Interim results 6 months ended 31 July 2018 25 September 2018 1 - - PowerPoint PPT Presentation

Interim results 6 months ended 31 July 2018

25 September 2018

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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 Card Factory plc. For more detailed information, please see the interim results announcement for the six months ended 31 July 2018 which can be found at: www.cardfactoryinvestors.com.

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Agenda

• Introduction

Geoff Cooper (Chairman)

• Financial review

Kris Lee (CFO)

• Strategic update

Karen Hubbard (CEO)

• Questions

Geoff Cooper

Chairman

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Financial review

Kris Lee – Chief Financial Officer

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Financial highlights

H1 FY19 H1 FY18 Y/Y Change

Revenue £185.3m £179.6m 3.2%

Card Factory LFLs (0.2%) 3.1% (3.3ppts) Card Factory Store LFLs (0.7%) 3.0% (3.7ppts)

EBITDA £29.9m £32.8m (8.9%)

Margin 16.1% 18.3% (2.2ppts)

Profit before tax £22.7m £26.3m (13.9%) Basic EPS 5.31p 6.19p (14.2%)

Interim dividend 2.9p 2.9p Special dividend 5.0p/£17.1m 15.0p/£51.2m Total dividends since IPO 86.6p/£295.4m 72.3p/£246.5m

Net debt £159.8m £146.0m £13.8m

Leverage 1.76x 1.50x n/a

Note 1: All figures shown on an underlying basis Note 2: Net debt excludes debt issue costs

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H1 FY19 £’m H1 FY18 £’m Y/Y change Revenue 178.6 172.3 3.7% EBITDA 29.4 31.8 (7.6%) Margin 16.5% 18.5% (2.0ppts) Revenue 6.7 7.3 (8.5%) EBITDA 0.5 1.0 (52.8%) Margin 6.9% 13.3% (6.4ppts)

Divisional analysis

Note: all figures shown on an underlying basis

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 Four-year H1 Group revenue CAGR =

4.7%

 Strong seasonal performance in the

first six months

 Average basket value increase  Growing sales in challenging

environment, like-for-like affected by:

– weak consumer environment; and – extreme weather conditions

161.4 169.2 179.6 185.3 220.2 229.0 242.5 FY16 FY17 FY18 FY19

£’m

H2 H1 LFL H1 2.8% 0.2% 3.1% (0.2%) LFL FY 3.0% 0.6% 2.9%

Revenue

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CF LFLs including Online

Operating margins

Note: all figures shown on an underlying basis

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H1 FY 19 £’m % of revenue H1 FY 18 £’m % of revenue % of revenue Y/Y change Cost of goods sold 59.5 32.1% 56.9 31.7% (0.4ppts) Store wages 35.8 19.3% 33.7 18.8% (0.5ppts) Store property costs 33.6 18.1% 32.3 18.0% (0.1ppt) Other direct expenses 9.5 5.2% 8.1 4.5% (0.7ppts) Cost of sales 138.4 74.7% 131.0 73.0% (1.7ppts) Operating expenses 17.0 9.2% 15.8 8.7% (0.5ppts) EBITDA 29.9 16.1% 32.8 18.3% (2.2ppts)

Margin headwinds & mitigation

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H1 FY19 Bps £m FY19 Bps £m

FX & NLW headwinds (210) (4.0) (160) (7.0)(c) LFL impact (160) (130)(a) Net impact before mitigation (370) (290) Mitigation 150 120 T

• tal EBITDA margin impact

(220) (170)(b)

• The Board’s full year FY19 EBITDA expectation remains in the range of £89m-£91m
• Further business efficiency plans in place for FY20
• FX headwind dissipating in FY20

Note:

(a) Based on current management view of LFL. (b) Assuming no margin mix change. (c) Including electricity and card fees.

Free cash flow

H1 FY19 £’m H1 FY18 £’m Y/Y Change

Underlying EBITDA 29.9 32.8 (9%) Non-underlying FX gain/loss 4.5 (3.1) FX hedging reserve cash gain/(loss) 0.1 (2.6) Loss on disposal and share-based payment accrual 0.4 0.1 Operating cash flow before working capital 34.9 27.2 28% Net working capital movement 1.3 0.4 Corporation tax (5.6) (8.8) Net capital expenditure (5.6) (6.6) Net interest paid (1.6) (1.2) Free cash flow * 23.4 11.0 113%

* Free cash flow:

• represents cash generation potentially available for distribution to shareholders
• excludes movements on borrowings and proceeds from new shares issued

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T

• tal capex includes:
• One-off strategic projects
• EPOS – improved stock control and sales data
• Printcraft
• Recurring annual capex
• Refurbishments and roll-out
• c£8-9m pa

Medium term view:

• Annual capex of c£14m in medium term, pending

any other new strategic opportunities

• Store refresh trial

H1 FY19 £’m H1 FY18 £’m

One-off strategic projects Printcraft manufacturing equipment 1.5

• EPOS

0.6 2.1 Commercial initiatives / other 0.4

• LED conversions
• 0.6

Online packaging

• 0.2

Sub-total 2.5 2.9 Recurring capex New stores 1.8 2.2 Existing stores 0.1 0.1 Relocations 0.2 0.2 Other capex 1.0 1.2 Sub-total 3.1 3.7 T

• tal capex

5.6 6.6

Capex

Low, predictable and well controlled

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Balance sheet and 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 FY15 FY16 FY17 FY18 FY19

Dividends (pence)

Interim Special Final

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

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Dividend declaration Capital policy

• Special dividend
• 5.0 pence per share
• T
• tal cash return of £17.1m from organic cash generation
• Payable on 14 December 2018 to those on register on 9 November 2018
• Interim ordinary dividend
• 2.9 pence per share
• Payable on 14 December 2018 to those on register on 9 November 2018
• T
• tal cash returns since May 2014 IPO
• 86.6 pence per share and £295m in aggregate
• Equivalent to over 38% of IPO issue price

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IFRS 9 – effective FY19 and replaces IAS 39

• Minimal impact on Card Factory financials
• Detailed transition note included in the Notes to the Interim Financial Statements

IFRS 16 - effective FY20 and replaces IAS 17

• Operating leases represented by a fixed (“right-of-use”) asset with corresponding lease liability

(notional debt)

• P&L operating lease expense replaced by depreciation of the right-of-use asset and notional interest

charge in relation to the lease liability

• This means increasing: EBITDA, Interest Costs, Depreciation, Fixed Assets, and Debt, but no

material impact on annual net profitability.

• The Group intends to apply a full retrospective application. Historic lease data has been collated and

cash flow data is being constructed in preparation for disclosure in the April 19 Prelims

IFRS 9 Financial Instruments & IFRS 16 Leases

Strong profit margins

• Margin headwinds: living

wage and FX

• Business efficiencies on track
• Cost control culture combined with

measured investment

Revenue growth

• Despite challenging conditions
• Strong seasonal performance
• Weaker Everyday performance
• Average spend increase
• New store roll out
• Online development

Surplus cash returns

• Leverage of 1.76x LTM EBITDA
• Special dividend of 5.0p (£17.1m)
• £295.4m returned since IPO

Highly cash generative

• Strong underlying operating cash flow
• Low, predictable and well controlled

capex

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Summary financial performance

Strategic update

Karen Hubbard – Chief Executive Officer

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First six months

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H1 FY19 four pillar update

CF LFL (0.2%) 25 net new stores EBITDA margin 16.1%

▪ Strong performance in all seasons to date ▪ Net 25 new stores added 940 stores in the UK ▪ Good progress in ROI Ongoing efficiency programme progressing well:

LFL Sales New Stores

Business Efficiencies

▪ Continued openings in Retail Parks performing well ▪ Strong pipeline to support

• ngoing new store programme

▪ New stores profitability remains robust ▪ New card designs delivering volume & value growth ▪ All stores on new EPOS ▪ Cost control and headwinds mitigation ▪ Vertical integration extended with new card ranges ▪ Productivity savings on track through removal of task in store ▪ Supply Chain efficiency programme and replenishment trial progressing well

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▪ Challenging conditions due to high street footfall

H1 FY19 four pillar update

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Online

▪ Cardfactory.co.uk revenues grew by 85% ▪ New ranges and merchandising driving up conversion +25% YoY ▪ Getting Personal performance remains challenging but profitable sales being pursued

Strategic opportunity

Delivering the plans for the remainder of FY19

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Delivering plans for remainder of FY19

LFL Sales

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▪ Strong Christmas ranges, focused on Card ▪ Responding to customer insights from 2017 Xmas ▪ Competitive price and quality position maintained ▪ Store specific ranging based on data from EPOS system

• Retaining key Everyday lines
• Product placement
• Highlight premium lines

Delivering plans for remainder of FY19

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New Stores

▪ Further 25 stores (965)

• Non-branded sale stores
• Temporary CF stores

where we overtrade

• Mall units for overtrading

stores ▪ Christmas pop up shops: ▪ Store refresh trial ongoing

Delivering plans for remainder of FY19

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Business Efficiencies

▪ Christmas process for stores more efficient resulting in task removal ▪ Warehouse efficiency programme ongoing ▪ Vertical integration to support re-print of top selling SKUs and cards re-patriated from Far East ▪ Extension of Auto- Replenishment trial to more stores

Delivering plans for remainder of FY19

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Online

▪ Card Factory has strong plans for a robust season – against strong sales last year ▪ Focus on driving profitable sales with a solid plan from the team in landing Christmas ▪ Group Digital Director appointed

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Strategic Opportunities

Exploring additional sales channels

Update at Full Year Results

z

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Three options being explored with early stage trials

• Small range of Card Factory branded

products enabling convenient shopping

• Concession model using excess space of
• ther retailers
• Franchise locations

Physical retail space

Opportunity to increase market share with an alternative operating model

z

Exploring additional sales channels

Update at Full Year Results

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Three options being explored with early stage trials

• Small range of Card Factory branded

products enabling convenient shopping

• Concession model using excess space of
• ther retailers
• Franchise locations
• Group Digital Director appointed to take

advantage of this opportunity

• Card Factory online platform review well

progressed to support growth ambitions

Physical retail space

Opportunity to increase market share with an alternative operating model

Digital

Aim: Allow customers to shop their way

Summary

• Revenue growth despite backdrop of weak consumer environment
• The Board continues to expect EBITDA to be in the range of £89m-£91m
• Surplus cash returned to shareholders with a special dividend of 5 pence per share
• Clear priorities for the remainder of FY19 and beyond
• New strategic opportunities being explored

Questions

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Appendix

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Our investment case

• Card Factory is the largest retailer by volume in a well established Greeting Card Market
• Whilst volume is in slight decline, value is growing, and there is a trend for increased card buying amongst 18-34 year olds
• New store openings have had minimal cannibalisation impact and enable further share of market volumes
• Complementary products including gift wrap, balloons and gifting driving growth

Large, Resilient Market

• Card Factory has sustained its position in the market with ‘Clear Blue Water’ versus competitors
• Card Factory has high usage and awareness – 54% of card buyers (buying 63% of cards) have shopped at Card Factory in the

last 12 months

Compelling Price Proposition for Customers

Integrated Design, Print & Production has enabled continued delivery of strong margins Further opportunities to onshore production

Vertically Integrated Business Model

• Data driven decisions optimising stores driving space utilisation and demographic-led ranging
• New opportunities for Card volume growth through innovative redesign
• Further development through Digital and Multi-channel to deliver like-for-like growth amongst core and new customers

Track Record of Like-for-Like Sales

• Industry-leading EBITDA margins underpin high cash generation
• Working capital absorption and capital expenditure requirements remain relatively low

Strong Financials & High Cash Generation

• Experienced management team who are both functional and value retailing experts
• Retained key Card Factory talent to ensure continuity of business knowledge and skills

Experienced Management T eam