Interim results 6 months ended 31 July September 2018

Transcription

1 Interim results 6 months ended 31 July September

2 Forward-looking statements This presentation contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forwardlooking statements. These forward-looking statements are made only as at the date of this presentation. Nothing in this presentation should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein. The financial information in this presentation does not contain sufficient detail to allow a full understanding of the results Card Factory plc. For more detailed information, please see the interim results announcement for the six months ended 31 July 2018 which can be found at: 2

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

4 Geoff Cooper Chairman 4

5 Financial review Kris Lee Chief Financial Officer 5

6 Financial highlights H1 FY19 H1 FY18 Y/Y Change Revenue 185.3m 179.6m 3.2% Card Factory LFLs (0.2%) 3.1% (3.3ppts) Card Factory Store LFLs (0.7%) 3.0% (3.7ppts) EBITDA 29.9m 32.8m (8.9%) Margin 16.1% 18.3% (2.2ppts) Profit before tax 22.7m 26.3m (13.9%) Basic EPS 5.31p 6.19p (14.2%) Interim dividend 2.9p 2.9p Special dividend 5.0p/ 17.1m 15.0p/ 51.2m Total dividends since IPO 86.6p/ 295.4m 72.3p/ 246.5m Net debt 159.8m 146.0m 13.8m Leverage 1.76x 1.50x n/a Note 1: All figures shown on an underlying basis Note 2: Net debt excludes debt issue costs 6

7 Divisional analysis H1 FY19 m H1 FY18 m Y/Y change Revenue % EBITDA (7.6%) Margin 16.5% 18.5% (2.0ppts) Revenue (8.5%) EBITDA (52.8%) Margin 6.9% 13.3% (6.4ppts) Note: all figures shown on an underlying basis 7

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

9 Operating margins H1 FY 19 m % of revenue H1 FY 18 m % of revenue % of revenue Y/Y change Cost of goods sold % % (0.4ppts) Store wages % % (0.5ppts) Store property costs % % (0.1ppt) Other direct expenses % % (0.7ppts) Cost of sales % % (1.7ppts) Operating expenses % % (0.5ppts) EBITDA % % (2.2ppts) Note: all figures shown on an underlying basis 9

10 Margin headwinds & mitigation H1 FY19 Bps m FY19 Bps m FX & NLW headwinds (210) (4.0) (160) (7.0) (c) LFL impact (160) (130) (a) Net impact before mitigation (370) (290) Mitigation Total EBITDA margin impact (220) (170) (b) The Board s full year FY19 EBITDA expectation remains in the range of 89m- 91m Further business efficiency plans in place for FY20 FX headwind dissipating in FY20 Note: (a) Based on current management view of LFL. (b) Assuming no margin mix change. (c) Including electricity and card fees. 10

11 Free cash flow H1 FY19 m H1 FY18 m Y/Y Change Underlying EBITDA (9%) Non-underlying FX gain/loss 4.5 (3.1) FX hedging reserve cash gain/(loss) 0.1 (2.6) Loss on disposal and share-based payment accrual Operating cash flow before working capital % Net working capital movement Corporation tax (5.6) (8.8) Net capital expenditure (5.6) (6.6) Net interest paid (1.6) (1.2) Free cash flow * % * Free cash flow: - represents cash generation potentially available for distribution to shareholders - excludes movements on borrowings and proceeds from new shares issued 11

12 Capex Low, predictable and well controlled Total capex includes: One-off strategic projects EPOS improved stock control and sales data Printcraft Recurring annual capex Refurbishments and roll-out c 8-9m pa Medium term view: Annual capex of c 14m in medium term, pending any other new strategic opportunities Store refresh trial H1 FY19 m H1 FY18 m One-off strategic projects Printcraft manufacturing equipment EPOS Commercial initiatives / other LED conversions Online packaging Sub-total Recurring capex New stores Existing stores Relocations Other capex Sub-total Total capex

13 Balance sheet and dividends Capital policy The Board aims to maintain a capital structure that is conservative yet efficient in terms of providing returns to shareholders. In considering such returns, the Board will review, inter alia, trading and market conditions, expected cash generation and expected leverage. Our policy is to maintain year-end net debt in the range of 1.0 to 2.0x EBITDA Over the short to medium term, we are targeting year end net debt of 1.7x EBITDA Subject to the above considerations, surplus cash will be returned to shareholders annually via a special dividend Dividend declaration Special dividend 5.0 pence per share Total cash return of 17.1m from organic cash generation Payable on 14 December 2018 to those on register on 9 November 2018 Dividends (pence) Interim ordinary dividend 2.9 pence per share Payable on 14 December 2018 to those on register on 9 November 2018 Total cash returns since May 2014 IPO 86.6 pence per share and 295m in aggregate Equivalent to over 38% of IPO issue price FY15 FY16 FY17 FY18 FY19 Interim Special Final 13

14 IFRS 9 Financial Instruments & IFRS 16 Leases IFRS 9 effective FY19 and replaces IAS 39 Minimal impact on Card Factory financials Detailed transition note included in the Notes to the Interim Financial Statements IFRS 16 - effective FY20 and replaces IAS 17 Operating leases represented by a fixed ( right-of-use ) asset with corresponding lease liability (notional debt) P&L operating lease expense replaced by depreciation of the right-of-use asset and notional interest charge in relation to the lease liability This means increasing: EBITDA, Interest Costs, Depreciation, Fixed Assets, and Debt, but no material impact on annual net profitability. The Group intends to apply a full retrospective application. Historic lease data has been collated and cash flow data is being constructed in preparation for disclosure in the April 19 Prelims 14

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

16 Strategic update Karen Hubbard Chief Executive Officer 16

17 First six months 17

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

19 H1 FY19 four pillar update Online Strategic opportunity Cardfactory.co.uk revenues grew by 85% New ranges and merchandising driving up conversion +25% YoY Getting Personal performance remains challenging but profitable sales being pursued 19

20 Delivering the plans for the remainder of FY19 20

21 Delivering plans for remainder of FY19 LFL Sales Strong Christmas ranges, focused on Card Responding to customer insights from 2017 Xmas - Retaining key Everyday lines - Product placement - Highlight premium lines Competitive price and quality position maintained Store specific ranging based on data from EPOS system 21

22 Delivering plans for remainder of FY19 New Stores Further 25 stores (965) Store refresh trial ongoing Christmas pop up shops: - Non-branded sale stores - Temporary CF stores where we overtrade - Mall units for overtrading stores 22

23 Delivering plans for remainder of FY19 Business Efficiencies Extension of Auto- Replenishment trial to more stores Christmas process for stores more efficient resulting in task removal Warehouse efficiency programme ongoing Vertical integration to support re-print of top selling SKUs and cards re-patriated from Far East 23

24 Delivering plans for remainder of FY19 Online Card Factory has strong plans for a robust season against strong sales last year Focus on driving profitable sales with a solid plan from the team in landing Christmas Group Digital Director appointed 24

25 Strategic Opportunities 25

26 Exploring additional sales channels Update at Full Year Results Physical retail space Opportunity to increase market share with an alternative operating model Three options being explored with early stage trials Small range of Card Factory branded products enabling convenient shopping Concession model using excess space of other retailers Franchise locations z 26

27 Exploring additional sales channels Update at Full Year Results Digital Physical retail space Aim: Opportunity Allow customers increase to shop market their way share with an alternative operating model Three options being explored with early stage trials Group Digital Director appointed to take Small range of Card Factory branded advantage products enabling of this opportunity convenient shopping Card Factory online platform review well Concession model using excess space of progressed other retailers to support growth ambitions Franchise locations z 27

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

29 Questions 29

30 Appendix 30

31 Our investment case Large, Resilient Market Card Factory is the largest retailer by volume in a well established Greeting Card Market Whilst volume is in slight decline, value is growing, and there is a trend for increased card buying amongst year olds New store openings have had minimal cannibalisation impact and enable further share of market volumes Complementary products including gift wrap, balloons and gifting driving growth Compelling Price Proposition for Customers Card Factory has sustained its position in the market with Clear Blue Water versus competitors Card Factory has high usage and awareness 54% of card buyers (buying 63% of cards) have shopped at Card Factory in the last 12 months Vertically Integrated Business Model Integrated Design, Print & Production has enabled continued delivery of strong margins Further opportunities to onshore production Track Record of Like-for-Like Sales Strong Financials & High Cash Generation Data driven decisions optimising stores driving space utilisation and demographic-led ranging New opportunities for Card volume growth through innovative redesign Further development through Digital and Multi-channel to deliver like-for-like growth amongst core and new customers Industry-leading EBITDA margins underpin high cash generation Working capital absorption and capital expenditure requirements remain relatively low Experienced Management Team Experienced management team who are both functional and value retailing experts Retained key Card Factory talent to ensure continuity of business knowledge and skills 31