Trading Statement

RNS Number : 4292O

Card Factory PLC

07 August 2014

 



7 August 2014

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

Half Year Trading Statement

Card Factory, the UK's leading specialist retailer of greeting cards, issues the following trading update in respect of the six months ended 31 July 2014.

The Group continues to trade in line with the Board's expectations, growing like-for-like sales and expanding the Card Factory retail estate through its established new store roll out programme.

Sales growth

In the period under review, total Group sales grew by 8.9%.

Card Factory like-for-like store sales grew by 2.6% despite a strong comparable period last year, when like-for-like sales grew by 3.3% (see Note 2 below).

New store roll-out

In the first half of the current financial year, 36 net new stores have been opened, bringing the total estate to 749 stores as at 31 July 2014.  The Group has a strong pipeline of additional new store opportunities and remains confident of achieving planned openings of approximately 50 net new stores in the current financial year, in line with the historic opening rate.

The quality of new store openings and their performance to date continues to be in line with our expectations.

Strong financial position

The Group remains highly cash generative.

As at 31 July 2014, net debt had reduced to less than £150 million, representing less than 1.9x underlying EBITDA for the year ended 31 January 2014.

The Board expects to report a further reduction in net debt at the year end, particularly given that the cash generation of the Group is typically stronger in the second half.

Interim results

The Group will announce its interim results for the six months ended 31 July 2014 on 18 September 2014.

As this will be the first financial year for which the Group has disclosed interim figures, summary figures for the equivalent six month period ended 31 July 2013 are appended to this announcement (see Note 3 below).

Richard Hayes, Card Factory's Chief Executive Officer, said:

"The Group continued to trade well in the first half of the current financial year with good growth coming from the existing store estate and new store roll out programme, as well as from our smaller but developing online proposition.  We remain confident of the Group's ability to continue to grow market share for the foreseeable future and look forward to updating investors further in September."

Ends

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. It focuses on the value and mid-market segments of the UK's large, resilient and growing greeting cards market, and also offers a wide range of other quality products, including small gifts and gift dressings, at affordable prices. Card Factory principally operates through its nationwide chain of over 700 Card Factory stores, as well as through its online offerings: www.gettingpersonal.co.uk (which sells personalised cards and gifts) and www.cardfactory.eu.com (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".

Card Factory sold over 285 million single cards in the financial year ended 31 January 2014. In that year, the Group achieved revenue growth of 9.0% to £326.9 million and underlying EBITDA growth of 9.2% to £80.4 million (2013: £73.6 million) at a margin of 24.6%.

2.      Card Factory like-for-like store sales

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.eu.com;

• made via the separately branded personalised card and gift website, Getting Personal;

• 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 in the year ended 31 January 2014 benefitted to a small degree from the administration of a competitor in May 2012.

3.      Unaudited interim results for the six months ended 31 July 2013

Condensed consolidated income statement

For the six months ended 31 July 2013

	Note		Six months ended 31 July 2013						Year ended 31 January 2014
		Underlying		Non-underlying (note 6)	Total			Underlying		Non-underlying (note 6)	Total
		£'m		£'m	£'m			£'m		£'m	£'m
Revenue		137.2		-	137.2			326.9		-	326.9
Cost of sales	5	(98.5)		1.9	(96.6)			(223.3)		(1.9)	(225.2)
Gross profit/(loss)		38.7		1.9	40.6			103.6		(1.9)	101.7
Operating expenses		(14.8)		-	(14.8)			(30.7)		-	(30.7)
Operating profit/(loss)		23.9		1.9	25.8			72.9		(1.9)	71.0
Finance income	7	0.3		-	0.3			0.5		-	0.5
Finance expense	7	(22.4)		-	(22.4)			(41.4)		-	(41.4)
Net financing expense		(22.1)		-	(22.1)			(40.9)		-	(40.9)
Profit/(loss) before tax		1.8		1.9	3.7			32.0		(1.9)	30.1
Taxation	8	(0.7)		(0.4)	(1.1)			(12.1)		0.4	(11.7)
Profit/(loss) for the period		1.1		1.5	2.6			19.9		(1.5)	18.4

All activities relate to continuing operations

Condensed consolidated statement of comprehensive income

For the six months ended 31 July 2013

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Profit for the period			2.6		18.4
Items that may be recycled subsequently to profit or loss:
Effective portion of changes in fair value of cash flow hedges			-		(1.0)
Tax relating to components of other comprehensive income			-		0.2
Other comprehensive income for the period, net of income tax			-		(0.8)
Total comprehensive income for the period attributable to equity shareholders of the parent			2.6		17.6

Condensed consolidated statement of financial position

As at 31 July 2013

	Note			31 July 2013		31 January 2014
				£'m		£'m
Non-current assets
Intangible assets	9			331.4		331.2
Property, plant and equipment	10			36.0		36.7
Deferred tax assets				1.8		1.2
Other receivables				1.7		1.5
Derivative financial instruments				0.9		-
				371.8		370.6
Current assets
Inventories				39.7		39.3
Trade and other receivables				26.9		17.6
Derivative financial instruments				3.0		0.3
Cash and cash equivalents				28.6		40.7
				98.2		97.9
Total assets				470.0		468.5
Current liabilities
Borrowings				(15.7)		(21.3)
Trade and other payables				(42.6)		(31.8)
Tax payable				(0.9)		(4.9)
Derivative financial instruments				-		(0.9)
				(59.2)		(58.9)
Non-current liabilities
Borrowings				(381.6)		(366.3)
Trade and other payables				(13.1)		(11.8)
Derivative financial instruments				-		(0.4)
				(394.7)		(378.5)
Total liabilities				(453.9)		(437.4)
Net assets				16.1		31.1
Equity
Share capital				2.5		2.5
Hedging Reserve				-		(0.8)
Other reserves				2.2		2.2
Retained earnings				11.4		27.2
Equity attributable to equity holders of the parent				16.1		31.1

Condensed consolidated statement of changes in equity

For the six months ended 31 July 2013

Six months ended 31 July 2013		Share capital	Cash flow hedging reserve	Other reserves	Retained earnings	Total equity
		£'m	£'m	£'m	£'m	£'m
Balance at 1 February 2013		2.5	-	2.2	8.8	13.5
Total comprehensive income for the period
Profit or loss		-	-	-	2.6	2.6
Balance at 31 July 2013		2.5	-	2.2	11.4	16.1

Year ended 31 January 2014		Share capital	Cash flow hedging reserve	Other reserves	Retained earnings	Total equity
		£'m	£'m	£'m	£'m	£'m
Balance at 1 February 2013		2.5	-	2.2	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
Balance at 1 February 2014		2.5	(0.8)	2.2	27.2	31.1

Condensed consolidated cash flow statement

For the six months ended 31 January 2013

	Note			Six months ended 31 July 2013		Year ended 31 January 2014
				£'m		£'m
Cash inflow from operating activities	11			28.3		79.1
Corporation tax paid				(6.3)		(12.1)
Net cash inflow from operating activities				22.0		67.0
Cash flows from investing activities
Purchase of property, plant and equipment	10			(6.5)		(10.6)
Purchase of intangible assets	9			(1.1)		(1.4)
Payment of deferred consideration				(0.5)		(0.5)
Proceeds from sale of property, plant and equipment				0.1		-
Interest received				0.3		0.5
Net cash outflow from investing activities				(7.7)		(12.0)
Cash flows from financing activities
Proceeds from bank borrowings				-		159.7
Interest paid				(15.3)		(108.7)
Repayment of borrowings				(35.0)		(129.8)
Payment of finance lease liabilities				(0.1)		(0.2)
Net cash outflow from financing activities				(50.4)		(79.0)
Net (decrease) in cash and cash equivalents				(36.1)		(24.0)
Cash and cash equivalents at the beginning of the period				64.7		64.7
Closing cash and cash equivalents				28.6		40.7

Notes to the financial information

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, Wakefield 41 Industrial Estate, Wakefield WF2 0XG.

2           Basis of preparation

The unaudited consolidated financial information ("financial information") for the six months ended 31 July 2013 comprises the consolidated results of the Company and its subsidiaries (together referred to as the "Group"). The financial information has been prepared to provide additional guidance to investors, giving an indication of the profile of revenue and profits between the first and second half of the financial year ahead of the issue of the first interim financial statements for Card Factory plc. The financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the EU ("EU IFRS").

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) 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. In accordance with IFRS 3 ("Business Combinations") this transaction is treated as a reverse acquisition. By applying the principles of reverse acquisition accounting, the financial information is presented as if Card Factory plc had always owned CF Topco Limited. The financial information for the six months ended 31 July 2013 and 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 comparative financial information for the year ended 31 January 2014 has been extracted from the Historical Financial Information published in the initial public offering prospectus ('IPO prospectus'), dated 15 May 2014, on which an unqualified Accountant's report opinion was issued. The Historical Financial Information published in the IPO prospectus is prepared in accordance with EU IFRS and with those parts of the Companies Act 2006 applicable to companies reporting under EU IFRS.

3           Accounting policies

The financial information has been prepared under the historical cost convention except for derivative financial instruments which are stated at their fair value.

The accounting policies are consistent with those applied in the Historical Financial Information published in the IPO prospectus.

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.

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Underlying operating profit			23.9		72.9
Depreciation and amortisation			3.6		7.5
Underlying EBITDA			27.5		80.4

5           Underlying cost of sales

Underlying cost of sales for the period is analysed as follows:

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Cost of goods sold			41.3		102.0
Store wages			23.3		52.9
Store property costs			26.6		53.7
Other direct expenses			7.3		14.7
Total cost of sales			98.5		223.3

 

6           Non-underlying items

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Cost of sales
Gains/(losses) on foreign currency derivative financial instruments not designated as a hedge			1.9		(1.9)

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. 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 are unrealised and 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.

7           Finance income and expense

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Finance income
Bank interest received			(0.3)		(0.5)
Finance expense
Interest on bank loans and overdrafts			3.2		9.5
Amortisation of loan issue costs			0.8		1.9
Interest on loan notes			18.3		29.9
Other interest payable			0.1		0.1
			22.4		41.4
Net finance expense			22.1		40.9

8           Taxation

The tax charge on underlying profit before tax for the six months ended 31 July 2013 has been calculated on the basis of the effective tax rate on underlying profit before tax for the full year to 31 January 2014 of 37.9%.

The effective tax rate is higher than the standard rate of corporation tax, 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 resulting in a lower effective tax rate in future periods.

Non-underlying items are recognised at the standard rate of corporation tax for the full year to 31 January 2014 of 23.2%.

9           Intangible Assets

			31 July 2013		31 January 2014
			£'m		£'m
Net book value
At beginning of the period			330.8		330.8
Additions			1.1		1.4
Disposals			-		-
Amortisation			(0.5)		(1.0)
At end of period			331.4		331.2

Intangible assets include £328.2m goodwill (31 January 2014: £328.2m).

10         Property, plant and equipment

			31 July 2013		31 January 2014
			£'m		£'m
Net book value
At beginning of the period			32.7		32.7
Additions			6.5		10.6
Disposals			(0.1)		(0.1)
Depreciation			(3.1)		(6.5)
At end of period			36.0		36.7

11         Notes to the cash flow statement

Reconciliation of operating profit to cash generated from operations:

			Six months ended 31 July 2013		Year ended 31 January 2014
			£'m		£'m
Profit before tax			3.7		30.1
Net finance expense			22.1		40.9
Operating profit			25.8		71.0
Depreciation and amortisation			3.6		7.5
Operating cash flows before changes in working capital			29.4		78.5
(Increase)/decrease in receivables			(12.6)		0.5
Increase in inventories			(5.1)		(4.7)
Increase in payables			16.6		4.8
Cash inflow from operating activities			28.3		79.1

12         Analysis of net debt

Six months ended 31 July 2013	At 1 February 2013	Cash flow	Non-cash changes	At 31 July 2013
	£'m	£'m	£'m	£'m
Secured bank loans	(128.1)	-	(0.8)	(128.9)
Loan notes and accrued interest	(296.9)	47.1	(18.4)	(268.2)
Finance leases	(0.3)	0.1	-	(0.2)
Total borrowings	(425.3)	47.2	(19.2)	(397.3)
Cash and cash equivalents	64.7	(36.1)	-	28.6
Total net debt	(360.6)	11.1	(19.2)	(368.7)

Year ended 31 January 2014	At 1 February 2013	Cash flow	Non-cash changes	At 31 January 2014
	£'m	£'m	£'m	£'m
Secured bank loans	(128.1)	(147.8)	(1.9)	(277.8)
Loan notes and accrued interest	(296.9)	217.1	(29.9)	(109.7)
Finance leases	(0.3)	0.2	-	(0.1)
Total borrowings	(425.3)	69.5	(31.8)	(387.6)
Cash and cash equivalents	64.7	(24.0)	-	40.7
Total net debt	(360.6)	45.5	(31.8)	(346.9)

In May 2013 the Group utilised retained cash balances to redeem £35.0 million 10 per cent. loan notes and pay £12.1 million related accrued interest.

In October 2013 the Group redeemed 14 per cent. loan notes and accrued interest, together totalling £170.0 million, funded by an additional £165.0 million secured bank loan facility.

On 15 May 2014, prior to the IPO, the Group issued shares in settlement of the remaining loan notes and accrued interest. On 31 May 2014 the Group re-financed secured bank borrowings, utilising retained cash and proceeds from the IPO to reduce secured bank debt to £180.0m.

4.      Cautionary statement

This announcement is based on information from unaudited management accounts and 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.

 

END

 

 

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