Forward-looking statements This presentation 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 presentation. Nothing in this presentation 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. The financial information in this presentation does not contain sufficient detail to allow a full understanding of the results of Card Factory plc. For more detailed information, please see the preliminary results announcement for the year ended 31 January 2019 which can be found at www.cardfactoryinvestors.com.
Agenda • Introduction & key messages Karen Hubbard (CEO) • Financial review Kris Lee (CFO) • Strategy update Karen Hubbard (CEO) • In summary Karen Hubbard (CEO) • Outlook • Questions
• Card Factory grew market share in terms of both volume & value in the stable card market • Achieved flat LFL sales despite the High Street footfall decline • Strong seasonal card and non card performance underpinned by our innovation and design • Extended our store footprint by opening 51 net new stores and tested new markets and formats through 3rd party partnerships • Generating strong levels of cash with robust returns to shareholders
Financial highlights Robust performance in a challenging consumer environment FY19 FY18 Year-on-year change 1. All figures shown on an underlying basis Revenue £436.0m £422.1m 3.3% 2. Total FY19 ordinary dividend includes Card Factory LFL growth (0.1%) +2.9% recommended 6.4p final Store LFL growth (0.5%) +2.6% dividend, subject to AGM approval EBITDA £89.4m £94.0m (4.9%) 3. Net debt excludes debt issue costs Margin 20.5% 22.3% (1.8ppts) Profit before tax £74.6m £80.5m (7.3%) Earnings per share 17.6p 18.9p (7.1%) Total ordinary dividend per share (2) 9.3p 9.3p - Dividend cover 1.89 x 2.03 x Special dividend 5.0p / £17.1m 15.0p/£51.2m Net debt (3) £141.3m £161.3m Leverage 1.58 x 1.72 x
Divisional performance Strong growth in core business impacted by high street footfall decline and NLW FY19 FY18 Y/Y change Revenue £419.7m £404.3m 3.8% EBITDA £88.2m £91.1m (3.2%) Margin 21.0% 22.5% (1.5ppts) Revenue £16.3m £17.8m (8.4%) EBITDA £1.2m £2.9m (58.6%) Margin 7.4% 16.4% (9.0ppts) 1. All figures shown on an underlying basis 2. Card Factory includes both stores and online
Sales mix – Card Factory stores Resilient card sales and success in growing complementary non-card product FY19 Sales Mix FY18 Sales Mix 2.3% 2.3% 44.0% 44.6% 53.1% 53.7% Single cards Non-card items Christmas Box cards Note: Mix shown for Card Factory stores only 9
Underlying EBITDA bridge Growth of 2% excluding headwinds
Best-in-class margins Continued focus on low cost business model FY19 % of revenue FY18 % of revenue % of revenue Movement Cost of goods sold £142.1m 32.6% £138.0m 32.7% 0.1ppt Store Wages £80.8m 18.5% £74.9m 17.7% (0.8ppt) Store Property Costs £68.3m 15.7% £65.5m 15.5% (0.2ppt) Other Direct expenses £21.3m 4.9% £18.6m 4.4% (0.5ppt) Cost of Sales £312.5m 71.7% £297.0m 70.3% (1.4ppts) Operating expenses £34.1m 7.8% £31.1m 7.4% (0.4ppts) EBITDA £89.4m 20.5% £94.0m 22.3% (1.8ppts)
Strong cash generation Track record of generating significant surplus cash FY19 FY18 Y/Y £’m £’m Change Underlying EBITDA 89.4 94.0 (4.9%) Non-underlying FX gain/(loss) 4.2 (7.6) FX hedging reserve cash gain/(loss) - (3.4) Loss on disposal and share-based payment accrual 0.7 (0.2) Operating cash flow before working capital 94.3 82.8 13.9% Net working capital movement (1) 4.8 6.9 Corporation tax (13.4) (17.0) Net capital expenditure (11.9) (13.1) Net interest paid (3.4) (2.6) Free cash flow 70.4 57.0 23.5% 1. Including favourable short-term working capital timing difference
Capex Low, predictable and well controlled FY19 FY18 £’m £’m One-off strategic projects ⚫ FY19 spend Vertical integration 1.7 - – Lower than the £14m guidance principally due to timing of EPOS/BI 1.3 4.3 investment in vertical supply chain integration Commercial initiatives 1.3 - LED lighting - 0.9 ⚫ Capex remains low as a proportion of operating cash flow Online personalisation 0.2 0.3 Other 0.2 0.1 4.7 5.6 ⚫ FY20 guidance - circa £18m, including: Recurring – further investment in vertical supply chain integration; New Stores 3.7 3.6 – commercial initiatives; Refurbs 0.5 - – supply chain technology; and Relocations 0.7 0.4 – replatforming cardfactory.co.uk Other capex 2.5 3.5 7.4 7.5 Total CAPEX 12.1 13.1
Capital policy Remains unchanged The Board aims to maintain a capital structure that is conservative yet efficient in terms of providing returns to shareholders. In considering such returns, the Board will review, inter alia, trading and market conditions, expected cash generation and expected leverage. • Our policy is to maintain year-end net debt in the range of 1.0 to 2.0x EBITDA • Over the short-to-medium term, we are targeting year end net debt of 1.7x EBITDA • Subject to the above considerations, surplus cash will be returned to shareholders annually via a special dividend FY19 FY18 FY17 £’m £’m £’m Free cash flow 70.4 57.0 68.8 Dividends paid (48.9) (82.9) (81.1) Proceeds from new shares issued - 0.3 0.3 Debt issue costs (1.5) - - Net debt movement 20.0 (25.6) (12.0) EBITDA leverage (at year-end) 1.58 1.72 1.37
Dividends • Special dividend • 5.0 pence per share Dividends (pence per share) • Cash return of £17.1m from organic cash generation • Paid on 14 December 2018 to those on register on 9 6.4 6.3 November 2018 6.0 • Interim ordinary dividend • 2.9 pence per share 6.4 15.0 15.0 • 15.0 Paid on 14 December 2018 to those on register on 9 November 2018 5.0 4.5 • Total cash returns since May 2014 IPO 2.8 2.9 2.9 2.5 2.3 • Including recommended final dividend of 6.4 pence per FY15 FY16 FY17 FY18 FY19 share: Interim Special Final • 93.0 pence per share and over £317m in aggregate • Equivalent to over 41% of IPO issue price
IFRS 16 Leases No cash impact and limited impact on EPS All £’m (unless otherwise stated) Estimated * Outcome Impact Range (+/-) Restatement of Financial Position (as at 31 Jan 2018) • Operating leases represented by a fixed (“right -of- use”) asset with corresponding IFRS 16 right-of-use assets 127 10 lease liability (notional debt) IFRS 16 lease liabilities (145) 10 • Net IFRS 16 lease recognition (18) 3 P&L operating lease expense replaced by asset depreciation and notional interest Remove operating lease related prepayments and accruals 6 1 charge in relation to the lease liability Impact on net assets as at 31 January 2018 (12) 3 • The Group intends to apply a full Restatement of Income Statement (FY19) retrospective application and currently Remove operating lease charges ( EBITDA increase) 43 1 anticipates the approximate impact to be as presented (table to right) Replace with IFRS 16 depreciation and finance charge (41) 1 FY19 PBT increase under IFRS 16 versus IAS 17 2 1 Current estimate of adjusted FY19 UL EBITDA (vs. £89.4m) 132.4 (+48%) 1 * All numbers remain subject to further developments in application practice, refinement of assumptions, further Current estimate of adjusted FY19 UL PBT (vs. £74.6m) 76.6 (+3%) 1 detailed review and audit – accordingly an outcome range is Current estimate of adjusted FY19 UL EPS (vs. 17.6p) 18.1p (+3%) 0.2p presented
FY20 guidance Headwinds easing Four pillars of growth ⚫ LFL sales Target is to maintain LFL sales despite expected high street footfall decline ⚫ New store openings Targeting 50 net new store openings in the UK and ROI ⚫ Business efficiencies Plans in place to mitigate industry-wide cost pressures, from NLW in particular ⚫ Online Further growth expected in CF Online Other Profits expected to be broadly in line with FY19, based on delivering management’s sales forecast, mar gin mix assumptions, identified ⚫ Operating margins business efficiencies and assuming limited adverse currency movement ⚫ FY20 capex of c£18m – including further investment in vertical integration, warehouse technology and replatforming of cardfactory.co.uk Capex ⚫ Leverage* FY20 year-end Leverage expected to be in line with short-to-medium term year-end target of c1.7x EBITDA ⚫ Special dividend A further return is currently expected to be made towards the end of FY20 - any such dividend will be dependent on trading and other developments in the period from now until the time of the FY20 interim results * excluding the effects of IFRS 16 Leases
Financial performance summary Revenue Strong profit growth margins Highly cash Surplus cash generative returns
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