. A reconciliation of EBITDA to operating profit is provided in note 5 to the condensed consolidated interim financial statements. The Group uses EBITDA as a measure of trading performance, as it usually closely correlates to the Group's operating cash generation.

"Leverage" is the ratio of Net Debt to EBITDA for the previous 12 months. The Group monitors and reports leverage as a key measure of its financing position and performance. Leverage is also a key covenant defined within the Group's financing facilities. A calculation of Leverage (both inclusive and exclusive of lease liabilities) is provided in the Chief Financial Officer's review below.

"Like-for-like" or "LFL" calculates the growth or decline in gross sales in the current period versus a prior comparative period, excluding any sales earned from new stores opened in the current period or closed since the comparative period. LFL measures only consider the time period where stores were open and trading in both the current and prior period (hence any periods of lockdown in either period are excluded from both periods).

LFLs for the current period (HY23) in this report are either "one-year" (being the comparison of HY23 to HY22) or "three-year" (being the comparison of HY23 to HY20, the last financial period with no lockdown impact). Comparative figures for HY22 are all two-year comparisons to HY20. Unless otherwise stated, LFL measures for the current period are one-year comparisons.

The Group defines Iike-for-Iike sales as the year-on-year growth in sales via Card Factory retail channels as follows:

· Card Factory Stores: "Store LFLs" consider stores that were open in both the current year and the comparative period.

· "Card Factory Online" : made via the Card Factory website, www.cardfactory.co.uk ;

· "Card Factory LFL" is defined as Like-for-like sales in stores plus sales from the Card Factory website. www.cardfactory.co.uk ;

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

· "Online" : like for like sales for Card Factory Online and Getting Personal combined.

Sales by Printcraft, the Group's printing division, to external third-party customers are excluded from any LFL sales measure.

"Net Debt" is calculated by subtracting the Group's cash and cash equivalents from its borrowings. Net Debt is a key measure of the Group's balance sheet strength, and is also a covenant in the Group's financing facilities. The Group presents Net Debt both inclusive and exclusive of lease liabilities, but focusses upon the value exclusive of lease liabilities, which is consistent with the calculation used for covenant purposes.

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

BUSINESS UPDATE

Performance in the period

Card Factory has performed well through the first half of the year, even when taking into account the reversal of lockdown measures and customers returning to the high street. The pronounced shift in spend back towards stores that is evident across the retail space, supports our continued conviction in the value of our store estate within our customer proposition and as an enabler in our omnichannel ambitions. Our stores delivered good LFL growth of 6.1%, when adjusted for stores that were open in both the current year and the comparative period.

Combined with continued growth in complementary categories, this improvement was driven by our continued leadership in cards and the strong performance of everyday product across cards, gifting, party and balloons. We continued to see some mix shift from our first half occasion events (Valentine's Day, Mother's Day and Father's Day) towards everyday ranges which typically represent 70% of sales. We saw good growth in life moments, such as weddings and christenings, as well as in cards with celebratory captions, reflecting a return to more normalised lifestyles and social events following the pandemic. This also demonstrates the success of our card strategy to meet customer demand through both our strong value proposition and our focus on range optimisation, including the full relaunch of our wedding card offer, leading to a notable improvement in our year on year market share. Store transaction numbers grew 9.4% on a LFL basis, marginally offset by a 3.1% reduction in average basket value ("ABV") reflecting a return to more normalised shopping habits following lockdown restrictions. Whilst ABV is down in the period, it is still materially ahead of pre-Covid levels at +23.1% vs HY20.

We implemented targeted price increases as one part of our strategy to manage inflationary pressures. We chose to protect our competitive entry price point and focus on building greater value into price points across our pricing architecture. We are pleased with how the pricing strategy has been executed, with minimal impact on customer behaviour and only around half of the 4.1% Card Factory LFL growth having been driven by price.

During the half we opened 14 stores and closed eight, taking us to a total of 1,026 stores. Openings have focused on increasing our presence in underpenetrated markets, such as the Republic of Ireland and our first trial stores in central London. The flexibility in our store portfolio has allowed us to continue to adapt to changing footfall and customer shopping trends.

As would be expected, we saw some customers migrate away from shopping online as stores reopened, which resulted in our online sales for the half being down 33.6% in comparison to last year. However, cardfactory.co.uk remains a significantly larger business than it was before the pandemic and remained positive on a LFL basis in Q2 despite the reopening of stores last year. This is a result of the work the business has done to enhance the proposition, replatforming the site to unlock greater product options and a better online customer experience. Performance in Getting Personal was behind our expectations.

Partnerships continued to perform well with a 46.6% increase in sales compared to HY22.

Strategy update

Delivery of our "Opening Our New Future" growth strategy continues to progress well as we transition Card Factory from being a store-led card retailer into a market leading, omnichannel retailer of cards and gifts. We continue to deliver on the strategy initiatives, specifically around omnichannel, complementary categories and partnerships, with further milestones achieved since the last update at the Full Year results in May.

Omnichannel

The pronounced shift in spend back towards stores that is evident across the retail space, supports our continued conviction in the value of our store estate within our customer proposition and as an enabler in our omnichannel ambitions.

Milestones

· Delivery of our omnichannel strategy is about to begin with the launch of our Click & Collect trial in 84 stores. As we test the approach and understand consumer response, we will be able to ensure the successful rollout of a full omnichannel offer in FY24 and beyond.

· Our digital investment has also continued with the completion of the replatforming of cardfactory.co.uk which has opened up product and ranging capability across our gifting categories.

· As the success of our omnichannel strategy relies on the strength and breadth of our store estate, we continue to focus on the analysis of our first five model stores. We are pleased with the progress of the initial rollout and we will continue to evaluate performance and identify learnings as we extend the model store format.

· By opening two small format trial stores in central London, as well as six new stores in the Republic of Ireland, we continue with our plans to diversify our store estate into underpenetrated markets.

Next Priorities

· Click & Collect trial to be launched across a total of 84 stores by end of FY23.

· New model store format extended in a further five stores by the end of FY23.

· We are on course to deliver the second phase of our ERP implementation in early 2023, after the Christmas peak. This will enable the ability to view stock in all areas of the business and enable integration with future partners both in the UK and internationally.

Complementary Categories

Strong performance in complementary categories reflective of the strategic planning and range expansion work undertaken in the first half to grow our share of an identified £5 billion UK market opportunity.

Milestones

· As the return of social events and celebrations continue following the lifting of lockdown restrictions, we have seen strong performance in balloons and party with +29% LFL in party sales.

· Due to the expansion of the range to meet a broader set of customer needs, confectionery sales increased 98.3% LFL.

· We have launched new ranges in licensed gifts and partyware.

Next Priorities

· Expand our offer in confectionery, home accessories and toys, as well as flowers and alcohol on cardfactory.co.uk.

UK and International Partnerships

We are continuing to analyse and identify new partnership opportunities with a focus on building the right partnerships to grow the business.

Milestones

· Completed research and sizing of international opportunities, working with Global Data. From this work we have identified new potential international markets in India and the Middle East.

Next Priorities

· Develop pipeline of opportunities and build out internal capabilities to support delivery in newly identified markets.

ESG progress

We have continued to make progress through our ESG strategy on developing and delivering positive change across the business. We remain on track with our efforts to reduce waste and improve the sustainability of our product ranges, with 90% of products being free of single use plastic by the end of FY24. All new card and gifts produced for Card Factory are now glitter free and by the end of FY24 we expected to have sold through any existing stock containing glitter.

Our focus on developing a diverse, inclusive and socially responsible culture at Card Factory continues to be a priority for the management team and supported through our progressive DE&I strategy. With the support and extensive consultation of our colleagues, we continue to have a positive impact on communities across the UK and the Republic of Ireland, alongside The Card Factory Foundation.

Notable progress since the last update at the FY22 preliminary results in May includes:

· Entered into partnership with the Woodland Trust to support their work to protect, restore and create native woodland in the UK.

· Commenced work with energy consultancy to provide enhanced insight and recommendations to reduce scope 1, 2 and 3 emissions.

· Commissioned a review of ESG structure and strategy to support creation of future roadmap.

Receiving 'Best Place to Work' recognition following inclusion in Best Companies 'UK's Top 10 Best Big Companies To Work For' and 'Retail's Top 10 Companies To Work For', Q2 league table.

Preparations for Christmas

While we continue to benefit from the agility provided by having our own UK based production facility, we have put in place a number of actions to mitigate against any potential supply chain disruption from Far East orders and across UK ports by bringing forward ordering and delivery. Further enhancements have also been made to store stock replenishment which will increase availability of products for customers. We will also benefit from having cleared through legacy stock created by pandemic disruption. Recruitment of seasonal colleagues for the Christmas season has commenced, and we are confident in our ability to meet staffing requirements for this seasonal peak.

Current trading and Outlook

Trading in the second half to date remains encouraging, positive LFLs in line with expectations.

Whilst we remain mindful of the challenging economic backdrop, as the consumer impact of the cost-of-living crisis continues to develop, we believe our value proposition positions us to navigate this well. We remain confident that our customers will want to continue to celebrate life's moments, and that value for money is increasingly important to them. Our customer proposition offers great value for money across a range of products and price points, and our experience so far this year confirms how well this resonates with consumers.

The first half demonstrated our ability to effectively manage inflationary headwinds which has been achieved through a combination of management actions including energy and currency hedging, increasing efficiency of our in-store labour model and consolidation of inbound freight, alongside targeted price increases. Whilst we expect continued wage inflation going forward, benefits from pricing actions will come through more strongly in the second half of the year which will see the gross margin return to more normalised levels.

Based on the current inflationary outlook, our expectations for the remainder of FY23 are unchanged and we expect to be able to continue to manage the known inflationary pressures through a continued combination of targeted price changes and efficiency alongside our hedge position. We are well covered from a hedging perspective on both energy costs and USD foreign exchange exposure, which gives us good visibility on the shape of our cost base.

We remain comfortable with expectations for the full year, considering the combination of good trading momentum in everyday product, alongside market uncertainty around consumer behaviour through the Christmas season due to the cost-of-living impact.

CHIEF FINANCIAL OFFICER'S REVIEW

The "HY23" accounting period refers to the six-months-ended 31 July 2022 and the comparative period "HY22" refers to the six-months-ended 31 July 2021.

Comparisons provided in this review are to the equivalent period in the prior financial year (HY22), unless otherwise stated. Like-for-like (LFL) sales metrics exclude periods of store closure in either period and therefore only compare sales for the time stores were open in both periods.

Revenue

The Group has performed well in the first half of the year; the first half year with a full six months of trading since 2019. Sales have been encouraging, with a strong LFL performance in Stores of +6.1% compared to HY22. In Online, sales performance was down compared to HY22 as customers returned to the high streets and lockdown trends gradually reversed, but cardfactory.co.uk performed well with sales significantly ahead of the pre-pandemic period.

Total Group revenue during the period increased by 69% to £198.0 million (HY22: £116.9 million), predominantly due to the increased number of available trading days in the period. Stores were closed for over two months due to lockdown restrictions in HY22, compared to a full six months of trading in HY23. However, LFL sales performance has been strong in Stores and we believe this reflects good momentum and progress with our strategic transition.

	HY23 £'m	HY22 £'m	Increase/ (Decrease)
Card Factory stores	186.6	102.7	81.7%
Card Factory Online	4.0	5.7	(29.8%)
Getting Personal	4.0	6.2	(35.5%)
Retail partnerships	3.4	2.3	46.6%
Group	198.0	116.9	69.4%

Store transaction numbers grew 9.4% on an LFL basis compared to HY22, partially offset by a small reduction in average basket values of 3.1%, which we believe reflects a gradual return to pre-pandemic shopping habits following the cessation of restrictions. Whilst ABV is down in the period, it is still materially ahead of pre-Covid levels. We saw strong growth in complementary categories, with the performance of our party and confectionery offer being particularly pleasing. Everyday ranges performed strongly across both card and complementary categories. Compared to HY22, we saw a slight mix shift from complementary categories to card, with card comprising 49% of sales in the period compared to 47% last year. However, mix has had a limited impact on overall sales and margins, with growth being delivered by a combination of targeted sales price increases and the increase in transactions noted above.

The Group's programme of new store openings and optimisation of the store portfolio continues to be an important driver of sales growth. During HY23, the Group opened 14 new stores and closed eight stores, in addition to one relocation, giving a net increase in stores during the period of six. This brings the Group's total store estate to 1,026 at 31 July 2022, including 20 stores in the Republic of Ireland. The new store openings included our first central London store at Tottenham Court Road, and six new stores in the Republic of Ireland.

The return of shoppers to the high street contributed to a reduction in overall sales for our Online businesses of -33.4% LFL. We remain encouraged by the performance of cardfactory.co.uk, where sales remain over 85.9% higher than HY20 on an LFL basis. We believe this reflects the work done to improve the range and online experience. Performance in Getting Personal was behind expectations, with overall online revenue growth across Card Factory and Getting Personal of -33.6% compared to HY22.

Retail partnerships sales increased 46.6% compared to HY22, which principally reflects increased sales to The Reject Shop, our Australian partner.

LFL sales growth across each division is set out in the table below.

	HY23		HY22
	vs HY22	vs HY20	vs HY20
Card Factory stores	6.1%	(4.2%)	(7.2%)
Card Factory online	(30.2%)	85.9%	167.9%
Card Factory LFL	4.1%	(3.1%)	(3.7%)
Getting Personal	(36.7%)	(35.1%)	6.9%

Operating costs

Cost of sales and operating expenses are set out in the tables below.

HY23	HY23 £'m	HY23 % of revenue	% (Increase) / Decrease	£ (Increase) / Decrease
Cost of goods sold*	68.1	34.4%	0.6 ppts	(66.4%)
Store wages	41.8	21.1%	4.6 ppts	(39.2%)
Store property costs	12.2	6.2%	(2.4 ppts)	(171.3%)
Other direct expenses	10.2	5.2%	1.8 ppts	(24.7%)
Cost of sales	132.2	66.8%	4.5 ppts	(58.2%)

Operating expenses**	22.0	11.1%	4.1 ppts	(24.1%)
Depreciation, amortisation & impairment	23.8	12.0%	8.2 ppts	(1.0%)
Total operating expenses	45.8	23.1%	12.2 ppts	(10.9%)

HY22	HY22 £'m	HY22 % of revenue
Cost of goods sold*	40.9	35.0%
Store wages	30.0	25.7%
Store property costs	4.5	3.8%
Other direct expenses	8.2	7.0%
Cost of sales	83.6	71.3%

Operating expenses**	17.7	15.2%
Depreciation, amortisation & impairment	23.6	20.2%
Total operating expenses	41.3	35.3%

*cost of goods sold includes foreign exchange gains/losses previously described as non-underlying in HY22.

**excluding depreciation and amortisation.

Total cost of sales and operating expenses increased in absolute terms compared to HY22 reflecting the impact of increased trading days and sales growth on the Group's variable costs. However, the overall ratio of cost of sales to revenue decreased to 66.8% (HY22: 71.3%) and the overall ratio of operating costs to sales decreased to 23.1% (HY22: 35.3%).

The Group has been successful in mitigating incremental inflationary headwinds during the period, through a combination of targeted price increases and management actions to drive efficiencies, as described in further detail by category below.

· Cost of goods sold ("COGS"): comprise the direct costs of goods sold in the period (principally cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight costs, carriage costs and warehouse wages). In addition to the impact from the increase in sales, product COGS in HY23 has been affected by increases in freight and carriage costs as a result of global shipping cost increases and the increase in energy prices on the cost of fuel. We have been successful in mitigating these increases through economies of scale as sales volumes have increased, as well as through direct action to consolidate shipping containers where possible. We continue to benefit from a currency hedge which provides protection against input price variances due to current weakness of Sterling versus the US dollar. Our average achieved exchange rate is comparable to the prior year. In addition, COGS includes £1.6 million of currency gains in relation to the portion of our hedge portfolio that does not qualify for hedge accounting (HY22: £0.2 million losses). When combined with price actions, achieved product margins in the period are comparable with those achieved in HY22 despite inflationary headwinds.

· Store wages: comprise all staff costs for store-based staff, including employer taxes and contributions. Store wages in HY22 are shown net of Coronavirus Job Retention Scheme (CJRS) support received in relation to period of lockdown closure. In HY23, employee costs include a cumulative one-off credit of £2.5 million relating to settlement of our CJRS position with HMRC (see below). Excluding this credit, store wages costs for HY23 are approximately 22.4% of revenue. This is lower than HY22 despite the introduction of National Minimum Wage increases in April 2022, principally reflecting productivity gains enabled by stores being open for the entire period.

· Store property costs : principally comprise business rates and service charges. Property costs for HY22 are stated net of business rates relief available in that period. Costs have increased in HY23 reflecting the cessation of these reliefs from April 2022, and the increase in size of the store portfolio compared to the prior period.

· Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point of sale costs, bank charges and pay-per-click expenditure. This cost category is predominantly variable in proportion to the number of stores and available trading days in the period - both increased in the period compared to HY22 and as a result absolute costs also increased. Other direct expenses increased as a percentage of revenue in HY22 reflecting specific cost inflation headwinds, including increased cost of pay-per-click expenditure.

· Operating expenses: includes remuneration for central and regional management and business support functions, design studio costs and business insurance together with other central overheads and administration costs. Such salary costs, which typically represent 50-60% of total operating costs in a given period, increased compared to the HY22 period due to no staff being on furlough and following investment in our senior and support centre teams to drive the strategy. Total operating expenses, before depreciation and amortisation, increased by 24.1% from £17.7 million to £22.0 million, representing a decrease from 15.2% to 11.1% as a percentage of revenue.

Depreciation and amortisation charges include depreciation in respect of right-of-use assets, which predominantly relate to the Group's store portfolio. Depreciation and amortisation in respect of the Group's plant, equipment and software assets increased from £4.5 million in HY22 to £5.7 million in HY23, which includes a one-off impairment charge of £1.5 million in respect of online platform development for Getting Personal. The impairment reflects the development work that is no longer expected to form part of the final solution once deployed.

This increase was largely offset by a reduction in depreciation in respect of leases from £18.3 million to £17.4 million, which principally reflects improved terms secured by the Group on expiry and renegotiation of lease agreements.

As a result, total depreciation and amortisation charges for HY23 increased slightly to £23.8 million (HY22: £23.6 million)

EBITDA

HY23

£'m

HY22

£'m

Increase/ (Decrease)

EBITDA

43.8

23.6

85.6%

EBITDA margin

22.1%

20.2%

1.9 ppts

The increase in EBITDA reflects the increase in trading days and positive sales performance described above, with a combination of price and productivity actions combining to offset incremental inflationary pressures.

EBITDA for HY22 includes a £2.5 million one-off benefit relating to the release of provisions following settlement of the Group's position in respect of CJRS, which will not recur.

EBITDA for HY22 included £8.0 million of government grant income in respect of Covid lockdown support. Excluding these benefits related to Covid support, EBITDA margins for HY23 and HY22 were 21.0% and 13.3% respectively.

The Group continues to hold a provision in respect of Covid support reflecting the amount received in excess of the value it reasonably expects to retain under the terms of those grants. Following the utilisation and release of the provision in respect of CJRS, the total provision value (in respect of property grant income) was £7.4 million at 31 July 2022 (31 January 2022: £12.2 million). The Group is actively seeking professional advice to settle its position. See note 16 to the condensed consolidated interim financial statements for further information.

We remain focussed on careful cost control and continue to expect to mitigate known inflationary pressures for the remainder of the year. We are mindful of the challenging economic backdrop and the developing cost of living crisis; however believe the Group's value proposition positions us to navigate this well.

Net financing expense

The interest charge pertaining to the Group's loan facilities, which are described in more detail in note 13 to the condensed consolidated interim financial statements, reduced to £5.7 million (HY22: £6.5 million). This includes a one-off benefit of £1.0 million relating to the release of deferred debt issue costs as part of the refinancing agreed in April 2022.

Interest payable on the Group's external loans was £3.1 million (HY22: £2.9 million). During the preceding two years the Group has had a strong focus on cash management and leverage and concluded two refinancings in May 2021 and April 2022. As a result, the average cost of the Group's debt in HY23 was slightly higher than in HY22; however the average utilisation of debt drawn was lower to offset this. This, in part, reflects the flexibility provided by the RCF facility replacing term loans as part of the most recent refinancing and careful management of our debt requirements.

IFRS 16 Leases interest charges were £2.0 million (HY22: 1.5 million).

	HY23 £'m	HY22 £'m	(Increase) /Decrease
Interest on loans	3.1	2.9	4.9%
Loan issue cost amortisation	0.6	2.1	(72.2%)
IFRS 16 Leases interest	2.0	1.5	35.9%
Total finance expense	5.7	6.5	(12.8%)

Profit before tax and tax charge

As a result of all of the factors described above, the profit before tax for the period amounted to £14.3 million (HY22: Loss before tax of £6.5 million).

The tax charge in the income statement for HY23 of £2.8 million is based on the expected effective tax rate for the full year of 19.6%.

Earnings per share

Basic earnings per share for the period was 3.4 pence (HY22: Loss per share of 1.5 pence), with diluted earnings per share of 3.3 pence (HY22: Diluted loss per share of 1.5 pence).

	HY23	HY22
Profit/(loss) after tax (£m)	11.5	(5.2)
Basic EPS (pence)	3.4p	(1.5p)
Diluted EPS (pence)	3.3p	(1.5p)

Capital expenditure

Capital expenditure in the period, excluding IFRS 16 right of use assets, amounted to £5.6 million (HY22: £3.5 million), principally in relation to the ongoing project to implement a new ERP system across the business, routine investment in new and refitted stores, including model and central London stores, and investment in our online capability and customer experience. Additions to right of use assets, reflecting new and renewed leases in the store portfolio in the period, were £20.9 million (HY22 £11.5 million).

Capital expenditure in FY23 continues to be tightly controlled, with key project expenditure subject to approval by an internal committee. Spend has increased in FY23, supported by the cessation of lockdown restrictions and a return to a more normal trading pattern, principally to support key strategic initiatives. The Group remains subject to restrictions under its banking facilities (described in further detail below), which limit the total value of capital expenditure that can be incurred each year. Whilst operating within these limits, we anticipate continuing to support our strategy in the current year by investing further in the next phase of our ERP implementation, continuing the roll out of new stores, and building our e-commerce, omnichannel and manufacturing capabilities.

Foreign exchange

Approximately half of the Group's annual cost of goods sold expense relates to products that are purchased from overseas suppliers denominated in US dollars.

The Group has an established approach to hedging the risk of exchange rate fluctuations, which adopts a conservative approach to risk but retains flexibility to respond to both business and market events. The Board-approved policy permits the use of a combination of vanilla forwards and structured options to hedge the exposure over a rolling three-year period. The Group has used structured options and similar instruments to good effect for a number of years and the Board continues to view such instruments to be commercially attractive as part of a balanced portfolio approach to exchange rate risk management, even if cash flow hedge accounting may not be achievable or permitted in some instances.

At the half year, the Group has commercial hedges in place covering 100% of its anticipated exposure for the remainder of FY23 and for a substantial majority of the anticipated exposure for FY24. The portfolio average rate for these hedges is significantly ahead of current spot and forward rates across both periods, reflecting the benefit of our flexible and proactive hedging strategy in providing protection against adverse market conditions.

A proportion of the currency portfolio remains subject to future variation in the value of sterling and the impact of future trading conditions on hedged cash flows. If current GBPUSD rates are sustained over the next 18 months, this could trigger knock-out barriers in structured trades placed when rates were higher that form part of the hedging portfolio, with an adverse impact on the level of hedging and the overall portfolio rate. Structured trades represent approximately one third of hedges that are yet to mature. Beyond FY24, we expect the Group's average hedged rate will be more closely aligned with prevailing market exchange rates.

Cash generation

The Group's cash generation profile typically follows an annualised pattern, with higher cash outflows in the first half of the year associated with lower seasonal sales and investment in working capital preparing for the Christmas period, with the inverse in the second half of the year as sales increase during the Christmas season and stock levels are reduced.

During HY23 the Group generated positive operating cash flows (before lease repayments) of £19.7 million (HY22: Operating cash outflow before lease repayments of £36.1 million). This figure includes a working capital outflow associated with the reversal of VAT deferrals plus the CJRS settlement in the period and the build of inventory ahead of the Christmas season.

After taking into account lease repayments of £30.9 million, capital expenditure of £5.6 million and debt repayments and service costs of £13.0 million, the net cash outflow for the period was £29.8 million (HY22: net inflow of £8.2 million)

Net Debt & Covenants

	HY23 Net Debt £'m	HY23 Leverage Multiple	HY22 Net Debt £'m	HY22 Leverage Multiple
Borrowings
Current liabilities	18.6		0.2
Non-current liabilities	84.9		114.6
Total borrowings	103.5		114.8
Add back capitalised debt issue costs	1.6		2.4
Gross debt (exc. Leases)	105.1		117.2
Lease liabilities	109.4		142.4
Gross debt (inc. leases)	214.5		259.6
Less cash	(8.5)		(20.7)
Net Debt (inc. Leases)	206.0		238.9
Leverage (inc. Leases)		1.9x		3.9x

Remove lease liabilities	(109.4)		(142.4)
Net Debt (exc. Leases)	96.6		96.5
Leverage (exc. Leases)		0.9x		1.6x

The Group focuses on Net Debt calculated to exclude lease liabilities, as this reflects the way the Group's covenants are calculated within its financing facilities.

The cash generation profile described above means Net Debt is typically higher at half year than year-end dates. Net Debt excluding lease liabilities of £96.6 million at 31 July 2022 is broadly in line with the equivalent figure for 31 July 2021. This reflects a strong performance, with VAT and rent deferrals reduced by £32.1 million during this period.

Leverage, calculated as Net Debt (excluding lease liabilities) divided by EBITDA for a rolling 12-month period and expressed as a multiple, was 0.9 times at 31 July 2022 (HY22: 1.6 times). The Group maintains a longer-term target of approximately 1.25 times on a pre-IFRS 16 basis (excluding leases).

On 21 April 2022, the Group agreed an updated and amended financing package with its banking partners, which reduced the quantum and extended the term of the Group's facilities.

The revised facilities comprise term loans of £30 million, CLBILS of £20 million and a RCF of £100 million. The aggregate value of the Group's facilities therefore reduced to £150 million. The CLBILs facilities are subject to an amortising repayment profile, with final maturity in September 2023.

The term loans are subject to an amortising repayment profile with final maturity in September 2025. The RCF final maturity is in September 2025. The interest rate attached to the CLBILs facilities is unchanged. The term loans will attract a fixed margin of 500bps and the RCF margin remains based on a ratchet between 275 and 450bps dependent upon the Group's leverage position.

The covenant package attached to the facilities remains based on quarterly tests of interest cover and leverage. The Group must maintain interest cover of 1.5x to 31 October 2023 and 1.75x thereafter, and maintain leverage of below 3.75x to 31 October 2022, 3.0x to 31 October 2023, and 2.5x thereafter. The requirement for the Group to use best efforts to raise £70 million of equity proceeds to pay down debt has been removed.

The Group has complied with all covenant requirements during HY23.

See note 13 to the condensed consolidated interim financial statements for further information in respect of the Group's debt facilities.

Dividends and capital structure

Historically, the Board has adopted a progressive ordinary dividend policy for the Company, reflecting its strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Company's long-term growth and profitability.

Following the outbreak of the Covid pandemic the Board ceased payment of dividends, and as noted above the terms of the Group's financing facilities now prohibit dividend payments until certain elements of the Group's facilities are repaid.

As a result, no dividends were paid in FY22. The Board does not propose payment of an interim dividend in respect of HY23.

The Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long-term returns to shareholders.

As reported in May 2022, the Board intends to maintain a leverage ratio (calculated as net debt excluding lease liabilities to EBITDA) of between 0.5 and 1.5 times. Provided leverage remains in this range, the Board envisages recommencing dividend payments by the end of FY24, at which point the CLBILS facilities will have been fully repaid. It is the Board intention, subject to these conditions, maintaining an appropriate leverage ratio and achieving financial performance in line with the strategic plan, to pay ordinary annual dividends from this point based on a targeted dividend cover of 2.0 to 3.0 times the Group's consolidated post-tax profit.

It should be noted that net debt at the half and full year period ends is lower than intra-year peaks, reflecting usual trading patterns and working capital movements.

Other Information

VAT timing agreement

During HY23, the Group concluded an administrative change to align its VAT payment quarters with its financial year. Previously, VAT payments were based on calendar quarters. As a result of this change, the final VAT payment in respect of FY23 will now be made in February 2023 rather than January 2023 under the previous payment schedule, with a consequent benefit to closing cash and net debt for the current financial year.

CJRS settlement

In July 2022, HMRC formally concluded its investigation into the Group's CJRS position following an unprompted disclosure made by the Group earlier in the year and the Group made a £2.3 million payment in final settlement. As a result of the settlement, provisions held in respect of the Group's CJRS position have been released, resulting in a £2.5 million benefit to EBITDA in HY23.

Kris Lee

Chief Financial Officer

27 September 2022

Consolidated income statement

For the six months ended 31 July 2022

	Note	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
		£'m	£ 'm	£'m

Revenue		198.0	116.9	364.4
Cost of sales		(132.2)	(83.6)	(247.9)
Gross profit		65.8	33.3	116.5

Operating expenses		(45.8)	(41.3)	(92.9)
Other income		-	8.0	8.0
Operating profit	5	20.0	-	31.6

Finance expense	6	(5.7)	(6.5)	(20.5)
Profit/(loss) before tax		14.3	(6.5)	11.1

Taxation	7	(2.8)	1.3	(3.0)

Profit/(loss) for period		11.5	(5.2)	8.1


Earnings per share		pence	pence	pence
- Basic	8	3.4	(1.5)	2.4
- Diluted	8	3.3	(1.5)	2.4

All activities relate to continuing operations.

Consolidated statement of comprehensive income

For the six months ended 31 July 2022

	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£ 'm	£'m

Profit/(loss) for the period	11.5	(5.2)	8.1
Items that are or may be recycled subsequently into profit or loss:
Cash flow hedges - changes in fair value	7.8	1.2	4.1
Cost of hedging reserve - changes in fair value	(0.4)	(0.1)	-
Tax relating to components of other comprehensive income	(1.4)	(0.2)	(0.6)
Other comprehensive income/(expense) for the period, net of income tax	6.0	0.9	3.5

Total comprehensive income/(expense) for the period to equity shareholders of the parent	17.5	(4.3)	11.6

Consolidated statement of financial position

As at 31 July 2022

	Note	31 July 2022	31 July 2021	31 January 2022
		£ 'm	£'m	£'m
Non-current assets
Intangible assets	10	321.6	321.3	320.7
Property, plant and equipment	11	29.9	34.0	31.6
Right of use assets	12	101.4	104.3	98.5
Deferred tax assets		2.5	4.9	3.6
Derivative financial instruments	14	2.0	-	1.3
		457.4	464.5	455.7
Current assets
Inventories		46.2	39.7	33.1
Trade and other receivables		18.4	6.4	8.1
Tax receivable		-	2.1	-
Derivative financial instruments	14	8.2	-	0.8
Cash and cash equivalents		8.5	20.7	38.3
		81.3	68.9	80.3

Total assets		538.7	533.4	536.0

Current liabilities
Borrowings		(18.6)	(0.2)	(25.5)
Lease liabilities	12	(29.3)	(38.7)	(41.1)
Trade and other payables		(76.8)	(69.7)	(71.7)
Provisions	16	(7.4)	-	(12.2)
Tax payable		(4.4)	-	(1.5)
Derivative financial instruments	14	(0.1)	(2.9)	(0.2)
		(136.6)	(111.5)	(152.2)
Non-current liabilities
Borrowings		(84.9)	(114.6)	(85.5)
Lease liabilities	12	(80.1)	(103.7)	(78.7)
Derivative financial instruments	14	(0.3)	(0.9)	-
		(165.3)	(219.2)	(164.2)

Total liabilities		(301.9)	(330.7)	(316.4)

Net assets		236.8	202.7	219.6

Equity
Share capital		3.4	3.4	3.4
Share premium		202.2	202.2	202.2
Hedging reserve		6.9	(2.1)	1.3
Cost of hedging reserve		(0.4)	0.1	-
Reverse acquisition reserve		(0.5)	(0.5)	(0.5)
Merger reserve		2.7	2.7	2.7
Retained earnings		22.5	(3.1)	10.5
Equity attributable to equity holders of the parent		236.8	202.7	219.6

Consolidated statement of changes in equity

For the six months ended 31 July 2022

		Share capital	Share premium	Hedging reserve	Cost of hedging reserve	Reverse acquisition reserve	Merger reserve	Retained earnings	Total equity
		£'m	£'m	£'m	£'m	£'m	£'m	£'m	£'m
Six months ended 31 July 2022
At 31 January 2022		3.4	202.2	1.3	-	(0.5)	2.7	10.5	219.6

Total comprehensive income for the period
Profit or loss		-	-	-	-	-	-	11.5	11.5
Other comprehensive expense		-	-	6.3	(0.3)	-	-	-	6.0
		--	-	6.3	(0.3)	-	-	11.5	17.5

Hedging gains and losses and costs of hedging transferred to the cost of inventory		-	-	(0.9)	(0.1)	-	-	-	(1.0)
Deferred tax on transfers to inventory		-	-	0.2	--	-	-	-	0.2

Transactions with owners, recorded directly in equity
Share-based payment charges		-	-	-	-	-	-	0.5	0.5
Dividends		-	-	-	-	-	-	-	-
Total contributions by and distributions to owners		-	-	-	-	-	-	0.5	0.5

At 31 July 2022		3.4	202.2	6.9	(0.4)	(0.5)	2.7	22.5	236.8

Six months ended 31 July 2021
At 31 January 2021		3.4	202.2	(3.1)	0.4	(0.5)	2.7	1.4	206.5

Total comprehensive expense for the period
Profit or loss		-	-	-	-	-	-	(5.2)	(5.2)
Other comprehensive income		-	-	1.0	(0.1)	-	-	-	0.9
		-	-	1.0	(0.1)	-	-	(5.2)	(4.3)

Hedging gains and losses and costs of hedging transferred to the cost of inventory		-	-	-	(0.3)	-	-	-	(0.3)
Deferred tax on transfers to inventory		-	-	-	0.1	-	-	-	0.1

Transactions with owners, recorded directly in equity
Share-based payment charges		-	-	-	-	-	-	0.7	0.7
Dividends		-	-	-	-	-	-	-	-
Total contributions by and distributions to owners		-	-	-	-	-	-	0.7	0.7

At 31 July 2021		3.4	202.2	(2.1)	0.1	(0.5)	2.7	(3.1)	202.7

Year ended 31 January 2022
At 31 January 2021		3.4	202.2	(3.1)	0.4	(0.5)	2.7	1.4	206.5

Total comprehensive income for the period
Profit or loss		-	-	-	-	-	-	8.1	8.1
Other comprehensive income		-	-	3.3	-	-	-	0.2	3.5
		-	-	3.3	-	-	-	8.3	11.6

Hedging gains and losses and costs of hedging transferred to the cost of inventory		-	-	1.4	(0.5)	-	-	-	0.9
Deferred tax on transfers to inventory		-	-	(0.3)	0.1	-	-	-	(0.2)

Transactions with owners, recorded directly in equity
Share-based payment charges	-		-	-	-	-	-	0.8	0.8
Dividends		-	-	-	-	-	-	-	-
Total contributions by and distributions to owners		-	-	-	-	-	-	0.8	0.8

At 31 January 2022		3.4	202.2	1.3	-	(0.5)	2.7	10.5	219.6

Consolidated cash flow statement

For the six months ended 31 July 2022

	Note	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
		£'m	£'m	£'m

Cash inflow from operating activities	15	19.7	36.1	113.6
Corporation tax		0.1	-	0.1
Net cash inflow from operating activities		19.8	36.1	113.7

Cash flows from investing activities
Purchase of property, plant and equipment	11	(2.6)	(1.3)	(3.6)
Purchase of intangible assets	10	(3.0)	(2.2)	(3.3)
Net cash outflow from investing activities		(5.6)	(3.5)	(6.9)

Cash flows from financing activities
Proceeds from bank borrowings		73.8	41.7	57.0
Interest paid		(3.5)	(2.9)	(6.5)
Repayment of bank borrowings		(80.7)	(48.0)	(65.0)
Other financing costs paid		(0.7)	-	(8.7)
Payment of lease liabilities		(30.9)	(13.7)	(54.5)
Interest in respect of lease liabilities		(2.0)	(1.5)	(3.3)
Net cash outflow from financing activities		(44.0)	(24.4 )	(81.0)

Net (decrease)/increase in cash and cash equivalents		(29.8)	8.2	25.8
Cash and cash equivalents at the beginning of the period		38.3	12.5	12.5
Closing cash and cash equivalents		8.5	20.7	38.3

Notes to the condensed consolidated interim financial statements

1 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').

2 Basis of preparation

These unaudited condensed consolidated interim financial statements ('interim financial statements') for the six months ended 31 July 2022 comprise the Company and its subsidiaries (together referred to as the 'Group'). The interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and the requirements of IAS 34 Interim Financial Reporting as adopted by the United Kingdom. The interim report was approved by the Board of Directors on 26 September 2022.

These condensed interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 January 2022 ('Annual Report') which have been prepared in accordance with UK-adopted international financial reporting standards (UK IFRS) and applicable law.

The comparative figures for the financial year ended 31 January 2022 are an extract from the Annual Report and are not the Group's statutory accounts for that financial year within the meaning of section 434 of the Companies Act 2006. Those accounts have been reported on by the Company's auditor and delivered to the registrar of companies. The report was (i) unqualified, (ii) did not contain an emphasis of matter paragraph and (iii) did not contain any statement under section 498 of the Companies Act 2006. The statutory accounts for the year ended 31 January 2022 were approved by the Board of Directors on 2 May 2022 and delivered to the Registrar of Companies.

Significant judgements and sources of estimation uncertainty

The preparation of the interim financial statements in accordance with UK IFRS requires the application of judgement in forming the Group's accounting policies. It also requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. Actual results may subsequently differ from these estimates.

Estimates and assumptions are reviewed on an ongoing basis, with revisions recognised in the period in which the estimates are revised and in any future periods affected. Judgements are also reviewed on an ongoing basis to ensure they remain appropriate.

There were no judgements made in the six months ended 31 July that had a material effect on the Group's interim financial statements. During the financial year ended 31 January 2022, the Group opted to cease presentation of "underlying" measures in its financial statements. As a result, underlying measures in respect of, and as they were presented in, comparative periods are not repeated in these financial statements.

The review of estimates and assumptions in the period concluded that the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 January 2022. In each case, estimates were made using a consistent methodology, with inputs and assumptions updated to reflect the Group's latest forecasts and prevailing market conditions at the balance sheet date where appropriate.

Comparative information

The Group provides comparative financial information in these interim financial statements for both the six months ended 31 July 2021 and the year ended 31 January 2022. Where included within text, income statement comparatives refer to the six months ended 31 July 2021 and balance sheet comparatives are as at 31 January 2022, unless otherwise stated.

As noted above, during the financial year to 31 January 2022 the Group opted to cease presentation of underlying measures in its financial statements. Underlying amounts previously reported for historical periods are therefore not repeated in these interim financial statements.

Going concern basis of accounting

The Board continues to have a reasonable expectation that the Group has adequate resources to continue in operation for at least the next 12 months and that application of the going concern basis of accounting remains appropriate.

Following the cessation of the most severe restrictions associated with the Covid-19 pandemic in the previous financial year, the Group has reopened its stores and traded in line with the expectations of management. LFL sales in certain periods have returned to pre-pandemic levels and, encouragingly, LFL sales for the current interim period compared to the same period in the previous year when stores were open are positive. See the Business Review and Chief Financial Officer's Review in this report for more information regarding trading in the first half of the year.

The Group renewed its financing facilities with its banking partners in April 2022, reducing the quantum of the facilities to £150 million and extending the term of the Group's debt to September 2025 (see note 13). The first repayments under these facilities fall due in January 2023. Until the CLBILs and certain of the term loan facilities have been fully repaid, expected to be by January 2024, the Group is prohibited from making distributions. Annual capital expenditure is limited by the Group's financing arrangements until 31 January 2025.

The Group's most recent cash flow forecasts, which cover the period extending 12 months from the date these interim financial statements were approved, indicate that the Group expects to have significant headroom within its agreed financing arrangements, comfortably meet all covenant tests within those arrangements, and would be able to settle its liabilities as they fall due for the duration of the forecasts, including repayment of borrowings in line with the amortising repayment schedule set out in the terms of the new facilities.

During the previous period, the Group prepared detailed forecast scenarios, which considered the effects of further potential lockdowns on the financial prospects of the Group. That analysis, explained in more detail in the Group's Annual Report which was published on 3 May 2022, concluded that in the event of further severe restrictions, the Group would be able to continue to meet the covenant requirements in its financing facilities and thus maintain sufficient liquidity to meet its liabilities as they fall due. On the basis that the Group has traded in line with expectations since this analysis was prepared, the conclusions remain unchanged. The likelihood that restrictions such as those assumed in the analysis recur is considered to have reduced during the period.

The Group has considered the impact of rising inflation levels in its cost base, and also the potential impact of the cost of living crisis on consumer behaviour and a corresponding reduction in LFL sales. As described in the Chief Financial Officer's Review, the Group has successfully mitigated inflationary impacts in the period to date. The Group benefits from a hedge in respect of energy costs and currency requirements, providing protection against current market movements, which extends beyond the period 12 months from the date of approval of these interim financial statements. Whilst a severe impact on consumer behaviour could result in reduced sales over that period, it is expected that such a scenario would be less severe than the 'further lockdown' scenario described above.

Based on these factors, the Board has a reasonable expectation that the Group has adequate resources and sufficient liquidity headroom, and accordingly these interim accounts are prepared on the going concern basis.

3 Principal accounting policies

The interim financial statements have been prepared under the historical cost convention except for certain assets and liabilities (principally derivative financial instruments) which are stated at their fair value. The accounting policies are consistent with those applied in the consolidated financial statements for the year ended 31 January 2022.

Amended standards and interpretations effective in the period do not have a material effect on the Group's interim financial statements

4 Segmental reporting and revenue

The Group has two operating segments trading under the names Card Factory and Getting Personal.

Card Factory retails greeting cards, dressing and gifts principally through an extensive UK store network, with a small number of stores in the Republic of Ireland, and also through 3^rd party retail partners. Getting Personal is an online retailer of personalised cards and gifts. The accounting policies applied in preparing financial information for each of the Group's segments are consistent with those applied in the preparation of the interim financial statements. The information reviewed by the Board is consolidated, except that revenue is shown separately for each segment.

Revenue for each segment, and a reconciliation to consolidated revenue, is provided in the table below:

	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£'m	£'m

Card Factory revenue	194.0	110.7	351.5
Getting Personal revenue	4.0	6.2	12.9
Consolidated revenue	198.0	116.9	364.4
Of which derived from customers in the UK	192.4	114.5	357.5
Of which derived from customers overseas	5.6	2.4	6.9

Group revenue is almost entirely derived from retail customers. Average transaction value is low and products are transferred at the point of sale. Group revenue is presented as a single category subject to substantially the same economic factors that impact the nature, amount, timing and uncertainty of revenue and cash flows. Revenue from retail partnerships and non-retail customers were circa £3.4 million in the period (HY22: £2.3 million). Revenue from overseas reflects revenues earned from the Group's stores in the Republic of Ireland and retail partners based outside the UK.

Of the Group's non-current assets, £3.0 million relates to assets based outside of the UK, principally in relation to the Group's stores in the Republic of Ireland.

5 EBITDA

EBITDA represents profit for the period before net finance expenses, taxation, depreciation, amortisation, impairment of assets and gains or losses on disposal of assets.

	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£'m	£'m

Operating profit	20.0	-	31.6
Depreciation, amortisation and impairment	24.2	23.6	54.0
Gains on disposal	(0.4)	-	-
EBITDA	43.8	23.6	85.6

6 Finance expense

	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£'m	£'m
Finance expense
Interest on bank loans and overdrafts	3.1	2.9	6.8
Amortisation of debt issue costs	0.6	2.1	10.4
Lease interest	2.0	1.5	3.3
	5.7	6.5	20.5

Amortisation of debt issue costs includes a one-off credit of £1.0 million, arising as a result of the release of certain deferred fees as part of the Group's refinancing concluded in April 2022. See note 13 for further detail.

7 Taxation

The tax charge for the interim period of £2.8 million has been calculated on the basis of the estimated effective tax rate on profit before tax for the full financial year to 31 January 2023, which has been assessed as 19.6% (HY22: 19.2%).

8 Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for the dilutive effect of potential ordinary shares. Potential ordinary shares represent share incentive awards and save as you earn share options.

	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	(Number)	(Number)	(Number)
Weighted average number of shares in issue	342,098,789	341,654,476	341,770,579
Weighted average number of dilutive share options	1,449,318	2,194,059	1,843,537
Weighted average number of shares for diluted earnings per share	343,548,107	343,848,535	343,614,116

	£'m		£'m		£'m
Profit/(loss) for the financial period	11.5		(5.2)		8.1

	pence	pence	pence
Basic earnings/(loss) per share	3.4	(1.5)	2.4
Diluted earnings/(loss) per share	3.3	(1.5)	2.4

9 Dividends

The Directors have not declared an interim dividend for the period ended 31 July 2022. There were no dividends paid in the previous financial year ended 31 January 2022.

Whilst the Group's CLBILS and certain of its term loan facilities, as drawn at 31 July 2022, remain outstanding (see note 13), the Group is prohibited from making distributions.

10 Intangible assets

	Goodwill	Software	Total
	£'m	£'m	£'m
Cost
At 1 February 2022	328.2	17.0	345.2
Additions	-	3.0	3.0
Transfers	-	0.6	0.6
Disposals	-	-	-
At 31 July 2022	328.2	20.6	348.8

Amortisation and impairment
At 1 February 2022	14.4	10.1	24.5
Amortisation in the period	-	1.2	1.2
Impairment in the period	-	1.5	1.5
Amortisation on disposals	-	-	-
At 31 July 2022	14.4	12.8	27.2

Net book value
At 31 July 2022	313.8	7.8	321.6

At 31 January 2022	313.8	6.9	320.7

11 Property, plant and equipment

	Freehold property	Leasehold improvements	Plant, equipment, fixtures & vehicles	Total
	£'m	£'m	£'m	£'m
Cost
At 1 February 2022	17.9	40.8	70.3	129.0
Additions	0.1	-	2.5	2.6
Transfers	-	(0.1)	(0.5)	(0.6)
Disposals	-	-	--	-
At 31 July 2022	18.0	40.7	72.3	131.0

Depreciation and impairment
At 1 February 2022	4.4	37.3	55.7	97.4
Depreciation in the period	0.2	0.9	2.6	3.7
Depreciation on disposals	-	-	-	-
At 31 July 2022	4.6	38.2	58.3	101.1

Net book value
At 31 July 2022	13.4	2.5	14.0	29.9

At 31 January 2022	13.5	3.5	14.6	31.6

12 Leases

The Group has lease contracts, within the definition of IFRS 16 leases, in relation to its entire store lease portfolio, some warehousing locations and motor vehicles. Other contracts, including distribution contracts and IT equipment, are deemed not to be a lease within the definition of IFRS 16 or are subject to the election not to apply the requirements of IFRS 16 to short-term or low value leases.

Right of use assets	Buildings	Motor Vehicles	Total
	£'m	£'m	£'m
Cost
At 1 February 2022	300.6	1.3	301.9
Additions	20.9	-	20.9
Disposals	(24.0)	-	(24.0)
At 31 July 2022	297.5	1.3	298.8

Depreciation and impairment
At 1 February 2022	202.5	0.9	203.4
Depreciation in the period	17.6	0.2	17.8
Depreciation on disposals	(23.8)	-	(23.8)
Impairment on disposals	--	-	-
At 31 July 2022	196.3	1.1	197.4

Net book value
At 31 July 2022	101.2	0.2	101.4

At 31 January 2022	98.1	0.4	98.5

Disposals and depreciation on disposals include fully depreciated right of use assets in respect of expired leases where the asset remained in use whilst a lease renewal was negotiated.

Lease liabilities	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£'m	£'m

Current lease liabilities	(29.3)	(38.7)	(41.1)
Non-current lease liabilities	(80.1)	(103.7)	(78.7)
Total lease liabilities	(109.4)	(142.4)	(119.8)

Lease expense	Six months ended 31 July 2022	Six months ended 31 July 2021	Year ended 31 January 2022
	£'m	£'m	£'m

Depreciation expense on right of use assets	17.8	18.3	37.4
Impairment of right of use assets	-	-	5.0
Profit on disposal of right of use assets	(0.4)	-	-
Lease interest	2.0	1.5	3.3
Expense relating to short term and low value leases	-	0.2	-
Expense relating to variable lease payments	0.1	0.1	0.2
Total lease related income statement expense	19.5	20.1	45.9

13 Analysis of net debt

Six months ended 31 July 2022	At 1 February 2022	Cash flow	Non-cash changes	At 31 July 2022
	£'m	£'m	£'m	£'m

Unsecured bank loans and accrued interest	(111.0)	7.0	0.5	(103.5)
Lease liabilities	(119.8)	32.9	(22.5)	(109.4)
Total debt	(230.8)	39.9	(22.0)	(212.9)
Debt costs capitalised	(1.5)	(0.7)	0.6	(1.6)
Cash and cash equivalents	38.3	(29.8)	-	8.5
Net debt	(194.0)	9.4	(21.4)	(206.0)
Lease liabilities	119.8	(32.9)	22.5	109.4
Net debt excluding lease liabilities	(74.2)	(23.5)	1.1	(96.6)

Six months ended 31 July 2021	At 1 February 2021	Cash flow	Non-cash changes	At 31 July 2021
	£'m	£'m	£'m	£'m

Unsecured bank loans and accrued interest	(119.0)	6.3	(2.1)	(114.8)
Lease liabilities	(144.9)	13.7	(11.2)	(142.4)
Total debt	(263.9)	20.0	(13.3)	(257.2)
Debt costs capitalised	(1.2)	(3.3)	2.1	(2.4)
Cash and cash equivalents	12.5	8.2	-	20.7
Net debt	(252.6)	24.9	(11.2)	(238.9)
Lease liabilities	144.9	(13.7)	11.2	142.4
Net debt excluding lease liabilities	(107.7)	11.2	-	(96.5)

Year ended 31 January 2022	At 1 February 2021	Cash flow	Non-cash changes	At 31 January 2022
	£'m	£'m	£'m	£'m

Unsecured bank loans and accrued interest	(119.0)	8.0	-	(111.0)
Lease liabilities	(144.9)	57.8	(32.7)	(119.8)
Total debt	(263.9)	65.8	(32.7)	(230.8)
Debt costs capitalised	(1.2)	(8.7)	8.4	(1.5)
Cash and cash equivalents	12.5	25.8	-	38.3
Net debt	(252.6)	82.9	(24.3)	(194.0)
Lease liabilities	144.9	(57.8)	32.7	119.8
Net debt excluding lease liabilities	(107.7)	25.1	8.4	(74.2)

On 21 April 2022, the Group agreed an updated and amended financing package with its banking partners, which reduced the quantum and extended the term of the Group's debt facilities.

The revised facilities comprise term loans of £30 million, CLBILs of £20 million and a Revolving Credit Facility (RCF) of up to £100 million. The aggregate value of the Group's facilities therefore reduced to £150 million (previously £225 million, comprised of £75 million term loans, £50 million CLBILs and £100 million RCF).

The CLBILs facilities are subject to an amortising repayment profile, with the final repayments due in September 2023. The term loan facilities are also subject to an amortising repayment profile with final maturity in September 2025. The RCF is available to draw to meet the Group's working capital requirements as needed, with the final maturity also due in September 2025. The first scheduled repayments under the term loan and CLBILs facilities occur in January 2023.

The interest rates attached to the CLBILs facilities are unchanged. The term loans attract a fixed margin of 500bps over compounded SONIA, and the RCF margin remains based on a ratchet between 275 and 450bps over compounded SONIA dependent upon the Group's leverage position, which is re-assessed for this purpose quarterly.

The revised facilities require the Group to meet quarterly tests of interest cover and leverage. The Group must maintain interest cover of 1.5x to 31 October 2023 and 1.75x thereafter. The Group must maintain leverage of below 3.75x to 31 October 2022, 3.0x to 31 October 2023 and below 2.5x thereafter. The revised agreement removed the previous requirement for the Group to use best efforts to raise up to £70 million of equity proceeds to pay down debt.

In addition to the financial covenants set out above, the agreement restricts the value of capital expenditure permitted each year until 31 January 2025 and prohibits the payment of distributions to shareholders until the CLBILs and certain of the term loans have been repaid in full - expected to be in January 2024. The Group is also required to comply with customary reporting requirements which are considered to be administrative in nature.

14 Financial instruments

Financial instruments carried at fair value are measured by reference to the following fair value hierarchy:

- Level 1: quoted prices in active markets for identical assets or liabilities

- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Derivative financial instruments are carried at fair value and measured under a level 2 valuation method. Valuations are provided by the instrument counterparty.

	31 July 2022	31 July 2021	31 January 2022
	£'m	£'m	£'m
Derivative assets
Non-current
Interest-rate contracts	0.3	-	0.3
Foreign exchange contracts	1.7	-	1.0
	2.0	-	1.3
Current
Interest-rate contracts	0.7	--	0.2
Foreign exchange contracts	7.5	-	0.6
	8.2	-	0.8
Derivative liabilities
Current
Interest rate contracts	-	(0.5)	-
Foreign exchange contracts	(0.1)	(2.4)	(0.2)
	(0.1)	(2.9)	(0.2)
Non-current
Interest rate contracts	-	(0.1)	-
Foreign exchange contracts	(0.3)	(0.8)	-
	(0.3)	(0.9)	-
Net derivative financial instruments
Interest rate contracts	1.0	(0.6)	0.5
Foreign exchange contracts	8.8	(3.2)	1.4
	9.8	(3.8)	1.9

15 Notes to the cash flow statement

Reconciliation of operating profit to cash generated from operations:

	31 July 2022	31 July 2021	31 January 2022
	£'m	£'m	£'m

Profit before tax	14.3	(6.5)	11.1
Net finance expense	5.7	6.5	20.5
Operating profit	20.0	-	31.6
Adjusted for:
Depreciation and amortisation	22.7	23.6	49.1
Impairment of intangible assets	1.5	-	5.0
Loss/(profit) on disposal of fixed assets	(0.4)	-	-
Cash flow hedging foreign currency movements	(1.7)	(0.3)	(1.4)
Share-based payments charge	0.5	0.7	0.8
Operating cash flows before changes in working capital	42.6	24.0	85.1
(Increase)/decrease in receivables	(10.3)	3.0	1.1
(Increase)/decrease in inventories	(13.0)	(3.3)	3.3
Increase/(decrease) in payables	5.2	12.4	11.9
Movement in provisions	(4.8)	-	12.2
Cash inflow from operating activities	19.7	36.1	113.6

16 Provisions

	Covid-19-related support	Total
	£'m	£'m
At 1 February 2022	12.2	12.2

Provisions utilised during the period	(2.3)	(2.3)
Provisions released during the period	(2.5)	(2.5)

At 31 July 2022	7.4	7.4

Covid-19-related support provisions reflect amounts received under one-off schemes designed to provide support to businesses affected by Covid-19 restrictions, including lockdown grants and CJRS, in excess of the value the Group reasonably believes it is entitled to retain under the terms and conditions of those schemes. The provisions have been estimated based on the Group's interpretation of the terms and conditions of the respective schemes and, where applicable, independent professional advice. However, the actual amount that will be repaid is not certain.

In July 2022, following an unprompted disclosure to HMRC and resulting investigation, the Group made a payment of £2.3 million in final settlement of its CJRS position. As a result of this settlement, the Group released a further £2.5 million from the provision that is no longer expected to be required, as the matter is now closed. This release has been recognised as a one-off benefit in the income statement in the period.

The Group is taking steps to confirm amounts repayable and settle its remaining positions. This exercise is expected to conclude within the next financial year.

17 Principal risks and uncertainties

The principal risks and uncertainties facing the Group are materially unchanged since the publication of the Annual Report (as published and explained in more detail on pages 39 to 41 of the Group's Annual Report for the year ended 31 January 2022) and are set out below for each category of risk.

Financial Risks:

- Shipping

- Geopolitical Instability

- Finance & Treasury

Operational Risks:

- ERP Implementation

- IT Infrastructure and risk of IT/security disruption

- Retail partner exposure

- Loss of Key Personnel & Organisational Culture

- Supplier CSR breach

- Business Continuity

Strategic Risks:

- ESG Compliance and climate change risks

- Adapting to customer preferences

- Brand customer experience

- Investor relations

Responsibility statement of the Directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK;

• the interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

Darcy Willson-Rymer Kris Lee

Chief Executive Officer Chief Financial Officer

27 September 2022

INDEPENDENT REVIEW REPORT TO CARD FACTORY PLC

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2022 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 July 2022 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted for use in the UK and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of conclusion section of this report , nothing has come to our attention that causes us to believe that the directors have inappropriately adopted the going concern basis of accounting, or that the directors have identified material uncertainties relating to going concern that have not been appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410. However, future events or conditions may cause the group to cease to continue as a going concern, and the above conclusions are not a guarantee that the group will continue in operation.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with UK-adopted international accounting standards.

The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted for use in the UK.

In preparing the condensed set of financial statements, the directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Our conclusion, including our conclusions relating to going concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for conclusion section of this report.

The purpose of our review work and to whom we owe our responsibilities

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Nick Plumb

for and on behalf of KPMG LLP

Chartered Accountants

1 Sovereign Square

Sovereign Street

Leeds

LS1 4DA

27 September 2022

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