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 1

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. 2

Agenda • Introduction Geoff Cooper (Chairman) • Financial review Kris Lee (CFO) • Strategic update Karen Hubbard (CEO) • Questions

Geoff Cooper Chairman 4

Financial review Kris Lee – Chief Financial Officer 5

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 6

Divisional analysis H1 FY19 H1 FY18 Y/Y change £’m £’m 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) Note: all figures shown on an underlying basis 7

Revenue £’m  Four-year H1 Group revenue CAGR = 4.7% 242.5  Strong seasonal performance in the 229.0 220.2 H2 first six months H1  Average basket value increase 185.3 179.6 169.2 161.4  Growing sales in challenging FY16 FY17 FY18 FY19 environment, like-for-like affected by: CF LFLs including Online – weak consumer environment; and LFL H1 2.8% 0.2% 3.1% (0.2%) LFL FY 3.0% 0.6% 2.9% – extreme weather conditions 8

Operating margins H1 FY 19 % of H1 FY 18 % of % of revenue £’m revenue £’m 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) 33.6 18.1% 32.3 18.0% Store property costs (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) 9 Note: all figures shown on an underlying basis

Margin headwinds & mitigation H1 FY19 FY19 Bps £m 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 otal 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. 10 (c) Including electricity and card fees.

Free cash flow H1 FY19 H1 FY18 Y/Y £’m £’m Change Underlying EBITDA 29.9 32.8 (9%) Non-underlying FX gain/loss 4.5 (3.1) 0.1 FX hedging reserve cash gain/(loss) (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) (5.6) Net capital expenditure (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 11 - excludes movements on borrowings and proceeds from new shares issued

Capex H1 FY19 H1 FY18 Low, predictable and well controlled £’m £’m One-off strategic projects T otal capex includes: Printcraft manufacturing equipment 1.5 - EPOS 0.6 2.1 • One-off strategic projects Commercial initiatives / other 0.4 - • EPOS – improved stock control and sales data LED conversions - 0.6 • Printcraft Online packaging - 0.2 Sub-total 2.5 2.9 • Recurring annual capex Refurbishments and roll-out • Recurring capex c£8-9m pa • New stores 1.8 2.2 Existing stores 0.1 0.1 Relocations 0.2 0.2 Medium term view: Other capex 1.0 1.2 • Annual capex of c£14m in medium term, pending Sub-total 3.1 3.7 any other new strategic opportunities Store refresh trial • T otal capex 5.6 6.6 12

Balance sheet and dividends 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 Dividend declaration Dividends (pence) • Special dividend • 5.0 pence per share • T otal cash return of £17.1m from organic cash generation 6.4 6.3 6.0 • Payable on 14 December 2018 to those on register on 9 November 2018 • Interim ordinary dividend • 2.9 pence per share 15.0 15.0 15.0 • Payable on 14 December 2018 to those on register on 9 November 2018 5.0 4.5 • T otal cash returns since May 2014 IPO 2.8 2.9 2.9 2.5 2.3 • 86.6 pence per share and £295m in aggregate FY15 FY16 FY17 FY18 FY19 13 Equivalent to over 38% of IPO issue price • Interim Special Final

IFRS 9 Financial Instruments & IFRS 16 Leases 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 14

Summary financial performance Revenue growth Strong profit margins - Despite challenging conditions - Margin headwinds: living - Strong seasonal performance wage and FX - Weaker Everyday performance - Business efficiencies on track - Average spend increase - Cost control culture combined with - New store roll out measured investment - Online development Highly cash generative Surplus cash returns - Strong underlying operating cash flow - Leverage of 1.76x LTM EBITDA - Low, predictable and well controlled - Special dividend of 5.0p (£17.1m) capex - £295.4m returned since IPO 15

Strategic update Karen Hubbard – Chief Executive Officer 16

First six months 17

H1 FY19 four pillar update LFL Sales Business Efficiencies New Stores CF LFL (0.2%) 25 net new stores EBITDA margin 16.1% ▪ Challenging conditions due to Ongoing efficiency programme ▪ Net 25 new stores added high street footfall progressing well: 940 stores in the UK ▪ Strong performance in all ▪ Vertical integration extended ▪ Continued openings in Retail seasons to date with new card ranges Parks performing well ▪ Productivity savings on ▪ All stores on new EPOS ▪ Good progress in ROI track through removal of task in store ▪ New card designs delivering ▪ Strong pipeline to support ▪ Supply Chain efficiency volume & value growth ongoing new store programme programme and replenishment trial progressing well ▪ New stores profitability ▪ Cost control and remains robust 18 headwinds mitigation

H1 FY19 four pillar update Online Strategic opportunity ▪ 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 19

Delivering the plans for the remainder of FY19 20