Preliminary results presentation Year ended 31 January 2015 25 - - PowerPoint PPT Presentation

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Preliminary results presentation

Year ended 31 January 2015 25 March 2015

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Forward-looking statements

This presentation 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 announcement. Nothing in this announcement 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 preliminary announcement for the financial year ended 31 January 2015 which can be found on www.cardfactoryinvestors.com.

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 Introduction Geoff Cooper (Chairman)  Financial review Darren Bryant (CFO)  Strategic update Richard Hayes (CEO)  Questions

Agenda

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Introduction

Geoff Cooper Chairman

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Financial review

Darren Bryant Chief Financial Officer

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Financial highlights

FY15 FY14 Year-on-year change Revenue £353.3m £326.9m +8.1% LFLs +1.8% +3.1% EBITDA £88.2m £80.4m +9.6% Margin 25.0% 24.6% +0.4ppts Operating profit £79.4m £72.9m +8.9% Margin 22.5% 22.3% +0.2ppts Operating cashflow £79.2m £69.0m +14.8% Cash conversion 89.8% 85.8% +4.0ppts Net senior debt £103.6m Leverage 1.17x

Notes 1. All figures shown on an underlying basis 2. Operating cashflow calculated as underlying EBITDA less capex and working capital movements 3. Cash conversion calculated as operating cashflow divided by underlying EBITDA

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Both brands performing well

Strong growth in revenue and EBITDA

FY15 FY14 Year-on-year change Revenue £337.8m £314.3m +7.5% EBITDA £85.4m £78.7m +8.4% Margin 25.3% 25.1% +0.2ppts Revenue £15.5m £12.6m +23.1% EBITDA £2.8m £1.7m +67.6% Margin 18.0% 13.2% +4.8ppts

Notes

• 1. All figures shown on an underlying basis
• 2. See Appendix for H1/H2 split by brand

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59.1% 38.5% 2.4%

Marginal shift to non-card items with quality and range improvements and continued decline in Christmas box cards category as expected

Card Factory stores

Sales mix by product category

Single cards Christmas box cards Non-card items

57.9% 39.9% 2.2% FY14 Sales Mix FY15 Sales Mix

9 £102.0m 31.2% £52.9m 16.2% £53.7m 16.4% £14.7m 4.5% £23.2m 7.1% £80.4m 24.6%

Consistent performance through strong control of costs

Best-in-class margins

Further improvements delivered

FY14 Sales to EBITDA Bridge

Cost of goods sold Store Property Costs Store Wages Other Direct Expenses EBITDA Operating expenses (excluding depreciation and amortisation) £110.3m 31.2% £57.3m 16.2% £56.7m 16.1% £15.7m 4.4% £25.1m 7.1% £88.2m 25.0%

FY15 Sales to EBITDA Bridge

Cost of sales £240.0m 67.9% Cost of sales £223.3m 68.3%

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Reconciliation to statutory results

FY15 £’m FY14 £’m Underlying results EBITDA 88.2 80.4 Depreciation & amortisation (8.8) (7.5) Operating profit 79.4 72.9 Net finance expense (Note 1) (13.9) (40.9) Profit before tax 65.5 32.0 Non-underlying adjustments Gains/losses on forex derivatives not designated as a hedge (0.1) (1.9) IPO costs (3.8)

• Residual Management Equity share based payment (Note 2)

(11.2)

• Refinanced debt issue cost amortisation

(7.7)

• Statutory profit before tax

42.7 30.1

Notes

• 1. Net financing expense reflects significantly higher cost financing prior to IPO and senior debt refinancing (both completed in May 2014).
• 2. One-off charge relating to shares issued to certain members of management after Admission, as set out in the IPO prospectus.

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Strong cash generation

FY15 £’m FY14 £’m Cash inflow from operating activities 84.9 79.1 Corporation tax (9.6) (12.1) Net cash inflow from operating activities 75.3 67.0 Capital expenditure (10.1) (12.0) Deferred consideration (0.8) (0.5) Interest received 0.3 0.5 Net cash outflow from investing activities (10.6) (12.0) Net cash inflow before financing activities 64.7 55.0 Cash conversion 89.8% 85.8%

Long established, consistent track record of generating surplus cash

Note Cash conversion calculated as

• underlying EBITDA less capex and working capital movements; divided by
• underlying EBITDA

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Capex

Low, predictable and well controlled

 Predictable recurring annual capex – c £7-8m pa  Limited additional one-off strategic projects – Well invested business  EPOS conversion project in progress – Installed in all new stores – Conversion of existing estate continuing – Over 50% of estate now on EPOS – Completion anticipated by end FY17 FY15 £’m FY14 £’m One-off strategic projects Gate 4 warehouse / Head Office 0.1 1.7 Getting Personal

• 0.3

EPOS 2.6 3.3 Sub-total 2.7 5.3 Recurring capex New stores 3.4 3.4 Existing stores 0.9 0.4 Relocations 0.9 1.0 Other capex 2.2 1.9 Sub-total 7.4 6.7 Total capex 10.1 12.0

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Senior debt refinancing

New £200m corporate facility

 Refinancing completed on 30 May 2014  Outline terms – 5yr term – £180m senior term loan (current margin 2.0%) – £7.5m repayable every 6 months (from 31 January 2015) – £20m RCF facility (current margin 1.75%) – No early repayment fees  Significant reduction in annualised interest cost  £100m LIBOR swap @ 0.795% to October 2015  £2.6m debt costs amortising over life of facility – All cash paid on completion of debt refinancing  Significant covenant headroom

As at 31 January 2015 £’m Senior debt 172.5 Other debt/interest 0.1 Debt costs capitalised (2.2) Total borrowings 170.4 Analysed as: Current liabilities 14.5 Non-current liabilities 155.9 170.4 Add: debt costs capitalised 2.2 Gross debt 172.6 Less cash (69.0) Net debt 103.6 LTM underlying EBITDA 88.2 Leverage 1.17x

Significant reduction in leverage since IPO

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Dividend

Progressive policy plus potential for surplus returns

 Maiden dividend calculated on a proforma basis:  Split 2.3p Interim and 4.5p Final, both payable in June, with Final subject to AGM approval in May  For FY16 onwards, progressive dividend policy with dividends split: – Interim (announced September, payable November) – Final (announced March, payable June)

£’m Comments Underlying operating profit 79.4 As reported Pro forma calculations

• Annualisation of incremental PLC operating costs

(0.4) Assuming IPO on 31 January 2014

• Pro forma interest expense

(5.4) Assuming debt refinancing on 31 January 2014 Pro forma profit before tax 73.6 Pro forma tax charge (16.2) Assuming 22% effective tax rate Pro forma profit after tax 57.4 Pro forma EPS 16.85p Assuming all shares in issue from 31 January 2014 Dividend 6.8p c40% of pro forma EPS (2.5x cover)

Leverage to be maintained at broadly 1-2x EBITDA with surplus cash returned to shareholders

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FY16 outlook

 LFL sales growth Targeting medium term LFL growth in line with 5 year average  New store openings Targeting 50 net new store openings  Business efficiencies Targeting maintenance of underlying EBITDA margins before incremental costs of being a listed company  Online development Targeting double digit LFL growth at Getting Personal  Foreign exchange FY16 requirement c90% hedged at similar rate to FY15 average  Capex Annual recurring capex c£8m One-off strategic capex of up to £4m pa

• principally EPOS - c£2m pa in FY16 and FY17
• other potential strategic projects – returns critically assessed

Four pillars of growth Other guidance

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Financial performance

Summary

Consistently strong financial performance across the Group

Strong profit margins

• Consistent track record
• Cost control culture
• Business efficiencies
• Incremental PLC costs

Strong revenue growth

• Like-for-like store sales
• New store roll out
• Online development

Rapidly reducing leverage

• 1.17x EBITDA of £88.2m
• To be maintained at 1-2x EBITDA
• Significant interest saving from

May 2014 debt refinancing

Strong cash generation

• Consistently strong operating

cashflow

• Low, predictable and well

controlled capex

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Strategic update

Richard Hayes Chief Executive Officer

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Strategy overview

New store roll out Like-for-like sales growth Online development Business efficiencies Four pillars of growth Consistently strong cash generation and shareholder returns

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Like-for-like sales growth

Consistent track record of positive LFLs

 Ongoing consistent LFL sales growth – 5 year average of +2.5% pa – Targeting similar medium term trend  Various drivers – Design Studio innovation

• Card and non-card products

– New merchandising initiatives – New store maturity typically 4+ years – Opportunities from leveraging EPOS data  H2 LFL slightly lower than H1 – Selective localised pricing strategies – Competitor promotions – Expected ongoing decline in small, lower margin Christmas box card segment

A compelling value retail proposition for consumers – further improvements planned

1.8% 3.1% 3.2% 1.4% 2.9% FY15 FY14 FY13 FY12 FY11

5 year average +2.5% pa 5 year range +1.4% to +3.2% pa

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Stronger Perception of Quality Stronger Perception for Low Price

Quality Price

Source: OC&C, March 2015 Clear and substantial gap in perception vs. competitors

Like-for-like sales growth

Clear value proposition driving market share gains

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New store roll out

Proven high returns model continues

 New stores performing in line with management expectations  Consolidating a fragmented market  Competitor adjacencies – Ongoing openings against established competitors, large and small, in new locations – Large number of locations still without a Card Factory  Strong pipeline for FY16 – On target for c 50 net openings – 10 year track record of delivery

1 2 4 9 20 39 78 132 189 279 333 384 484 531 611 664 713 764 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Store numbers (FY) Acquisitions Store Openings Stores

Deliverable store potential

• f up to

1,200 Store numbers FY15 FY14 At start of period 713 664 New store openings 56 50 Closures (5) (1) At end of period 764 713 Relocations 9 12

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New store roll out

Versatile, wide demographic, high returns model

Congleton, Cheshire  Existing competitors: Clintons, Hallmark, WHSmith, independent  Other retailers include B&M, Morrisons, Superdrug, Boots Bluewater, Kent  Existing competitors: Clintons, WHSmith, Jolie Papier, Paperchase  300 other retailers including many premium brands Harrogate, Yorkshire  Existing competitors: Clintons, WHSmith, M&S, Paperchase, independents  Other retailers include Primark Poundworld, Boots, Greggs Kilburn, London  Existing competitors: WHSmith, independent  Other retailers include Iceland, Superdrug, Greggs

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Business efficiencies

Leveraging our vertically integrated model

 A strong culture of cost control  Leveraging recent strategic investments  EPOS now rolled out to over half store estate  Ongoing investment for the future – Adding new capabilities to support growth – SAYE scheme to be introduced in FY16  Incremental costs of being a listed company

Track record of maintaining, and, where possible, improving our best-in-class margins

22.5% 22.3% 22.4% 21.9% 25.0% 24.6% 24.5% 23.8%

FY15 FY14 FY13 FY12 Operating margin EBITDA margin

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Online development

A further year of significant progress

 Excellent headline performance – Turnover up 23.1% to £15.5m – EBITDA up 67.6% to £2.8m  New “responsive” website launched  Continuing to develop personalised gift range – Vertical integration of certain product lines  Improved marketing effectiveness and economies of scale  Still a relatively new entrant – further growth expected  Various further growth initiatives in hand – double digit revenue growth targeted – but growth unlikely to be at FY15 levels, particularly in H2

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New store roll out

51 net new openings

Like-for-like sales growth

+1.8% (FY14: +3.1%)

Online development

Getting Personal EBITDA up 67.6% to £2.8m

Business efficiencies

Further improved best-in-class EBITDA margins to 25.0%

Consistently strong cash generation and shareholder returns – confident of Group’s future prospects

Summary

Delivering on our four pillars of growth

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Questions

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FY15(H1) FY14(H1) YoY change FY15(H2) FY14(H2) YoY change Revenue £143.9m £132.5m +8.6% £193.9m £181.8m +6.6% EBITDA £29.4m £27.1m +8.6% £56.0m £51.6m +8.3% Margin 20.4% 20.4%

• 28.9%

28.4% +0.5ppts Revenue £5.5m £4.7m +16.4% £10.0m £7.9m +27.1% EBITDA £0.8m £0.4m +121.1% £2.0m £1.3m +52.7% Margin 14.4% 7.6% +6.8ppts 20.0% 16.6% +3.4ppts Revenue £149.4m £137.2m +8.9% £203.9m £189.7m +7.5% EBITDA £30.2m £27.5m +10.1% £58.0m £52.9m +9.4% Margin 20.2% 20.0% +0.2ppts 28.4% 27.9% +0.5ppts

Appendix

H1/H2 performance by brand

Note All figures shown on an underlying basis

Group