Interim Results FY20 Six months ended 31 July 2019 - - PowerPoint PPT Presentation

Interim Results FY20

Six months ended 31 July 2019

Forward-lookingstatements

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

• ccur 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 interim results announcement for the six months ended 31 July 2019 which can be found at www.cardfactoryinvestors.com. FY20 Interim Results Presentation 2

Agenda: Interim Results FY20

Group overview Karen Hubbard (CEO) Financial review Kris Lee (CFO) Operational update Karen Hubbard (CEO) Half year summary Karen Hubbard (CEO) Q&A

FY20 Interim Results Presentation 3

Group overview

4

Key highlights: Resilient performance despite challenging environment

Robust sales performance with growth in all main channels Record Mother’s Day and Valentine’s Day seasons Expanded store network with 26 net new stores Range, Quality & Pricing continues to drive seasonal card and non-card performance Investment in supply chain, operations and property management business efficiencies to deliver expected savings in the second half Continued growth and investment in cardfactory.co.uk Further progress with new sales channels – deals agreed with The Reject Shop and Aldi, with further trials planned

FY20 Interim Results Presentation 5

26 net new stores opened 1,000th store

• pened in August

Card Factory Online sales growth

• c. 25%

New retail partnerships: Aldi, The Reject Shop & franchise stores £195.6m Revenue

(H1 FY19: £185.3m)

+1.5% CF LFL Sales Growth

(H1 FY19: (0.2%))

Financial review

6 FY20 Interim Results Presentation

Financial highlights

H1 FY20 H1 FY19 Y/Y Change

Financial metrics

Revenue £195.6m £185.3m 5.5% Card Factory LFLs 1.5% (0.2%) 1.7 ppts Card Factory Store LFLs 1.2% (0.7%) 1.9 ppts Profit before tax £22.0m £23.9m (7.9%) Basic EPS 5.2p 5.6p (7.1%) Interim dividend 2.9p 2.9p Special dividend 5.0p/£17.1m 5.0p/£17.1m Total dividends since IPO 100.9p/£344.3m 86.6p/£295.4m Net debt2 £170.3m £159.8m Leverage (pre-IFRS 16 Leases) 1.93x 1.76x

Adjusted Financial Metrics3

Adjusted EBITDA £28.7m £29.9m (4.0 %) Adjusted Margin 14.7% 16.1% (1.4 ppts) Adjusted Profit before tax £21.1m £22.7m (7.0%) Adjusted Basic EPS 5.0p 5.3p (5.7%)

FY20 Interim Results Presentation 7

Note 1: All figures shown on an underlying basis Note 2: Net debt excludes debt issue costs and IFRS 16 Leases liabilities Note 3: Adjusted to remove the impact of IFRS 16 Leases

Like-for-like sales: Outperforming negative footfall trends

Positive like-for-like growth achieved Card Factory store like-for like growth +1.2% compared to decline in prior half year Delivered through new stores and average basket value Additional +0.3% total like-for-like growth delivered through online

FY20 Interim Results Presentation 8 2.8% 0.2% 3.1% (0.2%) 1.5% H1 FY16 H1 FY17 H1 FY18 H1 FY19 H1 FY20

Total Card Factory H1 like-for-like Performance

Divisional analysis: Card Factory

H1 FY20 H1 FY19 Y/Y change Revenue £189.6m £178.6m 6.2% EBITDA £29.0m £29.4m (1.4%) Margin 15.3% 16.5% (1.2 ppts)

Store roll out accretive to EBITDA and delivering good return on capital Strong seasonal performance – record Mother’s Day and Valentine’s Day EPOS investment enabling better informed decisions regarding product re-design and ranging – driving improved average basket value and performance of redesigned Everyday ranges Impacted by holding extra stock (for Brexit contingency planning, investment in new lines and the acceleration of seasonal buying), National Living Wage and other headwinds Expected savings in second half from investment in business efficiencies in first half Cardfactory.co.uk continues to grow strongly despite strong prior year

FY20 Interim Results Presentation 9

Divisional analysis: Getting Personal

H1 FY20 H1 FY19 Y/Y change Revenue £6.0m £6.7m N/M EBITDA (£0.3m) £0.5m N/M Margin

• 5.0%

6.9% (11.9 ppts)

Performance impacted by further increase in cost of customer acquisition and aggressive competitor discounting Underlying EBITDA impacted by 10.4% fall in sales and the rising cost of customer acquisition Strategy in place to grow sales and refocus business on target market: Increased marketing through social media, plus trialling other channels to drive brand awareness Rebranding to improve appeal and to reflect the premium nature of the Getting Personal

• ffering

Enhanced international offering

FY20 Interim Results Presentation 10

Revenue: Consistent sales growth

Five-year H1 Group Revenue CAGR +4.9% H1 FY20 growth driven by like-for-like performance, new store openings and online Strong non-LFL growth through new store openings

FY20 Interim Results Presentation 11

161.4 169.2 179.6 185.3 195.6 220.2 229.0 242.5 250.7

FY16 FY17 FY18 FY19 FY20

£’m

Group Revenue H/H (£m)

H2 H1

Operating margins: Best-in-class

Note: All figures shown on an underlying basis FY20 Interim Results Presentation 12

Increased cost headwinds including NLW and costs of extra stock holding Investment in IT store support for EPOS and other IT projects including distribution centre voice picking Cost growth from debit/credit card transactions volume growth and higher merchant fees Investment in increased capability and capacity of Card Factory online resource

H1 FY20 H1 FY19 Pre-IFRS 16 £’m IFRS 16 £’m Post-IFRS 16 £’m % of revenue Restated £’m % of revenue Cost of goods sold 63.5

• 63.5

32.5% 59.5 32.1% Store wages 39.9

• 39.9

20.4% 35.8 19.3% Store property costs 34.6 (21.6) 13.0 6.6% 12.6 6.8% Other direct expenses 10.6

• 10.6

5.4% 9.5 5.1% Cost ofsales 148.6 (21.6) 127.0 64.9% 117.4 63.4% Operating expenses (excl. depreciation) 18.3 (0.5) 17.8 9.1% 16.5 8.9% EBITDA 28.7 22.1 50.8 26.0% 51.4 27.7%

Free cash flow: Strong cash generation impacted by working capital

Free cash flow is distorted by the timing of working capital payments in and around the FY19 year-end, as previously highlighted Exceptional impact of holding extra stock for a prolonged period for Brexit contingency planning, investment in new lines and the acceleration of seasonal buying

FY20 Interim Results Presentation 13

H1 FY20 £’m H1 FY19 £’m Y/Y Change Underlying EBITDA(pre-IFRS 16 Leases) 28.7 29.9 (4%) IFRS 16 Leases adjustments 22.1 21.5 Underlying EBITDA 50.8 51.4 (1%) Non-underlying FX gain/loss 2.3 4.5 Loss on disposal, share-based payment & hedge reserve gains (0.3) 0.3 Operating cash flow before working capital 52.8 56.2 (6%) Net working capital movement (18.7) 1.7 Corporation tax (7.7) (5.6) Capital expenditure(ex IFRS 16 Leases) (9.8) (5.6) Disposal proceeds / (costs) 0.4 (0.1) Lease liability payments (20.1) (19.3) Net interest paid (inc. IFRS 16 Leases) (4.0) (3.9) Free cash flow (7.1) 23.4 (130%)

Capex: Low, predictable and well controlled

FY20 Interim Results Presentation 14

H1 FY20 £’m H1 FY19 £’m

One-off strategic projects:

Vertical integration 3.8 1.5 EPOS

• 0.6

Commercial initiatives / other 0.8 0.4 Replatforming cardfactory .co.uk 0.8

• Supply chain technology

0.6

• Sub-total

6.0 2.5

Recurring capex:

New stores 2.2 1.8 Existing stores 0.2 0.1 Relocations 0.5 0.2 Other capex 0.9 1.0 Sub-total 3.8 3.1 Total capex 9.8 5.6

H1 FY20 spend Investment in one-off strategic projects including new digital printing press, supply chain technology and the replatforming of Cardfactory.co.uk Ongoing investment in store estate Capex remains low as a proportion of

• perating cash flow

FY20 guidance – ca. £18m Further investment in vertical integration and completion of Cardfactory.co.uk replatforming Additional c. 24 net store openings Commercial initiatives

Dividends: Capital policy remains unchanged

Interim ordinary dividend 2.9 pence per share* (H1 FY19 2.9 pence) Special dividend of 5.0 pence per share* (H1 FY19 5.0 pence) Total cash return since IPO of £344.3m from organic cash generation Our policy is to target year-end net debt in the range of 1.0 to 2.0x Adjusted EBITDA Maintain a capital structure that is conservative yet efficient in terms of providing returns to shareholders £344.3m returned to shareholders since IPO in May 2014

* Payable on 19 December 2019 to those on register on 8 November 2019 FY20 Interim Results Presentation 15

2.3 2.5 2.8 2.9 2.9 2.9

15.0 15.0 15.0 5.0 5.0 4.5 6.0 6.3 6.4 6.4 FY15 FY16 FY17 FY18 FY19 FY20 £’m

Dividend (pence per share) Final Special Interim

IFRS 16 Leases: No impact on cash flow and limited impact on profitability and net assets

As required under IFRS 16 Leases, Card Factory's leases are now recognised on the balance sheet as right-

• f-use fixed assets with corresponding lease liabilities

Full retrospective approach adopted - effectively restating the financial statements as if IFRS 16 Leases had always been applied Income Statement lease expenses (e.g. property rental payments) have been replaced by depreciation charges (in relation to the right-of-use assets) and notional interest charges in relation to the lease liabilities This has resulted in significant increases in depreciation, interest costs, fixed assets and lease liabilities, but has no material impact on annual net profitability

FY20 Interim Results Presentation 16

H1 FY20 H1 FY19 Pre-IFRS 16 £’m IFRS 16 £’m Post-IFRS 16 £’m Pre-IFRS 16 £’m IFRS 16 £’m Post-IFRS 16 £’m Depreciation 5.5 19.1 24.6 5.4 18.0 23.4 Interest costs 2.1 2.1 4.2 1.8 2.3 4.1 Fixed asset additions 9.8 16.4 26.2 5.6 20.9 26.5 Profit before tax 21.1 0.9 22.0 22.7 1.2 23.9 EPS 5.0 pence 0.2 pence 5.2 pence 5.3 pence 0.3 pence 5.6 pence EBITDA 28.7 22.1 50.8 29.9 21.5 51.4

Note 1: All figures shown on an underlying basis

Operational update

17

Our key strategic goals: Four pillars

FY20 Interim Results Presentation 18

Like for like sales growth

• Maintain core value

proposition

• Ensure unrivalled card and

non-card ranges

• Grow average basket value
• Increase market share

Online

• Enhance the online platform
• Widen the selection of

personalised and non- personalised product ranges

• Raise awareness among

instore customers

• Reinvigorate Getting Personal

Business efficiency

• Extending Vertical Integration
• Supply chain development

and optimisation

• Store productivity
• Improving margin through

better buying

• Other: rent, loss prevention,

and cost efficiency

New store roll out

• Organic growth through store

expansion

• Roll out 50 net new stores

per annum – target 1,200

• Identified, diverse pipeline of
• penings
• Regularly review estate –

strategic plan per site

FY20 Interim Results Presentation 19

Growing average basket value Enhanced range and selection of cards – new selections performing well Significant improvement in volume and value for redesigned ranges Investment in vertical integration enhances flexibility to respond to customer demand Developed non-card ranges with enhanced “quality” and “value” for both in-store and online customers Strong growth in seasonal ranges – across card, party, gifting and dressing ranges

Progress: Like-for-like sales growth

Ensure wide range of choice Focus on Christmas card and complementary non-card ranges Everyday access to Premium for that “Special” card purchase Innovation in complementary gifting and party ranges Benefit further from EPOS data in ranging space and design Maintain competitive price and quality

FY20 Interim Results Presentation 20

Priorities: Like-for-like sales growth

Progress: New store roll out

Opened 26 net new stores, trading from 998 retail outlets (including 7 in ROI) Opening units where customers are shopping more - 13 Retail Park stores Ensuring flexibility by maintaining short leases: average to break <3 years New stores continue to enhance EBITDA and deliver a good return on capital 1,000th store milestone achieved in August On track to deliver approximately 50 net new stores in the current financial year

FY20 Interim Results Presentation 21 21

Progress and priorities: Business improvement programmes

Investment in vertical integration New printers commissioned and on track for business efficiency gains in addition to supporting new card ranges Development of production to enable further Far East repatriation Improved productivity and efficiency in warehouse & logistics Reconfiguration of warehouses Voice picking now live for everyday card, further rollout planned Allocation of seasonal lines from warehouse to stores

FY20 Interim Results Presentation 22

Significant progress in all business improvement programmes in H1 – driving business efficiencies & supporting future growth

Supply Chain & Store Replenishment Vertical Integration Margin Enhancements Other Productivity: “Easier for Stores”

Progress and priorities: Business improvement programmes

Improved productivity and & in-store availability Auto Replenishment for Card Launched electronic communications in store Time, Attendance and Staff Management tool roll out in progress New GNFR platform for store use Helium at tills Continue to uphold best-in-class margins, whilst maintaining value for our customers Appointment of Chief Commercial Officer – Adam Dury Ongoing progress of lowering the cost of sales through better buying and sourcing

FY20 Interim Results Presentation 23

Supply Chain & Store Replenishment Vertical Integration Margin Enhancements Other Productivity: “Easier for Stores”

Progress: Online growth

Improvements to online ranges - new products not available in store Good growth in card sales with both photo uploads and new humour ranges New complementary products resonating well with existing customers and attracting new shoppers Improved sale conversion & average order value

FY20 Interim Results Presentation 24

Developed and enhanced a bespoke merchandising engine improving conversion Launched a progressive web app reflecting increased mobile visitors Increased in house production Restructured the teams to strengthen technology and development, and bringing marketing in house

Priorities: Online growth

Re-platforming on cloud solution completed in August to deliver better stability Rebrand soft launch in September International shopping available from October Good pipeline of product development and exclusive partnerships Customise actual products

FY20 Interim Results Presentation 25

New platform launch this year to improve customer experience Evolving customer offer and experience enabled through the new system Significant new product launches planned in line with new platform

New channels: UK

26

Trial in 12 Aldi stores in September 2018 - gradually rolled out to over 130 Aldi stores We have agreed to provide a range of everyday cards in 440 of its stores from November 2019 Demonstrates appeal to a wide range of customers across a number of sales channels Our model of Everyday card retailing in Aldi is what has been adopted across the entire estate No cannibalisation of sales in existing Card Factory Stores Supports the move to cater for the “Convenience” customer mission

FY20 Interim Results Presentation

27

Aldi partnership: 12-month rolling agreement

Introduction of branded concessions to 15 Matalan stores as a trial covering a range of location types Different formats and in store locations being tested (2 to 16-card racks) Led by everyday cards with a range

• f bags and wrap and party

Being extended to include Christmas card and non-card ranges Three franchised outlets in new markets Gibraltar , Jersey, Guernsey

FY20 Interim Results Presentation 28

UK market: Matalan and other new initiatives

New channels: International

29

Australia: Exclusive five-year retail supply partnership with The Reject Shop

Successful eight store trial Strong footfall driver for TRS Significant card volume increase versus incumbent supplier Of existing Australian card retailers with scale, The Reject Shop is closest to Card Factory’s positioning in Price & Quality Contract for branded concessions in each of its 360 stores across Australia Roll out c.70 Card Factory branded concessions per week in Q1 FY21 Currently no clear market leader in the +$500 million Australian greeting card market

FY20 Interim Results Presentation 30

Highly complementary customer base and customer proposition

The Australian greeting card market Source: Independent market research *Card Factory bubble not to scale

*

Half year summary

Well established market leader Continued revenue growth driven by store network despite ongoing economic uncertainty Cardfactory.co.uk is a growing sales channel Business improvement and efficiency programme progressing well despite increased costs Highly cash generative with strong returns The Board expects FY20 Adjusted Underlying EBITDA to be in line with market expectations

FY20 Interim Results Presentation 31

Questions

32