Forward-looking statements This presentation contains certain forward-looking statements with respect to the financial condition, results of operations, and businesses of Card Factory plc. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this presentation. Nothing in this presentation should be construed as a profit forecast. Except as required by law, Card Factory plc has no obligation to update the forward-looking statements or to correct any inaccuracies therein. The financial information in this presentation does not contain sufficient detail to allow a full understanding of the results of Card Factory plc. For more detailed information, please see the preliminary results announcement for the year ended 31 January 2018 which can be found at www.cardfactoryinvestors.com.
Agenda Introduction Geoff Cooper (Chairman) Key messages Karen Hubbard (CEO) Financial review Kris Lee (CFO) Strategic update Karen Hubbard (CEO) Questions
Geoff Cooper - Chairman
Karen Hubbard - Chief Executive Officer
Key messages Strong sales performance in a tough consumer environment Sustained competitive position in a resilient market FY18 profit impacted by cost headwinds Strong cash generation and robust returns to shareholders 6
Kris Lee Chief Financial Officer
Financial highlights Performed well in difficult conditions FY18 FY17 Year-on-year change Revenue 422.1m 398.2m 6.0% Card Factory LFLs Store LFLs +2.9% +2.6% +0.6% +0.4% 1. All figures shown on an underlying basis 2. Total FY18 ordinary dividend includes recommended 6.4p final dividend, subject to AGM approval 3. Net debt excludes debt issue costs EBITDA 94.0m 98.5m (4.6)% Margin 22.3% 24.7% (2.4)ppts Profit before tax 80.5m 85.1m (5.5)% Earnings per share 18.9p 19.8p (4.4)% Total ordinary dividend 9.3p 9.1p 2.2% Dividend cover 2.03x 2.18x Special dividend 15.0p/ 51.2m 15.0p/ 51.1m Net debt 161.3m 135.8m Leverage 1.72x 1.38x 8
Divisional performance Strong growth in core business impacted by FX, NLW and Sales mix FY18 FY17 Year-on-year change Revenue 404.3m 380.5m 6.3% EBITDA 91.1m 95.7m (4.8)% Margin 22.5% 25.2% (2.7)ppts Revenue 17.8m 17.7m 0.5% EBITDA 2.9m 2.8m 2.8% Margin 16.4% 16.0% 0.4ppts 1. All figures shown on an underlying basis 2. Card Factory includes both stores and online 3. See Appendix for H1/H2 split by brand 9
Impact of FX & NLW headwinds EBITDA growth of 10.2% excluding headwinds EBITDA excluding FX & NLW headwinds - YoY Growth +10.2% (FY17: +3.8%) 10
Best-in-class margins Continued focus on low cost business model FY 18 % of revenue FY 17 % of revenue % of revenue Movement Cost of goods sold 138.0m 32.7% 119.7m 30.1% (2.6)ppts Store Wages 74.9m 17.7% 68.9m 17.3% (0.4)ppts Store Property Costs 65.5m 15.5% 64.8m 16.3% 0.8ppts Other Direct expenses 18.6m 4.4% 18.2m 4.5% 0.1ppts Cost of Sales 297.0m 70.3% 271.6m 68.2% (2.1)ppts Operating expenses 31.1m 7.4% 28.1m 7.1% (0.3)ppts EBITDA 94.0m 22.3% 98.5m 24.7% (2.4)ppts All figures shown on an underlying basis 11
Sales mix Resilient card sales and success in growing complementary non-card product FY18 Sales Mix 2.3% FY17 Sales Mix 2.4% 44.0% 53.7% 42.3% 55.3% Mix shown for Card Factory stores only 12
Capex Low, predictable and well controlled One-off strategic projects FY18 m FY17 m FY18 spend - Lower than the 15m guidance principally in respect of timing of investment in vertical supply chain integration EPOS/BI 4.3 1.2 LED lighting 0.9 0.9 GP personalisation 0.3 - Digital print 0.1 1.0 5.6 3.1 Capex remains low as a proportion of operating cashflow FY19 guidance - circa 14m including further investment in vertical supply chain integration and PCMS EPOS migration Recurring New Stores 3.6 3.4 Refurbs - 0.2 Relocations 0.4 0.6 Other capex 3.5 3.1 7.5 7.3 Total CAPEX 13.1 10.4 13
Strong cash generation Track record of generating significant surplus cash FY18 m FY17 m Operating cash flow before working capital 82.8 97.7 Working capital 6.9 1.7 Corporation tax (17.0) (17.6) Net cash inflow from operating activities 72.7 81.8 Net capital expenditure (13.1) (10.4) Net interest paid (2.6) (2.6) Free cash flow * 57.0 68.8 * Free cash flow represents cash generation potentially available for distribution to shareholders. This excludes movements on borrowings and proceeds from new shares issued. 14
Capital policy Remains unchanged Free cash flow 57.0 68.8 63.4 Dividends paid (82.9) (81.1) (82.8) Proceeds from new shares issued 0.3 0.3 - Net debt movement (25.6) (12.0) (19.4) FY18 m FY17 m FY16 m EBITDA leverage (at year-end) 1.72 1.37 1.29 The Group s Capital Policy continues to focus on maintaining a capital structure that is conservative yet efficient in terms of providing returns to shareholders: 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 Special dividend for FY19 payable together with the interim dividend, expected to be in the range of 5-10p per ordinary share. 15
Dividends Significant returns of surplus cash We continue with our progressive dividend policy Dividend cover range moved from 2.0 3.0x to 1.5 2.5x Total cash returns since May 2014 IPO* 268.4m since IPO 15.0 15.0 15.0 * Including recommended final dividend of 6.4 pence per share 6.4 6.3 6.0 2.9 2.8 2.5 FY18 FY17 FY16 16
FY19 guidance Headwinds easing Four pillars of growth LFL sales growth Targeting LFL growth within historic range New store openings Targeting 50 net new UK store openings Business efficiencies Industry-wide cost pressures, in particular FX and NLW reduced from FY18 but not eliminated in FY19 ( 7-8m) although with a large element of mitigation Online Significant LFL growth in CF Online with more modest growth in GP Other Operating margins Limited EBITDA growth, based on delivering management s sales forecast, margin mix assumptions, identified business efficiencies and assuming limited adverse currency movement the post mitigation impact estimated to be in the region of 120bps Capex FY19 capex of c 14m including further investment in vertical supply chain integration Leverage FY19 targeted year-end leverage of c1.7x Special dividend Special dividend for FY19 expected to be in the range of 5-10 pence per ordinary share. 17
Financial performance summary Continuing to deliver despite ongoing headwinds Expectation of further returns of surplus cash over the medium term 18
Karen Hubbard Chief Executive Officer
FY18 pillars Further improvements in quality & range Significant increase in complementary non-card sales Competitive price and quality position maintained 915 stores in the UK 6 trial stores in Republic of Ireland Strong pipeline for FY19 Significant headwinds of 14.6m partially mitigated through various initiatives Ongoing program of mitigation developed and in progress Cardfactory.co.uk grew by 67% Getting Personal is a profitable part of the group 20
Card market update Future market projections suggest value growth of c1%-2% pa with slight decline in volumes as expected Levels of emotional attachment to card purchasing has remained relatively stable over the longer term Reported digital usage has evolved since 2015 but with no dilution of card usage from digital alternatives Card Factory consistently gained value share (16.1% to 18.2% from 2012-2016) and volume share (30.3% to 31.7% from 2012-2016) Card Factory has high usage and awareness with 64% of 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 2017 #1 Card Factory (87.7) #2 Home Bargains (86.5) #3 Aldi (85.9) #4 Lidl (85.4) #5 99p store (85.0) #6 Primark (84.1) #7 Farm Foods (83.6) #8 Wilko (82.7) #9 Poundworld (82.6) #10 Poundstretcher (82.5) 22
Stronger Perception of Low Price Card Factory positioning Card Factory continues to offer clear blue water on the price and quality proposition versus its competitive set Weighted by volume of singles cards purchased Minimum n=40 Consumer Perceptions of Greeting Cards Value for Money - 2018 1,2 Average Rating On Scale 1-5 5.0 4.5 4.0 99p Store Poundland Home Bargains B&M Bargains Wilko s Price 1 3.5 3.0 2.5 Supermarkets Post Office M&S Hallmark Clintons WH Smith Paperchase 2.0 3.0 3.5 4.0 4.5 5.0 Quality 1 23 Stronger Perception of Quality 1. How would you rate <main retailer> against the following criteria? You said you shopped at <secondary retailer> in last 12 months, how would you rate it against the following criteria? 2. Weighted by volume of single cards purchased; main and secondary retailer ratings combined Source: OC&C Consumer Survey (February 2018), OC&C analysis
LFL Sales Growth Further focus on card design and range extensions Continued development of complementary Non-card ranges Helping customers celebrate all Life moments Continuing improvement in retail disciplines 25
Responding to customer insights Navigation to ranges Caption Finders in racks Showcasing newness Retaining Price Indicators 26
New promotional signage 27
New store rollout Strong pipeline for FY19 - plan to have circa 50 UK net openings - well established track record of delivery Republic of Ireland trial continues Further opportunities - in additional retail parks - pop up shops - Christmas shops - clearance stores 28
Ongoing improvements in product quality to further enhance competitive position Continual unit cost reduction in production Innovation in manufacturing especially in print finishing. Additional automation implemented Raw material prices maintained Driving lean fulfilment in stores through supply chain efficiencies Reduce average stock holding Increase warehouse productivity Reduce cost to serve Improving operational productivity The removal of tasks from stores by simplifying how we operate Significant multi year programme of instore efficiency through removal of non-customer facing tasks making it easier for colleagues Minor capital investments to facilitate Lowering the cost of sales through better buying and sourcing Loss Prevention Continuing to target net rent savings across the property portfolio at the next available break clause or lease renewal Cost efficiency programme 29
Online update Strong growth through product ranging Identified cardfactory.co.uk as key growth opportunity Current proposition is evolving Platform and infrastructure investment required
Prioritised profitable sales Focus on product innovation, availability and ranging Improving speed and other service elements
Good progress on People Agenda with further activities planned Improved management recruitment and retention Introduction of significant development Programmes Improvement in colleague engagement A balanced business approach 32
Outlook Satisfactory start to the year with record seasonal transactions Further progress on strategic initiatives Cost headwinds expected to recede although limited profit growth in FY19 Strong cash generation with returns to shareholders A strong management team in place, building a platform for sustainable growth
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H1/H2 performance by brand FY18(H1) FY17(H1) YoY change FY18(H2) FY17(H2) YoY change Revenue 172.3m 162.3m 6.2% 232.0m 218.2m 6.4% EBITDA 31.8m 33.2m (4.1)% 59.3m 62.5m (5.2)% Margin 18.5% 20.5% (2.0)ppts 25.5% 28.6% (3.1)ppts Revenue 7.3m 6.9m 5.0% 10.5m 10.8m (2.4)% EBITDA 1.0m 1.0m 0.6% 1.9m 1.8m 4.0% Margin 13.3% 13.9% (0.6)ppts 18.6% 17.4% 1.2ppts Consolidated Revenue 179.6m 169.2m 6.1% 242.5m 229.0m +5.9% Consolidated EBITDA 32.8m 34.2m (4.0)% 61.2m 64.3m (5.0)% Margin 18.3% 20.2% (1.9)ppts 25.2% 28.1% (2.9)ppts Notes All figures shown on an underlying basis 36
2012 2013 2014 2015 2016E 2017F 2018F 2019F 2020F 2021F 2012 2013 2014 2015 2016E 2017F 2018F 2019F 2020F 2021F Card market update Future market projections suggest value growth of c1%-2% pa with slight decline in volumes as expected Singles market forecast UK Singles Market Value Forecast, 2012-21F ( m) Forecast UK Singles Market Volume Forecast, 2012-21F (Millions of Cards) Forecast 1,550 1,500 1,450 1,400 1,350 1,300 CAGR: + 1.5% CAGR Upside: +2.1% CAGR Base: +1.4% CAGR Downside: +0.6% 950 900 850 800 750 CAGR: - 0.2% CAGR Upside: -0.3% CAGR Base: -1.0% CAGR Downside: -1.8% 1,250 1,200 1,150 1,100 1,050 700 650 600 550 1,000 500 Source: GCA, Management Data, UK Trade Data, OC&C Consumer Surveys (2012-18), Kantar, Nielson, OC&C analysis 37
Card market update (continued) Levels of emotional attachment to card purchasing has remained relatively stable over the longer term; reported digital use has evolved since 2017 Customer Attitudes and Purchasing Behaviour Attitudes to Card Purchasing by Occasion 1,2 Card Buyers by Usage of Digital Greetings 1 95 90 85 80 75 70 65 60 55 50 45 40 35 2015 2016 2017 2018 1. Question: How much do you agree with the following statements? 2. Weighted by volume of single cards purchased 3. If the change is less than 1.54% it is within the bounds of a statistical error Source: OC&C Online Consumer Surveys (2012-17), OC&C analysis I would always bring a birthday card to a friend s birthday party If I am attending a wedding I will always bring a card I would always give my child a card to take to their friend s birthday I always send Christmas cards to all my friends and family I always send a Valentine card to my significant other I will always send a card to celebrate a friend s achievement (e.g. driving test, graduating...) (% of Total Card Buyers) 100% 100% 31% 51% 18% 2015 23% 62% 14% 2016 100% 19% 64% 18% 2017 100% 16% 78% 6% 2018 Don t Use Digital Greetings Use Digital Greetings But Not As Replacement For Physical Card Replace Physical Card With Digital Alternative 38
Card market update (continued) Card Factory has consistently gained value share Singles Greetings Cards Channel Share Evolution, 2012-16 Single greet cards Value % 4.1% 4.4% 4.7% 5.3% 5.9% 26.2% 24.8% 24.2% 22.9% 22.0% 1.4% 12.8% 3.8% 1.6% 1.7% 1.8% 1.9% 10.3% 9.9% 9.6% 9.1% 4.9% 5.3% 5.3% 5.6% Online Specialists Other Paperchase Clinton Cards Discounters Single greet cards Volume % 1.5% 21.9% 20.3% 19.5% 18.4% 17.5% 0.9% 8.0% 5.8% 1.6% 1.7% 2.0% 2.2% 1.1% 1.2% 1.0% 1.1% 6.2% 6.0% 5.8% 5.4% 7.6% 8.4% 8.6% 9.5% Online Specialists Other Paperchase Clinton Cards Discounters 16.1% 16.9% 17.4% 17.9% 18.2% Card Factory 30.3% 31.1% 31.5% 32.1% 31.7% Card Factory 35.7% 37.1% 36.9% 37.2% 37.3% Grocers 31.5% 32.2% 31.8% 32.0% 32.5% Grocers 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Source: Nielsen, Kantar, Press Releases, OC&C analysis 39
Store numbers (FY) New store rollout 921 Acquisitions 865 814 764 Store Openings 713 664 Stores 611 484 531 384 333 279 189 78 132 1 2 4 9 20 39 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Store numbers (UK & ROI) FY18 FY17 At start of period 865 814 Net store openings* 50 51 ROI 6 - At end of period 921 865 *Includes closures Store Location Type (UK) FY18 Openings Total Stores High Street Stores 29 464 51% Retail Park 14 62 7% Shopping Centre 1 290 31% Shopping Precinct 3 81 9% Factory Outlet & Supermarkets 3 18 2% % 40