Source - RNS
RNS Number : 3449K
Card Factory PLC
10 April 2018
 

Card Factory plc ("Card Factory" or the "Group")

 

Preliminary results for the year ended 31 January 2018

 

Strong sales and robust returns to shareholders

 

Card Factory, the UK's leading specialist retailer of greeting cards, dressings and gifts, announces its preliminary results for the year ended 31 January 2018 ('FY18').

Summary

·      Strong sales performance in a tough consumer environment

·      Sustained competitive position in a resilient card market

·      FY18 profit impacted by cost headwinds

·      Strong cash generation and robust returns to shareholders

Financial highlights

Financial Metric

FY18

FY17

Change

Revenue

£422.1m

  £398.2m

+6.0%

Card Factory like-for-like sales*

   +2.9%

     +0.6%


Underlying EBITDA*

  £94.0m

    £98.5m

-4.6%

Underlying operating profit*

  £83.4m

    £87.8m

-5.1%

Operating profit

  £75.5m

    £85.7m

 -11.9%

Underlying profit before tax*

  £80.5m

    £85.1m

-5.5%

Profit before tax

  £72.6m

    £82.8m

 -12.3%

Underlying Basic EPS*

     18.9p

       19.8p

-4.4%

Basic EPS

     17.1p

       19.3p

 -11.3%

Ordinary Dividend Cover

     2.03x

       2.18x


Leverage*

1.72x 

       1.38x

 





 

·    Final dividend per share increased by 1.6% to 6.4p (FY17: 6.3p)

·    Total ordinary dividend per share increased by 2.2% to 9.3p (FY17: 9.1p)

·    Special dividend of 15p per share paid in December 2017 (FY17: 15p), a return of £51.2m to shareholders

·    A total of £268.4m (78.7p per share) returned to shareholders via dividends since IPO in May 2014 and a further return of surplus cash expected to be made towards the end of the FY19 financial year in the range of 5-10p per ordinary share

·    Year-end leverage of 1.72 times, within the target range of 1 to 2 times underlying EBITDA

 

 * See explanatory Note 2 "Alternative Performance Measures" for further information and definitions

 

 

Business highlights

Further progress on all four pillars of the Group's growth strategy:

 

1.  Like-for-like sales growth in existing stores

·    Strong growth in sales from both Card Factory stores and online

·    Further improvements in quality and range of both card and complementary non-card products, such as gift wrap and dressings, delivering further growth in volumes and average spend

·    Significant uplift in our complementary non-card sales with customers responding well to our offer

·    Demonstrating resilience against High Street footfall decline

·    Competitive quality and price position maintained

 

2.  Continuing new store roll out

·    50 net new stores opened in the period, bringing the total UK estate to 915, and six trial stores opened in the Republic of Ireland

·    Strong pipeline of new store opportunities for FY19

 

3.  Delivering business efficiencies

·    Industry-leading underlying EBITDA margins of 22.3% (FY17: 24.7%) impacted by cost headwinds

·    Significant programme of cost mitigation delivered through business efficiencies

·    Further business efficiencies identified for FY19, to provide partial mitigation of ongoing headwinds, including product sourcing, supply chain and stock handling

·    Foreign exchange and national living wage headwinds expected to ease in FY20

·    Further vertical integration opportunities being explored for delivery in FY20

 

4.  Development of complementary online sales channels

·    cardfactory.co.uk sales increased by 67% against strong prior year comparatives

·    gettingpersonal.co.uk sales growth was disappointing, but it remains a profitable contributor to the Group in a highly competitive gifting market

 

Karen Hubbard, Chief Executive Officer, commented:

"We delivered strong like-for-like sales growth in a tough trading environment.  We sold more cards than the prior year, and delivered a higher average card selling price and total basket size.  We also saw a record breaking number of customers shopping with Card Factory for both card and complementary non-card products, demonstrating our resilience against a backdrop of High Street footfall decline. Our store roll-out programme continues, with 50 new UK sites opened in the year, and our Card Factory online business has seen further growth, with increased visitors and sales, and represents a clear opportunity for future growth.

"From a profit perspective, we faced strong headwinds of £14.6m in the year, principally due to the combined impact of foreign exchange and national living wage. Our cost saving initiatives during the year provided substantial mitigation and we have laid the foundations for further efficiencies to be delivered in the future. However, given the continuing headwinds, and as previously stated, any EBITDA growth in FY19 is likely to be limited. 

"Our unique, vertically integrated business model remains strong and we have now established a solid platform for future growth, with our four pillar strategy continuing to support strong cash generation and a progressive dividend policy. We currently expect to declare another special dividend with our half year results in the range of 5-10p per ordinary share.

 

"Whilst the new financial year is just two months old, we are satisfied with the start we have made and particularly pleased with the record seasonal performances from Valentine's Day, Mother's Day and Easter, and being recognised by our peer group as Specialist Retailer of the Year at the recent Retail Week annual awards.

"I would like to thank our colleagues across all parts of the business who have helped deliver a strong performance in a challenging trading environment. They continue to work hard to give our customers a quality and value offering to help them celebrate their life moments."

Preliminary results presentation

A presentation for analysts will be held today starting at 9.30am at UBS Limited, 5 Broadgate, London EC2M 2QS. Those analysts who wish to attend are requested to contact Nessyah Hart of MHP on the number below or at [email protected]  A copy of the presentation will be made available on the Card Factory investor relations website (www.cardfactoryinvestors.com).

 

Enquiries

Card Factory plc                                              via MHP Communications (below)

Karen Hubbard, Chief Executive Officer

Kris Lee, Chief Financial Officer

 

MHP Communications                                                 +44 (0) 203 128 8100

Simon Hockridge / Giles Robinson / Nessyah Hart            [email protected]

Notes

 

1.   Background information

 

Card Factory focuses on the value and mid-market segments of the UK's large and resilient greeting cards market, in addition to offering customers a range of complementary products associated with card giving occasions. 

 

Card Factory's mission is to help customers celebrate their life moments by providing a range of quality cards, wrap, dressings, party and gifting products at value prices.  The Group principally operates through its nationwide chain of over 900 Card Factory stores, as well as through its transactional web sites: www.cardfactory.co.uk and www.gettingpersonal.co.uk.

 

Card Factory commenced operations in 1997 with just one store and has expanded its store estate primarily through organic growth into a market-leading value retailer with a nationwide presence.

 

The Group's stores are in a wide range of locations including on high streets in small towns through to major cities,

shopping centre developments, out-of-town retail parks and factory outlet centres.

 

Since 2005, Card Factory has developed a vertically integrated business model with an in-house design team, an in-house printing facility and central warehousing capacity of over 360,000 sq. ft. This model differentiates the Group from its competitors by significantly reducing costs and adding value to customers in terms of both price and quality.

 

2.   Alternative Performance Measures ("APMs")

 

This announcement contains the following APMs:

·      "EBITDA" is defined in note 4 of the attached preliminary results;

·      "Leverage" is calculated as the ratio of net debt to underlying EBITDA for the previous 12 months;

·      "Underlying" profit figures exclude costs principally relating to mark-to-market movements on derivatives not designated as a hedging relationship (see note 1 to the attached preliminary results). The non-underlying loss in the year principally relates to future foreign exchange transactions that cannot be hedge accounted; and

·      "Like-for-like" sales is defined below.

 

The Group defines Card Factory store Iike-for-Iike ("LFL") sales as the year-on-year growth in sales for Card Factory stores which have been opened for a full year, calculated on a calendar week basis.  The reported LFL sales figure excludes sales:

·      made via the Card Factory website, www.cardfactory.co.uk;

·      made via the separately branded personalised card and gift website, www.gettingpersonal.co.uk;

·      by Printcraft, the Group's printing division, to external third-party customers; and

·      from stores closed for all or part of the relevant period (or the prior year comparable period).

 

Card Factory stores are included in the reported LFL figures for each week of trading completed after having been open for a full 52 weeks, as compared to the same relevant week in the previous period.

 

Total Card Factory LFLs include the impact of the Card Factory website.

 

The Group defines Getting Personal LFL sales as the year-on-year growth in sales for the Getting Personal website, calculated on a calendar week basis.

 

3.   Cautionary Statement

 

This announcement 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 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.

Card Factory plc ("Card Factory" or the "Group")

Preliminary results for the year ended 31 January 2018

 

CHAIRMAN'S STATEMENT

Card Factory performed well in FY18 with strong like-for-like sales growth, whilst profits were impacted by the prevailing headwinds from foreign exchange and national living wage.

Whilst this year marks the fourth anniversary of our IPO, it is also the 20th anniversary of the company's formation.  Having started life as a local family owned discounter, the Group has developed into a market leading, high margin, national, value retailer with over 900 stores and two transactional websites.  In the year we also opened our first stores in the Republic of Ireland.  During the last 20 years the Group has demonstrated an ability to grow sales and profit, notwithstanding recent cost headwinds, increase market share and generate significant returns for shareholders.  The Board's objective is to continue to build on this strong track record in the years ahead.

The Group remains focused on its successful four pillar growth strategy, underpinned by its unique vertically integrated model which provides significant competitive advantage, particularly in challenging retail environments, as seen in 2017.  In her report that accompanies these results our Chief Executive Officer, Karen Hubbard, provides an update on the Group's current strategic priorities.  The Board is excited by the opportunities, both strategic and operational, that Karen is exploring to further improve an already very successful business.

In April 2017 we announced the appointment of our new Chief Financial Officer, Kris Lee, following the retirement of Darren Bryant.  With Kris' extensive experience in senior financial and commercial roles in the retail sector, his energy, drive and entrepreneurial mindset fits well with the Card Factory culture and will be invaluable to the Group as we move forward with our growth strategy.

The Board has increased the total ordinary dividend for the year by 2.2% to 9.3p per share, reflecting our strong cash generation and confidence in the future prospects of the business.  This is in addition to the 15.0p per share special dividend paid in December 2017.  In line with our stated capital policy, we currently expect to make a further return of surplus cash to shareholders towards the end of the current financial year, and further information is included in our CFO's review.

Geoff Cooper

Chairman

  

CHIEF EXECUTIVE OFFICER'S REVIEW

Overview

I am pleased to report that Card Factory performed well in FY18 despite the difficult UK retail backdrop, with strong like-for-like sales growth and our highest ever sales day in Card Factory's history during the Christmas trading period. This was delivered in part through recent operational enhancements, particularly the introduction of EPOS and contactless payment, which are now installed throughout all stores in our estate, enabling us to serve a greater number of customers during peak trading periods. It is notable that this was the 20th consecutive year of like-for-like sales growth for the business. 

Our business model, with its integrated supply chain, allows us to provide an unrivalled offer to our customers. In particular, we have the widest range of high quality cards, with innovative designs and styles, all available at compelling prices.  Together, it means that our customers can always find good value quality cards to say exactly what they wish to say at a price that is affordable for them. 

Throughout the year we continued to provide a compelling offer to our customers with extensive ranges and  designs across our cards, party products, dressings and gifts, both in-store and online.  Our ranges continue to resonate well with our customers who recognise the quality and value that we offer, seeing Card Factory as their retailer of choice for celebrating their life moments. Once again our independent research shows that, despite increased competition for card sales, we are the UK's preferred card retailer with 64% of the nation's 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.

Since the year-end, we have been recognised by our retail industry peers for our specialist position in the market having been awarded Retail Week's 'Best Specialty Retailer' at their 2018 awards.

We have also strengthened and further innovated our offering, adding product line extensions in both card and complementary non-card and new successful seasonal ranges, as well as including the introduction of gift cards which has been made possible by the roll out of EPOS across our estate.  Our product line extensions have also provided our customers with further choice for those extra special occasions such as engagements and weddings.

The completion of the EPOS rollout in October 2017 has enabled us to analyse category performance more accurately and to review the efficiency of our stock replenishment processes.  Whilst still in its infancy, we expect to deliver real benefits from the improved information available to us to ensure we can fulfil our customers' needs more efficiently than ever before, tailoring the ranges and space in stores to maximise sales performance.

Whilst margins were impacted by the prevailing foreign exchange and national living wage headwinds already identified and by the margin mix impact as a result of the strong performance of complementary non-card products, we continue to deliver best in class EBITDA margins and have developed a robust programme of business efficiencies to ensure we maintain these.

I remain confident that our existing, proven four pillar strategy is the right one to ensure future business growth.

Market update

The latest independent research, produced by OC&C in March 2018, has confirmed that a number of important and established market trends that were highlighted at the time of our IPO in 2014 remain as valid today:

·    the market for single greeting cards is well established, robust and resilient; it continues to show modest growth in value terms, despite a slight decline in volume as expected, with initial indications showing an increase in the number of cards purchased by 18-34 year olds. Whilst this will need to be monitored over a longer time period, it is an encouraging trend for the ongoing sustainability of the market;

·    the sending of physical greeting cards is deeply ingrained in UK culture with high levels of emotional attachment and research shows that this remains stable;

·    there continues to be no meaningful shift to digital greeting cards, with fewer customers than ever suggesting that they are replacing a physical card with a digital greeting;

·    there has been significant growth in other seasonal events such as Valentine's Day and Thank You Teacher;

·    the online personalised and non-personalised card segment remains an attractive niche for Card Factory where we have made good progress and delivered growth, albeit this still represents a relatively small proportion of the market; and

·    Card Factory has maintained significant clear blue water versus its competitors in terms of the consumer's perception of value; and consumer ratings demonstrate that our value for money, low price, quality, design and style of cards all exceed that of Supermarkets and Discounters.

Card Factory has, for the third year in a row, won the 'Value for Money' OC&C retail award, with a further improved rating.  

Strategic performance

We continue to make good progress against our four established strategic pillars:

1.   Like-for-like ("LFL") sales growth

Card Factory stores delivered strong like-for-like growth in the year of +2.6% (FY17: +0.4%) notwithstanding lower levels of footfall experienced across the general retail market.  Including cardfactory.co.uk, LFL sales growth from the Card Factory fascia was +2.9% (FY17: +0.6%).

Looking forward, we intend to maximise LFL growth through: (i) ensuring we leverage our Design Studio to continue to innovate across both our card ranges and complementary non-card ranges; and (ii) focusing on retail disciplines, with improved availability, better space and merchandising planning and a greater focus on customer service, operational standards and the removal of tasks from store colleagues to enable them to focus on helping our customers.

In card, we continued to focus on introducing new styles and designs, whilst preserving our value offer. Customers can still buy high quality cards at prices that are up to two-thirds lower than that charged for similar products by our principal competitors. Our focus remains on maintaining the gaps in both price and quality compared to the competition.

As we enter and celebrate our 21st year as a leading specialist greeting card retailer, we maintain our long standing 29p and 59p entry price points for cards, which enable us to help our customers celebrate their life moments with a card that offers both quality and value. In addition, we have increased the range of cards for those occasions when customers choose to spend more, offering choice, quality and value at significantly lower prices than other card specialists, with further ranges being launched in FY19.

In complementary non-card, our design and buying teams developed a number of new ranges with a more premium offering for customers who are looking for an extra special card, a broader selection of wedding gifts, innovation in gift bags and boxes and new candle designs.  This design and innovation has been recognised and well received by our customers and is reflected in Card Factory's transaction volumes outperforming the footfall declines seen on the High Street.  For the year as a whole, the proportion of sales from complementary non-card items increased to 44.0% (FY17: 42.3%).  Our complementary non-card ranges continue to perform strongly as incremental purchases to our card ranges, seeing a further increase in our average basket value. 

Complementary non-card performance has been driven by:

·      continuous development of our non-card offering with new ranges in dressings, wrap and gifting associated with card giving;

·      improved sell through of aged stock to make way for new lines; and

·      the introduction of new product lines including gift cards and stamps, which have enabled us to provide additional services to our customers in-store.

We continue to make good progress with our Card Factory website, cardfactory.co.uk, having performed strongly during the year with strong online key performance indicators. We remain confident that further progress within the online market is possible with selective further tactical investment.

2.   New store roll out

Our internal property team has yet again enabled us to achieve our target net new store openings for this year and operate new stores efficiently and in a cost effective manner.  We continue to be successful in identifying new locations, whilst exploring opportunities for co-locations, relocations and openings within new retail parks.

We opened 50 net new UK stores in FY18 across a variety of retail locations including high streets, shopping centres and retail parks, providing the opportunity for more customers to experience the proposition in new locations.  In total we had 915 UK stores at the end of the financial year (31 January 2017: 865), with a further six trial stores opened in the Republic of Ireland.  The quality of our estate remains very strong: of our stores open for over one year, only c1% were loss making.

Looking forward, we have a strong pipeline of potential new stores, including a number of opportunities in retail parks, a segment of the market where we are seeking to increase our presence; however there will continue to be a blended mix of different retail locations. We expect to add a further 50 net new stores to our estate in the current financial year, with good progress made to date.

We continue to monitor developments across our competitors and the broader retail space to ensure that we are well positioned to take advantage of property opportunities that may materialise.

As at the year-end we had opened six trial stores in the Republic of Ireland around the Dublin area.  Whilst this is still being trialled, we are looking to assess the store locations and store types identified to provide an indication of the potential size of the opportunity.

Across both geographies, we continue to target a cost-effective estate of 1,200 stores, capable of driving strong returns whilst maintaining the quality inherent in the Card Factory brand.

3.   Business efficiencies

The Group has consistently delivered one of the best operating profit margins in the retail sector. In order to continue achieving this, whilst offering our customers value, we have to maintain the most efficient and lowest cost base. 

As identified in last year's preliminary and at this year's interim results announcements, we anticipated some significant cost pressures in the year, in particular foreign exchange and national living wage costs.  To mitigate these we have introduced a range of cost efficiency programmes and believe further opportunities to mitigate costs exist with improved data intelligence from our recent implementation of EPOS. There is also further potential to enhance our competitive advantage by virtue of our vertically integrated model and the resulting superior operating margins.  We will remain conscious of our customers' trust in our value proposition, ensuring that we are delivering the right offer to retain and grow our market share.  

Our business efficiency programmes also focus on more efficient product sourcing, further vertical integration, more efficient supply chain management and improved store productivity through the removal of task.  Furthermore, our Loss Prevention team, who are now well established in the business, have continued to reduce the level of loss, through cash and stock theft, within the business.

Looking ahead, I see further business efficiency opportunities including:

·      lowering the cost of sales through better buying;

·      driving lean fulfilment in stores through supply chain efficiencies;

·      improving operational productivity;

·      the removal of tasks from stores by simplifying how we operate; and 

·      continuing to target net rent savings across the property portfolio at the next available break clause or lease renewal.

4.   Online development

We have two transactional websites - cardfactory.co.uk and gettingpersonal.co.uk.

The cardfactory.co.uk offer has continued to mature over the last year. The new team delivered sales growth of 67% (FY17: c50%), through four key areas - product design, range growth, improving the customer experience and growing our customer base.

 

Both new and existing customers have responded well to new designs in personalised cards and an increased range of products available during key seasonal events. We now offer a larger and balanced range of cards, gifts, wrap and party products across all seasonal and everyday occasions. We were especially pleased with our launches of new propositions and we see continued growth in product innovation.  Our recent customer review for product quality and value was measured at 4.5/5.

 

We have been making it easier for our customers too, improving our same day dispatch for all cards to 6pm (previously 2pm) and the website experience, catering for the various shipping methods and devices that our customers are using. The improvement in experience, both in terms of website usability and shipping, has been recognised by our customers, with customer reviews again in excess of 4.5/5.

 

As outlined, we have strong growth aspirations for the Card Factory online business and will continue to develop this to offer a multi-channel offer for card and associated gifts for customers.

 

We continue to target further growth for gettingpersonal.co.uk, which is focused on personalised gifts. Whilst this remains a relatively small part of the Group in terms of both sales and profit contribution, its financial performance in the year was disappointing with sales increasing by 0.5%.  Given lower conversion rates and a mixed third party marketing performance, which is being addressed, the EBITDA performance of £2.9m (FY17: £2.8m) was below our expectations, having had a relatively poor year previously. The market has seen some deep discounting this year and especially over the Christmas trading period, when we made the decision to only follow profitable sales to maintain our margins.

 

Looking ahead, the key focus across both online channels will be implementing a new and better digital marketing approach; improving the experience on our websites; and further innovating our personalised and non-personalised product ranges.

Other strategic priorities

Alongside a continued focus on the four strategic pillars, my strategic review identified opportunities to further strengthen our business for all stakeholders, and to enhance future shareholder returns, with a focus on three areas - further targeted investment, greater engagement with colleagues, and listening even more to our customers.

Ongoing investment to drive shareholder value

We have continued to invest in our infrastructure to support the long term strategy of the business where we can see opportunity for the business to grow sales further, improve product margins or be more cost efficient.  We have successfully rolled out EPOS and contactless payment across all of our stores, improving the speed of service and customer experience. EPOS has also supported the sale, since October 2017, of third party gift cards which have proved popular with customers and are complementary to our other ranges. 

By the end of FY19, all stores will be on the same EPOS platform, PCMS, and we are now looking at how best to use this data to make more informed commercial decisions.  Furthermore, in FY19 we are implementing a low cost data warehouse to support more detailed analysis of product performance and stock management. 

We continue to evaluate investment which can improve store productivity and generate supply chain efficiencies, including an element of automation in stock replenishment.  Further development in our vertically integrated model remains an important part of our investment strategy and will support more in-house production, margin retention and greater control over our supply chain.   

As identified in our last Annual Report, we have invested in our online businesses, marketing team and various support centre functions to ensure that we have the right infrastructure, talent and capacity to drive strategic priorities and growth and the initial benefits of this are being seen in the online sales performance and the improved in-store navigation which we have been able to deliver with the new digital marketing team.

The Board will continue to assess further incremental investment across the Group on a case by case basis, taking into account the scale, likelihood and timing of anticipated returns.  This ongoing, controlled investment will ensure that we continue to deliver on the four pillar strategy and provide strong returns to our shareholders over the medium term.

Retail Colleagues and Performance Culture

In the year we invested in developing our organisational capability, with the introduction of leadership and management development programmes and the nationwide expansion of our 'Retail ACardemy'. We have also reviewed how best we can use the Apprenticeship Levy to support the development of our support centre and retail colleagues.  We are also in the process of reviewing our current HR systems in terms of how effectively they support our productivity and efficiency initiatives.

Our aim is to create a performance culture with focussed objectives that not only support the delivery of our strategy but develop our colleagues and provide a pipeline of future leaders from within the business.  Greater employee engagement will help us reduce our store colleague turnover and vacancy rates, whilst growing our brand recognition and making us an employer of choice with prospective colleagues.  Achieving these development ambitions will ensure that our all of our teams remain trained and motivated to continue to deliver quality and value to our customers and the best possible service and experience in-store.

Customer Engagement and Experience

All of our executive management team and many of our support centre colleagues worked within our stores serving customers in the busiest week during the Christmas trading period.  This not only supported our store colleagues but also helped us to develop our understanding of what our customers want and where we have an opportunity to improve our offer in a way that will resonate with our customers and improve our average basket value.  We remain known for leading the way in providing great quality and value for our customers and staying close to them in this way ensures we listen and respond to their changing needs. 

As part of this commitment, we have evolved our product offering to provide a broader choice for extra special occasions, such as engagements and weddings, by introducing our "Exquisite" card range. This is helping us to capture new customers, whilst also appealing to existing ones and all whilst maintaining our entry level prices.  We are already working hard on new ranges for the new financial year where we now see further opportunity in enhancing the perception of not just the value, but also the quality of our offering in both card and complementary non-card products. We are also taking further steps to tailor the product offering for individual stores.

As well as range improvements, we have also improved navigational signage, making our stores easier to shop. The speed of service in-store has also improved with the roll out of EPOS and contactless payment in all of our stores; however we recognise that at key trading times there is more we can do to improve the service we deliver to our customers. In support of this, we are evaluating how we can make things simpler for our store colleagues by removing tasks from stores, giving them more time to provide great customer service.

Summary & Outlook

The greetings card market remains resilient and robust and I am confident in our ability to continue to grow our market leading position.  We continue to innovate and create new and unique product ranges designed within Card Factory that keep to our promise to provide quality and value for our customers.  We will continue to increase the proportion of both our complementary non-card products and online sales as we further improve our offering in these areas, whilst maintaining focus on card redesigns within our Studio. 

This year, our specific focus will be on improving our store productivity and supply chain efficiency, whilst further exploring vertical integration opportunities to continue improving our competitive advantage. This focus will ensure that we can mitigate a high proportion of the external pressures faced across the UK retail sector to maintain our margins, however, as previously stated, any underlying EBITDA growth for the current year is likely to be limited.

We have a strong brand and recognition as a market leader.  Our talented teams across the business continue to deliver for our customers in-store and online and we have invested in our teams to ensure we have the capacity and capability to deliver our strategy.

Whilst the new financial year is just two months old, we are satisfied with the start we have made and particularly pleased with the record seasonal performances from Valentine's Day, Mother's Day and Easter, and being recognised by our peer group as Specialist Retailer of the Year at the recent Retail Week annual awards. I look forward to providing a further trading update at our AGM in May. 

The Board, having considered, inter alia, the current debt position of the Company and trading and investment expectations for the year ahead, currently expects to declare a special dividend at the time of the Company's interim results in the range of 5-10p per ordinary share. Any such dividend will be paid together with the interim dividend for the year and will be dependent on trading and other developments in the period from now until the time of the interim results. 

 

Karen Hubbard

Chief Executive Officer

10 April 2018

 

 

CHIEF FINANCIAL OFFICER'S REVIEW

 

The "FY18" accounting period refers to the year ended 31 January 2018 and the comparative period "FY17" refers to the year ended 31 January 2017.

Revenue

Total group revenue during the year grew by 6.0% to £422.1m (FY17: £398.2m), driven by growth in the Card Factory store network:


 FY18

£'m

 FY17

£'m


Increase/

(Decrease)

Card Factory

404.3

380.5


+6.3%

Getting Personal

17.8

17.7


+0.5%

Group

422.1

398.2


+6.0%

 

The Group's established new store roll out programme continues to be an important driver of sales growth for the business.  In the year under review, 50 net new UK stores were opened (FY17: 51), bringing the total UK estate to 915 stores, with a further six trial stores opened in the Republic of Ireland at the year-end.

 

Like-for-like ("LFL") sales growth was broken down as follows by retail channels:


 FY18

 FY17

Card Factory stores

+2.6%

+0.4%

Card Factory online

+67.5%

+49.4%

Card Factory combined

+2.9%

+0.6%




Getting Personal

0.3%

-2.4%




Total online combined

+5.9%

+0.5%

 

As expected, the ongoing improvements to the depth, quality and merchandising of our complementary non-card product offering led to a continuation of the mix shift to this category, a trend we have seen for a number of years.  The full year mix for FY18 was 53.7% single cards (FY17: 55.3%), 44.0% complementary non-card (FY17: 42.3%) and 2.3% Christmas Box Cards (FY17: 2.4%).  We expect some continuation in this trend as we further improve our complementary non-card offering to drive incremental sales.

Revenue from the Card Factory transactional website grew by 67% (FY17: 50%).

As previously announced, the FY18 performance at Getting Personal was disappointing, with the sector impacted by heavy discounting and promotional activity.  We continue to target revenue growth at Getting Personal in the year ahead, but recognise the ongoing pressures in its market. Further details are included in the CEO report.

 

Cost of sales and operating expenses

 

Cost of sales and operating expenses can be analysed as follows (excluding non-underlying items detailed below):

 


FY18


FY17


Increase/

(Decrease)


£'m

% of revenue


£'m

% of revenue



Cost of goods sold

138.0

32.7%


119.7

30.1%


15.4%

Store wages

74.9

17.7%


68.9

17.3%


8.7%

Store property costs

65.5

15.5%


64.8

16.3%


1.1%

Other direct expenses

18.6

4.4%


18.2

4.5%


2.1%

Cost of sales

297.0

70.3%


271.6

68.2%


9.4%









Operating expenses*

31.1

7.4%


28.1

7.1%


10.8%









            *excluding depreciation and amortisation

The overall ratio of cost of sales to revenue has increased to 70.3% on an underlying basis (FY17: 68.2%) with the following movements in sub-categories:

·     Cost of goods sold: principally comprises cost of raw materials, production costs, finished goods purchased from third party suppliers, import duty, freight costs, carriage costs and warehouse wages.  The increase in this cost ratio, as also seen in the first half of the year, principally reflects the impact of foreign exchange headwinds and an element of margin impact from the strong performance of our complementary non-card range, partly offset by business efficiencies. The effective exchange rate for FY18 was c$1.38 compared to c$1.64 for FY17. The rate for FY19 is anticipated to be c$1.34, though this remains subject to any significant shift in Sterling impacting the structured trades that form part of the hedging portfolio. The additional foreign exchange headwinds for FY19 is expected to be significantly mitigated by further business efficiency initiatives. Foreign exchange headwinds are then expected to ease for FY20 with a substantial proportion of hedging in place at slightly favourable rates compared to FY19.

 

·     Store wages: includes wages and salaries (including bonuses) for store based staff, together with national insurance, pension contributions, overtime, holiday and sick pay.  As reported with the interim results, this cost has increased as expected as new stores have been opened and pay increases have been awarded, including the impact of the national living wage.

 

·     Store property costs: consists principally of store rents (net of rental incentives), business rates and service charges.  As reported at the interim stage, this cost has increased in absolute terms as new stores have been opened but as a ratio of revenue has reduced due to rent reductions achieved on lease renewals and the benefit of rates reassessments following the business rates review. We continue to target improvements in our overall rent roll as we reach break points or expiries on existing leases and expect further rates savings of c£0.6m in FY19.

 

·     Other direct expenses: includes store opening costs, store utility costs, waste disposal, store maintenance, point of sale costs and marketing costs.  This cost category is largely variable in respect of existing stores and increases with new store openings.  The ratio of other direct expenses to revenue has decreased slightly from 4.5% to 4.4% reflecting on-going business efficiency initiatives. The Board anticipate some additional cost pressures for FY19 arising from higher electricity prices and transaction costs from an increasing proportion of debit/credit card payments.

 

·     Operating expenses (excluding depreciation and amortisation) include items such as support centre remuneration, costs relating to regional and area managers, design studio costs and insurance together with other central overheads and administration costs.  The Group has continued to invest in central infrastructure and people in recent years to support the planned growth and operational improvements; whilst this investment in infrastructure is largely complete there will be an element of cost annualisation in FY19. Total operating expenses (excluding depreciation and amortisation) increased by 10.8% to £31.1m (FY17: £28.1m) representing an increase from 7.1% to 7.4% as a percentage of revenue.

 

·     Within the year we resolved a historic national minimum wage position with HMRC. A payment of c£1m was agreed, for which provision had already been made, and therefore had no impact on the FY18 EBITDA result. 

 

Depreciation and amortisation remained broadly in line with prior year at £10.6m (FY17: £10.7m).

Foreign exchange

With approximately half of the Group's annual cost of goods sold expense relating to products sourced in US Dollars, the Group takes a prudent but flexible approach to hedging the risk of exchange rate fluctuations.  The Board adopts the policy of using a combination of vanilla forwards and structured options to hedge this exposure.  The Group has used structured options and similar instruments to good effect for a number of years.  The Board continues to view such instruments, structured appropriately, to be commercially attractive as part of a balanced portfolio approach to exchange rate management, even if from a technical accounting perspective, they may not be deemed to meet the IFRS hedge effectiveness test. 

At the date of this announcement, cover is in place for 100% of the anticipated FY19 US Dollar cash requirement with approximately two-thirds covered by vanilla forwards and the balance under structured options. The effective P&L rate for FY19 is anticipated to be c$1.34 (FY18: c$1.38), though this remains subject to any significant shift in Sterling impacting the structured trades that form part of the hedging portfolio. Cover is in place for approximately two thirds of the anticipated FY20 US Dollar requirement at an average rate of $1.37, predominantly through vanilla forwards with a lower proportion of structured options.

Underlying EBITDA

The underlying EBITDA margin of the Group decreased to 22.3% (FY17: 24.7%) reflecting the cost headwinds and strong performance of complementary non-card ranges. We faced £14.6m of cost headwinds, of which we were able to offset £8.6m through various business efficiency initiatives:


 FY18

£'m

 FY17

£'m


Increase/

(Decrease)

 

Underlying EBITDA





Card Factory

91.1

95.7


-4.8%

Getting Personal

2.9

2.8


+3.6%

Group

94.0

98.5


-4.6%






Underlying EBITDA margin





Card Factory

 22.5%

25.2%


-2.7ppts

Getting Personal

16.4%

16.0%


+0.4ppts

Group

22.3%

24.7%


-2.4ppts

 

The Group's underlying operating margin similarly decreased to 19.7% (FY17: 22.1%). 

Looking forward to FY19, our sector continues to face well-publicised cost headwinds, in particular foreign exchange and national living wage.  Accordingly, a number of further business efficiency initiatives are underway.

Given the best-in-class margins generated by our unique vertically integrated model, compared to our principal competitors we believe that we are strategically very well placed to manage this cost pressure over the medium term with the headwinds reducing in FY19 and reducing further in FY20, assuming a steady state of currency.  The Board is prepared, if necessary, to invest a small element of our margins over the short term to ensure our longer term competitive positioning is further strengthened, particularly through the vertically integrated supply chain. Alongside the operational investment, which will annualise in FY19, we are also continuing to invest across the Group, including further improvement of our customer proposition and ongoing investment in our digital and IT capabilities and infrastructure in order to enable the delivery of long-term sustainable growth. 

For FY19, based on our revenue targets and subject to any significant product mix shift or significant exchange rate fluctuations, we anticipate that post mitigation our margins will be in the region of 120bps below the levels achieved in FY18.

Net financing expense

Net financing expense, excluding non-underlying items, increased by 6.9% to £2.9m (FY17: £2.7m).

Profit before tax

Underlying profit before tax for the financial year amounted to £80.5m (FY17: £85.1m), a decrease of 5.5%.

The table below reconciles underlying profit before tax to the statutory profit before tax for both financial years:

 



FY18

£'m

FY17

£'m

Underlying profit before tax


80.5

85.1

Non-underlying items:




Cost of sales





Loss on foreign currency derivative financial instruments not designated as a hedge

(7.6)

(0.6)





Operating expenses





Loss on disposal of redundant EPOS assets

-

(0.9)


Accelerated depreciation on EPOS assets

-

(0.2)


Other non-underlying operating expenses

(0.3)

(0.4)



(0.3)

(1.5)

Net finance expense





Loss on interest rate derivative financial instruments not designated as a hedge

-

(0.2)





Statutory profit before tax


72.6

82.8

 

Further detail on the non-underlying reconciling items is set out in Note 1 of the attached preliminary results.

Tax

The tax charge for the year was 19.7% of profit before tax reflecting the reduction in the corporation tax rate to 19.0% in April 2017 (FY17: 20.7%).

Earnings per share

Basic and diluted underlying earnings per share for the year were 18.9p (FY17: 19.8p), a decrease of 4.4%.  After the non-underlying items described above, basic and diluted underlying earnings per share for the year were 17.1p (FY17: 19.3p), a decrease of 11.3%.

Capital expenditure

Capital expenditure in the year amounted to £13.1m (FY17: £10.4m), including strategic investments of £5.6m principally in relation to EPOS and LED lighting conversions.

The FY18 total was lower than the c£15m guidance principally due to the phasing of capex in relation to our vertically integrated supply chain. The Board anticipates capital expenditure for FY19 to be c£14m, including the migration of the balance of the store estate onto the PCMS EPOS platform and further investment in our vertically integrated supply chain.

Strong financial position

The Group remains highly cash generative, driven by its strong operating margins, limited working capital absorption and the relatively low capital expenditure requirements of its expansion programme.

Cash conversion, calculated as underlying EBITDA less capex and underlying working capital movements divided by underlying EBITDA, decreased slightly to 85.3% (FY17: 90.4%).  This decrease reflects slightly higher capex due to the investment in EPOS with a smaller element due to favourable working capital movements last year.

As at 31 January 2018, net debt (excluding debt issue costs of £0.4m) amounted to £161.3m, analysed as follows:


FY18

£'m

FY17

£'m

Borrowings



Current liabilities

14.9

8.8

Non-current liabilities

149.6

129.3

Total borrowings

164.5

138.1

Add: debt costs capitalised

0.4

0.7

Gross debt

164.9

138.8

Less cash

(3.6)

(3.0)

Net debt

161.3

135.8

 

Net debt at the year-end represented 1.72 times underlying EBITDA (FY17: 1.38 times), reflecting the impact of the cost headwinds and payment of the special dividend.

Dividends and capital structure

 

Ordinary dividends

 

Since IPO, the Board has adopted a progressive ordinary dividend policy for the Company, reflecting its strong earnings potential and cash flow characteristics, while allowing it to retain sufficient capital to fund ongoing operating requirements and to invest in the Company's long-term growth.

 

It is the Board's intention, subject to, inter alia, available distributable profits, to pay annual ordinary dividends based on a targeted ordinary dividend cover of between 1.5 and 2.5 times (previously 2.0-3.0x) the Company's underlying consolidated post-tax profit.  Over the short to medium term we expect to be at around the middle of the cover range.

 

Reflecting the Board's ongoing confidence in the Company's prospects, the Board is recommending to shareholders a final dividend of 6.4p per ordinary share, to give a total ordinary dividend for the year of 9.3p per ordinary share.  Total dividends for FY17 and FY18 can be summarised as follows:

 

Interim dividend

 2.9p 

2.8p

Final dividend

 6.4p 

 6.3p 

Total ordinary dividend

9.3p

 9.1p 

Ordinary dividend cover

 2.0x 

2.2x




Special dividend

15.0p 

15.0p 




Total dividend

 24.3p 

 24.1p 

 

Capital structure and additional shareholder returns

 

As stated at the time of the IPO, the Board is focused on maintaining a capital structure that is conservative yet efficient in terms of providing long term returns to shareholders. The Board has considered further the capital structure of the Group and continues to recognise the benefits of financial leverage, whilst also wanting to ensure that the Company has sufficient flexibility to invest in the growth of the business.  The Board also notes the underlying leverage of the Group given its lease portfolio, although the Board believes that the Company's average break period for its portfolio is shorter than its peers.

 

Over the medium term, the Board expects to maintain leverage broadly in the range of 1.0 to 2.0 times net debt to underlying EBITDA (excluding the impact of IFRS 16). It should be noted that net debt at the half and full year period ends is lower than intra year peaks, reflecting usual trading patterns and working capital movements. 

 

In line with this, over the short to medium term the Board currently expects to target year-end net debt/underlying EBITDA of approximately 1.7 times (excluding the impact of IFRS 16).  Reflecting the highly cash generative nature of the business, absent any material investments, the Board expects to generate surplus cash which it will return to shareholders; currently the Board expects to return surplus cash on an annual basis.

 

Special dividend

In line with the above, the Board has considered, inter alia, the current debt position of the Company and trading and investment expectations for the year ahead.  Taking these into account, the Board currently expects to declare a special dividend at the time of the Company's interim results in the range of 5-10p per ordinary share, with such dividend being paid together with the interim dividend for the year.  Any such dividend will be dependent on trading and other developments in the period from now until the time of the interim results. 

 

Including the impact of this special dividend, the Board currently expects year-end net debt/underlying EBITDA in the current financial year to be at around 1.7 times, in line with the above stated target.

 

 

Kris Lee

Chief Financial Officer

10 April 2018

 

 

Consolidated income statement

For the year ended 31 January 2018

 




2018




2017




Underlying

Non-underlying (note 1)

Total


Underlying

Non-underlying (note 1)

Total


Note

£'m

£'m

£'m


£'m

£'m

£'m










Revenue


422.1

-

422.1


398.2

-

398.2

Cost of sales


(297.0)

(7.6)

(304.6)


(271.6)

(0.6)

(272.2)

Gross profit/(loss)


125.1

(7.6)

117.5


126.6

(0.6)

126.0










Operating expenses


(41.7)

(0.3)

(42.0)


(38.8)

(1.5)

(40.3)

Operating profit/(loss)

3

83.4

(7.9)

75.5


87.8

(2.1)

85.7










Finance income

6

0.1

-

0.1


0.1

-

0.1

Finance expense

6

(3.0)

-

(3.0)


(2.8)

(0.2)

(3.0)

Net finance expense


(2.9)

-

(2.9)


(2.7)

(0.2)

(2.9)



             

             

             


             

             

             

Profit/(loss) before tax


80.5

(7.9)

72.6


85.1

(2.3)

82.8










Taxation

7

(15.8)

1.5

(14.3)


(17.6)

0.5

(17.1)










Profit/(loss) for the year


64.7

(6.4)

58.3


67.5

(1.8)

65.7










Earnings per share


pence


pence


pence


pence

 - Basic and diluted

9

18.9


17.1


19.8


19.3


All activities relate to continuing operations.

Consolidated statement of comprehensive income

For the year ended 31 January 2018

 


2018


2017


£'m


£'m





Profit for the year

58.3


65.7

Items that are or may be recycled subsequently into profit or loss:




Effective portion of changes in fair value of cash flow hedges

(7.2)


3.8

Net change in fair value of cash flow hedges recycled to profit or loss

(1.5)


(5.1)

Tax relating to components of other comprehensive income

1.7


0.2

Other comprehensive expense for the period, net of income tax 

(7.0)


(1.1)


             


             

Total comprehensive income for the period attributable to equity shareholders of the parent

51.3


64.6

 

 

Consolidated statement of financial position             

As at 31 January 2018

 


Note

2018


2017

 



£'m


£'m

 

Non-current assets





 

Intangible assets


331.6


330.2

 

Property, plant and equipment


40.0


39.1

 

Deferred tax assets


1.9


0.6

 

Other receivables


0.8


0.8

 

Derivative financial instruments


0.2


0.6

 



374.5


371.3

 

Current assets





 

Inventories


51.5


51.4

 

Trade and other receivables


16.6


16.6

 

Derivative financial instruments


0.3


3.5

 

Cash and cash equivalents

11

3.6


3.0

 



72.0


74.5

 



             



 

Total assets


446.5


445.8

 






 

Current liabilities





 

Borrowings

12

(14.9)


(8.8)

 

Trade and other payables


(37.7)


(37.4)

 

Tax payable


(5.5)


(8.7)

 

Derivative financial instruments


(7.0)


(0.7)

 



(65.1)


(55.6)

 

Non-current liabilities





 

Borrowings

12

(149.6)


(129.3)

 

Trade and other payables


(10.0)


(11.2)

 

Derivative financial instruments


(3.4)


(0.2)

 



(163.0)


(140.7)

 






 

Total liabilities


(228.1)


(196.3)

 



             



 

Net assets


218.4


249.5

 






 

Equity





 

Share capital


3.4


3.4

 

Share premium


202.2


201.9

 

Hedging reserve


(5.0)


2.0

 

Reverse acquisition reserve


(0.5)


(0.5)

 

Merger reserve


2.7


2.7

 

Retained earnings


15.6


40.0

 

Equity attributable to equity holders of the parent


218.4


249.5

Consolidated statement of changes in equity           

For the year ended 31 January 2018

 


Share capital

Share premium

Hedging reserve

Reverse acquisition reserve

Merger reserve

Retained earnings

Total equity


£'m

£'m

£'m

£'m

£'m

£'m

£'m









At 1 February 2016

3.4

201.6

3.1

(0.5)

2.7

55.4

265.7









Total comprehensive income for the period








Profit or loss

-

-

-

-

-

65.7

65.7

Other comprehensive expense

-

-

(1.1)

-

-

-

(1.1)


-

-

(1.1)

-

-

65.7

64.6

Transactions with owners, recorded directly in equity








Issue of shares

-

0.3

-

-

-

-

0.3

Share-based payment charges

-

-

-

-

-

0.2

0.2

Taxation on share-based payments recognised in equity

-

-

-

-

-

(0.1)

(0.1)

Dividends (note 8)

-

-

-

-

-

(81.2)

(81.2)

Total contributions by and distributions to owners

-

0.3

-

-

-

(81.1)

(80.8)









At 31 January 2017

3.4

201.9

2.0

(0.5)

2.7

40.0

249.5









Total comprehensive income for the period








Profit or loss

-

-

-

-

-

58.3

58.3

Other comprehensive expense

-

-

(7.0)

-

-

-

(7.0)


-

-

(7.0)

-

-

58.3

51.3

Transactions with owners, recorded directly in equity








Issue of shares

-

0.3

-

-

-

-

0.3

Share-based payment charges

-

-

-

-

-

(0.1)

(0.1)

Dividends (note 8)

-

-

-

-

-

(82.6)

(82.6)

Total contributions by and distributions to owners

-

0.3

-

-

-

(82.7)

(82.4)









At 31 January 2018

3.4

202.2

(5.0)

(0.5)

2.7

15.6

218.4

 

 

 

Consolidated cash flow statement

For the year ended 31 January 2018

 


Note

2018


2017



£'m


£'m






Cash inflow from operating activities

10

89.7


99.4

Corporation tax paid


(17.0)


(17.6)

Net cash inflow from operating activities


72.7


81.8






Cash flows from investing activities





Purchase of property, plant and equipment


(10.6)


(8.6)

Purchase of intangible assets


(2.5)


(1.8)

Interest received


0.1


0.1

Net cash outflow from investing activities


(13.0)


(10.3)






Cash flows from financing activities





Proceeds from bank borrowings


20.0


-

Purchase of interest rate derivatives


-


(0.1)

Interest paid


(2.7)


(2.6)

Repayment of bank borrowings


-


(5.0)

Proceeds from new shares issued


0.3


0.3

Dividends paid

8

(82.9)


(81.1)

Net cash outflow from financing activities


(65.3)

            

(88.5)



            

            


Net decrease in cash and cash equivalents


(5.6)


(17.0)

Cash and cash equivalents at the beginning of the year


(5.7)


11.3

Closing cash and cash equivalents

11

(11.3)


(5.7)

 

 

Notes to the financial statements

 

General information

Card Factory plc ('the Company') is a public limited company incorporated in the United Kingdom. The Company is domiciled in the United Kingdom and its registered office is Century House, Brunel Road, 41 Industrial Estate, Wakefield WF2 0XG.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the 'Group').

Basis of preparation

The financial information contained in this preliminary announcement does not constitute the company's statutory accounts for the year ended 31 January 2018 within the meaning of section 434 of the Companies Act 2006 (the "Act") but is derived from those accounts. Statutory accounts for the year ended 31 January 2018 will be delivered to the registrar in due course. The auditor has reported on those accounts. The report was (i) unqualified, (ii) did not included a reference to any matters to which the auditor drew attention by way of emphasis without qualifying  their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Underlying profit and earnings

The Group has chosen to present an underlying profit and earnings measure. The Group believes that underlying profit and earnings information enables shareholders to make more meaningful comparisons of performance year-on-year. Underlying earnings is not a recognised profit measure under EU IFRS and may not be directly comparable with 'adjusted' profit measures reported by other companies. The reported non-underlying adjustments are as follows:

Net fair value remeasurement gains and losses on derivative financial instruments

The Group utilises foreign currency derivative contracts to manage the foreign exchange risk on US Dollar denominated purchases and interest rate derivative contracts to manage the risk on floating interest rate bank borrowings. Fair value gains and losses on such instruments are recognised in the income statement to the extent they are not hedge accounted under IAS 39. Such gains and losses relate to future cash flows. In accordance with the commercial reasoning for entering into the agreements, these gains/losses are deemed not representative of the underlying financial performance in the year and presented as non-underlying items. Any gains or losses on maturity of such instruments are presented within underlying profit to the extent the gain or loss is not recognised in the hedging reserve.

EPOS asset disposals and accelerated depreciation

Electronic point of sale ('EPOS') software implemented over recent years was upgraded with a replacement system offering enhanced capabilities. The resulting loss on disposal of redundant assets and accelerated depreciation arising on assets to be replaced in advance of their original estimated useful economic life were considered a one-off event and not representative of underlying performance for the prior year. As such they were presented as a non-underlying item in the prior period.

Other non-underlying operating expenses

In January 2016, Card Factory plc announced the retirement and succession of the CEO and in January 2017 announced the retirement and succession of the CFO. Costs attributable to recruitment and dual remuneration costs during the handover periods are presented as non-underlying items.

 

1          Non-underlying items


2018


2017


£'m


£'m

Cost of sales




Loss on foreign currency derivative financial instruments not designated as a hedge

(7.6)


(0.6)





Operating expenses




Loss on disposal of redundant EPOS assets

-


(0.9)

Accelerated depreciation on EPOS assets

-


(0.2)

Other non-underlying operating expenses

(0.3)


(0.4)


(0.3)


(1.5)

Net finance expense




Loss on interest rate derivative financial instruments not designated as a hedge

-


(0.2)

 

 

 

2          Segmental reporting

The Group has two operating segments trading under the names Card Factory and Getting Personal. Card Factory retails greeting cards, dressing and gifts principally through an extensive UK store network. Getting Personal is an online retailer of personalised cards and gifts. Getting Personal does not meet the quantitative thresholds of a reportable segment as defined in IFRS 8. Consequently the results of the Group are presented as a single reportable segment.

The Chief Operating Decision Maker is the Board of Directors. Internal management reports are reviewed by the Board of Directors on a monthly basis. Performance of segments is assessed based on a number of financial and non-financial KPIs including EBITDA as defined in note 4 below and profit before tax.

3          Operating profit

Operating profit is stated after charging/(crediting) the following items:


2018


2017


£'m


£'m





Staff costs (note 5)

106.2


98.5

Depreciation expense




   - owned fixed assets

9.5


9.2

Amortisation expense

1.1


1.7

Operating lease rentals:




   - land and buildings

40.4


38.9

   - plant, equipment and vehicles

0.6


0.5

Loss on disposal of fixed assets

0.2


1.1

Foreign exchange loss/(gain)

3.3


(2.6)

Non-underlying items included in the above are detailed in note 1.

4          Underlying EBITDA

Underlying earnings before interest, tax, depreciation and amortisation ('EBITDA') represents underlying profit for the period before net finance expense, taxation, depreciation and amortisation.


2018


2017


£'m


£'m





Underlying operating profit

83.4


87.8

Underlying depreciation and amortisation*

10.6


10.7

Underlying EBITDA

94.0


98.5

 

* Underlying depreciation and amortisation in 2017 excludes £0.2m accelerated depreciation on EPOS assets (see note 1).

5          Staff numbers and costs

The average number of people employed by the Group (including Directors) during the year, analysed by category, was as follows:


2018


2017


Number


Number





Management and administration

393


357

Operations

9,543


9,571


9,936


9,928

 

The aggregate payroll costs of all employees including Directors were as follows:


2018


2017


£'m


£'m





Employee wages and salaries

96.2


89.4

Equity-settled share-based payment expense

(0.1)


0.2

Social security costs

5.8


4.6

Defined contribution pension costs

0.4


0.4

Total employee costs

102.3


94.6

Agency labour costs

3.9


3.9

Total staff costs

106.2


98.5

 

6          Finance income and expense


2018


2017


£'m


£'m

Finance income




Bank interest received

(0.1)


(0.1)





Finance expense




Interest on bank loans and overdrafts

2.6


2.6

Amortisation of loan issue costs

0.2


0.2

Loss on interest rate derivative contracts

0.2


0.2


3.0


3.0

Net finance expense

2.9


2.9

 

7          Taxation

Recognised in the income statement


2018


2017


£'m


£'m

Current tax expense




Current year

13.9


17.4





Deferred tax charge/(credit)

             



Origination and reversal of temporary differences

0.5


(0.3)

Adjustments in respect of prior periods

(0.1)


(0.1)

Effect of change in tax rate

-


0.1


0.4


(0.3)

Total income tax expense

14.3


17.1

The effective tax rate of 19.7% (2017: 20.7%) is higher than the standard rate of corporation tax in the UK. The tax charge is reconciled to the standard rate of UK corporation tax as follows:


2018


2017


£'m


£'m





Profit before tax

72.6


82.8





Tax at the standard UK corporation tax rate of 19.2% (2017: 20.0%)

13.9


16.6

Tax effects of:

             



Expenses not deductible for tax purposes

0.5


0.5

Adjustments in respect of prior periods

(0.1)


(0.1)

Effect of change in tax rate

-


0.1

Total income tax expense

14.3


17.1

 

8          Dividends

The Board is recommending a final dividend in respect of the financial year ended 31 January 2018 of 6.4 pence per share (2017: 6.3 pence per share), resulting in a total final dividend of £21.9 million (2017: £21.5 million). The dividend will, subject to shareholders' approval at the Annual General Meeting on 31 May 2018, be paid on 8 June 2018 to shareholders on the register at the close of business on 4 May 2018. No liability is recorded in the financial statements in respect of this final dividend as it was not approved at the balance sheet date.

Dividends paid in the year:

 

Pence per share



2018


2017




£'m


£'m








Special dividend for the year ended 31 January 2018

 

15.0p



51.2



Interim dividend for the year ended 31 January 2018

2.9p



9.9



Final dividend for the year ended 31 January 2017

6.3p



21.5



Special dividend for the year ended 31 January 2017

15.0p





51.1

Interim dividend for the year ended 31 January 2017

2.8p





9.6

Final dividend for the year ended 31 January 2016

6.0p





20.4

Total dividends paid to shareholders in the year




82.6


81.1

Dividend equivalents paid under long term incentive schemes




0.3


-

Total dividends per the cash flow statement




82.9


81.1

Dividend equivalents totalling £nil (2017: £0.1 million) were accrued in the year in relation to share-based long term incentive schemes.

9          Earnings per share

Basic earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period.

Diluted earnings per share is based on the weighted average number of shares in issue for the period, adjusted for the dilutive effect of potential ordinary shares. Potential ordinary shares represent employee share incentive awards and save as you earn share options.

The Group has chosen to present an alternative earnings per share measure, with profit adjusted for non-underlying items to reflect the Group's underlying profit for the year. Underlying earnings is not a recognised profit measure under IFRS and may not be directly comparable with 'adjusted' profit measures used by other companies.


2018


2017


(Number)


(Number)

Weighted average number of shares in issue

341,260,105


340,798,812

Weighted average number of dilutive share options

37,572


171,016

Weighted average number of shares for diluted earnings per share

341,297,677


340,969,828

 

 


£'m


£'m

Profit for the financial period

58.3


65.7

Non-underlying items

6.4


1.8

Total underlying profit for underlying earnings per share

64.7


67.5

 

 


pence


pence

Basic earnings per share

17.1


19.3

Diluted earnings per share

17.1


19.3

Underlying basic earnings per share

18.9


19.8

Underlying diluted earnings per share

18.9


19.8

 

10        Notes to the cash flow statement

Reconciliation of operating profit to cash generated from operations


2018


2017


£'m


£'m





Profit before tax

72.6


82.8

Net finance expense

2.9


2.9

Operating profit

75.5


85.7

Adjusted for:




Depreciation and amortisation

10.6


10.9

Loss on disposal of fixed assets

0.2


1.1

Cash flow hedging foreign currency movements

(3.4)


(0.2)

Share-based payments charge

(0.1)


0.2

Operating cash flows before changes in working capital

82.8


97.7

(Increase)/decrease in receivables

3.0


1.1

(Increase)/decrease in inventories

(0.1)


(1.0)

Increase in payables

4.0


1.6

Cash inflow from operating activities

89.7


99.4

 

11        Cash and cash equivalents


2018


2017


£'m


£'m





Cash at bank and in hand

3.6


3.0

Unsecured bank overdraft (note 12)

(14.9)


(8.7)

Net cash and cash equivalents

(11.3)


(5.7)

 

12        Borrowings


2018


2017


£'m


£'m

Current liabilities




Unsecured bank loans and accrued interest

-


0.1

Unsecured bank overdraft

14.9


8.7


14.9


8.8

Non-current liabilities




Unsecured bank loans

149.6


129.3

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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