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

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

• f the results of Card Factory plc. For more detailed information, please see the preliminary results

announcement for the year ended 31 January 2018 which can be found at www.cardfactoryinvestors.com.

Forward-looking statements

Agenda

• Introduction

Geoff Cooper (Chairman)

• Key messages

Karen Hubbard (CEO)

• Financial review

Kris Lee (CFO)

• Strategic update

Karen Hubbard (CEO)

• Questions

Geoff Cooper - Chairman

Karen Hubbard - Chief Executive Officer

Key messages

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• Strong sales performance in a tough consumer

environment

• Sustained competitive position in a resilient market
• FY18 profit impacted by cost headwinds
• Strong cash generation and robust returns to

shareholders

Kris Lee – Chief Financial Officer

FY18 FY17 Year-on-year change

Revenue £422.1m £398.2m 6.0% Card Factory LFLs Store LFLs +2.9% +2.6% +0.6% +0.4% EBITDA £94.0m £98.5m (4.6)% Margin 22.3% 24.7% (2.4)ppts Profit before tax £80.5m £85.1m (5.5)% Earnings per share 18.9p 19.8p (4.4)% T

• tal ordinary dividend

9.3p 9.1p 2.2% Dividend cover 2.03x 2.18x Special dividend 15.0p/£51.2m 15.0p/£51.1m Net debt £161.3m £135.8m Leverage 1.72x 1.38x

1. All figures shown on an underlying basis 2. Total FY18 ordinary dividend includes recommended 6.4p final dividend, subject to AGM approval 3. Net debt excludes debt issue costs

Financial highlights

Performed well in difficult conditions

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1. All figures shown on an underlying basis 2. Card Factory includes both stores and online 3. See Appendix for H1/H2 split by brand

FY18 FY17 Year-on-year change Revenue £404.3m £380.5m 6.3% EBITDA £91.1m £95.7m (4.8)% Margin 22.5% 25.2% (2.7)ppts Revenue £17.8m £17.7m 0.5% EBITDA £2.9m £2.8m 2.8% Margin 16.4% 16.0% 0.4ppts

Divisional performance

Strong growth in core business impacted by FX , NLW and Sales mix

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Impact of FX & NLW headwinds

EBITDA excluding FX & NLW headwinds - YoY Growth +10.2% (FY17: +3.8%)

EBITDA growth of 10.2% excluding headwinds

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All figures shown on an underlying basis

Best-in-class margins

Continued focus on low cost business model

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FY 18 % of revenue FY 17 % of revenue % of revenue Movement Cost of goods sold £138.0m 32.7% £119.7m 30.1% (2.6)ppts StoreWages £74.9m 17.7% £68.9m 17.3% (0.4)ppts Store Property Costs £65.5m 15.5% £64.8m 16.3% 0.8ppts Other Direct expenses £18.6m 4.4% £18.2m 4.5% 0.1ppts Cost of Sales £297.0m 70.3% £271.6m 68.2% (2.1)ppts Operating expenses £31.1m 7.4% £28.1m 7.1% (0.3)ppts EBITDA £94.0m 22.3% £98.5m 24.7% (2.4)ppts

55.3% 42.3% 2.4% 53.7% 44.0% 2.3%

FY17 Sales Mix FY18 Sales Mix

Mix shown for Card Factory stores only

Sales mix

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

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 FY18 spend

• Lower than the £15m guidance principally in respect of

timing of investment in vertical supply chain integration  Capex remains low as a proportion of operating cashflow  FY19 guidance

• circa £14m including further investment in vertical supply

chain integration and PCMS EPOS migration

FY18 £’m FY17 £’m One-off strategic projects EPOS/BI 4.3 1.2 LED lighting 0.9 0.9 GP personalisation 0.3

• Digital print

0.1 1.0 5.6 3.1 Recurring New Stores 3.6 3.4 Refurbs

• 0.2

Relocations 0.4 0.6 Other capex 3.5 3.1 7.5 7.3 Total CAPEX 13.1 10.4

Capex

Low, predictable and well controlled

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FY18 £’m FY17 £’m

Operating cash flow before working capital 82.8 97.7 Working capital 6.9 1.7 Corporation tax (17.0) (17.6) Net cash inflow from operating activities 72.7 81.8 Net capital expenditure (13.1) (10.4) Net interest paid (2.6) (2.6) Free cash flow * 57.0 68.8

Strong cash generation

Track record of generating significant surplus cash

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* Free cash flow represents cash generation potentially available for distribution to shareholders. This excludes movements on borrowings and proceeds from new shares issued.

The Group’s Capital Policy continues to focus on maintaining a capital structure that is conservative yet efficient in terms of providing returns to shareholders:

• 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
• Special dividend for FY19 payable together with the interim dividend, expected to be in the range of 5-10p per ordinary share.

FY18 £’m FY17 £’m FY16 £’m Free cash flow 57.0 68.8 63.4 Dividends paid (82.9) (81.1) (82.8) Proceeds from new shares issued 0.3 0.3

• Net debt movement

(25.6) (12.0) (19.4) EBITDA leverage (at year-end) 1.72 1.37 1.29

Capital policy

Remains unchanged

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

We continue with our progressive dividend policy



Dividend cover range moved from 2.0 – 3.0x to 1.5 – 2.5x



T

• tal cash returns since May 2014 IPO*

– £268.4m since IPO * Including recommended final dividend of 6.4 pence per share

Dividends

Significant returns of surplus cash

2.9 2.8 2.5 6.4 6.3 6.0 15.0 15.0 15.0

FY18 FY17 FY16

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FY19 guidance

 LFL sales growth Targeting LFL growth within historic range  New store openings Targeting 50 net new UK store openings  Business efficiencies Industry-wide cost pressures, in particular FX and NLW – reduced from FY18 but not eliminated in FY19 (£7-8m) although with a large element of mitigation  Online Significant LFL growth in CF Online with more modest growth in GP Four pillars of growth

Other

 Operating margins Limited EBITDA growth, based on delivering management’s sales forecast, margin mix assumptions, identified business efficiencies and assuming limited adverse currency movement – the post mitigation impact estimated to be in the region of 120bps  Capex FY19 capex of c£14m – including further investment in vertical supply chain integration  Leverage FY19 targeted year-end leverage of c1.7x  Special dividend Special dividend for FY19 expected to be in the range of 5-10 pence per ordinary share.

Headwinds easing

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Expectation of further returns of surplus cash over the medium term

Financial performance – summary

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Continuing to deliver despite ongoing headwinds

Karen Hubbard – Chief Executive Officer

FY18 pillars

• Further improvements in

quality & range

• Competitive price and quality

position maintained

• Significant headwinds of

£14.6m partially mitigated through various initiatives

• Ongoing program of

mitigation developed and in progress

• Cardfactory.co.uk grew by 67%
• Getting Personal is a

profitable part of the group

• Strong pipeline for FY19
• 915 stores in the UK
• 6 trial stores in Republic of

Ireland

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• Significant increase in

complementary non-card sales

Card market update

• Future market projections suggest value growth of c1%-2% pa with

slight decline in volumes as expected

• Levels of emotional attachment to card purchasing has remained

relatively stable over the longer term

• Reported digital usage has evolved since 2015 but with no dilution of

card usage from digital alternatives

• Card Factory consistently gained value share (16.1% to 18.2% from

2012-2016) and volume share (30.3% to 31.7% from 2012-2016)

• Card Factory has high usage and awareness with 64% of card buyers

having shopped at Card Factory in the last 12 months

• 50% of all visits to Card Factory were planned and the main reason for

the shopping trip

22 2017 #1 Card Factory (87.7) #2 Home Bargains (86.5) #3 Aldi (85.9) #4 Lidl (85.4) #5 99p store (85.0) #6 Primark (84.1) #7 Farm Foods (83.6) #8 Wilko (82.7) #9 Poundworld (82.6) #10 Poundstretcher (82.5)

Card Factory positioning

5.0 3.0

4.5 4.0 3.5 3.0 2.5 2.0 5.0 4.5 4.0 3.5 Price1 Quality1 B&M Bargains 99p Store Post Office WH Smith Hallmark Clintons Paperchase M&S Wilko’s Home Bargains Poundland Supermarkets

• 1. How would you rate <main retailer> against the following criteria? You said you shopped at <secondary retailer> in last 12 months, how would you rate it against the following criteria?
• 2. Weighted by volume of single cards purchased; main and secondary retailer ratings combined

Consumer Perceptions of Greeting Cards Value for Money - 20181,2 Average Rating On Scale 1-5

Stronger Perception of Low Price Stronger Perception of Quality

Source: OC&C Consumer Survey (February 2018), OC&C analysis

Weighted by volume of singles cards purchased Minimum n=40

Card Factory continues to offer clear blue water

• n the price and quality

proposition versus its competitive set

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• Further focus on card design and range extensions
• Continued development of complementary Non-card

ranges

• Helping customers celebrate all “Life moments”
• Continuing improvement in retail disciplines

LFL Sales Growth

25

Navigation to ranges

Responding to customer insights

Caption Finders in racks Showcasing newness Retaining Price Indicators

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New promotional signage

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New store rollout

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• Strong pipeline for FY19
• plan to have circa 50 UK net openings
• well established track record of delivery
• Republic of Ireland trial continues
• Further opportunities
• in additional retail parks
• pop up shops
• Christmas shops
• clearance stores

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• Ongoing improvements in product quality to

further enhance competitive position

• Continual unit cost reduction in production
• Innovation in manufacturing especially in print finishing.
• Additional automation implemented
• Raw material prices maintained
• Driving lean fulfilment in stores through

supply chain efficiencies

• Reduce average stock holding
• Increase warehouse productivity
• Reduce cost to serve
• Improving operational productivity
• The removal of tasks from stores by simplifying

how we operate

• Significant “multi year” programme of instore efficiency

through removal of non-customer facing tasks making it easier for colleagues

• Minor capital investments to facilitate
• Lowering the cost of sales through better

buying and sourcing

• Loss Prevention
• Continuing to target net rent savings across the property

portfolio at the next available break clause or lease renewal

• Cost efficiency programme

• Strong growth through product ranging
• Identified cardfactory.co.uk as key growth opportunity
• Current proposition is evolving
• Platform and infrastructure investment required

Online update

• Prioritised profitable sales
• Focus on product innovation, availability and ranging
• Improving speed and other service elements

Good progress on People Agenda with further activities planned

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• Improved management recruitment and retention
• Introduction of significant development Programmes
• Improvement in colleague engagement
• A balanced business approach

Outlook

• Satisfactory start to the year with record seasonal transactions
• Further progress on strategic initiatives
• Cost headwinds expected to recede although limited profit growth in FY19
• Strong cash generation with returns to shareholders

A strong management team in place, building a platform for sustainable growth

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Notes All figures shown on an underlying basis

FY18(H1) FY17(H1) YoY change FY18(H2) FY17(H2) YoY change Revenue £172.3m £162.3m 6.2% £232.0m £218.2m 6.4% EBITDA £31.8m £33.2m (4.1)% £59.3m £62.5m (5.2)% Margin 18.5% 20.5% (2.0)ppts 25.5% 28.6% (3.1)ppts Revenue £7.3m £6.9m 5.0% £10.5m £10.8m (2.4)% EBITDA £1.0m £1.0m 0.6% £1.9m £1.8m 4.0% Margin 13.3% 13.9% (0.6)ppts 18.6% 17.4% 1.2ppts Consolidated Revenue £179.6m £169.2m 6.1% £242.5m £229.0m +5.9% Consolidated EBITDA £32.8m £34.2m (4.0)% £61.2m £64.3m (5.0)% Margin 18.3% 20.2% (1.9)ppts 25.2% 28.1% (2.9)ppts

H1/H2 performance by brand

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Card market update

Singles market forecast

1,000 1,050 1,100 1,150 1,200 1,250 1,300 1,350 1,400 1,450 1,500 1,550

2017F 2016E 2021F 2020F 2019F 2018F 2015 2014 2013 2012

CAGR Base: +1.4% CAGR Upside: +2.1% CAGR Downside: +0.6%

UK Singles Market Value Forecast, 2012-21F (£m)

Forecast

CAGR: + 1.5%

500 550 600 650 700 750 800 850 900 950

2021F 2020F 2019F 2018F 2017F 2016E 2015 2012 2014 2013

CAGR Base: -1.0%

Forecast

CAGR: - 0.2%

CAGR Upside: -0.3% CAGR Downside: -1.8%

UK Singles Market Volume Forecast, 2012-21F (Millions of Cards)

Source: GCA, Management Data, UK Trade Data, OC&C Consumer Surveys (2012-18), Kantar, Nielson, OC&C analysis

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Future market projections suggest value growth of c1%-2% pa with slight decline in volumes as expected

Card market update (continued)

Levels of emotional attachment to card purchasing has remained relatively stable over the longer term; reported digital use has evolved since 2017 Customer Attitudes and Purchasing Behaviour

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

I will always send a card to celebrate a friend’s achievement (e.g. driving test, graduating...) If I am attending a wedding I will always bring a card I always send a Valentine card to my significant other 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 I would always bring a birthday card to a friend’s birthday party

Source: OC&C Online Consumer Surveys (2012-17), OC&C analysis

• 1. Question: How much do you agree with the following statements?
• 2. Weighted by volume of single cards purchased
• 3. If the change is less than 1.54% it is within the bounds of a statistical error

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

62% 14% 2015 100% 78% 18% 51% 31%

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

2018 100%

16%

6% 2017 100% 19% 64% 18% 2016 100% 23%

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Card market update (continued)

Card Factory has consistently gained value share

Source: Nielsen, Kantar, Press Releases, OC&C analysis 35.7% 37.1% 36.9% 37.2% 37.3% 16.1% 16.9% 17.4% 17.9% 18.2% 3.8% 4.9% 5.3% 5.3% 5.6% 12.8% 10.3% 9.9% 9.6% 9.1% 26.2% 24.8% 24.2% 22.9% 22.0% 4.1% 4.4% 4.7% 5.3% 5.9% Grocers Card Factory Discounters Clinton Cards Paperchase Other Online Specialists 2016 1.9% 2015 2014 1.7% 2013 1.6% 2012 1.4%

Single greet cards –Value %

Singles Greetings Cards Channel Share Evolution, 2012-16

1.8% 31.5% 32.2% 31.8% 32.0% 32.5% 30.3% 31.1% 31.5% 32.1% 31.7% 5.8% 7.6% 8.4% 8.6% 9.5% 8.0% 6.2% 6.0% 5.8% 5.4% 21.9% 20.3% 19.5% 18.4% 17.5% 2.2% 2015 1.1% 2.0% 2014 1.1% 1.7% 2013 1.0% 1.6% 2012 0.9% 1.5% Grocers Card Factory Discounters Clinton Cards Paperchase Other Online Specialists 2016 1.2%

Single greet cards –Volume %

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1 2 4 9 20 39 78 132 189 279 333 384 484 531 611 664 713 764 814 865 921

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Store numbers (FY)

Acquisitions Store Openings Stores

Store numbers (UK & ROI) FY18 FY17 At start of period 865 814 Net store openings* 50 51 ROI 6

• At end of period

921 865

*Includes closures

New store rollout

Store Location Type (UK)

FY18 Openings Total Stores %

High Street Stores 29 464 51% Retail Park 14 62 7% Shopping Centre 1 290 31% Shopping Precinct 3 81 9% Factory Outlet & Supermarkets 3 18 2%

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