Forward-looking statements This presentation contains certain - - PowerPoint PPT Presentation

Forward-looking statements

This presentation contains certain forward-looking statements with respect to the financial condition, results of

• perations, 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

FY19 FY18 Year-on-year change

Revenue £436.0m £422.1m 3.3% Card Factory LFL growth Store LFL growth (0.1%) (0.5%) +2.9% +2.6% EBITDA £89.4m £94.0m (4.9%) 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

1. All figures shown on an underlying basis 2. Total FY19 ordinary dividend includes recommended 6.4p final dividend, subject to AGM approval 3. Net debt excludes debt issue costs

Robust performance in a challenging consumer environment

Divisional performance

Strong growth in core business impacted by high street footfall decline and NLW

1. All figures shown on an underlying basis 2. Card Factory includes both stores and online

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)

Sales mix – Card Factory stores

Resilient card sales and success in growing complementary non-card product

53.7% 44.0% 2.3% 53.1% 44.6% 2.3% Single cards Christmas Box cards Non-card items

FY18 Sales Mix FY19 Sales Mix

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 £’m FY18 £’m Y/Y 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 spend – Lower than the £14m guidance principally due to timing of investment in vertical supply chain integration ⚫ Capex remains low as a proportion of operating cash flow ⚫ FY20 guidance - circa £18m, including: – further investment in vertical supply chain integration; – commercial initiatives; – supply chain technology; and – replatforming cardfactory.co.uk

FY19 £’m FY18 £’m One-off strategic projects Vertical integration 1.7

• EPOS/BI

1.3 4.3 Commercial initiatives 1.3

• LED lighting
• 0.9

Online personalisation 0.2 0.3 Other 0.2 0.1 4.7 5.6 Recurring New Stores 3.7 3.6 Refurbs 0.5

• Relocations

0.7 0.4 Other capex 2.5 3.5 7.4 7.5 Total CAPEX 12.1 13.1

Capital policy

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 £’m FY18 £’m FY17 £’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

Remains unchanged

Dividends

2.3 2.5 2.8 2.9 2.9 15.0 15.0 15.0 5.0 4.5 6.0 6.3 6.4 6.4 FY15 FY16 FY17 FY18 FY19

Dividends

(pence per share)

Interim Special Final

• Special dividend
• 5.0 pence per share
• Cash return of £17.1m from organic cash generation
• Paid on 14 December 2018 to those on register on 9

November 2018

• Interim ordinary dividend
• 2.9 pence per share
• Paid on 14 December 2018 to those on register on 9

November 2018

• Total cash returns since May 2014 IPO
• Including recommended final dividend of 6.4 pence per

share:

• 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 Impact * Outcome Range (+/-) Restatement of Financial Position (as at 31 Jan 2018) IFRS 16 right-of-use assets 127 10 IFRS 16 lease liabilities (145) 10 Net IFRS 16 lease recognition (18) 3 Remove operating lease related prepayments and accruals 6 1 Impact on net assets as at 31 January 2018 (12) 3 Restatement of Income Statement (FY19) Remove operating lease charges (EBITDA increase) 43 1 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 Current estimate of adjusted FY19 UL PBT (vs. £74.6m) 76.6 (+3%) 1 Current estimate of adjusted FY19 UL EPS (vs. 17.6p) 18.1p (+3%) 0.2p

• Operating leases represented by a fixed

(“right-of-use”) asset with corresponding lease liability (notional debt)

• P&L operating lease expense replaced by

asset depreciation and notional interest charge in relation to the lease liability

• The Group intends to apply a full

retrospective application and currently anticipates the approximate impact to be as presented (table to right)

* All numbers remain subject to further developments in application practice, refinement of assumptions, further detailed review and audit – accordingly an outcome range is presented

FY20 guidance

⚫ 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

Four pillars of growth

Other

⚫ Operating margins Profits expected to be broadly in line with FY19, based on delivering management’s sales forecast, margin mix assumptions, identified business efficiencies and assuming limited adverse currency movement ⚫ Capex FY20 capex of c£18m – including further investment in vertical integration, warehouse technology and replatforming of cardfactory.co.uk ⚫ 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

Headwinds easing

Financial performance summary

Strong profit margins Revenue growth Surplus cash returns Highly cash generative

• The Card Market remains resilient with single card volume in slight decline, with

value broadly flat

• Card Factory continued to grow value & volume share, gaining from both the

grocers, discounters and other High Street stores

• Card Factory has 32.4% share by volume and 19.3% share by value
• The online channel continues to grow (+c10% pa) and now accounts for 4.6% of

singles greeting card volumes

35 40 45 50 55 60 65 70 75 80 85 90 95 2014 2015 2016 2017 2018

I would always bring a birthday card to a friend’s birthday party I always send Christmas cards to all my friends and family I would always give my child a card to take to their friend’s birthday If I am attending a wedding I will always bring a card I always send a Valentine card to my significant other I will always send a card to celebrate a friend’s achievement (e.g. driving test, graduating...)

Drivers Of Market Growth Consumer Survey

Source: OC&C Online Consumer Surveys (2012-19), OC&C analysis

Customer Attitudes and Purchasing Behaviour

Attitudes to Card Purchasing by Occasion1,2 Card Buyers by Usage of Digital Greetings1 (% of Total Card Buyers)

19% 2015 18% 2016 6% 78% 2017

Replace Physical Card With Digital Alternative

20%

Use Digital Greetings But Not As Replacement For Physical Card Don’t Use Digital Greetings

100% 16% 23% 64% 14% 2014 18% 100% 100% 100% 9% 71% 2018 62% 100% 51% 31%

4.2 4.0 4.0 2.0 3.2 3.4 3.6 3.8 4.6 3.5 4.4 2.5 4.8 3.0 4.5 5.0 Wilko’s Price1 Card Factory Hallmark 99p Store Cards Galore Morrisons Paperchase Clintons Asda Simply Clintons Card Market WH Smith B&M Bargains Co-op M&S Sainsbury’s Tesco Aldi Poundland Home Bargains Post Office Quality1 Waitrose

Consumer Perceptions of Greeting Cards Value for Money - 20191,2 Average Rating On Scale 1-5

Stronger Perception of Low Price Stronger Perception of Quality

Source: OC&C Consumer Survey (February 2019), OC&C analysis

1% 1% 1% 2%

2017 Online Only 2018 41% 2019 40% Cross-Channel 59% 100 58% 37% In-Store Only 100 39% 62% 2016 100 58% 100

Source: OC&C Consumer Survey 2016,2017, 2018, 2019, OC&C analysis

Online Penetration and Purchase Channel

Online penetration estimated from volumes of known players and survey market shares Based on online survey, therefore likely to be skewed towards online shoppers

Respondent Purchase Channel, 2016-19 (% Respondents)1 Estimated Online Penetration, 2015-17 (% Volume)

Weighted by SCV

2.5% 0.8% 2015 2016 1.0% 2.6% 2.8% 4.6% 1.4% 3.3% 2017 1.6% 3.0% Non-Personalised 2018 Personalised 3.7% 4.2% +0.4% +0.5% +0.4% 6.7% 17.1% 40.0% 3.6% 0.9% 5.2% 20.2% 42.7% 5.7% 2.1% 12.5% 13.6% 34.9% 6.5% 3.0% 8.1% 12.9% 32.4% n/a Funkypigeon.com Card Factory Supermarkets1 Moonpig.com Amazon 2017 2015 2016 2018

Online Retailer Market Shares % Volume

Card Factory based on known volumes. Other retailers based on online survey

FY19 Like for Like Sales

Overall LFL -0.1% Store LFL

• 0.5%

Further improvements in card ranges and design including new ED premium Strong performance in seasonal cards Continued growth in average basket value Competitive quality and price position maintained

FY19 New Store Roll Out

972 trading stores 51 net new stores opened First franchise store

• pened in Jersey

Strong pipeline of new store opportunities

FY19 Business Efficiencies

EBITDA margins of 20.5% Improved vertical integration Targeted cost efficiencies & buying margin achieved Significant savings in warehouse and supply chain Tasks removed in store making it “Easier for Colleagues”, “Best for Customers”, Labour savings

FY19 Online Development

Cardfactory.co.uk sales increased by 56.3% Growth from new customers on products not sold in stores Profit contributor to the Group Gettingpersonal.co.uk sales decline Customer Acquisition & Discount impact on EBITDA

FY20 Like for Like

Design & Innovation in Everyday card ranges, introducing Premium ranges:

• Age cards
• Misc. & New “Occasions”
• Open cards

Innovation in complementary gifting & party ranges Continual enhancement of retail disciplines EPOS data ensuring better ranging decisions

FY20 New Store Roll Out

FY20 strong pipeline for 50 net new stores Continual opening on retail parks Further stores in Republic of Ireland Regular review of estate for relocations, extensions & closures to locate where the customers shop

FY20 Business Efficiencies

Repatriate card manufacturing from Far East to Printcraft Install & commission new manufacturing equipment to reduce card production costs Testing of new production techniques Efficient planning of People: right time, right place with a Time & Attendance System Removing tasks, simplifying processes – focus on customers Replenishment – efficient and improved availability with Auto Replenishment in stores Introduction of Voice picking Warehouse consolidation Productivity improvements in Warehouse & Logistics Targeted rent savings at renewals Loss Prevention targeting Stock & Cash Loss Ongoing focus on

• perating cost reduction

Stronger supplier management Better buying and sourcing Better stock Management

FY20 Online Development

FY20 – Online Development

• Everyday vs Seasonal
• New categories and

ranges

• GP mobile site
• Customer retention

Apple and Google pay

• International
• Amazon
• Getting Personal

Business

• New marketing

channels

Non Branded Impulse Card Units Branded Card Factory Concessions

Franchised Locations International Concessions

• Confident that we will continue to grow Card Factory’s Market Share
• Continuing to innovate new and unique designs offering Quality & Value
• Online represents a significant opportunity and will be developed through a new

platform and growth of our multi-channel offer

• We are exploring opportunities to extend our reach beyond 1,200 stores both in

the UK and Internationally

• Our targeted Business Efficiency programme continues to deliver and we have

identified ongoing opportunities in a multi-year programme

• We have had a satisfactory start to the new year with good performances in

both Valentine’s & Mother’s Day

• FY20 outlook is for a broadly flat EBITDA based on a challenging consumer

market

• Currently expect to announce Special dividend payment at interims
• Card Factory future growth strategy will be shared at a Capital Markets Day

later in the year

914 437

2013

920 932

2014

387 902 923

2015

365 907 411 343

2017

Boxed 1,343 Singles

2012

464 1,379 1,357 1,311 1,271 1,245

2016 1.3%

• 2.0%
• 2.5%

95 2013 110 1,330 1,277 Boxed 1,314 1,285 2012 2014 89 1,325 2015 Singles 1,387 1,386 1,409 1,414 2016 2017 1,412 1,409 1,328 84 79 101 0.8% 0.3% 0.0% 2012-17

• 6.3%
• 0.3%
• 5.9%

0.8% 2016-17

• 5.9%
• 0.5%
• 5.9%

0.1%

UK Greetings Card Market Value (£m) Market Volume (Millions Cards)

Total UK Greetings Card Market Evolution, 2012-161

CAGR CAGR

Source: GCA, Management Data, UK Trade Data, OC&C Consumer Surveys (2012-19), Kantar, Nielson, OC&C analysis

2012-17 2016-17

Market size restated versus last year due to restated Kantar data

31.8% 32.0% 32.5% 31.9% 31.5% 32.1% 31.7% 32.4% 6.0% 5.8% 5.4% 5.3% 27.9% 27.0% 27.0% 26.8% 2015 2.2% 2.3% 1.8% 2014 1.1% 2.0% 1.1% 2016 1.1% 1.2% 2017 Other High Street (Incl. discounters) Online Specialists Paperchase Clintons Card Factory Grocers

Historical Data Restated Given Kantar Revisions - Bottom Up View

Single Greeting Cards – Volume (% Total)

14-17

Singles Greetings Cards Channel Share Evolution, 2014-17

37.9% 38.3% 38.7% 37.9% 17.8% 18.4% 18.9% 19.3% 10.1% 9.9% 9.4% 9.2% 4.8% 5.5% 6.1% 6.6% 27.7% 26.2% 25.0% 24.9% 1.8% 1.8% 2016 2014 1.7% 2015 Other High Street (incl. Discounters) 2.0% 2017 Online Specialists Paperchase Clinton Cards Card Factory Grocers

Single Greet Cards – Value (% Total)

4.2%

• 5.0%
• 2.4%
• 0.2%
• 0.9%

16-17 7.5% 1.6%

• 2.3%

% Change 8.7% 5.1% 14-17

• 3.0%

16-17

• 0.2%

% Change

Source: GCA, Management Data, UK Trade Data, OC&C Consumer Surveys (2012-19), Kantar, Nielson, OC&C analysis

• 1.3%
• 2.1%

6.8%

• 2.8%

3.2% 0.5% 10.2% 2.2%

• 2.0%

11.7% 8.2%

• 2.1%